- Contract Administration Concepts - Thomas Kabir
A project manager should be immediately aware that a project contract is mutual. It is an agreement between two parties or among several parties. In short, when someone issues a project contract first; the project manager on the receiving end could negotiate to change some of the representations, terms, conditions or warranties of the contract until both or all parties mutually agree.
Not all realize that a project contract is mutual. Accepting a default contract without any inputs on it will likely result to a future problem. After all, a key skill of a project manager is negotiation and for purposes of prudence, project managers should always consider negotiating the contents of the contract where appropriate to ensure that the project will succeed. Consequently, contract lawyers should be consulted for contract compliance concerns.
Contract administration is a very significant component of the project management process in businesses selling projects or in organizations procuring integrated or specialized services.
Contract Synonyms
A contract is also known as:
- a Memorandum of Agreement
- a Memorandum of Understanding
- an Agreement (Confidentiality, Non-Disclosure and Joint Venture among others.)
- a Purchase Order (An accepted legal principle that this is a contract.)
Contract Administration or Management Perspective
Since a contract is mutual, a project contract has two or more perspectives depending on the contracting parties. For simplicity, assume two parties: (1) the project owner; and (2) the project company or project management company.
Counterpart Project Managers and Contract Compliance
Depending on which side a project manager is on, a program manager or project manager will usually represent the project owner. From the point of view of the project company, this program or project manager is the counterpart project manager.
On the other hand, from the point of view of the project owner, the project company's representative is the counterpart project manager.
Note that the greatest risk to any project is a less than skillful project manager. A counterpart with insufficient project management skills can drag the seasoned project manager down through the contract. Hence, it is absolutely essential that the contract contents that are likely to cause problems should be negotiated to prevent lack of skill from making the project fail. With the able assistance of contract lawyers, contract compliance can be negotiated.
For instance, a potential problem is a specified methodology or WBS that a counterpart project manager sets and requires even though he/she has no expertise or experience in the specialized knowledge area that is being contracted. The specified methodology might be obsolete or simply inapplicable to the project when the other project manager has a better methodology due to his/her expertise or experience.
This is the same reason why technical bid specifications typically solicit for methodologies or approaches with their appropriate evaluation ratings or scoring weights. With several bidders and approaches, competent project managers can easily discern which bidder has expertise or innovative ideas on how to solve a certain problem that the project is supposed to address.
Project Contract Life Cycles
Based on the Project Management Institute's Guide to the PMBOK as distilled by K. Heldman in the PMP: Project Management Professional Exam Study Guide Fourth Edition, 2007, the project contract has four stages:
- Requirement
- Requisition
- Solicitation
- Award
Of course, this project contract life cycle is from the point of view of the project owner.
From the point of view of the projects company, project managers should consider these four stages instead:
- Creation of the Contract or Negotiations on the Key Elements of the Contract
- Contract Execution
- Deliverables Monitoring and Contract Compliance
- Closure of the Project Contract
Key Elements of a Prudent Project Contract
Legal principles universally provide for the following key elements in a standard contract:
(1) Representations
These are factual statements. They have made the contracting parties agree on a project before and during the execution of the contract. For instance, a party stating that it has $100 million available for a project is a statement of fact. Otherwise, that statement is a fraudulent misrepresentation subject to legal liability.
For additional information: Contract Administration in Project Management – Representations
(2) Terms
Terms are statements that require action from the contracting parties. Duties and responsibilities, and deliverables and payments are some of the major terms of a contract. For instance, a fixed payment amount for deliverable item # 1 is a term.
For additional information: Contract Administration in Project Management – Terms
(3) Conditions or Stipulations
These are statements tied to terms ensuring the performance of actionable items. Corresponding penalties for actions or inactions that are detrimental to the terms may form part of the conditions or stipulations as well as incentives for exemplary performance.
For additional information: Contract Administration in Project Management – Conditions
(4) Warranties
These are statements of goodwill in the performance of the project usually strengthening the project company's representations in the contract.
For additional information: Contract Administration in Project Management – Warranties
Why Should Project Managers Get Involved in the Drafting/ Negotiation of the Project Contract?
- Project managers must address provisions referring to specific elements of the project that the contract lawyer does not know.
- General contract templates may not sufficiently protect the project owner, projects company or project management company. The risks are usually in the details which both project managers and contract attorneys should address.
Contract Archiving, Reuse and Contract Templates
The above-mentioned items are the key concepts in project contracts.
Still, a key operations management aspect of contract management or contract administration is document archiving, retrieval and reuse in project management offices or PMOs. Here, document imaging, a document management system or a contract management software would be essential for project companies handling several projects at a given time as the number of contracts can be exponential to include project staff contracts, vendor contracts, loans, joint venture agreements and so on.
Likewise, a systematic review process of contract templates is also crucial to ensure the proper management of project risks. Of course, such review should be conducted both by project managers and specialized contract attorneys most especially in global project deployments as legal variety is most likely due to specific laws that may differ from one country to another.
With the concepts discussed, it can be sufficiently discerned that contract management is a key element of the PMBOK project management process groups in the knowledge areas of project scope management, project cost management, project communications management and project risk management.
Recommended Readings:
- Contract Management Basics of Operations in Project Management
- Project Management Office Administration in Project Companies
- Technology Innovation Management Basics
Melvin Tandoc - Melvin currently works for the project management software company that makes 2-plan Desktop and 2-plan Team.
