Contract Management is the process for managing the procurement process from contract development to closure. Read more about Contract Management in the article below.
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In a previous article, we presented Vendor Risk Assessment, which is included in Contract Management, which in turn is part of Project Procurement. This article is the beginning to look at the areas of Project Procurement in no part order.
Most readers of PMtips are project managers and are probably familiar with Project Procurement and Contract Management. In most organizations, Contract Management is executed by the Procurement Department or Purchasing. I would venture to say a great many project managers have interacted with Buyers and reviewed contracts. In this article we don’t plan to explain Contract Management farther that it is the process for managing the procurement process from contract development to closure.
There are many types of contracts, and the contract type, defines some of the risk to the project. For example, for the risk is heavier in a fixed price contract on the supplying organization. The project manager of the supplying organization must recognize any extra effort, scope misunderstanding and rework, will come of your budget. Below is the top-level list of contract types. There are variants of, for example, for fixed price we can have incentives for achieving or doing better than certain project attributes (for example final deliver date)
1. Fixed Price
2. Cost Reimbursable
3. Time and Materials
For this reason, it is important to for the project manager to be involved not only in supplier selection but also the influence or at least understanding the contract type. For example, selection of the supplier whose only advantage is low cost, likely comes with other risks, from experience likely around competency.
In our last article, Vendor Risk Assessment, we produced a list of supplier evaluation areas. Including the project manager in these supplier evaluations, or at least, providing the project manager with the results of any evaluation conducted the leads to the selection of the supplier. This is at least, we cannot help but think that the best solution is for the project manager to be a part of the evaluation process.
In our experience, Procurement department interface with project managers very well. On occasion procurement is siloed. In the silo situation requests of procurement are ‘handed over the wall’ and then executed per current procurement processes; and they prefer not to have their processes changed, or perhaps receive negative reinforcement for performing outside the prescribed process.
A project Management must remember, even when they maybe told on a regular basis, they own their project. Therefore, any parallel or systems that support the project should work well with the project team and manager.
Metrics will be part of the supplier selection and perhaps even the contract type we select. Those items on the supplier evaluation list, the ones that apply to our specific circumstances, we will prioritize the riskiest attributes. This prioritization and potential failure mode identification will help us generate both metrics and actions to take to avoid those risks.
As with any project, the project team, in many cases, will need to establish metrics or ways to ascertain what is happening and the state of the effort supplier effort. How do we know if we are on track? How do we know the procurement activities are going according to plan? How do we know the supplier is delivering to our expectations? The worse thing to do is to wait to the end to see if we are successful. Depending upon the contract type, these attributes might be at risk.
The project manager should be in close collaboration with the procurement personnel. To do this will require building rapport with the talent in the Procurement Department. Ask questions about their processes. What are the prerequisites to entry into these processes? What is known about the history of those processes? For example, how long does it typically take to evaluate the suppliers? What do we know about the suppliers from the historical record? How long does it typically take to evaluate and select the supplier? These things impact the project. We have been part of projects that have expectations of the schedule by customers or executives, that do not include these things. Essentially the projected start date, is set, independent of this supplier selection and contract securing. The result, the project begins behind schedule. Experience indicates, once behind schedule, always behind schedule without some serious actions.
If you don’t already, make sure the Buyer assigned to handle your project’s contracts is clearly identified as a team member and has a seat at the team meeting table.
Always request sign-off on all contracts before the Buyer issues the contract to the supplier/vendor. Or at least negotiate one final review before issuing the contract. This is NOT a check of the buyer’s work, just one verifying the contract, deliverable, estimates, and goals of the project are aligned.