May 13, 2002
In my article, The Project Manager is the Keystone to Successful Delivery, I discussed the role of the project manager in meeting the challenges of project plan development, project execution, fiscal management, project communications, risk and scope management/change control. However, there is another rarely mentioned component spanning the entire spectrum of delivery management that the knowledgeable project manager must either as buyer or seller address on a daily basis--contract management.
I can tell you horror stories about poor contract management--lack of a paper trail of correspondence, no central office of record for project documentation, lost documents detailing key meetings and desired contract adjustments, etc. The list goes on and on. These horror stories happen because a project manager lacks sound business methodology and process in contract management. Project managers need not be contract lawyers, but they need to have a fundamental understanding of contracts, contract administration and the legal implications governing the execution of the project. Simply put, the project contract is the governance of the project. Whatever actions the project manager takes (or doesn't take) will have contractual consequences.
Granted, document, fiscal and change management procedures and dispute resolution are also critical to effective contract management, but a project manager who doesn't have a complete, thorough understanding of the contract already has one foot in the tar pit of failure. How to avoid that failure is the basis of this article. (Please note that I haven't written this article to explore the legalistic nuances of a contract, but instead to emphasize the importance of the project contract in both its formation and the successful management of its provisions.)
A successfully managed project is a direct function of the quality of the contract. The quality of a contract is the result of the time and attention to detail that the buyer gives in its development and the subsequent activities of award, execution and closeout. Development of a quality contract is a project in itself. Therefore, effective project management skills and contract team organization are essential to the quality of the contract document. The contract team should have representatives from the organization's key functional areas, including systems design or applications development, systems engineering, contracting/legal, customer service, training, financial management and sales.
There is no prescribed organization or format for a contract, but you should include the following:
The contracting and legal representatives on the contract development team will prescribe the exact format and contractual clauses of the contract.
Contract development strategy should conform to the following basic principles and guidelines:
The contract development team must determine the following:
Because each procurement is unique, the contract team needs to determine the above based on the organization and management strategy, along with the prevailing procurement situation and circumstances. However, there are some major activities that are common to every contract development process.
Contract development begins in the early stages of project development during the gathering of delivery requirements. (The development of project requirements is discussed in Digging for the Project Motherlode). Once you fully document the requirements, you can develop the contract statement of work (SOW). The SOW can be several paragraphs describing in sufficient detail what is desired.
Technology Inventory
Once you fully develop the SOW, you need to find out if what is required can be provided by current technology already in use or an upgrade of the existing infrastructure. If an upgrade is required, complete a thorough systems analysis, determine what additional technology is needed, and procure the identified resources. Often, you can publish a request for information (RFI) in trade journals or other industry publications, soliciting information from respondents to meet your needs as described in an abbreviated SOW. Another information source is your corporate office responsible for maintaining liaison with vendors regarding emerging technologies.
Procurement Type
Procurement type is a function of the type of contract that will be developed as determined by the contract team. There are three basic procurement strategies that can be followed:
Every procurement situation is unique, requiring analysis and determination of the best combination of contract and procurement strategy to best support the procurement.
Proposal/Bid Phase
This phase, probably the most involved, is critical. This is the point in the procurement process where everything that has happened to date needs to be laid out for the contract team, sponsor of the procurement, contracting department and legal advisors. The major areas of interest are the solicitation plan, the proposal/solicitation process and how the source selection process will be conducted.
Handle the question and answer process with great care and precise administration. As you receive questions, log them as to who submitted them, their reference to the solicitation section and specific paragraph and line in question. When you answer a question with reference to the solicitation paragraph/line, you must provide that answer to all active bidders. This way, everyone has the same information. In addition, these answers must become part of the solicitation from which bidders will submit the final offer and, subsequently, part of the awarded contract.
Source Selection
The source selection process is developed in the early stages of the developing the procurement package, since it is part of the solicitation sent to prospective bidders. Three areas should be part of evaluating a proposal: the bidder's history of performance, technical stature and commercial stability. The type of procurement and established evaluation criteria dictate the evaluation scoring process. Some means of evaluation include weighted scoring by giving more emphasis to certain areas of the bidder's submission than others (e.g., 60 percent to the technical solution, 30 percent to previous work performance and 10 percent to project administration). Other evaluation techniques can include a compliance matrix where bidders indicate their ability to fulfill specific performance criteria or functionality. If the procurement is medium to large in complexity, separate evaluation teams and scoring should be used. Once the evaluation sheets are prepared, a separate team that was not part of the evaluation process should tally them. Based upon agreed scoring procedures, the winning proposal is selected and the contracting department notified.
After you have identified the winning proposal, you will still need to go over all the steps and activities up to this point and perform a lessons learned analysis of both the good and bad experiences encountered in the process. This is critical, since the contract formation and solicitation general process is one that can and should be refined for use in subsequent procurement activities. The contract team, contracting and legal departments should all provide input to this process. I recommend that the representative from the contracting department chair the lesson-learned session and become the office of record for suggested revised future procedures.
Contract Award
The awarding of the contract is strictly a contractual/legal process. In some instances, final negotiations may occur, depending on the type of contract or last minute adjustments to fee and payment schedules. After contract award, there should be a meeting with losing bidders to communicate where their proposals and overall evaluations fell short. The contracting department should handle this meeting, as the project manager is now focused on the implementation of the awarded contract.
Contract Execution/Administration
This article has focused on the buyer in the development and award of a contract. Contract execution and administration is a collaborative effort of both seller and buyer. The buyer focuses on how the contract is executed and how its provisions are fulfilled. The seller, on the other hand, focuses on managing delivery of the contracted product/service.
Prior to this point in the process, the focal point has been on the buyer project manager. Now the focus switches to the seller. However, both have the same concerns and interest in effective execution and administration addressing work progress, change management, fiscal management, project communications, quality and the application of competent project management skills. To help this team effort, a project kick-off meeting should be held between buyer and seller project managers and their respective team principals. Major topics to address include the definition of roles and responsibilities, review of major milestones, establishment of formal and informal communications procedures and joint project review meeting schedule, concurrence in change management procedures, and, finally, establishment of dispute resolution and escalation procedures.
Contract Close Out
If not approached in a systematic fashion, tying up a project's loose ends can be a nightmare. Because of the legal aspects of closing out a contract, I recommend use of a check sheet that is prepared with the help of the contract and legal departments to ensure that all activities are addressed. This check sheet should be part of the early activities addressed by the project team and should be kept as part of the internal project plan documents. Some of the major activities include:
The above items are an example of activities that make up the closeout process. Each organization's business process and culture will have a large influence on the activities that will make up the contract closeout process.
Contract management is not limited to the execution of the contract and ensuring compliance with the various sections of the contract. It spans nine major areas: requirements definition/SOW development, technology inventory, procurement type, contract development, proposal/bid phase, source selection, contract award, contract execution, and contract closeout. The project manager must have the knowledge, skills and ability to lead and manage the various stages of shepherding a contract through all these gates. The continuing education and development of project managers must include classes and seminars on contract development and administration in addition to the effective management of the implementation of a project.
Jim Harris has more than 30 years of managerial and technical experience in IT system planning, implementation and operations in both government and commercial sectors. He has extensive experience in the areas of life cycle project implementation, cost and revenue accountability, and client satisfaction. He is a former director for the planning and program development of IT enhancements for a major U.S. airline. Jim holds a BSBA degree from the University of Arkansas and a MBA from New York Institute of Technology.