What’s the Procurement & Management of Contracts got to do with me ? I’m a Project Manager.

by Jon Broome and John Lake

The Association for Project Managements's long awaited ‘APM Guide to Contracts and Procurement for project, programme and portfolio managers’’ (or ‘the C&P Guide’ for short) was published in July 2017. In this article, Jon and John Lake, who were co-editors and lead contributors to the Guide, explain why project and programme managers need to be competent on these topics.

In some project based industries, such as heavy engineering and construction, 90%+ of the cost of a project can be outsourced to external providers who deliver interlinked packages of works under contracts. That means, for each package, you need to define what you want precisely and then select a competent provider who can deliver it at a reasonable price to the required timescales. Additionally, you need to put a contract in place to define each parties’ rights and obligations, both in terms of them ‘doing things right’ and what happens if they do not.

Furthermore, such providers will not be simply supplying ‘off the shelf’ widgets which are exchanged on a stated date for a one-off payment. Each contract may be for a ‘mini’ or ‘sub’ project in itself; i.e. a unique endeavour, delivered over time. Indeed, such packages of works can be for extremely complex unique endeavors with the multiple deliverables, the last of which might be provided several years after the contract was signed. It is therefore likely, if not inevitable, that over this duration:

• (unexpected) risks and opportunities will occur;
• that requirements will change;
• relationship issues will emerge; and
• some breaches of contract may occur which may be minor or significant.

Can the contract handle these things ? Can your selected provider do the job for the price stated ? Can both parties effectively project manage the interactions required by the contract to deliver the package successfully and without the situation descending into an expensive, time consuming dispute ?

Outsourcing of complex packages of works is a growing trend for a wide range of sectors. Further, this trend is going to spread to whatever sector you are in, because the world is  getting ever more complex.  This means specialist organisations will need to work together to deliver ever more complex projects which may often span several  sectors.

Consequently, significantly more procurement expertise is needed at the outset  to get the right partners (plural) on-board at the right price to deliver the right requirements under the right commercial arrangements : in short, you need appropriate contracts, which aligns motivations and which allow you to effectively project manage the providers.

Having gotten the appropriate contracts in place, you, the project manager, need to be able to manage the providers effectively : so competence, even expertise, in contract management is needed to deliver the packages (plural), and hence the overall project, successfully.

As a project manager, you can either stick your head in the sand and say “This type of project is not for me” – which we suggest would will be career limiting – or you can consciously respond to the challenge. In fact, if you want to remain a project manager, in many sectors you ultimately won’t have a choice as project management will increasingly involve procurement and managing through a contract.

That does not necessarily mean you need to be an expert but, at a minimum, you do need sufficient knowledge to manage the procurement and contract specialists in your project team. And if you  are actually managing the procurement and contract interfaces, you will need:

• sufficient knowledge of forms of contract;
• a basic background knowledge of contract law and
• an understanding of the pitfalls when managing providers, and how to avoid them. 

If you are unfamiliar with any of the above, to quote one client “you are toast!” .!

We, in the Contract and Procurement SIG, think the above knowledge and understanding is essential for the majority of all project managers moving forward. These are in addition, but complimentary, to all the other project management skills and competencies.

So,what knowledge and skills do I need to have when project managing a procurement and contract ?

Above is the C&P SIG’s 7 stage model for delivering successful projects under contract. Below is a high- level summary of the different stages :

1. At the Concept & Feasibility stage, you need to understand the market’s capability and desire to deliver your required project. For instance, does the technology exist ? Is there a single provider who  can provide what you want or will you have to break it down into different several packages and co-ordinate the interfaces yourself ? Can you do that internally or do you need external support? Are you and your project attractive enough for other organisations to want to contract with you and if so, on what allocation of risk and reward?  Additionally, how much, approximately, will the supply chain being charging you ?

These are fairly fundamental considerations for judging whether your project is feasible and how it can be delivered.

2. At the Project Procurement stage, how precisely are you going to break down the project into contract packages ? For each package, how is the contractual requirement going to be expressed ? This could be in several ways:

• at a business outcome level,
• as defined success criteria,
• as a performance or functional specification for enhanced capabilities,
• as a technical description or
• a fully designed specification.

What is to be the nature of the relationship for each package ? Transactional or collaborative? Or somewhere in between?

This, in turn affects how you select the provider and the allocation of risk and reward or type of contract you have.  For example:

• lump sum payment, selected on lowest price, or
• risk sharing with selection based on technical capability and ability to collaborate.

3. The Package Contract Strategy stage is the detailed consideration of what the contract will look like before is it is written. This includes:

• deciding which risks are allocated to which party and which are shared between the Parties.
• how any rewards are shared if the package is delivered successfully and where liabilities lie if it is not. Will this incentivisation extend across  all the key Providers to encourage collaboration for a successful overall project ?
• are standard conditions of contract to be used ? And if 'Yes', how much do they need to be adjusted to fit the Package circumstances ?
• how will the technical Requirement be structured ?

4. The Prepare Contract terms and Requirement stage covers:

Who is I going to write the various parts of the contract and technical Requirement ?
How will it be co-ordinated and checked so that the final result is concise, correct and coherent, both within itself and potentially across packages ?  Too often project managers defer to legal and different technical experts whilst the contract is prepared. This can result in contracts which do not reflect the Package contract strategy resulting in poor delivery and increases in time and cost.

5. The Select Provider and Award Contract stage: At a high level, how is this going to be done ? At a more detailed level, is it subject to and therefore has to comply with EU Procurement rules (despite Brexit) ? Single or two stage tendering ? Lowest price or most economically advantageous tender (MEAT) at final selection ? What does MEAT actually  mean for each Package ? Is negotiation allowed ? How are you going to respond to queries and ensure a level playing field for all bidders as the competition proceeds both to ensure the integrity of the competition, but also the long term reputation of your organisation  ?

6. How are you going to do the Manage and Deliver the Contract stage ? What management resources do you need given the needs of the contract ? What is your preferred organisational chart for your project team and how is it going  interface with the other parties ? What does your and the Provider’s project organisation look like ? Who can do what under the contract ? How do you interact, both formally in accordance with the contract and informally ? What systems and processes do you set up to make administration easy so that both Parties can focus on pro-actively managing the contract versus reactively administrating it ?

While poor contract management during the delivery stage can significantly undermine excellent work done in the proceeding stages, great contract management of a poorly procured packages and badly written contracts is unlikely to save a project.

7. The Contract Closure, Hand-over, Operation and Support stage: How is the delivery of the contract going to be closed out, whether that is the closing out the financials and or of the technical aspects ? How is it going to be cut or handed-over to the ‘business as usual’ team ? What on-going obligations and liabilities does the Provider have to support the ‘business as usual’ team post hand-over (what are the provisions if something goes wrong) ? ‘What’ needs to be thought through when developing the contract strategy and preparing the contract documents, with the ‘how’ being developed, planned and fine-tuned during the contract delivery as the closure time approaches. Failure to do this can significantly undermine a project’s perceived success : Think of the Heathrow T5 hand-over several years ago which undermined what was otherwise a very successful ‘construction’ project delivered on time and under budget.

OK, OK ! As a Project Manager, you’ve convinced me this stuff matters.

How do I upskill myself ?

Buy the Contracts and Procurement Guide from here ! As well as having its overall scene-setting chapter, each chapter gives guidance on what to do at each stage. This includes a flow chart, which can either be used as a map for thinking things through or, for major projects, as a first level Work Breakdown Structure for each stage. An example of the one for the Project Procurement Strategy stage is shown given below.

We have developed the Guide Contracts and Procurement Guide contents so that you can read it all the way through, read each chapter in isolation, or dip into it for insights and guidance as necessary.

In addition, we had are an all-day launch conference on 12th July 2017 and videos from this are being progressively realised, the first one can be found here. Sign up to the C&P SIG mailing to be made aware of the next realise.

Lastly, we intend are hoping to develop a related qualification, which supplements the existing APM qualifications. This will be developed once the revised APM qualification structure is in place.