Category: Construction Management Page 2 of 4

Terms & Conditions of appointment of Contract Managers

As with any position of employment, a Contracts Manager is appointed on a set of Terms and conditions of employment and he and the employer enter into a contract of employment. This may be in the form of a letter setting out the essential terms of the contract, such as the services to be provided and the basis of payment, or a standard ‘Form of Agreement for the Appointment of employees of an organization’ which may normally have a set of special terms pertaining to the position. Candidates with a qualification in contract management are best suited to work as Contract Managers.

Similarly, in contract management, the obligations of the Contracts Manager are governed therefore by the terms of the contract of employment. However, a person who offers professional services has a duty in law to exercise reasonable skill and care in the performance of those services, otherwise he may be liable for damages under the law relating to negligence. His actions are expected to be of an equal standard to those of other qualified persons practicing the same profession.

<69M>

Ways to get a construction contract into success

Most of the construction contracts do not end with the anticipated results in respect of time, cost or quality. The reason lies basically with the lack of communication and friendly relations among the contracting parties. Below is a list of actions which will help the parties to develop better relations resulting ij successful contracts.

1. Communicate and understand the expectations and goals of the owner. The Engineer and the Contractor should consider the best ways to achieve milestones of the project.

2. Establish clear goals for cost, time, quality, and progress for each milestone.

3. Handle issues with mutual understanding and joining hands.

4. Select and engage right workers to tasks, if availability of right workers for a task is an issue then appoint a subcontractor or outsource it. Make sure the workers, or the subcontractors are committed to delivering the tasks as scheduled.

5. Staff members of both the engineer and the contractor who are responsible for each task shall meet regularly on friendly atmosphere to discuss difficulties and issues. Get them to solve problems then and there in mutual helping.

6. Get the employees of like minded operations get to know each other and arrange their sitting in close proximity for better communication.

7. When the teams encounter a difficult issue which they find difficult to solve, get the respective mangers involved.

8. Avoid arguments, mud slanging, criticism among employees of the engineer and contractor. Get them to understand that the problem is common for all.

9. Get the employees to make good relationships, arrange parties or get togethers. Develop a friendly atmosphere where any body can express the difficulties.

10. List down the problems, issues and difficulties that occurred during the contract. Use the list to avoid such things in the next project.  

<68M>

Negotiation ability of Contract Managers

A Value Chain Analysis will be valuable for Contract Managers preparing to negotiate.  The understanding of how their organization creates value for customers and its sources of competitive advantage will result in creating stronger value propositions and more robust evaluations of offers received from third parties.

Under contract management process, negotiation involves persuading suppliers or customers to reach mutually beneficial agreements. Designing negotiating strategies and knowing how to execute the negotiating stages and phases up to closing on an agreement are core competencies for a Contract Manager with contract execution authority.  Familiarity with various styles and tactics will equip a negotiator for an array of circumstances.  It will be highly useful for Contract Managers to develop an effective set of interpersonal skills.

<68G>

Solicitation

Solicitation is the process of obtaining information (bids and proposals) from the prospective sellers on how project needs can be met (Garrett & Rendon, 2005).  This phase of the contracting process includes:

1.  Conduct pre-proposal conference, if required.

2.  Conduct advertising of the procurement opportunity, or providing notice to interested suppliers.

3.  Develop and maintain qualified bidder’s list.

<66S>

Relationships among contracting parties for better results

In construction contracts, it is seen often that the contracting parties do not involve in friendly relationships with attitude of mutual respect and helping, to complete projects successfully. What is seen is interaction of parties for day to day problems, raising issues, complaints, change orders, fines, delays in payments and if worst, liquidated damages.

The ways of thinking seem different from one another where the owner is constantly worried over the progress, or reducing costs, the engineer facing problems with variations, design errors, non-compliances while the contractor thinking of ways to complete the project with the least cost. There is no synchronization among the players at all.

While the ultimate goal has to be completing the project successfully, the ways to go there seems different among the parties and that creates all the ugly things happening while no body consider of doing it the right way in mutual partnership.

From a better perspective what if, the owner, the engineer and the contractor join hands and try to achieve the goal together?

Often in most of construction project, this thing called a kick-0ff meeting takes place, but it does not seem to cater to lay a good foundation of mutual partnership, rather an authoritative formal governing advising what to do and what not to do.

Instead, the meeting should allow all the parties to talk about the risks involved, difficulties, issues and how to prepare for what’s ahead by methods of mitigating or solutions for risks and issues involved. Not ending at the kick-off meeting only, the parties should join hands until the end of the contract, in tackling all difficulties together and achieve the goal of completing the project successfully.

<66M>

Specific requirements and competencies of Contract Managers in project management

In the Project Development Phases, Contract Managers need to be familiar with the various types of contracts available for a particular project.  They must understand the implications of the legal terms and conditions, as well as the contracting governance and approval processes in their company within the approved contract management functions in the organization.

<65M>

Relationship among parties to contracts – Is it satisfactory?

A typical tender scenario is that; a tender notice is launched into the market in a newspaper, or a gazette, or anything like that, eligible contractors who are searching out for new contracts get to notice it, get the tender documents and then the tender division  of the contractor springs into action.

After many days (or weeks) in activities such as; quantity take-off, estimation, subcontracts, quotation requests .. etc., the estimation department comes out with the price of the tender while all the contact management team scrutinize the tender documents to search for any risks and other issues with the tender.

Finally, the tender is presented to the management with its price, issues, risks involved and other essential features for management’s final decision.

The tender is then submitted and then starts the period of waiting until the date of tender opening. If all is well, the contractor is waiting to hear the good news.

Out of all the contractors, only one will get the good news and when it comes, the whole staff of the contractor go into jubilation.

Then the Engineer (Consultant) goes into action and activities such as tender evolution, tender negotiations .. etc., start to take place. The contractor is called in, issues and qualifications are discussed and then the signing of the agreement takes place.

While all the above activities are going on, the discussions among the owner, engineer and the contractor are limited to negotiations, discussions on issues, qualifications and similar things.

It is rare that the parties involved in a construction contract meet, discuss and attempt to communicate fully on a contract and how to go on with a successful construction project. Rather, quite often, there develops a communication gap and the regular and friendly discussions of mutual success in completing the contract becomes a far cry.

The owner and the engineer start to administer the contract from an authoritative angle while the contractor feels defensive and the friendly communication, if existed, ceases to continue and as the project matures the contractor is constantly pressed to increase the progress, slammed with non-compliance and, if the matters get worst delays in payments, liquidated damages and fines.

The reason for all this drama is, I believe, the communication gap, lack of mutual understanding and poor relationships among the parties.

<63M>

Specific requirements and competencies of Contract Managers in procurement matters

In the case of Procurement and bidding functions, the Contract Managers are to be well aware of supplier selection methods and criteria but within the contract management function. A best practice is to form a team with representatives from the key stake-holding functions, and design weighted criteria against which every candidate will be rated. 

Knowing how to prepare a clear Statement of Work, and how to draft the specific business terms and performance criteria that will apply to a particular agreement are critical skills for Contract Managers, whether preparing a purchase or sales agreement.

<62D>

Solicitation Planning

Solicitation Planning involves the process of preparing the documents needed to support the solicitation.  This process involves documenting program requirements and identifying potential sources (Garrett & Rendon, 2005).  This contracting phase includes the following activities:

1.  Selecting appropriate contract type. 

2.  Determine procurement method (sealed bids, negotiated proposals, e-procurement methods, procurement cards,)  

3.  Developing the solicitation document (IFB, RFQ, or RFP).

4.  Determining proposal evaluation criteria, and contract award strategy (lowest priced versus best value).  

5.  Structuring contract terms and conditions.

6.  Finalizing solicitation Work Breakdown Structures (WBS), Statements of Work (SOW), or product or service descriptions. <61M>

Procurement Planning

Procurement Planning: This involves the process of identifying which business needs can be best met by procuring products or services outside the organization.  This process involves determining whether to procure, how to procure, what to procure, how much to procure, and when to procure (Garrett & Rendon, 2005). 

This phase of the contracting process includes the following key activities:

1.  Determining and defining the procurement requirement (the supply or service to procure).

2.  Conducting market research and/or a pre-solicitation conference.

3.  Developing a preliminary Work Breakdown Structures (WBS) and Statements of Work (SOW), or description of the supply or service to be procured.

4.  Develop preliminary budgets and cost estimates.

5.  Preliminary consideration of contract type, risk assessment, and any special terms and conditions.

Sourcing: Being the initial stage of the procurement process, sourcing is the search of vendors or subcontractor who are available for supply or contract of the required goods / services.

Pre-qualification: Once the lists of available vendors are compiled, it is necessary to find out the suitable vendors for the particular requiment at required quality and pre-qualification is the process of determining the suitability by reviewing the documents submitted by the vendors. The process includes thourouhg examination of the history, past dealings, expertise in the vendor organization, availability of right equipment, past supplies or projects … and other relevant details.

<58M>

Specific requirements and competencies of Contract Managers in financial matters

Contract Managers In financial matters need assistance of financial experts and analysts to develop full understanding of the financial implications of a contract.  They must know the concepts and methods applied and how to interpret the outcomes of the financial evaluations within the function of contract management.

<57R>

Benefits of good contract management

Professional contract management attempts to ensure that both the buyer and the vendor fulfill all of the obligations agreed in the contract, reduce or mitigate disputes to bear minimum, avoid losses in cost and time and improves long term business relations among the parties involved in the contract.

On the other hand, a poor or non-existent contract management would have bad consequences to all involved with long term losses and sour relations among all involved parties. With no proper monitoring and management of the contracts, the business and financial performance of the organization is most likely to fail to meet its business strategies resulting with cost and time overruns of its projects or business goals.

In spite of the failures of achieving its goals, the long term effects of poor contract management is the deterioration of business relationships with its stakeholders resulting in losing future business aggravating the matters further.

<57>

Responsibilities of Contract Managers

The role and the responsibilities of Contract Managers under contract management process, vary on different parameters. It shall be noted that the scope depends also on the line of responsibility, accountability and authority in an organization. For instance, in one organization the Contract Manager may be reporting to the Commercial Manager and in another it could be vice versa. The difference between the positions of Contract Manager and Commercial Manager vary depending on the business function of the organization. This difference is well marked in organizations where contract management function is well established.

In general, a Contract Manager has to possess listed skills below;

  • interpersonal and proactive skills;
  • Strongly analytical in relation to mapping and improving the necessary interactions between business functions, customers and suppliers;
  • Able to implement and facilitate the necessary communication and reporting lines;
  • Able to establish the necessary leadership, teams and effective delegation of responsibility;
  • Open-minded towards other business functions and cultures, and able to understand their goals, techniques, methods and cultures;
  • Encouraging communication and willingness to share knowledge and information;
  • Facilitating openness to constructive feedback without emotional bias;
  • Encouraging teamwork, networking, responsiveness, ethical, emphatic and social thinking;
  • Outcome-oriented, and able to reach compromise between different interests, without the lack of the ability to take decisions. 
  • Handle on-going issues and change management.
  • Monitor transaction compliance and oversee Service Level Agreement compliance (milestones, deliverables, invoicing etc.).
  • Maintain deadlines on deliverables and communicate on an ongoing basis with business partners and internal clients about contractual issues.
  • Ensure contract close-out, extension or renewal.

 <55M>

Best practices of various phases of contract management

Sourcing, 

Pre-qualificatin,

Procurement planning,

Best practices in procurement planning include the use of outsourcing analysis to assess contract risks and market research to identify supplier capabilities, as well as determine industry practices for describing the requirement and determining contract type.  Early supplier involvement though the use of pre-solicitation conferences and industry benchmarking are also considered best practices.

Solicitation Planning

Best practices in solicitation planning include using cross-functional teams for developing solicitations, and identifying contract risks.  The use of Statements of Objectives (SOO) and Performance-based Statements of Work (SOW) are also considered best practices.

Solicitation,

Best practices in the solicitation phase include using web-based and other paperless solicitation processes, as well as using draft solicitations as a source industry feedback.

Source selection,

Best practices in the source selection phase include using a formal source selection organization with trained and experienced cross-functional proposal evaluation teams, using a weighting system to prioritize the evaluation criteria and using a disciplined approach to following the evaluation criteria stated in the solicitation.  Additional best practices include obtaining independent cost estimates to assist in evaluation supplier proposals, and conducting a price realism analysis on each supplier proposal.  

Contract administration,

Best practices in the contract administration phase include using a formal contract administration methodology with trained and experienced cross-functional team members competent in contractor performance measurement.  Additional best practices for the contract administration phase include using an integrated performance evaluation method and establishing a contract change control process. 

Contract Close-out

Best practices in the contract closeout phase include designating and empowering a formal contract closeout team, using contract closeout checklists, and documenting contracting lessons learned and best practices. 

<53S>

Evolution of the position of the Contract Manager

As with any position in the world of employment, the position of the Contract Manager undergoes evolutionary process and along with it, the roles played by the position in the industry. This trend of evolution is much faster than before due to technological development happening everywhere in the industry worldwide.

As of now, the general scope (among other things as required by a particular organization) of a contract manager is to;

  • Drafting, preparation, review, manage and closing contracts,
  • Interpretation and implementation of the terms and conditions of contracts,
  • Providing contractual advice to the management,
  • Be aware and use of a wide range of contracting methods and types,
  • Monitoring contract performance and its compliance,
  • Negotiation of contract terms for advantage of the representing organization,
  • Conducting meetings with stakeholders on matters pertaining to contract signing, implementation, managing and disputes,
  • Management of subcontracts,
  • Assisting the procurement process,
  • Tracking and monitoring deliverables until the end of contract validity.

This traditional scope of a contract manager is experiencing changes now with the additional duties such as;

  • Developing the contracting policy of the organization,
  • Developing, planning, and maintaining contract strategies for the betterment of the organization,
  • Developing, planning and maintaining procurement strategies,
  • Automation of contract management functions,
  • Assisting sourcing, review of pre-qualifications, vendor short listing,
  • spend analysis,
  • Assisting supply chain management,
  • Assisting project management,
  • Maintaining external relationships.

These scope additions are noticeable in most of the organizations irrespective of whether it is public or private and are expected to change over time.

It is further noticeable that the changes do occur gradually hence difficult to monitor in an ongoing process. An ideal way to understand the changes is to monitor the positions in a periodical manner in periods of few years at a time by allowing sufficient time for new scope to crawl in and get established and integrated in to the role of a contract manager

<52S>.

Phases of contract management

The overall function of contract management includes various phases which are;

Procurement Planning: This involves the process of identifying which business needs can be best met by procuring products or services outside the organization.  This process involves determining whether to procure, how to procure, what to procure, how much to procure, and when to procure (Garrett & Rendon, 2005). 

2.  Solicitation Planning involves the process of preparing the documents needed to support the solicitation.  This process involves documenting program requirements and identifying potential sources (Garrett & Rendon, 2005).

3.  Solicitation is the process of obtaining information (bids and proposals) from the prospective sellers on how project needs can be met (Garrett & Rendon, 2005). 

4.  Source Selection is the process of receiving bids or proposals and applying the proposal evaluation criteria to select a supplier (Garrett & Rendon, 2005).  The source selection process includes the contract negotiations between the buyer and the seller in attempting to come to agreement on all aspects of the contract, to include cost, schedule, performance, terms and conditions, and anything else related to the contracted effort.

5.  Contract Administration is the process of ensuring that each party’s performance meets the contractual requirements (Garrett & Rendon, 2005).

Contract Closeout is the process of verifying that all administrative matters are concluded on a contract that is otherwise physically complete (Garrett & Rendon, 2005).

<51M>

Knowledge Management skills for Contract Managers

In contract management, it is important for Contract Managers to have good Knowledge of management, communication, conflicts & culture management and negotiation skills, not only in relation to customers and suppliers, but also in relation to facilitating the necessary interactions and processes internally (e.g. liaise between management, procurement, sales, logistics, operations, legal and finance). Knowledge management skills in contract management, therefore, are a must have by Contract Managers.

In other words, to have a competent and proactive contracting process, it requires the resources, knowledge, skills and abilities, right social poise and motivation to create the most value of the contracted relationship.  Improving contracting is not only about improving the customer/supplier relationships, but also the international relationships among business functions and all stakeholders to create a smooth, lean contracting process.

<49U>

Is the Contract Management process under-rated by the industry

In many organizations the managements have realized the importance of contract management for long term survival and sustaining their businesses though there are still some who have not fully understood the strategic importance of contract management and continue to suffer from poorly managed contracts without any realization the causes. It seems that such organizations, though near majority, give priority to other matters such as, negotiation for most competitive prices, acquiring projects, signing contracts, getting the jobs done at any cost or satisfying their clients. Within the context of under-rating, such organizations fall into the subject directly.

Although it is equally important for such organizations to carryout above said activities, their failure to give the due attention to professional contract management undercuts the gains of such, and attributes to un-accountable losses due to cost and time overruns of their projects. Matters become invisible further as such organizations fail to have proper accounting systems to deliver actual losses accrued from such failures and continue to follow the same processes endlessly.

At the commencement of projects the managements become aware of the profits their organizations likely to make from available documentation such as tender documents and the costs as documented by the estimation departments but never get a clear idea of actual profits made from the projects. Project Managers who are entitled with managing projects are interested in completing the projects and pay attention to avoiding liabilities of time overruns rather than actually monitoring the cost levels.

Those organizations with professional contract management processes enjoy the competitive advantage due to their regular contract monitoring and proper cost management processes and continue to flourish among the rest with the satisfaction of their stake holders. Such organizations not only employ systems to report actual earnings from each project thereby allowing the managements to make strategic decisions with long term goals.

Starting a contract management process doesn’t have to be complicated. It can be started in a small way and then gradually let it grow while acquiring right personnel and knowhow.  Starting may be as simple as creating a spreadsheet with dates and tasks that must be finished by those dates. The contract professional could simply monitor those dates and keep in close contact with the supplier to ensure timely performance. For major contracts, the contract professionals should also hold regular periodic reviews with subcontractors and suppliers to keep channels of communication open and discuss strategic issues.

 <48>

Page 2 of 4

Powered by WordPress & Theme by Anders Norén