Contract management for successful delivery – APM Contracts and Procurement Guide

Tonight’s event was about contracts management, which was a hot topic requested by members. We are very grateful to AirBus for hosting the event at their excellent facilities in Filton. Our speaker was John Lake, Chairman of the APM Contracts and Procurement SIG, who talked about the importance of contracts and procurement and how the new APM Guide on contracts and procurement, written by the SIG’s volunteers, can help project managers understand some of the challenges and avoid some of the pooh traps.

John started his presentation with an introduction to the work of the SIG, and how volunteers can get involved. The SIG is concerned that there is little training available for project managers on contracts and procurement, and the new guide was written to help project managers understand the challenges and issues to be able to plan how to manage contracts better. This is an important area as many projects can involve 80-90% of their spend being contracted out and be heavily reliant on external providers.

Simplistically, procurement is about the cards you deal yourself, the decisions you make about how to contract for the supply of goods and services. Contact management is about managing what you have been dealt with.

Procurement decisions are taken early in the project life cycle and have a big impact on total cost downstream. How risk is allocated and shared with suppliers is a major consideration. Care has to be taken to avoid allocating risk to a supplier that cannot manage the risk and could financially fail. In reality, attempting to transfer risk fully to a supplier, never works, the risk always remains with you, the customer, and you will pay a premium as the supplier will increase the price to try and protect their financial risk.

Another challenged faced by the project manager, is that they are often be brought in after the procurement decisions have been made, simply to deliver the contact stage. This is true of both the customer and suppliers project managers. Both of which have to try and manage what they have been dealt with.

The Contacts and Procurement Guide has been written by the SIG volunteers, based on their experience, to be accessible and easy to navigate. It uses a 7-stage model, each of which overlaps: Concept and Feasibility; Project Procurement Strategy; Package Contracting Strategy; Prepare Contracts Terms and Requirements; Select Provider and Award Contract; Manage and Deliver the Contract; Contact Closure, Handover, Operation and Support. Each stage is described with stage inputs, outputs and risks.

John’s advised that if you are dropped in at the delivery stage that you familiarise yourself with how it got there and what the next steps are.

For the contract delivery stage, you should check both your own and the suppliers understanding of acceptance of deliverables, conditions of contract, requirements, technical issues and pricing. As project manager you need to know and review the contract, you need to own it.

In managing delivery, make your own assessment, don’t just believe what you are told by the supplier.

The guide identifies 19 typical risks, what they are and how they can be managed. It is all about the people and relationships. You need to understand each other’s pressures and concerns, and especially for overseas suppliers, any cultural and communication challenges. What can go wrong? Uncontrolled or unspecified dependencies, on you, on your supplier, or between suppliers, is one of the highest issues. Resource issues, including both numbers and quality of staff – both your own team and the suppliers. Requirement changes / poor change management. Undefined acceptance criteria.

John emphasised that change should not be avoided, but it does need resources to be allocated to manage it effectively, and that costs both the customer and supplier. The process must be agreed upfront. Changes at early stages are less costly than later.

John then turned to some of the latest challenges which the Contracts and Procurement SIG is considering, that of how you contract for Agile project management. Agile is a way of thinking that it somewhat different from the conventional waterfall approach and contracting methods.

The standard waterfall and contracting approaches assume there is a good idea of the requirement and how to deliver it. But of course, things change, and often the requirement is not that well understood at the beginning of a project. An agile project management approach can help reduce risk by breaking up work packages into manageable stages.

The Agile approach requires commitment to collaboration between the Client and Supplier and involvement across the whole team, particularly the Client’s team. If this cannot happen (e.g. users are not available) then the Agile method will not deliver its benefits. Product managers and senior users are essential roles. Both the client and supply have to fully commit to agile and the way of thinking it requires.

The contract approach used must set the collaborative structures and ways of working in place. Current research suggests a capped or rolling Time & Materials, (T&M), basis under a framework or main body Contract (T&M provides cost burn visibility). Main body should define Contract background terms such as; parties to the contract, IP ownership, security, jurisdiction and T&M rates. An Annexe Statement of Work, (SoW), should detail thoroughly the ways of working for the Agile method selected.

John provided some examples, and summarised with some pros and cons.

Pros: End Result -more likely to achieve an acceptable end result due to early visibility of the solution by users. Deliverables per Iteration - (lower T&M risk). Early Warning -risks and issues emerge much earlier giving more time to address them. Change Tolerance - less change management overhead. Openness - significant transparency for the Client. Scalability - in the event of significant Client-driven changes

Cons: Client Overhead – Requires significant commitment to involvement by the Client and its user base –Not a hands-off situation. Infrastructure costs – May need significant investment to align tools. Not “Document free” – Not a panacea to radically reduce contract documentation! Risk -T&M basis leaves some risk on the Client but with early warning of issues. Personnel –Can find it difficult to understand or “believe in” the Agile method.

To be successful, agile needs the correct culture for both client and supplier, it requires a truly collaborative mind set.

Martin Gosden
SWWE Branch Chairman