SYMPTOMS AND CURE OF POOR CONTRACT MANAGEMENT

SYMPTOMS AND CURE OF POOR CONTRACT MANAGEMENT

In today’s harsh business environment and ruthless global economy, organizations are finding it imperative to focus on their core businesses in order to shed weight, become lean and stay competitive. This trend requires these organizations to develop outsourcing strategies for all non-core activities. Contracting is at the center of all outsourcing and contracting processes. The programs in JK Michael’s Contracts Management category give you a solid understanding of all contracting methodologies.

The content provided in JK Michaels programs will help you understand the entire procurement process while ensuring your skills stay effective, current and on target. All phases in the contracting process are covered, starting with contract preparation, tendering and negotiation to contract award, administration and management. For a list of these programs, refer to the schedule below. For more information about the category or any of its programs, please contact us and we will be more than glad to assist.

Symptoms of Poor Contract Management

In many organizations contracts are not well managed or administered and as consultants we often come across examples of poor contract management. In the first instance we look for the symptoms of poor practice, the underlying causes can then be better analyzed and remedies applied. The symptoms or the observable outcomes include the following

Poor or inappropriate scope of work
Cost and time over runs
Instructions not in writing
Conflicts and disputes with stakeholders and contractors
Lack of compliance
Critical Success Factors not identified
HSE issues
Excessive use of variations

All of these are common expressions of a lack of a robust and fit for purpose process combined with less than competent people. The specific causes of poor performance can include a poor contractor selection process, lack of key stakeholder involvement, poor contract execution and focus on price and not total life cycle costs. These issues will addressed in JK Michaels Contract management course.

 

Role of the Contract Manager

Tim Cummings the CEO of IACCM has identified the role and responsibilities of modern contract managers and administrators. His list combines both the administrative, for example including maintaining records and the more strategic and managerial activities. The list includes:

  • Contract Drafting
  • Evaluation, Negotiation and Execution
  • Serve as the point of contact for customers on contractual matters. Act as contractual “middleman” between company employees and customers, ensuring timely review and approval / reconciliation of variations.
  • On all standard and non standard contracts, provide redlined recommendations and often negotiate directly with our customer’s attorneys or purchasing staff until consensus has been reached
  • Maintain contractual records and documentation such as receipt and control of all contract correspondence, customer contact information sheets, contractual changes, status reports and other documents for all projects
  • Provide guidance on contract matters to project managers, including training to new project managers and other employees in contracting procedures
  • Develop and implement procedures for contract management and administration in compliance with company policy. As appropriate, contribute to or influence company policies.
  • Monitor compliance by company employees with established procedures.

 

The Organizational Model of Contract Management

In a recent study conducted by the IACCM entitled the Organizational Models and Reporting Study Survey – drew input from 481 participants across a wide range of industries and regions.

The study to explore how companies deliver contract and commercial services to the business. The study found that the majority have implemented a centralized model, although there are noticeable variations between industries and geographies.

Centralization is more common for procurement than it is for sales contracting. An overwhelming majority of practitioners perceived centralization to offer benefits – a marked change from the findings of past surveys, which indicated strong resistance to the consolidation of resources, believing that it would lead to a loss of flexibility and responsiveness to business/ customer need.

 

The Cure :The Contract Management Process and Best Practices

The contracting process can be analyzed using a six-phase model. These six phases include Procurement Planning, Solicitation Planning, Solicitation, Source Selection, Contract Administration, and Contract Close-out (Garrett and Rendon, 2005). Each of these contract management phases provides critical planning, execution, and control of the overall contracting process, and is integral to the success of the resultant contact and contractor performance. This section provides a brief overview of the phases of the contracting process and identifies key areas for consideration for each contracting phase, as well as best practices.

1. Procurement Planning 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. 2

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

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.

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). 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.

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.

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). 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.

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. 3

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. This source selection process includes the following activities:

1. Applying evaluation criteria to management, cost, and technical proposals.

2. Negotiating with suppliers.

3. Executing the contract award strategy.

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.

5. Contract Administration

is the process of ensuring that each party’s performance meets the contractual requirements (Garrett & Rendon, 2005). The contract administration process includes:

1. Conducting a pre-performance conference.

2. Measuring contractor’s performance, using performance evaluation tools (Earned Value Management, schedule analysis, budget analysis).

3. Conducting risk monitoring and control.

4. Managing the contract change control process.

5. Measuring and reporting contractor’s performance (cost, schedule, performance)

6. Conducting project milestone reviews.

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.

6. Contract Closeout

is the process of verifying that all administrative matters are concluded on a contract that is otherwise physically complete (Garrett & Rendon, 2005). The contract closeout process includes the following activities:

1. Processing property dispositions

2. Conducting final acceptance of products or services.

3. Processing final contractor payments.

4. Documenting contractor’s performance.

5. Conducting post project audit.

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.

Assessing Contract Management Process Maturity.

Leading organizations conduct an assessment of their contract management process maturity through the use of the Contract Management Maturity Model (CMMM). The CMMM© consists of five levels of maturity ranging from an ad hoc level (Level 1), to a basic, disciplined process capability (Level 2), to a fully established and institutionalized processes capability (Level 3), to a level characterized by processes integrated with other corporate processes resulting in synergistic corporate benefits (Level 4), and finally, to a level in which processes focused on continuous improvement and adoption of lessons learned and best practices (Level 5). These CMMM assessment results provide a wealth of insight to the organization in terms of which contract management key process areas need to be improved and which program offices to direct its improvement effort.

Furthermore, the assessment results will provide the organization with a roadmap of additional needed training and education for improving its contract management process capability. For example, an organization with low maturity level (Ad hoc or Basic) in the Source Selection key process area, will know that it needs to provide additional training or policies and standards in the areas related to the key practice activities for that specific process area. This is the true value and benefit of the contract management process capability maturity model—the continuous improvement of the organization’s contract management processes.

To learn more on contract management ,join our Contract management principles and practices training,or if you are interested in Postgraduate certification,you can join our University of Atlanta Master certificate in Contract management and business Law.