Seven Contract Management Tips You Need to Know
By Michael L Young
To successfully manage contracts for a government agency requires that you are able to:
- Develop suitable arrangements for managing the contract, including establishing risk management and communication strategies
Monitor the contractor’s performance against the contract and deal with issues such as contract variations and disputes
Complete the contract, review the contractor’s performance and prepare a contract review or audit report that can be used in future evaluations.
This is all text book stuff but I have developed seven tips you need to know to facilitate this process and become a successful contract manager:
- Relationships are everything
Maintaining good relationships with suppliers is vital to the successful completion of any project. You need to try to work as partners with suppliers to get the job done for the benefit of the project. Once a contract gets into dispute, no-one ends up winning and the project almost always suffers as a result.
Approvals always take twice as long as you plan for
Procurement approval is rarely given quickly. Always schedule in more time than you think you will need. If the approval comes through quickly, then you have no problem and the tendering process can start on time. If the approval is delayed, hopefully there will be less or no impact on the rest of the schedule.
Suppliers have a right to maintain a profit
There is no incentive for a supplier to provide a product or service if they can’t make a profit from it. If contract negotiations or subsequent contract management paint the supplier into a corner from which it is difficult or impossible for them to make a profit, then they are unlikely to deliver on the contract, and the project will suffer as a result.
Look for guidance from within your agency
Contract managers should look for guidance from within their agency, which should have established processes and systems for managing contracts. Your agency’s contract management guidance should define things like:
- Processes for approval of contracts and contract variations
Delegations for approving contracts and contract variations of different values and/or types
Delegations for approving payments against contracts
Standard forms and templates for contract management and approval
Limits to the authorities of delegates and any requirements for separation of duties, for example that the person who authorises payment against a contract must not be the same person who approved the contract itself
Processes and procedures for initiating, registering and processing contracts and payments in the agency’s financial systems.
Key contract clauses
It is important to familiarise yourself with the key clauses in the contract. If most of your contracts use standard agency contracts, then you should find that you quickly become familiar with the standard terms and conditions, and can easily locate the clauses that create significant conditions and obligations for either the contractor or the agency.
When reviewing the contract, you need to ensure that you understand the intent of all the standard clauses and any non-standard ones. Remember that the agency is obliged to comply with all the provisions of a signed contract, so you must understand what is required.
Different payment terms may be used in different contracts, with the appropriate terms being chosen depending on the degree of control the agency wants to have over the contractor, how much risk the agency wants to transfer to the contractor, and the type of business the agency is involved in.
It is very important to understand the payment terms agreed to in the contract, including the dates or events that will trigger payment. Meeting the contract payment terms is one of the primary obligations your agency has towards the contractor, and failing to meet these terms is not only a breach of the contract, but can also threaten the continued success of the contract and the contractor’s performance..
It’s not just about signing a contract
Remember that the procurement process doesn’t end when the contract is signed – a successful procurement outcome can only be achieved if the resulting contract is well managed to ensure that it delivers the expected outcomes.
Michael Young is Principal Consultant with ‘Transformed’ – Project Management Unleashed. http://www.transformed.com.au