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OVERVIEW

OF

CONTRACT MANAGEMENT
by

Ayotokunbo Ehiribe
Legal Programme Management
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

Scope

The Contract Management Process


Teamwork: Roles & Responsibilities
Global Contracting Concepts & Principles
Contracting Methods
The Pre-Award Phase
Contract Pricing Arrangements
The Award Phase
The Post-Award Phase
Conclusion - Using Global Best Practices

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

The Contract Management Process

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

What is Contract Management?

The process of planning, forming and


administering agreements to buy or sell goods
and services from or to another party

The art and science of managing contractual


agreements throughout the contracting process
Contract Management

Buyer (VNL)

8 September 2006

Contract

Seller/
Prime Contractor
(Some Credits: PMI PMBOK,
ESI International)

Contract

Subcontractors

Contracts
Definition
An agreement between two or more (competent)
parties or persons that creates an obligation to do
or not do a particular thing
A contract has two aspects:
Document: Written manifestation of an
agreement between parties
Relationship: The personal or professional
commitment that forms the understanding
between people who enter into agreements,
either oral or written
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

Contracts Are:
Sources of business: For
sellers
Sources of goods and
services: For buyers
Risk management tools:
For both buyers and sellers
Projects: That must be managed by people from
both the buyers and sellers organisations
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

Contracts Are Projects


Contracts are

Goal-oriented
Coordinated and
interrelated activities
Of finite duration
For stated consideration
Unique

Contracts must be managed


and performed to stated Cost
quality standards
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

Time

Quality

The Four Ps of Contract Management


Process

People
Privity
Privity
Roles
Roles &
&
Responsibilities
Responsibilities

Authority
Authority

Accountability
Accountability

Improved
Improved
Business
Business
Performance
Performance
Superior
Superior
Project
Project Results
Results

Solicitation
Solicitation
Planning
Planning
Procurement
Procurement
Source
Source
Planning
Planning
Selection
Selection
Solicitation
Solicitation
Contract
Contract
Administration
Administration
Contract
Contract
Closeout/
Closeout/
Termination
Termination

Contract
Management

Customer
Customer
Satisfaction
Satisfaction

Performance
8 September 2006

Reasonable
Consideration
CR
Contracts

FP
Contracts
T&M
Contracts

Price
(Some Credits: PMI PMBOK,
ESI International)

Phases of Contract Management


1.
Procurement
Planning

Phase II:
Award Phase

2.
Solicitation
Planning
3.
Solicitation

Phase I:
Pre-Award
Phase

Phase III:
Post-Award
Phase

4.
Source
Selection
5.
Contract
Administration

Contract Management Process


8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

6.
Contract
Closeout/
Termination9

Why Care About Contract Management?


Because the decisions made and actions
taken both before and after the contract is
awarded, significantly affect the results of
your business!
Because an improved understanding of
contract management can produce
superior project results and greater
customer satisfaction
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

10

Teamwork - Roles and Responsibilities

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

11

The Concept of Agency


Authority

Buyer

Buyer

Authority

Agent

Agent

Agent

Seller

Agent

Seller

Agent

Agent

Subcontractor

Privity

Privity

No Privity
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

12

Who Is in Charge?
Project Manager

Contract Manager

Responsible for ensuring


the coordinated
undertaking of goaloriented projects
Overall responsibility for
execution of the work

8 September 2006

In charge of:
contractually specified
tasks for completion of
the work
contract deliverables not
related to the SOW
specifications or product
descriptions

(Some Credits: PMI PMBOK,


ESI International)

13

Who Is in Charge? (Contd.)


Contract managers and
project managers
Authority
Responsibility
Accountability

8 September 2006

Sources of conflict
Precontract actions
Seller selection
Pricing arrangements
and contract terms and
conditions
Specification of
requirements
Control of contracts
with other party

(Some Credits: PMI PMBOK,


ESI International)

14

Global Contracting Concepts and Principles

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

15

Essential Elements of a Contract


1.

Competent
parties
2.

3.

Acceptance
(agreement)
Consensus ad idem
5.
8 September 2006

4.

Offer

Consideration
(bargained for
exchange)

Legality of purpose
(Some Credits: PMI PMBOK,
ESI International)

16

What Is a Breach?
Failure, without legal excuse, to
perform any promise that forms the
whole or part of a contract
Remedies for breach

Compensatory damages
Liquidated damages
Specific performance
Other actions (waiver, forbearance)
Nonpunitive damages

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

17

Contract Ts & Cs
Define the rights and responsibilities of the parties
to the agreement
Term: An enforceable promise that addresses a
specific subject
Condition: A phrase that either activates or
suspends a term

8 September 2006

Note: Contract managers must be aware of


all terms and conditions

(Some Credits: PMI PMBOK,


ESI International)

18

Examples of Common Ts & Cs

Acceptance
Duration
Change Management
Delivery
Dispute Resolution
Choice of Law
Force Majeure
Intellectual Property
Rights
Confidentiality
Invoicing
Payments
8 September 2006

Liquidated Damages
Points of Contact
(Authorised
Representatives)
Pricing & Discounts
Product Quality
Scope of Work/Services
Taxes
Termination
Warranty
Indemnification
Limitation of Liability

(Some Credits: PMI PMBOK,


ESI International)

19

Global Contracting Concepts


& Principles (Contd.)

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

20

Contract Interpretation

Objective
To ascertain the purpose of the
parties, from the point of view
of an impartial third party
knowledgeable of the facts

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

21

Contract Interpretation (Contd.)


First Rule:
Intent of the Parties
Parol
Evidence Rule

Secondary
Rules

Order of Precedence
or Whole Instrument
Express Language
Rules of Statements
Conduct of the Parties
Custom in the Trade
Prior Course of Dealings
Contra Proferentem Rule
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

22

Contracting Methods

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

23

General Contracting Methods

Non-competitive

Competitive
Simplified Purchase cards
Imprest funds or petty
cash
Auctioning

BOA, Frame/Master/Universal/
General Purchase
Agreements
Dealer/Distribution Agreements

Formal

Single-source negotiation
Sole-source negotiation

Sealed Bidding
2-Step Sealed Bidding
Competitive Proposals

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

24

VNL Contracting Methods


Contract Type

Minor
Requisition

Activity Description

Simplified low value transactions

Purchase Order Supply of goods and/or services which


do not require intricate testing before
acceptance or which can be accepted
upon physical inspection

Value Limit

N100,000 and
below.
N2,000,000 and
below to be issued
by Procurement
Division

Frame
Agreement

Supply of goods and/or services in


more than one instance under similar
originating terms and conditions, using
a frame SFC

Unlimited

Other
Agreement
Type

One-off supply of goods and/or


services, using bespoke contract or
non-frame SFCs.

Above N2,000,000

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

25

The Pre-Award Phase

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

26

Procurement Planning (Contd.)


Involves the buyers consideration of whether,
how, what, how much and when to procure
Input
Scope statement
Product description
Procurement
resources
Market condition
Other planning
output
Constraints
Assumptions

8 September 2006

Tools & Techniques


Make-or-buy analysis
Expert judgment
Contract types
selection
Risk Management
process
Contract Ts & Cs

(Some Credits: PMI PMBOK,


ESI International)

Output
Procurement
Management Plan
Statement of Work

27

Solicitation Planning
Involves preparing the documents needed to
support the solicitation
Input
Procurement
Management Plan
Statement of work
Other procurement
planning output

8 September 2006

Tools & Techniques


Standard forms
Expert judgment

(Some Credits: PMI PMBOK,


ESI International)

Output
Procurement
documents
Evaluation criteria
Statement of Work
updates

28

Solicitation (Contd.)
Involves obtaining information (bids and proposals) from
prospective sellers on how project needs can be met
Input
Procurement
documents
Qualified seller
lists

Output

Tools & Techniques


Bidders
conferences
Advertising

Solicitation that
leads to the
submission of
bids or proposals

Types of solicitations:
RFP, RFT, RFQ, IFB, ITB, ITT, RFI, RFI&Q
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

29

Contract
Pricing
Arrangements

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

30

Type of Contract - Business Objective

To negotiate a contract type and price (or


estimated cost and fee) that will result in
reasonable seller risk and provide the seller
with the greatest incentive for efficient and
economical performance

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

31

Factors in Selecting Contract Types

Marketplace and competition


Type and complexity of the requirements
Urgency of the requirement
Sellers technical capability
Administrative costs to both parties
Size and amount of the contract
Capability of sellers accounting system

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

32

Categories & Types of Contracts


Categories
Fixed-Price
Types of Firm-fixed-price
Contracts (FFP)
Fixedprice with
economic price
adjustment (FP/EPA)
Fixed-Price-Incentive
(FPI)

Cost-Reimbursement

T&M

Cost-Reimbursement (CR)

Time-andMaterials
(T&M)

Cost-plus-incentive fee
(CPIF)
Cost-plus-award fee (CPAF)
Cost-plusfixed fee (CPFF)
Costplus-a-percentage-ofcost (CPPC)

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

33

Range of Contract Types and


Performance Measurements Vs. Risk
Types of Contracts

FFP

FP

FPI

Fixed-price

CR CPIF CPAF CPFF

Cost-Reimbursement

CPPC

T&M

Risk
Low
High

Buyer
Seller

High
Low

Performance Measurement
Less
More
8 September 2006

Buyer
Seller
(Some Credits: PMI PMBOK,
ESI International)

More
Less
34

The Award Phase

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

35

Award Phase - Source Selection (Contd.)


Source selection is the process of applying evaluation
criteria to bids or proposals to select a supplier
Input

Evaluation
criteria
Evaluation
standards
Proposals
Organisational
policies

8 September 2006

Tools & Techniques

Contract
negotiation
Weighting
system
Screening
system
Independent
estimates

(Some Credits: PMI PMBOK,


ESI International)

Output

Contract
or
Walk Away

36

Weighting
Selection and weighting of attributes must
reflect buyers needs
Three general categories

Management - Attributes or
qualities of seller as an
organisation
Technical - Features and
functionalities of the product
Price - Fair and reasonable price

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

37

Evaluation Standards

Relate to attribute values


Compare the proposals received
to set evaluation criteria
Three approaches

8 September 2006

Absolute standards
Minimum standards
Relative standards

(Some Credits: PMI PMBOK,


ESI International)

38

VNL
Contract
Drafting &
Execution
Process Flow

The Post-Award Phase

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

40

Contract Administration
The principal objective of contract administration is to
ensure fulfillment of contractual obligation by all parties
lnput

Contract
Work results
Change requests
lnvoices and
payments
Other tasks
Contract
administration
policies

Tools&Techniques

8 September 2006

Contract analysis and


planning
Pre-performance
conference
Performance
measuring and
reporting
Payment system
Change control
system
Dispute management
System

(Some Credits: PMI PMBOK,


ESI International)

Output

Documentation
Contract changes
Payment
Completion of work

41

Reasons for Non-Compliance


The six great excuses:
I never saw the contract
I didnt have a chance to read the
contract
I didnt understand the contract
I thought the contract was wrong
Thats not what the contract says!
What contract?
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

42

Main Tasks of Contract Administration


Read and analyse the
contract
Evaluate organisations
ability to comply
Obtain commitments
Develop a Contract
Administration Plan
Conduct internal and
external pre-performance
(or kick-off) conferences
Initiate compliance activities
Prepare schedules
8 September 2006

Track
Report
Ensure timely invoice and
payment
Document decisions and
events
Manage contract changes
Monitor contract
performance
Resolve contract disputes
Close or terminate the
contract

(Some Credits: PMI PMBOK,


ESI International)

43

Records and Files for Buyers & Sellers

Official copy of contract and modifications


Conformed working copy of contract
Correspondence file, log or index, and suspenses
Telephone log
Record of deliveries, inspections, acceptances
Progress and surveillance reports
lnvoice and payment records

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

44

Change Management: The 7 Principles


Authorisation
Estimation
&
Approval

Written
Confirmation

Change
Management
Identification

Compensation

8 September 2006

Change
Impact
Notification
Document(Some Credits: PMI PMBOK,
ation
ESI International)

45

Performance Monitoring
Ensure Quality
conformance to requirements
Form, fit & function

Direct and Indirect


Observation
site visits (direct)
progress reports (indirect)

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

46

Performance Monitoring (Contd.)


Inspections

Rules of
Acceptance
In-process inspections
Pre-final inspection
Final or closeout
Inspection

8 September 2006

strict conformity or
perfect tender
material and
immaterial breaches
fundamental breach
substantial
conformance

(Some Credits: PMI PMBOK,


ESI International)

47

Contract Closeout
Contract closeout involves both product
verification and administrative closeout
lnput
Completion of
work
Contract
documentation
or
Termination notice

Tools&Techniques

Compliance
verification
Contract
documentation
Contract closeout
checklist
Termination

Output

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

Product or service
completion
Acceptance and
final payment
Contract closeout
or termination
documents
Documented
lessons Iearned

48

Sample Contract Closeout Checklist


Sample Contract Closeout Checklist
Yes

N/A

No

1. All products and/or services required have been provided to


the buyer
2. Documentation adequately shows receipt and formal
acceptance of all contract items
3. No claims or investigations are pending on this contract.
4. Any buyerfurnished property has been returned to the
buyer
5. All actions related to contract price revision and changes
have been concluded
6. All outstanding subcontracting issues have been settled.
7. If a partial or complete termination was involved, action is
complete
8. Any required contract audit is now complete.
9. The final invoice has been submitted and paid
8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

49

Conclusion - Using Global Practices


1.
2.

3.
4.
5.
6.
7.
8.

Use a Contract Management


Methodology
Commit to a contract
Management Professional
Development Programme (e.g.
with ESI Intl, NCMA, NAPM)
Establish a list of pre-qualified
suppliers
Take advantage of e-commerce
or EDI
Use corporate p-cards
Adopt value-based pricing
where sensible
Use universal sales agreements
Conduct Risk vs. Opportunity
8 September 2006

assessments
Simplify standard contract Ts & Cs
Permit oral presentation of
proposals
Employ highly skilled contract
negotiators
Hold pre-performance
conferences
Adopt a uniform solicitation,
proposal or contract format
Use ADR methods to resolve
disputes
Develop and maintain a bestpractices and lessons-learned
database

(Some Credits: PMI PMBOK,


ESI International)

50

Thank You

8 September 2006

(Some Credits: PMI PMBOK,


ESI International)

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