OVERVIEW

OF

CONTRACT MANAGEMENT
by

Ayotokunbo Ehiribe
Legal Programme Management
8 September 2006 (Some Credits: PMI PMBOK, ESI International) 1

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) 2

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)

Contract

Seller/ Prime Contractor

(Some Credits: PMI PMBOK, ESI International)

Contract

Subcontractors

8 September 2006

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) 5

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) 6

Contracts Are Projects

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

Contracts must be managed and performed to stated Cost quality standards

8 September 2006 (Some Credits: PMI PMBOK, ESI International)

Quality

The Four Ps of Contract Management People

Privity Privity Roles & Roles & Responsibilities Responsibilities Authority Authority Solicitation Solicitation Planning Planning Procurement Procurement Source Source Planning Planning Selection Selection Solicitation Solicitation Contract Contract Administration Administration Contract Contract Closeout/ Closeout/ Termination Termination

Process

Accountability Accountability

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

Contract Management

Customer Customer Satisfaction Satisfaction

Reasonable Consideration CR Contracts

FP Contracts T&M Contracts

Performance
8 September 2006 (Some Credits: PMI PMBOK, ESI International)

Price
8

Phases of Contract Management

1. Procurement Planning 2. Solicitation Planning 3. Solicitation 4. Source Selection 5. Contract Administration 6. Contract Closeout/ Termination9
Phase II: Award Phase

Phase I: Pre-Award Phase

Phase III: Post-Award Phase

Contract Management Process

8 September 2006 (Some Credits: PMI PMBOK, ESI International)

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)

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The Concept of Agency

Authority Authority

Buyer

Agent

Agent

Seller

Buyer

Agent

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

Contract Manager In charge of:

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

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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Who Is in Charge? (Contd.)

Contract managers and project managers
Authority Responsibility Accountability

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

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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Global Contracting Concepts and Principles

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(Some Credits: PMI PMBOK, ESI International)

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Essential Elements of a Contract

1. Competent parties 2. Offer

3.

Acceptance (agreement) Consensus ad idem 5.

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4.

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
Note: Contract managers must be aware of all terms and conditions

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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Examples of Common Ts & Cs

Acceptance Duration Change Management Delivery Dispute Resolution Choice of Law Force Majeure Intellectual Property Rights Confidentiality Invoicing Payments
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Liquidated Damages Points of Contact (Authorised Representatives) Pricing & Discounts Product Quality Scope of Work/Services Taxes Termination Warranty Indemnification Limitation of Liability
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(Some Credits: PMI PMBOK, ESI International)

Global Contracting Concepts & Principles (Contd.)

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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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)

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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
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Contracting Methods

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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General Contracting Methods

Competitive Simplified Purchase cards Imprest funds or petty cash Auctioning Formal Sealed Bidding 2-Step Sealed Bidding Competitive Proposals

Non-competitive BOA, Frame/Master/Universal/ General Purchase Agreements Dealer/Distribution Agreements Single-source negotiation Sole-source negotiation

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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VNL Contracting Methods

Contract Type Activity Description Value Limit

Minor Requisition

Simplified low value transactions

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

Purchase Order Supply of goods and/or services which do not require intricate testing before acceptance or which can be accepted upon physical inspection Frame Agreement Supply of goods and/or services in more than one instance under similar originating terms and conditions, using a frame SFC One-off supply of goods and/or services, using bespoke contract or non-frame SFCs.
(Some Credits: PMI PMBOK, ESI International)

Other Agreement Type

8 September 2006

Above N2,000,000

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The Pre-Award Phase

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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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

Tools & Techniques

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

Output
Procurement Management Plan Statement of Work

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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

Tools & Techniques

Standard forms Expert judgment

Output
Procurement documents Evaluation criteria Statement of Work updates

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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Solicitation (Contd.)
Involves obtaining information (bids and proposals) from prospective sellers on how project needs can be met
Input Procurement documents Qualified seller lists Tools & Techniques Bidders conferences Advertising Output 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)

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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)

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

T&M
Time-andMaterials (T&M)

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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Range of Contract Types and Performance Measurements Vs. Risk

Types of Contracts

FFP

FP

FPI

CR CPIF CPAF CPFF

CPPC

Fixed-price

Cost-Reimbursement Risk

T&M

Low High

Buyer Seller Performance Measurement

High Low

Less More
8 September 2006

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

More Less
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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 Tools & Techniques Output

Evaluation criteria Evaluation standards Proposals Organisational policies

Contract negotiation Weighting system Screening system Independent estimates

Contract or Walk Away

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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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
Absolute standards Minimum standards Relative standards

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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VNL Contract Drafting & Execution Process Flow

The Post-Award Phase

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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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
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

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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
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(Some Credits: PMI PMBOK, ESI International)

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)

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Change Management: The 7 Principles

Authorisation Written Confirmation Estimation & Approval

Change Management
Compensation

Identification

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)

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Performance Monitoring (Contd.)

Inspections Rules of Acceptance In-process inspections
Pre-final inspection Final or closeout Inspection strict conformity or perfect tender material and immaterial breaches fundamental breach substantial conformance
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8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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

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
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(Some Credits: PMI PMBOK, ESI International)

Thank You

8 September 2006

(Some Credits: PMI PMBOK, ESI International)

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