Contract Management &

Administration
What is a Contract
• A contract is an agreement between two or more people that is
legally binding.
• A contract can be verbal or written.
• The contract, in terms of enforceability, includes an offer and an
acceptance, has consideration for the exchange, clearly sets out the
terms of the agreement without ambiguity and is signed by the
involved parties who have the proper capacity to enter into the
contract
Contract Administration & Contract Management
• Contract Administration: It is the management of all actions, after
the award of a contract, that must be taken to assure compliance
with the contract.

• Contract Management: all activity that occurs in the contracting

process.
• It is the process which ensures all parties to a contract fully meet
their obligations, in order to satisfy the operational objectives of the
contract and the strategic business goals of the customer.
Contract Administration & Contract
Management
Contract Administration Contract Management
• Satisfying the requirement – seeing to it that • Satisfying the NEED: Seeing to it that you solicit for
you receive the goods/services called for in the goods and services by outlining a complete SOW
the CONTRACT to the required level of or SOO through the following:
performance and quality. • Planning Phase
• Ensuring Compliance with all T&C’s • Identify Stakeholders / SME’s
• Ensuring Timely Delivery – A product or • SOW/SOO Development
service that meets all specifications isn’t of • Sign Off
much value if it received too late to be useful. • Procurement Phase
• Protecting Financial Interests – Includes • Sourcing
monitoring payments, reviewing costs, ensure • Evaluations
goods are in compliance before payment is
made. • Negotiations
• Contract Development Phase
• Execution
Functions of Contract Administration
• Many of the functions of contract administration involve the planning
and development of contracts.
• These functions include an understanding of all the major
components of the contract.
• The components can include delivery dates, disbursement dates and
amounts and terms to accept or dissolve the agreement.
• Contract administrators often will include the means by which to
measure the performance of both parties to determine if they are
meeting their obligations, as well as procedures to monitor the
performance of both parties.
Functions of Contract Management
• When both parties agree to the contract, the contract management
division begins their work on the project.
• Contract managers ensure all parties involved in the contract meet
their obligations as quickly and effectively as possible.
• These managers make sure that each party has the equipment,
personnel and expertise they need to deliver the expected results
and provides adequate value for their compensation.
• Contract managers also work out any required modifications to
existing contracts.
Why Contract Management
• Risk is the chance of an event occurring that would cause actual
project circumstances to differ from those assumed when forecasting
project benefits and costs.
• Effective contract management incorporates identifying, monitoring
and managing all risks and opportunities over the life of the project
contract to achieve project objectives and value for money outcomes.
• Risks not identified cannot be proactively managed. They can be
very damaging. Risks cannot be correctly identified unless there are
clear project objectives that provide an unambiguous description of
success for the project.
Contract Management Lifecycle
• Procurement Stage
• Execution Stage
• Service Delivery Stage
• Closing Stage
Contract Management Stages
Procurement Stage
• Resourcing
• Planning & Development
• Developing Tools
• Integrate Management aspects
in the contract
• Key Performance Indicators
• Defining Governance
Responsibilities
Execution Stage
• Managing Performance
• Managing Relationships
• Managing Changes
• Managing Contingencies
• Managing Documents and
records
• Executing Governance
Responsibilities
Contract Management Stages

Service Delivery Contract Closure

• Managing Performance • Managing Compliance
• Managing Relationship • Maintaining Relationships
• Managing Changes • Documenting Changes
• Managing Contingencies • Regularizing Contingencies
• Managing Documents and • Saving Documents for Asset
Records Management
• Delivering Governance • Informing the Management of
Responsibilities the closure
Procurement Process
• The foundations for effective contract and performance management
are typically set during the procurement planning process;
• A sound contractual basis for effective contract management is
incorporated in the contract;
• There is adequate knowledge transfer from the procurement team to
the contract management team;
• The contract management strategy for the project is in place as soon
as practical after the contract is executed.
Contract Management & Procurement process
Contract Management Team
• Small team (SME)
• Skills need to cover
– Project Management
– Technical
– Financial
– Legal
• Authority to negotiate

• Effective contract risk management requires the dedication of appropriate

financial resources and experienced personnel to the establishment of a
contract risk management strategy during the procurement phase of the
project and the maintenance of that strategy throughout the project
lifecycle.
CONTRACT MANAGEMENT TEAM
• May consist of the following individuals:
• Purchasing Manager/Agent
• Project Manager
• Technical Experts
• Legal Counsel
• End Users
TEAM ROLES
• Purchasing Agent/Manager or Project Manager – Responsible for
coordinating the activities of the different team members. Main
responsibility is managing the Business Relationship.
• Sponsor, Department Representatives/Technical Expert –
Responsible for technical oversight of the contract, Identifying
Requirements
• Legal Counsel – Responsible for reviewing Bids, Change Orders,
Contracts, Resolutions, Sole Source Items and drawing up the
contract and change orders (varies by entity)
• End Users – Vendor Performance Reviews, On-line Receipt, Contract
Admin. Identifying Requirements
Ideal Contract
• Allocation of risk
• Service requirements
• Value for Money Mechanisms
• Procedures for contract management
Service Level
• The Contract should set out clearly the expected performance and
Quality
• Who is responsible for what needs to be clear, both mutual and
individual
• Flexibility especially in early stages of long term contracts
• Enter into mutual Service Level Agreements (SLA)
Developing a contract management strategy
Key Elements of effective Contract Management
• Planning, Information Collection and Analysis
• Contract Administration
• Performance Reporting and Monitoring
• Relationship management, dispute resolution and issue management
• Governance, probity and compliance
• Knowledge and Information management
• Change management
• Contingency Planning
• Ongoing Review
• Contract Management Training
Planning, Information Collection and Analysis
• Contract management personnel understand the legislative, regulatory and
commercial context of the project.
• All the key risks of the project are identified and are updated as necessary over
time.
• The likelihood of each risk materializing, and its potential consequences and
impact on project objectives have been assessed.
• Possible controls and mitigations for each risk have been identified, assessed
and implemented.
• Interdependencies between risks are understood.
• Potential changes in the project’s risk profile over its lifecycle have been
considered, planned for and responded to.
• Good contract management is not reactive, but aims to anticipate and respond to
business needs of the future.
Information
Collection & Analysis
• Information Sources
• the business case for the project
• project risk analysis conducted by the
procurement team for the purpose of
developing the contractual allocation
of project risk between the parties
• the project contract documents
• associated financial, structural and
organisational details
• interviews with the procurement
team and their advisers
• existing risk management tools within
the organisation
Contract Administration
• Contract administration requires an understanding of the legal
documentation for the project and also:
– the commercial intent of the parties
– the operating, industry and community issues associated with service provision
– the legislative and regulatory context in which the project operates
• It is the best practice to prepare a comprehensive Contract Administration
Manual that enables the Project Director to understand the key contract
provisions and the environment in which the contract must be
administered, which will specify:
– What needs to be done, by whom and when ?
– How will employer’s role be performed ?
– What are the ramifications of any non-performance or default by either party and
how these should be addressed ?
CONTRACT ADMINISTRATION ROLE
These are outlined in the contract via
SOW/SOO which is used to track
deliverables.
1. Monitor Contract Performance
2. Contain Cost/Meet Schedules
3. Scheduled and Unscheduled
Inspections
4. Confirm Work Performed –
Compliance
5. Contract Violations and
discrepancies
6. Document in Writing
7. Maintain Records
8. Corrective Actions – Cures
9. Contract Modifications
10. Receive in a timely manner
11. Contract Modifications
12. Change Orders/Price Changes
13. Close Out
Performance Reporting and Monitoring
• Performance measures lie at the heart of performance management and it is important
that performance measures are linked to strategic objectives, or to desired outcomes.
• The employer understands the contractor’s internal operating environment, such as its
cash flows. It is through this understanding that the employer can derive an awareness of
the private party’s strengths and weaknesses, including financial performance.
• The Employer monitors ‘soft’ indicators of the management quality of contractor looking
for weaknesses or trends that may provide an early indication of trouble ahead.
• The employer regularly reviews the quality of the service as measured against the KPIs
and output specifications.
• Having assessed the data collected through these monitoring activities, the employer
takes appropriate action to mitigate or control any risks that are materialising, and to
maximise value for money from the project.
Performance
Monitoring
The stepped approach to performance
reporting:
• Step 1: Understanding the business
• Strategic and Project level requirements
• Cash flows, Project costs and debts
• Risks
• Step 2: Analyze the underlying quality
of the project
• Financial Health
• Management Quality
• Service Performance
• Step 3: Reporting requirements
• Internal MIS
• Senior Management
• Government
Relationship Management, Dispute Resolution
and Issue management
• It is imperative to maintain a strong relationship between the employer
and the contractor. Good relationship management enables the parties to
anticipate risk events more effectively and deal with those risks that do
materialise.
• Good communication and a strong relationship are essential, especially if
issues arise which go to the heart of the contract’s operation.
• It is also important to recognize that disputes and service delivery issues
most likely will arise and will need to be appropriately managed.
• If the parties have strong dispute and issue management principles and
procedures in place, these will help minimize damage to the relationship
and assist the parties to achieve success in the project.
Relationship Management
• Establishing relationship management structures
– Senior Management Support; Peer to Peer communication; separation of roles;
Defined roles and responsibilities; escalation paths
• Understanding one another
– Objectives and expectations; future plan and directions; concerns about wider
relationship; Opinion surveys
• Establishing and using communication channels
– Formal and informal contact points; horizontal and vertical communications;
documenting verbal communication
• Relationship management and succession planning
• Monitoring the Relationship
Governance, Probity & Compliance
• It is the duty of the employer in ensuring appropriate governance,
probity and compliance practices are established within the
organization and in its interactions with the contractors and any other
government stakeholders.
• This assists the employer to comply with relevant laws, regulations,
and government policy.
Knowledge and Information Management
• Employer’s ability to successfully manage a contract can depend upon
the Project Director having an effective knowledge and information
management strategy tailored to the project’s needs.
• In a well-managed project, the Project Director ensures the
information collected in relation to a project is maintained,
periodically reviewed, and organized for easy retrieval and access.
These practices assist the employer to comply with:
– record-keeping obligations
– disclosure obligations, such as those under RTI act
– intellectual property laws and confidentiality obligations
Change Management
• During the lifecycle of any project, it is likely that a number of changes
will occur, requiring proper management.
• Changes may be contemplated at the time of procurement and
provided for in the contract, or not contemplated during procurement
but seen as desirable or necessary alterations to services or the
contract.
• In either case, change events are both a source of risk and a potential
opportunity to extract additional benefits from the project.
Change Management
• Good change management processes incorporate the following
features:
• Appropriate protocols are in place to manage change
• Appropriate staff have the authority to request and authorise changes
• Potential changes are assessed thoroughly by suitably experienced personnel,
having consulted with all relevant stakeholders
• Changes are appropriately prioritized and their implementation is properly
resourced
• The implementation of changes is controlled and tested
• Changes are appropriately documented
• Changes do not compromise value for money outcomes
WHAT CAN BE DONE TO LIMIT CONTRACT CHANGES?
• Write Effective and Accurate SOO or SOW
• Inadequately defining the need almost always guarantees Contract
Administration problems ie; Unsatisfactory Performance, Delays in
Delivery, Disputes over both parties obligations, Quality of Product
or Services provided, Ultimately, Higher Costs.
• Select Applicable Provisions – Payment Terms, Delivery
Schedules/Requirements, Insurance Requirements
Basic Procedures
• Start a Contract Administration File and Include:
• Original Contract
• Project Management Plan
• Change Orders / Contract Amendments
• Memos outlining justification of any Changes
• Show Cause and Cure Notices
• Correspondence/Notes from phone/ email/ skype conversations
• Any Required Reports and Sign Off
• Minutes of any Meetings
• Inspections/Audits/ Quality Assurance Checks
Timely Identification of Problems
• Is paramount to avoidance of schedule delays, delivery
requirements, poor quality etc…
• First indicators of problems:
• % of Progress Payments Exceeds % of Performance
completion
• Delayed Response to Correspondence
• Supplier Requests for Delays
• No Visible Progress – Empty Promises
Immediate Response
• A contractor must be clearly held accountable for
their non-performance.
• They must be informed at the time the deficiency
occurs.
• At this time a Cure Notice should be sent along with
“Show Cause” and “Termination” procedures
Contingency Planning
• It may not be possible to fully transfer responsibility for the risk of service
delivery failure to the contractor.
• If the contractor fails to deliver services according to the requirements of the
contract, the employer, and possibly government as a whole, may retain
accountability, and potentially face adverse reaction from end users and third
parties.
• In addition, the contractor’s obligation to provide services may be suspended
through the operation of force majeure provisions. If so, the employer may be
compelled or subjected to strong pressure to ensure that the public or other third
parties are not inconvenienced by a disruption to the supply of those services.
• Effective contingency planning is that the employer can react to unplanned
events and control the impact of these events on service delivery value for
money outcomes
Ongoing Review
• Contract management processes must change and adapt throughout
the lifecycle of a contract, and therefore should be reviewed on an
ongoing basis to ensure that management is sufficiently informed of
current and emerging risks and issues.
• In addition to regular reviews, the impact of the following events
should be considered as and when they occur:
• divergence between each party’s expectations and actual project outcomes
• changes in the project itself through change events, contingency events, or as
a result of the project moving from one stage to another in its lifecycle
• changes in the external environment in which the project operates.
Contract Management Training
• For contract management to be effective, Project Directors
need not only a strong knowledge of the basics, but also a
detailed practical understanding of commercial and legal
dimensions of contract management. The training will meet
this second need.
• As this practical understanding is vital to the success of the
Project Director, and the contract management team, in
implementing effective contract management practices, the
training will be mandatory for employer’s personnel involved
in the management of projects.
CONTRACT CLOSEOUT
• All goods/services received AND accepted
• All reports delivered and accepted
• All administrative actions accomplished
• All customer supplied equipment and materials returned
• Warranties/Maintenance plans received
• Final Payment made