Project management, with its varied methods, concepts, and structures, is a field of richness that can sometimes be confusing for the teams responsible for its implementation. This complexity increases further when you consider that a project manager requires other skills: in human resources, change management, quality management and… contract management, which is the subject of this article.
Why focus on contract management, you ask?
This is because the consequences of poor contractual management namely: delays, additional costs, disputes, customer dissatisfaction etc, are simply unacceptable, both for the client and the supplier.
But also, because contractual performance relies on the close collaboration of many stakeholders and departments within the company, which makes it a discipline that is demanding, strategic, and exciting, but unfortunately not always an area of core expertise for project managers.
Like the project, a contract follows a lifecycle. We will therefore successively address:
- The contractual agreement, the common base between the parties involved in the realization and execution of a project.
- The execution phase, or how to deliver products or services in accordance with the initial contract and its changes.
Contractualization
What is the essence and purpose of a contract?
A contract:
- Formalizes the agreement between the parties.
- Guarantees the legal security of commitments.
- Frames all dimensions of the project.
- Is legally binding, defining rights and obligations.
- And paradoxically, frees the parties by setting a clear framework.
Some best practices for Contractualization:
1. Anticipate and plan
This is about clarifying financial and operational responsibilities. Let’s take the example of a contract between an automobile manufacturer and an equipment supplier for the supply of a specific part. It is normal for a capacity investment, often for multi-customer use, to be the responsibility of the supplier. Amortized over a very long period (e.g., a press tool amortized over a period of more than 10 years), this investment is invoiced through a contribution proportional to its use for a customer’s product.
In the case of an investment specific to a project (e.g.: Mold specific to a part whose intellectual property belongs to the manufacturer), the cost falls entirely on the manufacturer who pays his supplier “cash” directly.
Similarly, in a joint venture, incorporating a RACI (Responsible, Approver, Consulted, Informed) helps clarify roles, especially when the service is complex and the financial stakes high. As the saying goes, it’s always harder to reach an agreement after signing than before.
2. Analyse rigorously
On the client side, a precise and unambiguous specifications are essential. Here are two recommendations to this end:
- Have contractual documents reviewed by a third party to eliminate ambiguities.
- Identify areas of variability and provide options that can be activated to ease future management.
On the supplier side, it’s important to carefully analyse the contract files and documents. Artificial intelligence, through tools like AI Tender or well-formulated prompts, can significantly simplify this task.
In a competitive environment, risk-taking is inevitable. It’s therefore essential to take the time to assess risks and opportunities (R&O) and then integrate the cost of risk reduction actions as well as a provision for residual impacts into the quote.
3. Ensure Legal Security
Engage internal legal experts or specialized Law firms to guarantee the legal soundness and robustness of the contract.
4. Know your contract
The contract is the ultimate reference in the event of disagreement. Each party must be familiar with at least the clauses that apply to them. For large contracts, it is recommended to compile a list of key clauses and, if necessary, use a dedicated contract manager.
Managing Compliance
Delivering a compliant product or service requires rigorous management. This involves implementing a requirements compliance matrix, which must:
- Be exhaustive in identifying requirements.
- Clarify the expectations.
- Identify those responsible (see RACI).
- And finally, validate the testability of the requirements from the earliest phases.
On this subject, let’s recount the misadventure experienced by a project manager at a nuclear facility. As the construction phase ended, acceptance tests had to be organized. Among the requirements to be verified, one was the achievement of a minimum vacuum between two spaces, located behind a hatch. This hatch, made of lead to protect workers from radioactivity, was not capable of being instrumented. This requirement was untestable, unbillable, and teams had to be kept on site while a solution was found: A nightmare for the project manager!
Finally, the matrix must evolve as changes are made. It is crucial to track all changes, even without an immediate impact on costs or deadlines, in order to maintain a complete, up-to-date, and controlled configuration.
Managing change: between rigor and flexibility
Change management is a fundamental pillar of contract management, yet it is often neglected – due to over optimism or the fear of appearing disorganized. A serious mistake: poor change management can clog the project and very often erode margins.
A client, an aeronautical equipment manufacturer, who had not planned for change management, was thus forced to urgently order a Claim Management implementation service to maintain its profits.
Some recommendations:
- Structure Negotiations: In a first loop, detail the changes, carry out the impact study (macro issue : quality-cost-deadlines-performance) based on the initial costing or a cost matrix, then, during the second loop, based on a favourable customer opinion and an associated budget, begin the final negotiation to finally formalize the decision.
- Maintain customer relations: Know your interlocutor well, share the issues, demonstrate transparency, propose alternatives that can be in the customer’s interest, even for non-formalized needs.
- Be flexible: In some cases, if the company’s quality processes allow it, absorbing a change without immediate compensation can preserve the project’s momentum. Provided the potential impacts are measured.
What about late changes?
They sometimes occur late at the end of a phase, threatening the schedule or budget. For example: a design change the day before manufacturing. Two options:
- Prioritize the schedule deadline: decide quickly so as not to delay the project and place the risk on the technical content and the cost.
- Prioritize cost: take the time to negotiate, even if it means delaying.
There is no universal solution here, but one certainty: we need to know, at the time the change occurs, how much time we can afford to take to process it and assess the associated impacts.
In a second article, we will address:
- Dynamic contract management, through continuous communication and planning.
- Collaboration, to involve teams and advance the contractual relationship.
To be continued…
Contributors to this article : Damien Sejourne, Head of the Project Department at Ascent Integration Europe, Francois Potterie, and Philippe Biche, Projects Director at setec, Laurent Paletta, Managing Director at setec IPMC, Franck Suchet, Sales Director at setec eocen, Antoine Chaudagne, Technical and Sales Director at setec eocen, and eocen experts: Sébastien Clement, Baptiste Demeocq, Arnaud DESTREEZ, Abdelghafour Tarajja and Younes Essoudy Mourry.