Lessons Learned for Contract Management

Lessons Learned for Contract Management A Presentation for PMI-AGC by Kurt Robertson PMP, MBA, Lean Sensei 6 Sigma Master Black Belt CFPIM, C.P.M. Copyright 2010, Saudi Aramco. All Rights Reserved. April 30, 2010

DISCLAIMER Private person May reference broad contracting experience beyond Saudi Aramco. Nothing in this presentation is specifically represents Saudi Aramco policy or specific contracting problems or events within Aramco. 2

Purpose, Objective, Applicability Purpose: To provide a high-level checklist of activities and considerations for proper contract administration. Objective: To leave the meeting with tips on improving your professionalism and on improving your life as a contract administrator. Applicability: Universal Projects Contract Management or Contract Administration 3

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LEAN CONSIDERATION 8 WASTES 1. Over production 2. Over Processing 3. Excess Inventory 4. Transportation 5. Motion 6. Defects (Six Sigma) 7. Waiting 8. Human Resources REMEMBER: 1. Quality 2. Cost 3. Delivery 4. Safety 5. Morale QCDSM 5

Two Points of View 1. Contractor: (submits proposal, performs work) 2. Customer: (develops SOW, sends IFP/RFP/IFB, awards contract) Two Areas of Responsibility 1. Administrative Being on time Documentation Communication 2. Technical Cost Quality Delivery 6

Contract Management A Core Competency Open and fair Contract Management is the starting point for building positive customer/supply relationships. Contract Management has transformed from an administrative, tactical function to a strategic process integral to corporate strategy and directly contributing to the organization s competitive advantage. It is now a core process. Good contract writing and negotiation must be accompanied by effective contract management. If you re not effectively managing your contracts, you re not effectively managing your business. To award and successfully manage effective contracts, organizations must have a disciplined, capable and mature contract management process in place. Contract Management Defined The management of issues that arise during the performance of a contract, including the process of managing contract deliverables, deadlines, contract terms and conditions (T&Cs), while ensuring customer satisfaction. - National Contract Management Association, 2 nd ed. Life Cycle Contract Management: The proactive and methodical management of a contract from initiation through award to compliance and renewal. 7

Increased Interest in Contract Management Internal Focus Life Cycle Contract Management Internal process improvement External Focus Outsourcing Supplier Relationships Strategic Sourcing Cost control and transparency Globalization Complexity: Regulatory compliance Tracking of T&C and compliance 8

Contract Management Goal QCDSM Supplier Performance Manage business risks Cut expenses Increase revenues by reducing: Pricing errors Mistaken payments Operating and processing costs Personnel Sub-optimal supplier performance 9

Costs of Sub-optimal Contract Management 1. Sub-optimizing revenue: No enforcement of negotiated terms on your suppliers Unenforced rights may be waived Timely delivery Quality product Errors of double-handling Time wasted looking for contracts, schedules, file notes and data. Poor communications disparate and ad hoc 2. Being reactive instead of proactive 3. Litigation 4. Termination, Suspension or Disbarment 5. No new awards due to past performance 10

Contract Management-Primary Responsibilities 1. Know the Contract (#1 complaint about contract managers) 2. Work Control Work ordering Work completion Work inspection and acceptance Invoicing and payment 3. Contract Compliance Day-to-day monitoring: enforce contract milestone schedule Plan of action if supplier underperforms or if contract requirements change Criteria for measuring success: QCD + supplier responsiveness RFP/IFB amendment, contract modification or change order 4. Contractor Payment (#1 complaint from contractors) Prompt and accurate Quality work, delivered on time, at the cost agreed to Contractor administratively compliant 11

Contract Management-Primary Responsibilities 5. Administrative Rules of purchasing Contract law Transportation Health and safety regulations Social responsibilities 6. Documentation Requirements Document all actions, verify all requirements Invoicing, work plans, performance measures, insurance, supplier crew and material payments 7. Subcontract Plans Subcontractor clause 8. Contract Closeout 12

Checklist for PRE-AWARD Contract Management SOW (or technical specifications): Write it. Live with it Incomplete Gold plated Link pay provisions to specific stratified deliverables to make contract enforcement easier Make deliverables clear, specific, measurable Schedule C to the contract can be an excellent tool to drive behavior Contract Format and Ts & Cs non-standard (industry standards) Prequalification: Screen out weak contractors. The Team: Team Leader. Team Resumes: Everybody looks good on paper. JOB EX: What kinds of questions do they ask? How do their questions reflect their background and understanding of the work? 13

Checklist for PRE-AWARD Contract Management Improve the process (Lean) Automate the process Repository Lessons Learned/Best Practices Standardization (SIMULATION if time allows) Vocabulary Terms, Conditions and Format Standards of performance (expectations) Contract Work Plan List of tasks and schedule for completing those tasks. 14

Checklist for POST-AWARD Contract Management Monitor Contract Compliance Know and shepherd the deliverables Contract Key Performance Indicators (KPIs) Cost Quality Delivery (time, location, quantity) Evaluate Contractor Performance Provide timely corrective feedback to the contractor Administrative Technical 15

Checklist for POST-AWARD Contract Management Avoid Conflict of Interest For you The Customer (remember who you work for: Stockholm Syndrome) For the Contractor Ask yourself if activities are: Illegal Immoral Unsafe Unethical Anticipate, eliminate or mitigate risk. Inform appropriate parties (project manager, quality manager) of potential problems. Represent your organization in meetings be there. Keep your finger on the pulse of the project. Cultural interface and sensitivity. 16

Checklist for POST-AWARD Contract Management Only one contract administrator per contract (conflicting direction) Contract Modifications: Dated and sequentially numbered Specifically what has changed Specifically what has NOT changed Properly approved and executed Conduct Organizational Assessments and self-audits. Contract Management Maturity Model (CMMP) Maturity Levels: Ad hoc, Basic, Structured, Integrated, Optimized Ref: Contract Management Organization Assessment Tools By Gregory A. Garret, Rene G. Rendon Conduct periodic research on your contractor (or customer) for financial or legal problems - lien searches. 17

Checklist for POST-AWARD Contract Management Lessons Learned/Best Practices: Begin documenting early and share as appropriate to improve the process and deliverables Repository: common accessible storage area Kickoffs, Phase Wrap Ups, Status Meetings: Communicate Early Communicate Clearly Communicate Often Expectations: Establish them early. Manage them often. We receive the product quality and contractor performance we are willing to tolerate and accept. 18

Checklist for POST-AWARD Contract Management Unauthorized Commitments Only one spokesperson per contract Communication Ladder: Problems Authorization to perform work Site Visits Be Present: Difficult to manage a contract from behind a desk Let the contractor and the proponent know by your frequent presence you are the company s contract representative Insist on being kept informed Make random quality checks and other evaluative functions When in charge, take charge! 19

The Contractor s Point of View Everything above still applies. If your authorized customer representative asks for additional level of effort and it isn t: Illegal Immoral Unethical Unsafe Get a signed change order THEN proceed. Following verbal direction, even from an authorized person, often results in filing a claim for payment. Even a letter confirming verbal direction is better than nothing. 20

RESOURCES National Contract Management Association (NCMA) www.ncmahq.org. Contract Management Body of Knowledge (CMBOK). Next Level Purchasing http://www.nextlevelpurchasing.com/free.html. Institute for Supplier Management (ISM) http://www.ism.com. Purchasing Magazine http://www.purchasing.com. 21

Thank you 22