V SAI MANOGNYA – 1801154

B SARIKA – 1801169
PGDM C

CONTRACT MANAGEMENT
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.
 A contract is legally enforceable because it meets
the requirements and approval of the law. An
agreement typically involves the exchange of
goods, services, money, or promises of any of
those. In the event of breach of contract, the law
awards the injured party access to legal remedies
such as damages and cancellation.
Contract Management

 Contract management is the process of managing

contract creation, execution, and analysis to
maximize operational and financial performance at
an organization, all while reducing financial risk.
 Organizations encounter an ever-increasing amount
of pressure to reduce costs and improve company
performance.
 Contract management proves to be a very time-
consuming element of business, which facilitates the
need for an effective and automated contract
management system.
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
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.
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 materialising, 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 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 ?
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.
 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: Analyse the underlying quality of the project
 Financial Health
 Management Quality
 Service Performance
Step 3: Reporting requirements
 Internal MIS
 Senior Management
 Government and Parliament
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 recognise 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 minimise 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 organisation 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 organised 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 prioritised 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
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.
THANK YOU!