61084640 contract management training

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

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OVERVIEWOF

CONTRACT MANAGEMENTby

Ayotokunbo EhiribeLegal Programme Management


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Scope

The Contract Management ProcessTeamwork: Roles & ResponsibilitiesGlobal Contracting Concepts & PrinciplesContracting MethodsThe Pre-Award PhaseContract Pricing ArrangementsThe Award PhaseThe Post-Award PhaseConclusion - Using Global Best Practices


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The Contract Management ProcessThe Contract Management Process


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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) Seller/Prime Contractor

SubcontractorsContract Contract


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Contracts

DefinitionAn 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 partiesRelationship: The personal or professional commitment that forms the understanding between people who enter into agreements, either oral or written


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Contracts Are:

Projects: That must be managed by people from both the buyer’s and seller’s organisations

Sources of business: For sellersSources of goods and services: For buyersRisk management tools: For both buyers and sellers


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Contracts Are Projects

Contracts are -Goal-orientedCoordinated and interrelated activitiesOf finite durationFor stated considerationUnique

Contracts must be managed and performed to stated quality standards

Time

Cost Quality


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The Four “P”s of Contract Management

PricePrice

ProcessProcess

PerformancePerformance

PeoplePeopleSolicitation

PlanningSolicitation

Planning

FP Contracts

Contract Administration


Procurement Planning


Reasonable Consideration

AuthorityAuthority

AccountabilityAccountability

Customer SatisfactionCustomer

Satisfaction T&M ContractsCR

Contracts

Roles & Responsibilities

Roles & Responsibilities

PrivityPrivity

Improved Business

Performance

Improved Business

Performance

Superior Project Results

Superior Project Results

Contract Closeout/

Termination

Contract Closeout/

Termination

SolicitationSolicitation

Source SelectionSource

Selection

ContractManagement


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Phases of Contract Management1.


Contract Management Process

2.Solicitation

Planning

3.Solicitation

4.Source

Selection

5.Contract

Administration

6.Contract Closeout/

Termination

Phase I: Pre-Award

Phase

Phase III:Post-Award

Phase

Phase II:Award Phase


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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


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Teamwork - Roles and Responsibilities


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The Concept of Agency

Buyer Agent Agent Seller

Buyer Agent Agent Seller Agent Agent Subcontractor

Authority Authority

No Privity

PrivityPrivity


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• Project Manager

– Responsible for ensuring the coordinated undertaking of goal-oriented 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

Who Is in Charge?


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Who Is in Charge? (Contd.)

Contract managers and project managers

AuthorityResponsibilityAccountability

Sources of conflict

Precontract actionsSeller selectionPricing arrangements and contract terms and conditionsSpecification of requirementsControl of contracts with other party


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Global Contracting Concepts and Principles


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Essential Elements of a Contract

1. Competent parties

2. Offer

3. Acceptance (agreement)Consensus ad idem

4. Consideration (bargained for exchange)

5. Legality of purpose


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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 damagesLiquidated damagesSpecific performanceOther actions (waiver, forbearance)Nonpunitive damages


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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


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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

• 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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Global Contracting Concepts & Principles (Contd.)


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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


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Contract Interpretation (Contd.)

Order of Precedence or Whole Instrument

ParolEvidence Rule

Express Language

Rules of Statements

Conduct of the Parties

Custom in the Trade

Prior Course of Dealings

Contra Proferentem Rule

First Rule: Intent of the Parties Secondary

Rules


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Contracting Methods


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General Contracting Methods

Competitive Non-competitive

Simplified • BOA, Frame/Master/Universal/ General Purchase Agreements

• Dealer/Distribution Agreements

Formal • Sealed Bidding• 2-Step Sealed Bidding• Competitive Proposals

• Single-source negotiation• Sole-source negotiation

• Purchase cards• Imprest funds or petty

cash• Auctioning


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Above N2,000,000One-off supply of goods and/or services, using bespoke contract or non-frame SFCs.

Other Agreement Type

UnlimitedSupply of goods and/or services in more than one instance under similar originating terms and conditions, using a frame SFC

Frame Agreement

N2,000,000 and below to be issued by Procurement Division

Supply of goods and/or services which do not require intricate testing before acceptance or which can be accepted upon physical inspection

Purchase Order

N100,000 and below.

Simplified low value transactionsMinor Requisition

Value LimitActivity DescriptionContract Type

VNL Contracting Methods


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The Pre-Award Phase


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Procurement Planning (Contd.)

Scope statementProduct descriptionProcurement resourcesMarket conditionOther planning outputConstraintsAssumptions

Input

Make-or-buy analysisExpert judgmentContract types selectionRisk Management processContract Ts & Cs

Tools & Techniques

Procurement Management PlanStatement of Work

Output

Involves the buyer’s consideration of whether, how, what, how much and when to procure


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Solicitation Planning

ProcurementManagement PlanStatement of workOther procurementplanning output

Input

Standard formsExpert judgment

Tools & Techniques

ProcurementdocumentsEvaluation criteriaStatement of Work updates

Output

Involves preparing the documents needed to support the solicitation


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Solicitation (Contd.)

Procurement documentsQualified seller lists

Input

Bidders conferencesAdvertising

Tools & Techniques

Solicitation that leads to the submission of bids or proposals

Output

Involves obtaining information (bids and proposals) from prospective sellers on how project needs can be met

Types of solicitations:RFP, RFT, RFQ, IFB, ITB, ITT, RFI, RFI&Q


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Contract Pricing Arrangements


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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


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Factors in Selecting Contract Types

Marketplace and competitionType and complexity of the requirementsUrgency of the requirementSeller’s technical capabilityAdministrative costs to both partiesSize and amount of the contractCapability of seller’s accounting system


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Categories & Types of Contracts

Time-and-Materials(T&M)

Cost-Reimbursement (CR)

Cost-plus-incentive fee (CPIF)

Cost-plus-award fee (CPAF)

Cost-plus–fixed fee (CPFF)

Cost–plus-a-percentage-of-cost (CPPC)

Firm-fixed-price (FFP)

Fixed–price witheconomic priceadjustment (FP/EPA)

Fixed-Price-Incentive(FPI)

Types of Contracts

T&MCost-ReimbursementFixed-PriceCategories


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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 T&M

Risk

LowHigh

HighLow

BuyerSeller

Performance Measurement

BuyerSeller

LessMore

MoreLess


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The Award Phase


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Award Phase - Source Selection (Contd.)

Contract negotiationWeighting systemScreening systemIndependent estimates

Tools & Techniques Output

ContractorWalk Away

Evaluation criteriaEvaluation standardsProposalsOrganisationalpolicies

Input

Source selection is the process of applying evaluation criteria to bids or proposals to select a supplier


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Weighting

Selection and weighting of attributes must reflect buyer’s needs

Three general categoriesManagement - Attributes or qualities of seller as an organisationTechnical - Features and functionalities of the productPrice - Fair and reasonable price


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Evaluation Standards

Relate to attribute valuesCompare the proposals received to set evaluation criteriaThree approaches

Absolute standardsMinimum standardsRelative standards

VNL Contract Drafting & Execution Process Flow


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The Post-Award Phase


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ContractWork resultsChange requestslnvoices and paymentsOther tasksContract administration policies

lnput

Contract analysis and planningPre-performance conferencePerformance measuring and reportingPayment systemChange control systemDispute management System

Tools&Techniques

DocumentationContract changesPaymentCompletion of work

Output

The principal objective of contract administration is to ensure fulfillment of contractual obligation by all parties


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Reasons for Non-Compliance

The six great excuses:

‘I never saw the contract’‘I didn’t have a chance to read the contract’‘I didn’t understand the contract’‘I thought the contract was wrong’‘That’s not what the contract says!’‘What contract?’


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• Read and analyse the contract

• Evaluate organisation’sability to comply

• Obtain commitments• Develop a Contract

Administration Plan• Conduct internal and

external pre-performance (or kick-off) conferences

• Initiate compliance activities• Prepare schedules

• 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

Main Tasks of Contract Administration


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Records and Files for Buyers & Sellers

Official copy of contract and modificationsConformed working copy of contractCorrespondence file, log or index, and suspensesTelephone logRecord of deliveries, inspections, acceptancesProgress and surveillance reportslnvoice and payment records


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Written Confirmation

Compensation

ChangeImpact

Document-ation

Notification

Identification

Estimation&

Approval

Authorisation

Change Management

Change Management: The 7 Principles


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Performance Monitoring

• Ensure Quality– conformance to requirements– Form, fit & function

• Direct and Indirect Observation – site visits (direct)– progress reports (indirect)


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• Inspections– In-process inspections– Pre-final inspection– Final or closeout

Inspection

• Rules of Acceptance– ‘strict conformity’ or

‘perfect tender’– material and

immaterial breaches– fundamental breach– substantial

conformance

Performance Monitoring (Contd.)


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Contract Closeout

Completion of workContract documentationorTermination notice

lnputCompliance verificationContract documentation Contract closeout checklistTermination

Tools&TechniquesProduct or service completionAcceptance and final paymentContract closeout or termination documentsDocumented lessons Iearned

Output

Contract closeout involves both productverification and administrative closeout


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Sample Contract Closeout Checklist

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 buyer–furnished property has been returned to the

buyer5. All actions related to contract price revision and changes

have been concluded6. All outstanding subcontracting issues have been settled.7. If a partial or complete termination was involved, action is

complete8. Any required contract audit is now complete.9. The final invoice has been submitted and paid

Sample Contract Closeout Checklist

Yes N/A No


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1. Use a Contract Management Methodology

2. Commit to a contract Management Professional Development Programme (e.g. with ESI Intl, NCMA, NAPM)

3. Establish a list of pre-qualified suppliers

4. Take advantage of e-commerce or EDI

5. Use corporate p-cards6. Adopt value-based pricing

where sensible7. Use universal sales agreements8. Conduct Risk vs. Opportunity

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 best-

practices and lessons-learned database

Conclusion - Using Global Practices


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Thank You

61084640 contract management training

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