Understanding how contract management delineates project management 101
According to the Chartered Institute of Procurement and Supply (UK), contract management “encompasses everything from establishing the business case and confirmation of need through to relationship management and reviewing performance. It can be divided into two phases: upstream and downstream of the contract being awarded.”
Thus, it can further be described as the overseeing of a project contract from their initial pre-award phase through to completion. We can deduce that without a contract (verbal or written) the existence, implementation and deciding a clear parameter with which stakeholders affiliated with a project can define the rules governing any initiative.
Thus, the defining crux of business relationship and project management is written firmly within contract management. Therefore, structuring a contract is imperative and correctly administering it is key.
The Halo Effect vs. Contract Management
The so-called “Halo Effect”
is a type of cognitive bias in which our overall impression of a person influences how we feel and think about his or her character. What this simply means is that sometimes, or in most of the times our perception of people is greatly affected negatively or positively depending on their capabilities devoid of the truth. Over a decade ago, before I was medically required to wear prescription lenses, there was a perception that persons who wore glasses had a comparatively higher intelligence quotient (IQ)
. Thus, funny enough for my first lecture engagement I decided to wear glasses just to appear smarter. Even though I was extremely knowledgeable of the subject matter and have always had excellent presentation skills, I wore non-prescription lenses anytime I had to lecture. I never actually figured out if this boosted the confidence of the attendees in my capabilities but as a result of a well-known cognitive bias, psychologically I certainly felt extremely upbeat and graciously cut a good figure.
This type of cognitive bias
which almost everyone has promoted consciously or unconsciously, or whom have been victims of can affect how accommodating we are of others when deciding which contractual clauses, especially punitive clauses we use for particular contracts. While this may be a natural trait of human beings, it is important that we all realise the existence of such introspective contract management bias and the tailspin effect it can have on project management.
Contract Management effect on Project Earned Value
As defined by the APMG (UK), Earned Value Management (EVM)
is “a management approach which upon incorporating any type of program – provides all levels of management with early visibility into cost and time related problems”.
This approach provides the basis for assessing work progress against a baseline plan by relating technical, time and cost performance constraints as well as information for pro-active management action, therefore helping managers by providing a condensed summary for effective decision making.
Successful implementation does not only reside on successful completion. Nowadays the focus lies on how much value was added during the delivery of the project. There are so many stories of ghost towns where developers and investors have invested billions of dollars in their construction, but which have never been populated. Contract Management does not only delineate the parameters with which any project will be designed, executed and managed, but it is also expected to establish the potential earned value and return on investment (ROI)
the successful implementation of the project will bring to its initiators.
Contract Management delineating effect on Project Management
In an ideal world, a contract manager is responsible for drafting all contract write-ups, negotiating with clientele, leading on, reviewing and approving variations and ensuring all contract stakeholders oblige to the agreed contractual clauses. Project managers must be managing the team that will implement the contract, providing periodic reports
(status, risk, executive, resource and variance) and propelling milestones.
Contract managers act as the key liaison between business and clients. Unfortunately, it has become an underrated input of management function. In an attempt to save money, many entities several entities globally skip engaging a contract manager. Instead, contractual responsibilities are forced upon project managers. This leads to overworked project managers or inexperienced staff who will micro-manage into an arena of disasters. This eventually costs projects far more financial losses in the medium to long term. According to the Oxford College of Procurement and Supply (UK)
“a lack of contractual procedures or poorly constructed procedures can cause havoc.”
For successful project management it is imperative that contract managers are involved in every step of the Project Life Cycle (PLC). Credentials such as those offered by International Association of Project Managers (IAPM) certified project managers
are embedded with skills and methodologies to highly equip candidates with essential contract management skills. However, it is also important to acknowledge that there is a role separation between contract management and project management. According to Study.com, the key difference between the two role profiles
is, “project managers are focused on meeting the goals and specifications of designated projects such as product launches, building projects, and software development. Contract mangers, however, are more involved in negotiating and working with clients to help them understand the paperwork they sign.”
Project management will always be at the risk of abysmal failure without proper contract management. Besides chaos, the risk of delivering not fit for purpose projects
and the danger of awarded debts, it also presents a platform for project delivery inefficiencies, derail cost, schedule and risk and other compliance issues. The World Bank states
that, “although there are a broad range of reasons for failures in contract management, not having the fundamentals in place is often a major factor for poor performance.”
In my opinion the most basic fundamental input to ensure the successful managing of any project must be the acceptance and presence of proper contract management, whether it is done by people or via smart contracts
Author: Nana Sackey is a Contract Portfolio Specialist with several years of experience in innovative contracting across shipping, telecoms, managing donor funded projects and academia. He is a Certified Project Management Professional (PMP®), a Chartered Procurement Professional (MCIPS), a Chartered Logistician (CMILT), a Certified Agile Project Manager (IAPM), a Certified Scrum Master (CSM™) and holds a M.Sc. in Procurement. He has facilitated several corporate trainings in the past, focused on contract administration, cost estimation, spend analysis and risk management within contract portfolios.
Personally he delights in sharing God's Word and is happily married to Debbie with whom he shares three kids – Iden, Ibby & Ilse – with.
Key words: Project management, Contract management, Tip, Knowledge, Guide
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