Understanding how Contract Management delineate Project Management 201.

The acceptance and presence of proper contract management, whether it is done by people or via smart contracts certainly tackles every project management related challenges.
 
Person is writing something on a sheet of paper.

Types of projects

To successfully deliver on any project the most important issue to be addressed is which type of contract works best for that type of project. A project benefits can be tangible (output is visible, measurable etc.) or intangible (output is invisible, unquantifiable etc.). 
 
A very simple example of a tangible project which leaves very little to imagination is the assembling of a vehicle. At the end of the project there is a car one can see, touch and if lucky enough drive away. An example of an intangible project is a training program that is designed to improve the confidence of staff. The outcome even though can be measured through cognitive assessment it can't be seen or touched. Project procurements are thus mainly categorised into goods, works and services to help ensure the appropriate contracting is used in effecting it.

Contract communication models

The decision for human-made or smart contracts does not undermine why contracts are so important. Contracts can greatly help reduce known and unknown risks when structured properly. Contracts simply provide a binding framework embedded in juridical law that define the parameters with which the affiliated project is progressed. It captures the clauses governing why the project needs to be done, when it will be done, how it should be done, exactly what is to be done and whichever parties are responsible to ensure its done. It also can spell out whom has the authority to modify which aspects of agreement and to which degree.

Structure of a contract

According to an Australian Government Agency, “For a contract to be legally binding it must contain four essential elements, “offer, acceptance, intent and consideration.”
 
Offer:
An offer is a conditional proposal made by a buyer or seller to buy or sell an asset, which becomes legally binding if accepted. An offer is also defined as the act of offering something for sale, or the submission of a bid to buy something.
 
Acceptance:
An express act or implication by conduct that manifests assent to the terms of an offer in a manner invited or required by the offer so that a binding contract is formed.
 
Intention:
For a contract to exist the parties to an agreement must intend to create legal relations. Usually, the presence of consideration will provide evidence of this – if the promisor has specified something as the price for the promise this – in most cases – carries with it an intention that the parties be bound. Intention remains, however, an independent requirement and must be separately demonstrated and there are cases in which consideration has been present but no contract found to exist because this pre-condition has not been fulfilled. In determining if there is contractual intent and objective approach is taken.
 
Consideration:
Something of value to which a party is not already entitled, given to the party in exchange for contractual promises. Consideration can take various forms, including a:
 
  • Monetary payment.
  • Promise to do something.
  • Promise to refrain from doing something. 

Consideration is one element critical to the formation of a contract and it must be legally sufficient for the contract to be enforceable.

Key types of contracts

There are different types of contracts. However, for this article let us focus on the key five contract types promoted by the Australian Government namely:
 
  • Written Contracts
  • Verbal Contracts
  • Part Verbal, Part Written Contracts (Hybrid)
  • Standard Form Contracts (Framework Agreements)
  • Period Contracts (Time Scaled) 

I prefer to always highlight above listing because embedded in them one can always create several contracts such as:
 
  • Express and Implied Contracts
  • Unilateral and Bilateral Contracts
  • Unconscionable Contracts
  • Adhesion Contracts
  • Aleatory Contracts
  • Option Contracts 
  • Fixed Price Contracts

Why project contract management is so key for project success

One of the leading project management consultancies globally, ARES Project Management LLC states project contract management as follows: “Contract management is the overseeing of a project’s contracts from their initial pre-award phase through to completion. Proper contract management ensures that the project’s budget and resources are in alignment with its overall objectives. Tracking contracts as they progress and identifying and managing any issues as they come up is an important project management process.”
 
The above definition in a nutshell best captures how important contract management delineates project management. Haapio, H. (2007) conference paper highlighted the reason why project contract management is so key in realising project success: “Few aspects of project business are unrelated to contracts. Selling, procurement, finance, invoicing, change control, claims, and many other fields operate within the framework of contracts.” The one reason why contracts are created and managed to make any type on contractual relationship successful is its ability to first clearly capture stakeholder expectations, accurately project potential outcomes that this relationship can generates and document responsibilities of all parties to the contract. This pretty much defines a roadmap which of followed to the letter should generate the desired results. This certainly almost always holds true in the absence of force majeure.

In conclusion

For starters we need to take a step back and look at implementation of a project in totality. Every project mimics what Aristotle (384 - 322 BC) said, “the whole is greater than the sum of the parts” and Thomas Reid (1710 - 1796), “a chain is no stronger than its weakest link” are the best quotes to define the relationship between contract management guaranteeing project success.
 
For a project delivery to be successful, there is an array of many parts that must come together in total sync. One of the most important parts is clearly defining team roles and responsibilities and getting each one to own their role. Then walking through the project life cycle, the project proposal must be very well developed. All the project related contracts to engage teams, resources, suppliers, tier contractors etc., must be innovatively designed.
 
In my opinion the best picture of the relationship between contract management and project management may be watching a Fédération Internationale de l'Automobile Formula-1-Race. In addition to the team principal, engineers, analysts, mechanics, drivers and including the factory design and manufacture team, there can be as many as 1,000 members. Each member of the team plays a very crucial role in ensuring race success.
 
The best contract or contract manager cannot deliver a successful project in isolation. Neither can the best project manager of project team do. The highlight is contract and contract management draw the parameters and ensure the project is delivered within the contractually agreed boundaries. One thing it ensures for sure is the avoidance of gold plating.
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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