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8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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OVERVIEWOF
CONTRACT MANAGEMENTby
Ayotokunbo EhiribeLegal Programme Management
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Contract Management ProcessThe Contract Management Process
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Four “P”s of Contract Management
PricePrice
ProcessProcess
PerformancePerformance
PeoplePeopleSolicitation
PlanningSolicitation
Planning
FP Contracts
Contract Administration
Contract Administration
Procurement Planning
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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Phases of Contract Management1.
Procurement Planning
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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Teamwork - Roles and Responsibilities
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Concept of Agency
Buyer Agent Agent Seller
Buyer Agent Agent Seller Agent Agent Subcontractor
Authority Authority
No Privity
PrivityPrivity
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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?
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Global Contracting Concepts and Principles
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Global Contracting Concepts & Principles (Contd.)
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Contracting Methods
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Pre-Award Phase
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Contract Pricing Arrangements
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Award Phase
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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The Post-Award Phase
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Contract Administration
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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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?’
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Written Confirmation
Compensation
ChangeImpact
Document-ation
Notification
Identification
Estimation&
Approval
Authorisation
Change Management
Change Management: The 7 Principles
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Performance Monitoring
• Ensure Quality– conformance to requirements– Form, fit & function
• Direct and Indirect Observation – site visits (direct)– progress reports (indirect)
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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.)
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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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
8 September 2006 (Some Credits: PMI PMBOK, ESI International)
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Thank You