Managing a contract can be a complex and challenging task, requiring a thorough understanding of the contract terms and conditions, as well as effective communication with stakeholders and specialists.
To prepare for successful contract management, there are several key steps that should be taken.
- The first step is to confirm and clarify the contract requirements, approvals, and funding arrangements and identify any obligations and limits of authority. This will help to establish a clear understanding of the scope of the contract and ensure that all parties are on the same page.
- Next, it is important to clarify any contract administration issues by contacting specialists and stakeholders and confirming the operational elements of the contract. This will help to identify any potential areas of concern and ensure that the contract is being administered effectively. It is also important to identify and clarify key contract clauses, as well as the process, timings, and key performance indicators with stakeholders.
- Developing or reviewing the risk management plan is another important step to ensure that potential risks are identified and managed effectively.
- Finally, it is important to develop or obtain a contract management strategy and enter key details from the contract, form a contract management team, and allocate roles and responsibilities.
Watch
Watch the video below from Association for Project Management to find out more about contract management.
Further Reading
Access the link below to find out more about contract management:
Queensland Government Procurement Contract Management Framework (hpw.qld.gov.au)
Confirming and clarifying contract requirements, approvals, and funding arrangements, and identifying obligations and limits of authority is the first step in preparing to manage a contract. It is important to ensure that there is a clear understanding of the terms and conditions of the contract, as well as the roles and responsibilities of all parties involved.
This step involves obtaining a copy of the contract and carefully reviewing all the terms and conditions outlined in the document. This includes identifying the key requirements, such as the deliverables, timelines, and milestones, and confirming who the approving authorities are and what the funding arrangements are for the project or service being delivered under the contract. It also involves identifying any limitations of authority, such as restrictions on decision-making, expenditure or approvals, that may affect the management of the contract.
Another important aspect of this step is reviewing the obligations and responsibilities of all parties involved in the contract, including the supplier, the customer, and any third parties. This helps to ensure that everyone is clear on what is expected of them and helps to prevent misunderstandings or disputes down the line.
Once all the requirements, approvals, and funding arrangements have been confirmed and obligations and limits of authority have been identified, it is important to document these findings and agreements. This provides a clear reference point for all parties involved and helps to ensure that everyone is working towards the same goals.
Overall, confirming and clarifying contract requirements, approvals, and funding arrangements, and identifying obligations and limits of authority is a critical first step in preparing to manage a contract effectively, providing a solid foundation for successful contract management.
Example
Let's say you have been tasked with managing a contract for the provision of IT services to a client. Here's how you might go about confirming and clarifying the contract requirements:
Contact the contract owner or legal representative and obtain a copy of the contract.
Review the contract and identify the key requirements, such as the scope of work, deliverables, timelines, and milestones.
Identify who the approving authorities are for the project and confirm the funding arrangements with the client.
Identify any limitations of authority that may affect the management of the contract, such as restrictions on decision-making, expenditure, or approvals.
Review the obligations and responsibilities of all parties involved in the contract, including the supplier, the client, and any third parties.
Seek clarification from the contract owner or legal representative for any terms or clauses that are unclear or ambiguous.
Document all the findings and agreements reached during the contract review process, ensuring that any clarifications or changes are recorded and communicated to relevant stakeholders.
Furthermore, it is strongly recommended that any proposed changes or additional clauses to be thoroughly reviewed by a qualified legal representative. This step ensures that the modifications are not only compliant with legal requirements but also effective in safeguarding the interests of all parties involved.
Furthermore, it is strongly recommended that any proposed changes or additional clauses to be thoroughly reviewed by a qualified legal representative. This step ensures that the modifications are not only compliant with legal requirements but also effective in safeguarding the interests of all parties involved.
By following these steps and documenting your findings, you can effectively confirm and clarify the contract requirements, approvals, and funding arrangements and identify obligations and limits of authority, providing a solid foundation for successful contract management.
Clarifying and assisting with contract administration issues by contacting specialists and stakeholders and confirming operational elements of the contract is the second step of preparing to manage a contract. Once the contract requirements have been confirmed, it is important to clarify any unclear terms and address any issues that may arise during the administration of the contract.
This step involves reaching out to specialists and stakeholders who may have a better understanding of specific contract terms or operational elements. By doing so, you can obtain additional information or clarification on any unclear terms and ensure that all aspects of the contract are understood by all parties.
Step-by-step process of clarifying and assisting with contract administration issues
- Identify potential issues: Review the contract and identify any issues or areas of concern that may arise during the administration of the contract.
- Reach out to specialists: Contact specialists who may be able to provide additional information or clarification on specific contract terms or operational elements. This may include legal experts, finance professionals, or subject matter experts in the field related to the contract.
- Contact stakeholders: Reach out to stakeholders, including the client, suppliers, and any third parties involved in the contract, to ensure that all parties are aware of the terms and conditions of the contract and are aligned on the project's goals and objectives.
- Confirm operational elements: Confirm the operational elements of the contract, including timelines, deliverables, milestones, and key performance indicators (KPIs), with all relevant stakeholders to ensure that everyone is aligned on project expectations.
- Document findings: Document any clarifications or changes that result from these discussions and ensure that they are communicated to all relevant stakeholders.
For example, you might discover during this step that there are additional deliverables that were not included in the original contract. By reaching out to the client and confirming the operational elements of the contract, you can address these issues and ensure that all parties are aligned on the project goals and objectives. You would then document the new deliverables and communicate them to your team to ensure that they are delivered on time and within budget.
By clarifying and assisting with contract administration issues, you can ensure that all aspects of the contract are understood and that all parties are aligned on the project goals and objectives, providing a solid foundation for successful contract management.
Identifying and clarifying key contract clauses is an important step in preparing to manage a contract. This step involves reviewing the contract in detail and identifying the most critical clauses and provisions that will impact the project's success. This could include clauses related to pricing, warranties, indemnification, termination, and dispute resolution.
To identify critical clauses, it's important to carefully read and analyse the entire contract. Here are some tips to help you identify the most critical clauses:
Many contracts will use headings and subheadings to help organise the contract and highlight important sections. Take note of these headings and subheadings, as they can help you identify important clauses.
Contracts often use defined terms to refer to specific concepts, items, or people. Look for these defined terms and make sure you understand their meaning and how they are used in the contract. A word or a phrase can be defined to have a specific meaning in a Contract, to prevent any misinterpretation. By convention, such definitions are indicated by capitalising the first letter of each word used in the term, such as 'Building' or 'High Value Property'. The definitions may be pre-defined, appearing in a specific definitions Clause, where each defined term is followed by the desired meaning of that term. Definitions may also or instead be post-defined, appearing in the body of any particular Clause after a group of words. An example includes 'Duties are to commence between 6am and 8am ('Start Time')'.
Think about the nature of the project and what terms and conditions are most critical to its success. For example, if the project involves the development of software, intellectual property clauses may be especially critical.
Once you have identified the critical clauses, it's important to carefully review and analyse them to ensure that you fully understand their meaning and implications. Seek clarification from the contract owner or legal representative, if necessary, and confirm your understanding with all relevant stakeholders.
When seeking clarification on contract clauses, it's important to reach out to the appropriate party. This could be the contract owner, legal representative, or other relevant stakeholders, depending on the nature of the clause and the specifics of the contract.
Methods that you can use to seek clarification
- Send an email: Email is a common method of seeking clarification on contract clauses. Be specific about the clause in question and ask for a clear explanation.
- Schedule a meeting: Depending on the complexity of the clause, it may be more effective to schedule a meeting with the contract owner, legal representative, or other relevant stakeholders to discuss the clause in person. This can also be a good opportunity to address any other concerns or questions related to the contract.
- Use a contract management platform: Some contract management platforms offer built-in communication tools that allow you to easily send messages to contract owners or other stakeholders, as well as keep track of responses and any changes to the contract.
When seeking clarification, be sure to ask specific questions and provide examples to help ensure that you fully understand the meaning and implications of the clause. Document any clarifications or changes that result from these discussions and make sure that they are communicated to all relevant stakeholders.
By seeking clarification and confirming your understanding of key contract clauses, you can help ensure that all parties are aligned on the terms and conditions of the contract, reducing the risk of misunderstandings or disputes later on in the project.
Identifying and confirming the process, timings, and key performance indicators (KPIs) with stakeholders helps ensure that all parties are aligned on the expectations for the project. Here are some reasons why this step is important:
By identifying and confirming the process, timings, and KPIs, you can establish clear expectations for what needs to be done, when it needs to be done, and how success will be measured. This helps to reduce confusion and misunderstandings and ensures that all parties are working towards the same goals.
Having a clear understanding of the process, timings, and KPIs can help with planning and resource allocation. For example, if the project involves multiple milestones, knowing the timing of each milestone can help you plan your resources more effectively.
When all parties have a clear understanding of the process, timings, and KPIs, it enables more effective communication. This helps to ensure that everyone is on the same page and can work together more effectively towards the common goal.
By identifying and confirming the process, timings, and KPIs, you can also identify potential risks and develop mitigation strategies. For example, if there is a risk that a particular milestone may be delayed, you can develop a plan to address this risk and minimise its impact on the project.
In summary, identifying and confirming the process, timings, and KPIs with stakeholders is critical for ensuring that all parties are aligned on the expectations for the project and can work together more effectively towards the common goal. This step also helps with planning, resource allocation, communication, and risk management.
Methods to identify and confirm the process, timings, and KPIs with stakeholders
Here are some methods you can use to identify and confirm the process, timings, and key performance indicators with stakeholders:
- Conduct a kick-off meeting: A kick-off meeting is a good way to bring all stakeholders together and ensure that everyone is on the same page regarding the project's goals, timelines, and KPIs. This meeting should be used to review the contract, discuss the project scope, and clarify any questions or concerns.
- Use a project management tool: Project management tools such as Gantt charts or project timelines can help you to visualise the project's timeline and milestones. These tools can help you to identify dependencies, prioritise tasks, and identify potential risks.
- Communicate regularly: Regular communication with stakeholders can help to ensure that everyone is aware of any changes or updates to the project's process, timings, and KPIs. This could involve regular progress reports or status updates, as well as ongoing communication with key stakeholders.
- Conduct a risk assessment: A risk assessment can help you to identify potential risks that may impact the project's process, timings, and KPIs. This assessment should be conducted regularly throughout the project and should be used to develop mitigation strategies to minimise any negative impact on the project.
- Review and revise the contract: The contract should be reviewed regularly to ensure that it accurately reflects the project's process, timings, and KPIs. Any changes should be communicated to all relevant stakeholders and incorporated into the project plan.
Developing or reviewing a risk management plan is a critical step in preparing to manage a contract because it helps to identify potential risks that may impact the project and develop strategies to minimise their impact. Here are some reasons why this step is important:
- Mitigates potential risks: By identifying potential risks, you can develop a risk management plan to mitigate their impact on the project. This can help to reduce delays, prevent cost overruns, and improve project outcomes.
- Improves project planning: The risk management plan can also help to improve project planning by identifying potential risks and incorporating them into the project plan. This can help to ensure that the project is more resilient to unexpected events and can continue to progress towards its goals.
- Enhances communication: Developing a risk management plan can also enhance communication among stakeholders by providing a shared understanding of the potential risks and strategies to mitigate them. This can help to build trust among stakeholders and improve collaboration.
- Promotes proactive management: A risk management plan promotes proactive management by identifying potential risks before they occur. This enables the project team to develop strategies to mitigate the risks rather than reacting to them after they occur.
- Supports decision-making: A risk management plan can also support decision-making by providing a clear framework for assessing and prioritising risks. This can help project managers to make informed decisions based on the potential impact of each risk.
In summary, developing or reviewing a risk management plan is critical for identifying potential risks, developing strategies to mitigate their impact, improving project planning, enhancing communication, promoting proactive management, and supporting decision-making. By taking the time to develop a comprehensive risk management plan, project managers can ensure that the project is more resilient to unexpected events and more likely to achieve its goals.
Example
One example of a situation where the lack of review of a risk management plan led to negative consequences in contract management is the collapse of Carillion, a UK-based construction and services company, in 2018.
Carillion had entered into contracts with the UK government to provide services such as construction, maintenance, and management of public buildings, hospitals, and schools. However, the company failed to adequately manage its financial risks and failed to deliver projects on time and within budget, resulting in significant financial losses.
A subsequent investigation into the collapse found that Carillion had a risk management plan in place but had not effectively reviewed and updated the plan in response to changing circumstances. The plan had not adequately considered the risks associated with the company's high levels of debt and had not established appropriate measures for mitigating these risks.
The failure to review the risk management plan and adapt to changing circumstances ultimately contributed to the collapse of Carillion and had a significant impact on the delivery of public services in the UK.
This example highlights the importance of regularly reviewing and updating a risk management plan in the context of contract management. By continuously monitoring and adapting to changing circumstances, organisations can identify and mitigate potential risks before they have a negative impact on the project or the organisation as a whole.
How to develop a risk management plan
Here is a step-by-step guide on how to develop a risk management plan:
The first step is to identify potential risks that may impact the project. This could include risks related to project scope, timelines, budget, stakeholders, and external factors such as market changes or regulatory requirements.
Once potential risks have been identified, the next step is to assess the likelihood and impact of each risk. This can be done using a risk assessment matrix, which assigns a score to each risk based on its likelihood and impact.
Based on the likelihood and impact of each risk, develop strategies to mitigate its impact. This could include risk avoidance, risk transfer, risk reduction, or risk acceptance.
Identify the individuals or teams responsible for managing each risk and assign responsibilities accordingly. This could include project managers, stakeholders, or external consultants.
Identify the budget required to manage each risk, including any resources or expertise required to mitigate the risk.
Based on the assessment of potential risks and strategies to mitigate their impact, develop a risk management plan. This plan should include a description of each risk, its likelihood and impact, and strategies to mitigate its impact.
Regularly monitor and review potential risks to ensure that the risk management plan remains up-to-date and effective. This could include regular meetings with stakeholders, risk assessments, and ongoing communication with the project team.
Watch
Watch the video below from Online PM Courses - Mike Clayton to find out more about how to create a risk management plan
A comprehensive risk management plan should include the following elements:
- A description of each potential risk and its likelihood and impact
- Strategies to mitigate the impact of each risk, including risk avoidance, risk transfer, risk reduction, or risk acceptance
- A budget for managing each risk, including any resources or expertise required
- Responsibilities for managing each risk, including the individuals or teams responsible
- A process for monitoring and reviewing potential risks on an ongoing basis.
How to review a risk management plan
When reviewing a risk management plan, it is important to look for the following:
- Comprehensive coverage: Ensure that the plan covers all potential risks that may impact the project, including risks related to project scope, timelines, budget, stakeholders, and external factors such as market changes or regulatory requirements.
- Realistic risk assessments: Verify that the likelihood and impact of each risk are realistic and based on objective criteria. It is important to avoid overestimating or underestimating the likelihood and impact of risks.
- Clear strategies for risk mitigation: Ensure that the plan includes clear strategies for mitigating the impact of each risk, including risk avoidance, risk transfer, risk reduction, or risk acceptance. These strategies should be practical and feasible, given the resources and expertise available.
- Clearly defined responsibilities: Verify that the plan includes clearly defined responsibilities for managing each risk, including the individuals or teams responsible for monitoring and mitigating each risk.
- Realistic budget: Ensure that the budget allocated for managing each risk is realistic and sufficient to cover the costs of mitigating the risk. It is important to avoid underestimating the cost of managing risks, as this can result in insufficient resources being allocated for risk management.
- Ongoing monitoring and review: Ensure that the plan includes a process for ongoing monitoring and review of potential risks. Regular review of the risk management plan can help to identify new risks or changes in existing risks, and ensure that the plan remains effective.
Developing a contract management strategy is a critical step in preparing to manage a contract. A contract management strategy outlines the approach and procedures that will be used to manage the contract, including how the contract will be monitored and evaluated, how disputes will be resolved, and how changes to the contract will be managed.
Reasons why developing a contract management strategy is important:
- Provides a clear framework for managing the contract: A contract management strategy provides a clear framework for managing the contract, ensuring that all parties are aware of their roles and responsibilities.
- Helps identify potential risks: A contract management strategy helps identify potential risks associated with the contract and establishes measures to mitigate these risks.
- Supports effective communication: A contract management strategy promotes effective communication between all parties involved in the contract, ensuring that everyone is aware of key details and timelines.
How to develop a contract management strategy
A contract management strategy should be tailored to the specific contract being managed, but in general, it should include the following components:
This section should provide a brief overview of the contract, including the scope of work, deliverables, timelines, and payment terms.
This section should define the roles and responsibilities of all parties involved in the contract, including any external vendors or contractors.
This section should outline the procedures for monitoring and evaluating the contract to ensure that it is progressing as planned, including the frequency of monitoring, who will be responsible for monitoring, and how progress will be reported.
This section should identify potential risks associated with the contract and establish measures to mitigate these risks.
This section should define procedures for resolving disputes that may arise during the course of the contract, including who will be responsible for resolving disputes and how disputes will be documented.
This section should establish procedures for managing changes to the contract, including how changes will be communicated and documented.
This section should outline the procedures for communicating with all parties involved in the contract, including how the information will be shared, who will be responsible for communicating information, and how often communication will occur.
This section should identify the key performance indicators that will be used to evaluate the success of the contract, including how these indicators will be measured and reported.
This section should define the procedures for closing out the contract, including any requirements for submitting final reports or deliverables and how final payments will be made.
By including these components in a contract management strategy, you can establish a clear framework for managing the contract, ensure effective communication between all parties involved, and mitigate potential risks associated with the contract.
Entering key details from the contract
The key details of the contract should be entered into the contract management strategy to ensure that all parties involved have a clear understanding of the terms of the contract and what is expected of them. These details should be clearly outlined in the contract management strategy to ensure that all aspects of the contract are managed effectively.
To enter the key details of the contract into the contract management strategy, you should carefully review the contract and identify the most important terms and conditions, including:
- Scope of work: This should include a detailed description of the work to be performed, including deliverables, timelines, and milestones.
- Payment terms: This should include the payment schedule and any conditions for payment, such as the acceptance of deliverables or the achievement of specific milestones.
- Performance requirements: This should include any performance standards that must be met, such as quality, timeliness, or quantity requirements.
- Reporting requirements: This should include any reporting requirements, such as the frequency and format of progress reports or financial statements.
- Risk allocation: This should include any provisions for allocating risk between the parties, such as liability limitations or insurance requirements.
Once you have identified these key details, you should enter them into the contract management strategy, along with any additional details that are relevant to the specific contract.
There are three essential roles for managing contracts effectively according to the Queensland Government Procurement Contract Management Framework (hpw.qld.gov.au). Each role draws on a range of skill sets. These roles may be assigned to current employees or contractors with the correct skills and delegations of authority. Where necessary, the same person could be delegated to one, two or all of the roles described below:
| Roles and Responsibilities | |
|---|---|
| Contract Owner (CO) |
|
| Contract Manager (CM) |
|
| Contract Administrator (CA) |
|
Content copied / modified (delete as appropriate) from Contract management framework, State of Queensland (Department of Housing and Public Works) 2019. © The State of Queensland. CC BY 4.0 (hyperlink to https://creativecommons.org/licenses/by/4.0/deed.en).
Forming a contract management team and allocating roles and responsibilities is important because it ensures accountability, facilitates communication, increases efficiency, and promotes effective management of the contract throughout its lifecycle.
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