Author: Liz Busch
Planning for a procurement should consider the entire procurement lifecycle, including contract management and close-out. However, it’s difficult to anticipate everything that may occur after the contract is signed – how does one plan for the unpredictable?
The answer is to develop a contract management plan that includes strategies for:
- Establishing a positive relationship between the owner (or buyer) and the contractor;
- Identifying problems early; and
- Adapting for unexpected.
A. Positive Relationships
Nothing will sour a contractual relationship faster than misunderstandings about deliverables. If they do not meet the owner’s expectations, the parties may become defensive or lay blame. For example, the owner may feel that the contractor is anticipating change orders that will increase their profits, and the contractor may feel that the owner inadequately described their expectations.
To avoid this situation, owners should consider the following strategies:
- Clearly define the services and deliverables expected. Don’t rely solely on current files or recollections of what has been purchased in the past. Instead, do some research (e.g. Google searches, discussing with other jurisdictions, etc.) to test whether the scope has been defined appropriately.
- Apply measures to the services and deliverables. Contractors need to understand the quality measures that the owner will apply to the services and deliverables. Wherever possible, consider external industry standards. Augment this with tangible metrics that do not rely on subjective words (e.g. “logical”, “clear”, “user-friendly”, etc.) unless each is objectively defined.
- Consider the contract end. A common mistake that many owners make is not planning for the end of the contract. Consider what might be needed (e.g. documentation, intellectual property, close-out services, etc.) when the services are complete or are transitioned to a new contractor or in-house. Remember that transitioning-out applies whether the contract end is due to its natural expiry or cancellation.
- Confirm your descriptions and measures. If there are any questions about how well the need is defined or the appropriateness of the measures, issue a formal market sounding process, such as a Request for Information or draft solicitation for feedback. This enables owners to fairly engage the industry for advice.
- Clearly describe the services and deliverables in the solicitation and contract. Be consistent in how the services, deliverables and measures are described. Before signing the contract, confirm a shared understanding of what is meant with the contractor. This is the most important step to help avoid issues caused by misunderstandings later.
B. Identify Problems Early
Contract management plans need to include processes to identify issues early so that they can more easily be resolved. Consider the following for your contract management plan:
- Encourage the contractor to bring forward issues, problems or concerns early. The contractor may be aware of a problem or potential issue before the owner. If the relationship between the parties is positive, the contractor will be comfortable proactively informing the owner, rather than keeping information to themselves in the hopes that they can resolve it before the owner is aware of the problem.
- Have a workable quality measurement process. The owner must check that the services and deliverables meet the contractual requirements before paying invoices. This process should be systematic (i.e. done regularly in the same way) and consider budgets and staff workloads. If the contractual measures are not met and the owner does not address this, it’s natural for the contractor to assume that they are not important.
- Let the contractor take ownership of resolving issues. Unless the problem identified is solely the responsibility of the owner (e.g. delays in approvals), the contractor should plan the resolution. This encourages the contractor to take ownership for the solution, rather than just doing what the owner said to fix the problem (which may or may not work).
- Have clear escalation processes. Sometimes issues and problems cannot be resolved by the day-to-day contacts, as decisions may be required at more senior levels, or a roadblock is discovered. The contract should identify the escalation contacts for both parties to avoid delays when addressing such circumstances
C. Adapt to the Unexpected
Even with the best contract management plans, there’s always a possibility of an unexpected event impacting what the owner needs or what the contractor can deliver. Contract management plans must be adaptable to such events, while still ensuring that both parties are meeting their contractual responsibilities. The following strategies may help for these situations:
- Create a risk mitigation plan. The procurement planning process should identify all risks that might happen and for each one, how the parties will be aware of it and how it will be mitigated. Doing this work upfront means that the contract has a course of action if the risk occurs, and each party knows their mitigation role. Depending on the nature of each risk, the risk mitigation may require a change order to compensate the contractor for additional work they need to do for a risk they do not control.
- Have a mechanism to mitigate unexpected risks to scope, quality, timelines, or cost. If an unexpected event occurs that was not part of the risk mitigation plan, a process to quickly determine how to manage it with the least possible impact to the contracted services is required. This may involve the contract’s escalation procedures to identify an acceptable solution.
- Consider the BATNA. If an issue occurs where the owner and contractor cannot agree on a resolution, identify the owner’s BATNA (i.e. best alternative to a negotiated agreement) and what the contractor’s BATNA might be. For some contracts, the owner’s BATNA may be limited (e.g. there are few available vendors, or considerable costs to changing contractors), and therefore the owner may have less negotiating power to resolve issues than the contractor. This makes it even more important to have clear, measurable deliverables and risk mitigation plan.
Following this advice does not guarantee a problem-free contract but can be helpful to keep owners and contractors focused on what they both want – a successful contract.
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Author: Liz Busch
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.