Contract Management – Front Foot Forward!
Written by Sean McCarthy, Lovegrove & Cotton.
I’ll confess, rather strangely, to being quite a fan of good contract management. From my days working in construction management I maintain the view that the contract on a project is not something we relegate to the filing cabinet, only to be used when things go wrong. In fact the contract is one of the essential tools of a good project.
What’s the issue?
Having come from builder to lawyer, I now see circumstances where we legal people are involved in drafting lovely contracts at the front end of a project, or where we get involved at the other end when a project has, or is, going wrong. I think we are losing the art of actively using the contract as a forward planning, daily management tool. I think it was Winston Churchill who said: “the best defence is a good offence”.
I’m not putting forward the view we should always be on the front foot anticipating or intervening early on problems. I am simply espousing the view that the contract awareness helps us keep the project on a smoother track.
What is contract management?
Contract management is simply the art of being across all the obligations, expectations and milestones required for a project. Essentially it is about good communication, early intervention and knowing how various aspects of the project or contract are dealt with in the relevant contractual terms. It is also, from a legal perspective, about exercising the prescriptive steps in a contract when dealing with things like disputes, variations, reporting obligations and payment. Believe it or not, good contract managers have actually read the contract!
The skills of good contract management are many and varied, and include: great communication skills; ability to deal (or pass on) conflict; recognising when issues need to elevate to legal advice (e.g. disputes; variations; non-performance or contract termination); an eye for detail; ability to forward think and anticipate issues or problems;
Why is it an issue?
The International Association of Contract and Commercial Managers (IACCM) has said stated that in one of their recent surveys that 70% of international corporations believe that “contract management remains a major or significant source of operational weakness”. IACCM believe “Organisations which don’t manage their contracts will be at a tremendous competitive disadvantage” and that “Contract management is where finance was 30 years ago”, meaning that as a skill set it is destined to grow.
To put it more bluntly (and locally), I have consulted with Partnerships Victoria who advise State Government agencies in Victoria on contracting, and they say:
“Risks not identified cannot be proactively managed. They can be very damaging. Risks cannot be correctly identified unless there are clear project objectives that provide an unambiguous description of success for the project” (“Contract Management” by Partnerships Victoria).
The Canberra Outlook
Unfortunately, we here in the public service mecca of Canberra, may not be able to boast about being model contract managers ourselves. The Australian National Audit Office found in a study in 2000 that “Contract management training and continuous improvement initiatives were found, in most instances, to be informal. Many organisations relied on the skills and experience of their current contract managers and had not developed a formal training or development program that recognised the changing contract environment” (ANAO Management of Contracted Business Support Processes 1999-2000). In fact the ANAO went on to reveal that much contract management training is done by informal means. My own experience has been that many senior contract managers lack the expertise and fundamental knowledge of contracts and contract law to make excellent contract managers – and considering some 80-90% of a projects allocated costs occur during the mid-part of the project, good contract management has financial implications.
A report titled “Contract Management in the Australian Public Service” from October 2000, suggested a serious lack of expertise in managing high dollar value contracts and further recommended mandatory contract management training for all personnel involved in such duties. I see little uptake of this approach in our nation’s Capital.
The contract management toolbox
It really is not hard. I take it as a mission in life to educate contract managers on the fundamentals of contract, contract law and contract management. Sure, it’s not all legal, but when the project goes off the rails or a dispute or variation is managed badly, it certainly will go legal very quickly.
I espouse an approach of common sense, sensible legal opinion (which may or may not result in needing full blown legal advice), and the use of some fundamental tools. Just like a carpenter uses a nail gun, contract managers can access excellent contract management tools such as matrices and checkboxes to help manage the project throughout its life. I do not think many standard form construction contracts deal at all with contract management – perhaps implicitly, yes, but in terms of laying out a strategy or management approach, many contracts are devoid of such details. Mostly it is left to organisational internal principles or policies, and/or the approach of the individual contract manager. Some software applications such as MS Project have gone some distance to outlining a staged approach.
However, it is interesting to note that at a local level, simple tools of contract management can be accessed via both Partnerships Victoria and the ANAO, who reproduce excellent resources for use at various project stages. Even if you define key actions and responsibilities at the various project stages (which both PV and ANAO matrices do), then you will be one step ahead, and indeed on the front foot in anticipation of future events. Let me suggest you take a look and provide us with feedback about those tools to firstname.lastname@example.org.
We are also happy to advise on matters pertaining to contracts – if you require advice or training on contracts, please contact us. Lovegrove & Cotton is in a unique position to provide such advice with expertise at all levels in construction and planning matters, including in the hands on management of construction contracts.
“Contract and Commercial Management – The Operational Guide” International Association for Contract and Commercial Management (IACCM), Van Haren Publishing 2011.