Categories: Contract Completion
Projects and imbedded contracts are executed by companies to maintain and/or expand the assets needed to operate, sustain and expand in accordance with business plans. Transitioning project products to operation of the business requires long term planning and execution equal to management of projects, which are considered temporary.
Most Contract Forms do not formally describe the transition process from Seller/Contractor to Buyer/Owner, including the periodic inspection and maintenance of the contract product. This process is usually left to the Buyer and Seller project teams to establish a process within the contract requirements. The transition needs to be managed by the project team to assure the Owner’s preparation for operation of the contract product.
In general, Sellers remain responsible for protecting, maintaining and repairing contract products until the Buyer takes possession and uses a portion or all portions of the product. Under the traditional contract form, the transition from Seller to Owner occurs at a point in the contract when the product meets the contract requirements and is suitable for use with only minor work and punchlist to be completed. Some custom contracts may specify that the Seller remains entirely responsible for the product, even the portions used by the Owner, until completion of all work and acceptance by the Buyer.
Unless the contract product is totally new to the Owner's business, the operation, maintenance and repair of the contract product is already known by the Owner. Together with the manufactures' recommended list of spare parts and consumables, the Owner will review its experiential data on the needed parts and life cycles to best maintain its business objectives. This will enable the Owner to establish the procurement information, inventory levels, and purchase quantities to assure availability of parts to support operations of the business.
For contract products that are new to the Owner’s business, the Buyer will need to have the Seller provide comprehensive training manuals and conduct classroom and field training. The Buyer will arrange training with the Owner based on availability of persons that will be responsible for operation, maintenance and repair of the products. Additionally, the Owner will integrate the training into their in-house training for new hire employees. Many contracts may require that the Buyer/Seller video tape the training sessions and submit the videos as part of deliverables to satisfy final contract completion.
Spare parts are not normally part of contract deliverables. However for new products, the Owner will not have an inventory of parts, and the parts may long purchase lead times. As a result, Buyer specifications for new products may require the Seller to provide spare parts as a deliverable to support the Owner use of the product until internal inventory can be acquired under operations.
Contracts with warranty provisions specify the start and period of the warranty provided by the Seller. Warranty provided under the contract typically becomes effective after the Owner begins using the product for business operation. In most cases the Seller’s and manufacturers’ warranty will continue for a period after the final completion and closeout of the contract by the Buyer. This means the Owner will need to manage the remaining period of warranty after the contract is closed with the Seller. As a result, before the contract is closed, the Buyer will need to obtain assurance/security from the Seller that persons and resources will be available and responsible through the end of the warranty period as specified in the contract. The Owner will need to review and implement the process and documents in the Seller’s Warranty Plan, which will include statement of warranty, contacts, notices and other documents to support the process.
Contract Forms can vary and may be customized by the Buyer based on local preference, new initiatives, and the type and method of contract delivery, such as Design-Bid-Build and Design-Build. As a result, it will be up to the Buyer's project team to make adjustments and create a project management plan that details the transition process to the Owner.
In order to avoid the shock of transitioning at the end of the contract/project, Buyers need to engage and influence Owner's to:
- Review all shop drawings and material submittals, and deliverables for O&M Manuals and As-Built Drawing Packages. This assures the Owner has all the information needed to plan for the business to operate, maintain and repair of the product.
- Participate in start-up and testing. This assures that the Owner witnesses the product operation and verifies the product meets the contract and that the product is working as expected.
- Attend contractor/manufacturer training on systems. This assures the Owner's designated personnel are ready to use the product and are prepared for the maintenance and repair of the product.
- Evaluate contractor/manufacturer warranty, spare parts and consumable items for operations. This assures the Owner's readies internal processes for asset management, procurement, and staffing levels.
TIP: Buyer must implement continuous outreach with the Owner to convey confidence that the product meets requirements, and that the product is compatible with business operations.
TIP: Buyer must assure Owner's assigned personnel remain consistent or that a qualified designee is available throughout the contract, including during the processes for submittal reviews, progress inspections, final inspections for acceptance, and warranty period.
TIP: Owner must recognize the ultimate responsibility for meeting deadlines, handling aggressive workloads to meet the contract schedule milestones, and for completing due diligence in monitoring the Seller's work.
TIP: If the project/contract is part of an expansion of the business, the Owner will execute parallel plans for hiring and qualifying employees, adjusting labor agreements and service contracts and for purchasing resources – material, tools, equipment, and vehicles, needed for the project products.
Related Article:
What are the Requirements for Seller Turnover of Contract Products to the Buyer?
