My last few videos have looked at the procurement lifecycle, and today I want to dive into the third step: negotiating and contracting. This is a really important part of working with suppliers and it takes us to the point of saying yes to the work (hopefully).
Here’s a quick overview of what you need to know:
You can read more about this part of the procurement lifecycle in this article.
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In this video I talk about three different types of contract: fixed price, cost plus and time and materials. I’ll explain each type and the kinds of things they are used for.
What sort of contracts do you use on your projects? Let us know in the comments below.
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You might be lucky enough to be working with contract managers on your project. This is normally the case if you have a massive procurement to do, or there are lots of high-value contracts relating to what you are building. Think civil engineering projects, construction, oil and gas – that kind of thing.
However, contract management is also a skill that many of us have to have by default, because we don’t have contract management personnel available to our projects. If you aren’t working on the country’s biggest IT project supporting the national infrastructure, perhaps you will have to manage the contracts and relationships with suppliers yourself.
So what does that mean for you? Here are 5 of the essential skills a good contract manager needs. Can you see the overlap with project management?
1. Communication Skills
I can’t actually think of many jobs that don’t need decent communication skills, so this one should be a given.
2. Contract Awareness
You need to understand the contract. That might sound obvious, but it’s amazing how difficult some contracts are to read and understand. You’ll have to explain parts of the contract to people who have no idea what any of the legal speak means.
If you think this is something you’ll have to do a lot, it would be worth preparing a short, easy to understand executive summary of the contract to use. You’re trying to highlight the key provisions, and what each party has signed up to.
You’d expect this as well, and there is normally a fair amount of negotiation to do in all areas on projects. This is a huge part of the day to day work of a full-time contract manager because they will be talking to suppliers all the time.
Negotiation with third parties involves preparation work, and looking for points of mutual interest from which to craft solutions that work for everyone. You’re trying to be proactive but get the best outcome for your own side of the discussions. It’s also important to be fair and respectful, because that’s the tone you want to set for your relationship.
4. Risk Management
Another key project management area that is useful in the contracting environment.
A contract manager – or a project manager fulfilling the role of a contract manager – should be looking for the risks in the relationships.
These could be:
And I’m sure you can think of others. The point is to make sure that contract and vendor risks are managed in the same way as your other areas of project risk.
5. Conflict Resolution
When negotiation and risk management don’t go to plan, you could find yourself in a conflict situation. Being able to successful deal with that is another important skill for contract managers.
You’re looking for an outcome that supports the relationship, assuming that it is worth saving. Conflict resolution includes a range of different options from sitting down and talking together through to the more formally defined options like alternative dispute resolution or ending up in court for litigation. Which, for the avoidance of doubt, I would suggest you strongly avoid!
Ideally, you should be sorting out any conflicts in an agreeable and professional way. As well as being generally nicer to do it that way, you will save your company a lot of money in legal costs.
Whether you have a contract manager doing the contract discussions for you, or you are being your own procurement expert, these are the skills that will help you get the best out of the contract.
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Earlier this month I wrote about the different roles involved in contract management. There are two key roles that play a part in managing project contracts: vendor management and contract management.
They sound similar, so what is the difference?
Let’s look at the key differences between these two areas, and then it’s clearer to see why project managers need to rely on both during contract negotiations and the ongoing relationships with suppliers.
Vendor managers work with suppliers with a focus on the business’ relationship with them over time. They are looking to get the best outcomes for the organisation out of the relationship with the supplier.
Contract managers focus on individual contracts. They understand the requirements, details and can work specifically with the supplier and the project team on the needs of a particular engagement.
In other words, contract managers take a more focused view of a relationship with a supplier, looking specifically at the needs of one contract (although in reality they are probably managing more than one at a time). Vendor managers look at the holistic relationship with the supplier, across multiple projects, multiple contracts and probably have different contact points within the supplier organisation.
Contract Management Roles
The differences become even clearer when you start to look at the different job functions within those two groups.
Contract managers look at:
The contract management personnel in your business will be looking at the contract lifecycle, ensuring that the project’s needs are met from start to end, and that the contract wraps up neatly at the end when everything is complete on the project.
A key skill for contract managers is negotiation. They’ll be working on setting up the contracts and that can involve a lot of research, influencing and negotiating to secure an outcome that everyone is happy with. The relationship is formed at an early stage, and a positive experience of the negotiating and requirements stage is going to set up the culture of the relationship going forward. Skilled contract managers will know how to get the best deal while still making it a win win for everyone, and starting the contract off on the right foot.
Vendor Management Roles
Vendor managers take a longer-term, strategic look at contracts and the organisation’s relationship with suppliers over time. They look at:
Where These Teams Are Based
Every organisation is different, so I can’t specifically tell you where your vendor management or contract management teams might be based. But generally, if your organisation is typical, this is where you will find the teams.
Contract management roles (for you, as the buyer) are likely to be in the procurement division, or with the legal team. If you are in a vendor organisation, as a contractor, for example, then your contract managers may sit with the sales team, or in the legal team.
Vendor management experts could sit with procurement, or they may be in a different area of the business. In some organisations, you will find them with the strategic project office, supporting the delivery of project contracts across the business. In large organisations with plenty of supplier relationships, they might be in a separate, dedicated business unit like a supplier management team.
What does it look like in your organisation? Let us know in the comments below.
Regular readers will know I’ve been breaking down what’s new in the PMBOK Guide®-- Sixth Edition, around Plan Procurement Management (you can read the first part here, and the summary of Conduct Procurements here). But who is actually involved in contract management?
That’s a difficult question to answer precisely, because the exact structure of your organisation makes a difference to who takes part in the contract management process. You may have different teams involved, depending on the structure of your business, or you might have some of the teams below totally missing, so others step in to fill the roles.
So please consider this article as high level guidance, and not a prescriptive account of how you must run contract management in your organisation.
Let’s look at the 5 groups involved in managing project contracts.
1. Legal Team
Your legal team may be internal, or you may hire in outside legal experts if you don’t have the need for a full-time staff of lawyers.
This group is important because they are typically involved in:
They are also involved in making sure that any regulations and laws are complied with, and that the right laws are referenced in contract clauses etc. An example in the UK at the moment would be to make sure that all contracts are updated with reference to GDPR regulations, and references to the ‘old’ Data Protection Act 1998 are removed when the new regulations come into force in May 2018.
2. Contracts Manager
The contracts management function might be carried out by a single person (perhaps with a different job title, like Procurement Manager) or there may be a team responsible for contracts management. The role involves:
They will probably also get involved before the vendor is selected, doing the work (along with others) to evaluate different proposals to establish which supplier is the best to partner with.
The contracts management function also acts as the main point of contact for suppliers (often the supplier project manager) for contract queries. That could be the schedule for milestones, preparing purchase orders and invoices or issuing the paperwork that triggers a payment and so on.
As you’d imagine, any changes to the contract are also run past the person carrying out this role.
In my experience, I’ve done some of this: issuing notification to trigger a payment, dealing with contract changes, facilitating getting the right person to sign off and handling the interface with the legal team. But if you have someone in your organisation who can take this role on, and who can ‘run’ the contract for you, then get delegating! Use their expertise.
3. Procurement Team
Procurement is a function that’s broader than contracts management, although your contracts manager may sit within that department.
The procurement team is responsible for managing the whole procurement activity, from preparing bid documents to dealing with queries from suppliers. They are often the team who prepare the shortlist of vendors, or who cross-check vendors against the company’s approved seller criteria. If your selected vendor is not currently on the approved list, they will make sure that the company is added for future reference.
From the role description you can probably see that they need a really detailed knowledge of your project’s requirements. It’s best to get the procurement person who will be working on your procurements involved in the project as early as you can. Then they can fully understand what’s required and the kind of services or products that will be best for the project.
4. Vendor Manager
Vendor management is different from contract management, because it’s a broader role. I’ll go into the details of the differences in another article, but for now, just know that if you have a vendor management team, it’s hugely valuable to you as a project manager.
The vendor manager might be part of the procurement team, or there might be a vendor management office – this is a function that large companies who work with lots of vendors might have. Think oil and gas, or construction, where you have many subcontractors or different relationships with a variety of suppliers.
Vendor managers look at the whole relationship with a supplier. They can manage requirements across several projects, and ensure the relationship overall works well for everyone concerned.
5. Project Manager
And finally… the project manager! You have a role to play in project contract management, because you’re key in executing the contract i.e. getting the work done.
Your role is to make sure that the contract deliverables are delivered, and that risk management, scheduling and everything else related to managing the project happens as planned. You are key to working with all the different groups, bringing everyone together at the right time and representing your organisation to the vendor.
You’ll probably be the first to see any potential conflict or defects in what should be delivered, and that gives you a great advantage to be able to keep the contract and the vendor relationship on track.
Whether you have these roles I have mentioned as distinct departments, or whether you have to wear multiple hats when managing your contracts, it’s important to know how vendor relationships are set up on your project. Think about who you can bring in so that your project team includes reliable experts in contract management, as that focus will make sure your supplier engagements run smoothly.
What involvement have you had with contract management? Let us know in the comments below!