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A blog that looks at all aspects of project and program finances from budgets and accounting to getting a pay rise and managing contracts.

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Differences Between Contract Management and Vendor Management

Categories: contracts

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:

  • Individual contracts, starting at the moment the scope of a project is clear, or there’s the acknowledgement that some kind of resource needs to be procured.
  • Terms and conditions relating to that specific procurement, including working with the rest of the wider project team to establish the best type of contract (fixed price etc) for the specific deal.
  • Risk management related to this contract.
  • How to get the best value out of this contract.

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:

  • The business strategy for vendors and securing resources, such as managing the list of preferred suppliers. By focusing on specific, strategic vendors, your vendor management team could negotiate a better deal, such as using the same vendor to do the build and support of a new software tool.
  • Ensuring relationships with vendors stay positive, and improve over time through good communication and support from both sides.
  • Master services agreements. These are overarching, longer term contracts that set out the generic terms and conditions of working together. Then each individual specific work engagement will have another contract, but this can be shorter and easier to set up, as it doesn’t have to have all the terms and conditions in each time.
  • Vendor performance metrics. These could vary depending on the vendor and the type of resource or service they offer you. You can see the value of having metrics measured across all the work the supplier is doing for you.
  • Risk management at a vendor level – this could include regular checks on financial performance, for example, to identify vendors who may be at risk of letting you down. Knowing whether your vendors are under financial pressure can help you put mitigation plans in place. The recent issues with Carillion in the UK are an example of where a failing supplier has caused issues for projects.
  • How to get the best value out of the relationship with the vendor overall, for example, by placing several contracts with a preferred supplier and benefitting from economies of scale.

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.

Posted on: April 30, 2018 09:00 AM | Permalink | Comments (13)

5 Groups Involved in Project Contract Management

Categories: contracts, GDPR

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:

  • Creating contracts
  • Contract review
  • Approving contracts and getting them signed off.

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:

  • Negotiating and drafting contracts
  • Working with vendors to get the best contractual arrangement for both parties
  • Organising and executing non-disclosure agreements

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!

Posted on: April 11, 2018 02:17 PM | Permalink | Comments (6)

5 Contract Terms You Should Know [Video]

Categories: contracts, procurement

In this video I share 5 contract terms that you should know. Remember, this isn't legal advice (and it's good to get some of that prior to any contract) but understanding common procurement terminology will help you manage your supplier relationships more effectively.

 

Posted on: October 16, 2017 12:00 AM | Permalink | Comments (11)

5 Conditions for Legal Contracts

Categories: business case, contracts

5 Conditions for a Contract to Be Legal

It has been a long time since I did AS Level Law aged 17, and I remember contract law being the less interesting part of the course. However, some of it is still relevant to my job today. For a contract to be legal, certain conditions have to be met. There are 5 conditions to fulfil before you can say that your contract can be legally entered into.

1. There must be an offer

There must be an offer and an acceptance. If I don’t offer you something, there is no contract. If you don’t accept it, there is no contract.

I can’t contract you to do something that you don’t want to do because you haven’t accepted my offer. You’re within your rights not to sign a contract with a supplier if the deal isn’t right for you. Just like you would stand your ground with those door-to-door sales people, you can stand your ground with a supplier on your project too.

There’s often back and forth at this point (as there should be) as you refine the offer into something that you can both live with.

2. There must be consideration

This means that something has to be exchanged. Your project suppliers offer you goods or services and you pay them money in exchange.

It doesn’t have to be money. You could give them goods or services back, or exposure to your client base or something else that you both agree to. But there has to be some give and take.

Again, there’s negotiation to be done here. Once you’ve agreed on the offer you might go back and forth on the consideration (the fee) that you are willing to pay, and how this will be structured: all in one go, payment phased over the life of the project and so on.

3. There must be legal capacity

I expect this varies from country to country, but the people entering into the contract must be legally able to enter into an agreement. I remember reading about a case where a toddler had accidentally purchased some expensive stuff online through random button pressing on a parent’s device (it happens) and the case concluded that the family didn’t have to pay as the toddler didn’t have the legal capacity to enter into a contract. I think they had to return the goods though – getting your child to purchase all your supplies is not a legal method of getting resources for your project for free! I’ve looked but I can’t find a citation for that case – if you know of one, let me know and I’ll update this article to reference it. I did find this one where a 3 year old bought a car on ebay, but the case didn’t go to court for contract law to be tested.

You may have capacity in law, but you may not have capacity in terms of your company’s due process. For example, perhaps only Directors can sign contracts above a certain value, or you can only enter into a contract in certain circumstances or with certain providers. While I’m not sure that would hold up in court, it would definitely get you into hot water at work, so make sure you check your company’s contract signing policy and get advice from your Legal team. That will avoid you entering into any deals and contracting the company in ways that they would prefer you didn’t.

4. There must be legal purpose

This simply means that the subject of the contract needs to comply with the law.

In other words, you can’t contract someone to steal for you. Or do anything else illegal. But you wouldn’t do that anyway, would you?

5. There must be intention

There must be the understanding on both sides that this agreement could be enforced by a court if it came to it. You must go into the contract understanding that it is legally binding and that you intend for it to be so. You aren’t signing up to something on a best endeavours basis, or without realising that it’s a legal document.

This is all broadly common sense, but it’s there to protect businesses and individuals.

I don’t know if these are the same conditions enshrined by your local laws, but for UK and US laws these seem to hold true. What’s the situation where you are? Drop a note in the comments to let us know!

Posted on: May 18, 2017 08:00 AM | Permalink | Comments (6)

7 Contract Terms You Should Know

Categories: contracts

Project procurement is full of jargon – it can seem like a totally different language at times. Here are 7 contract terms that you should know.

1. Waiver

A waiver is where you voluntarily surrender an option under the contract. It’s a concession. You ‘let the supplier off’ the term because it suits neither of you to carry it out. This could be, for example, in the situation where enforcing a contract clause or requirement would turn out to be prohibitively expensive for both parties, or is no longer needed.

2. Warranty

This is another way of explaining a guarantee. It’s where you need assurance from your supplier that the terms of the contract are going to happen. Warranties tend to be limited by time, so it would be unusual to get one that lasted a lifetime. Just like with your dishwasher at home, your supplier will probably provide a warranty period.

Warranties are contractual – it’s not a best-endeavours guarantee. As a result, if the contract isn’t delivered as you expect you can call on the warranty and get compensation.

Warranties are a good negotiating point for developing the contract. You could work with both parties to get an extended warranty added into the contract if you felt it would be worth it.

3. Claim

A claim is a request for compensation. It has to take place according to the terms of the contract, so your contract should specify how you can make a claim and what sorts of claims are going to be appropriate under this agreement. In other words, it’s a type of dispute that you can resolve through negotiation together.

Claims administration is the process of reviewing and agreeing on claims. You’re discussing whether you (or the supplier) has a valid point. If you do, you’ll use the change control process to potentially amend the contract as necessary to allow the claim to be met.

4. Breach

You might also hear this referred to as a default. When there’s a contract breach it means that a requirement of the contract has not been met.

In severe cases (a material breach), the party who didn’t do the breach can be released from the contract. This often relates to non-payment of fees or if the party can be shown to have broken some kind of significant contractual term. If that applies to you, the other party can walk away. You have no further hold over them and the contract is broken.

Typically this results in some kind of financial compensation and if your business was the one who caused the material breach, the other party could apply for punitive damages or fines. These can cover loss of earnings from the contract or other losses.

5. Performance Bond

Performance bonds are a way to ensure your business doesn’t suffer if your supplier doesn’t do what they promised. These can be appropriate if your project is at significant risks from the vendor failing to deliver.

They work like this: a pot of money is put aside to compensate you in case the vendor fails to achieve the terms of the contract. If they can’t deliver, you get the cash instead.

These can be hard to set up because they are particularly valuable when working with small or volatile organisations which probably don’t have the cash to lock away until the contract is completed.

6. Force Majeure

This is a contract clause you will see all over the place, from your household insurance policy to software contracts.

It simply means that if things happen that are beyond the control of the contracting parties (in particular, the party supplying the services or goods) then they don’t have to compensate you – they can be released from their contractual obligations.

Examples of things that are beyond their reasonable control are extreme weather like floods, wars, terrorist attacks, hijacking and crime.

7. Change Control

OK, you’re probably very familiar with change control systems. They apply to contracts too.

Any changes to the contract need to be managed professionally and with input from both sides. Everything is normally documented within the contract, at least at high level. Sometimes the detailed change process or a change form is included as an appendix or schedule to the main contract.

Pay attention to what contract change terms apply to your contract as they can vary.

Contracts should have a glossary or definition of terms, and that can help you unpick all the unfamiliar language. Always get a lawyer to read over a contract before you sign it and make sure that everyone knows what they are getting into. Contracts support both parties, but only if you agree to terms that work for you both from the beginning!

Posted on: April 14, 2017 08:56 AM | Permalink | Comments (9)
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