The Money Files

Q1 tends to be a time when new budgets are approved and that means we’re starting to see requests for contracts with suppliers trickle through the PMO. It always takes a few weeks for budgets to get released, even if the intention is to start the work in January. By February, project teams are ready to get started, knowing that any further delay in the admin is going to put pressure on their ability to deliver by the dates from the business case. And that’s why all the supplier agreements seem to be floating around at the moment.

The infographic below talks about the major groups/people involved in putting together and approving supplier contracts for new third parties, but it’s the same people involved in renewing deals and reviewing an existing supplier to see if we want to give them more work.

 As with any internal process, this is probably a bit specific to certain environments and types of contract, and you might not see all of these roles in your business.

Equally, there might be some other key positions that have a part to play – I know that in one set of contract negotiations for a multi-million software project, my project sponsor attended every conversation, along with the technical architect. And just as well they did too: it created a great sense of common purpose and everyone was on the same page from the beginning.

Take the suggestions below as a starting point for opening up the conversation with your colleagues if you are creating new supplier agreements, so you can make sure the right people are involved from the start.

Read more about who gets involved in contracts.

How much do you really know about that supplier you are thinking of using on your project? They’ve sent you a quote, and you’ve got a nice glossy presentation with photos of their account managers, but what’s it really going to be like?

In this video I share some of the things I’ve found important when starting a relationship with a new third party – in fact, before the relationship even gets going it’s important to ask these questions.

If you prefer to read, there’s an article here on what to check before you sign on the dotted line: What you need to know about your supplier.

If you’re a video kind of person, and you want to hear my personal experience, then click Play on the video below! Let me know in the comments under the video what else you consider when you are assessing what organisations to partner with for project delivery. I’m sure you’ve got some great stories too!

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.

3. Negotiation

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:

• New vendors whom you haven’t worked with before – there’s a risk they won’t be very good
• Vendors who are struggling financially – there’s a risk they might tip over into insolvency or financial difficulties
• Risks related to specific areas of the contract, such as contract terms about liability or indemnity
• Risks related to specific deliverables from the contract, that you have asked the vendor to track and manage or mitigate on your behalf

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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