Project Business

Management
 Best Practices and Advances
in Program Management Series
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Project Business
Management

Oliver F. Lehmann, MSc, PMP®

Disclaimer
This book is intended to provide guidance on how to behave as a project manager in a contractual business context in national
and International environments. It is intended to help practitioners, educators, and associated professionals to make the deci-
sions that are needed to navigate around the impediments and menaces that commonly arise in projects under contract. It has
also been written to help manage complex project supply networks and generate outcomes of cross-corporate projects that are
considered successes by the organization itself and also by the business partners involved.
This book is a management book and does not provide, nor is a replacement for, the necessity to take legal advice. The author
strongly recommends readers to consult legal experts such as external lawyers or corporate counsels before any decisions are
made or actions are done that could have negative legal consequences for the organization or other organizations involved.
The author of the book has applied maximum diligence to give guidance that is helpful in many project situations, but he does
not assume any responsibility for any claims, disputes, or legal troubles of any sort, which may be encountered by projects that
use the recommendations made in this book.
Persons and organizations described in the case stories are purely fictitious, and any similarity with real persons or organizations
would be coincidental.

Copyright Notes

“IPMA” and “Level B” are registered trademarks of the International Project Management Association.

“ISO” is a registered trademark of the International Organization for Standardization.

“Level B” is a registered trademark of the International Project Management Association.

“PMI,” “PMP,” “Project Management Professional,” “PM Network,” and “PMBOK ® Guide” are registered trademarks of the Project
Management Institute.

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Dedication

I dedicate this book to my wife, Silvia, who allowed me the time needed to not rush it but
diligently give it value and depth.

I also dedicate it to all project managers in the world who practice project business manage-
ment in complex project supply networks (PSNs), mastering the balance between the financial
well-being of their own organization and its partners in business, upholding a “Mission Success
First” culture for the benefit of the project.

vii
Contents

Dedication vii

Contents ix

List of Illustrations xv

List of Tables xix

Foreword xxi

Preface xxvii

Acknowledgments xxxiii

About the Author xxxv

Chapter 1 Laying Out the Scenery: The Business Side of

Project Management 1
1.1 The Importance of Project Business Management 1
1.2 Introductory Questions
1.3 The Story So Far 4
1.3.1 “Best Practices” or Uniqueness? 5
1.3.2 A Research Project 7
1.3.3 A Typology of Projects—Project Types 8
1.3.4 Mark 1 vs. Mark n Projects 8
1.3.5 Greenfield vs. Brownfield Projects 9
1.3.6 Siloed vs. Solid Projects 10
1.3.7 Blurred vs. Focused Projects 10
1.3.8 High-Impact vs. Low-Impact Projects 11
1.3.9 Customer Projects vs. Internal Projects 11
1.3.10 Standalone Projects vs. Satellite Projects 12
1.3.11 Predictable Projects vs. Exploratory Projects 12
1.3.12 Composed Projects vs. Decomposed Projects 13
1.4 Further Types of Projects 13
1.4.1 Engineers’ Projects and Gardeners’ Projects 13
1.4.2 Discretionary Projects and Mandatory Projects 14
1.4.3 Single Handover Projects and Multiple Handover Projects 15

ix
x Project Business Management

1.4.4 No-Deadline Projects, Single-Deadline Projects, and

Multiple-Deadline Projects 16
1.4.5 One-Shot Projects vs. Multi-Shot Projects 16
1.4.6 Open Typologies and Closed Typologies 17
1.5 An Introduction to Project Business Management 18
1.5.1 The Significance of Customer Projects 21
1.5.2 Procurement as Part of the Architecture of a Project 22
1.5.3 The Basic Nature of Customer Projects 25
1.6 Projects as Profit Centers 29
1.6.1 Small Consultancies and Development Offices 30
1.6.2 Large Consortia 30
1.6.3 Major Project Providers 31
1.6.4 Providers of Supportive Projects and Freebie Projects 33
1.6.5 Mixed Customer Projects 35
1.7 The Players in Project Supply Networks 35
1.7.1 The Buyer 36
1.7.2 Sellers #1: The Contractor 37
1.7.3 Sellers #2: The Prime Contractor 37
1.7.4 Sellers #3: Subcontractors over Various Tiers 38
1.7.5 Freelancers 38
1.7.6 Other Players 39

Chapter 2 The Difficult Way to the Contract 41

2.1 Bringing Order Into Chaos May Not Be Enough 41
2.2 Introductory Questions 44
2.3 The Lure of the Buy Option 45
2.3.1 The Dilemma of Management Attention 47
2.3.2 Agility and Speed of Change 50
2.3.3 Diversity of Skills 51
2.3.4 Unlocking Growth Potentials 52
2.3.5 Buying to Save Money or Time 54
2.3.6 Buying as a Political Decision 54
2.3.7 Tapping External Assets 56
2.4 Customer Project Management: Where Does the Market Stand? 57
2.4.1 The Rationale of the Research 57
2.4.2 The Design of the Research 59
2.4.3 The Survey Respondents 60
2.4.4 The Overall Result 61
2.4.5 The Influence of the Workload Assignment 62
2.4.6 The Influence of the Project Size 63
2.4.7 The Influence of the Project Location 63
2.4.8 Conclusions from the Research 64
 Contents xi

2.5 Risks of the Buy Option 66

2.5.1 Time Losses 66
2.5.2 Unclear Scope 67
2.5.3 Fragmentation 68
2.5.4 Unattainable Cost Benefits 69
2.5.5 Narrowing Strategic Options 70
2.5.6 Remoteness of Error Fixing 71
2.5.7 Speed Blindness 72
2.5.8 Bringing Strange People into the Project 75
2.5.9 Opening the Project for Corruption 77
2.5.10 Coercing Behaviors by Contractors 78
2.5.11 Opening New Doors for Malware 80
2.5.12 The Reputation at Stake 80
2.5.13 The Contractor as a Data Leak 83
2.5.14 Other Risks 84
2.6 Finding and Approaching Sellers 85
2.6.1 Personal Recommendation 86
2.6.2 B2B Marketplaces 86
2.6.3 Public Tendering 88
2.6.4 Bidders’ Conferences 89
2.7 Requesting Seller Responses 90
2.7.1 Traps in Terminology 90
2.7.2 Statement of Work (SOW) 93
2.7.3 Thresholds for Procurement 94
2.8 The Offer/No-Offer Decision 95
2.8.1 Risks of an Offer Development Process Without Input
from Project Managers 96
2.8.2 Templates 97
2.8.3 TRAC: Influencing Factors for the Bid/No-Bid Decision 98
2.8.4 A TRAC-Based Weighting System 100
2.8.5 A TRAC-Based Force-Field Analysis 101
2.9 Winning the Contract 102
2.9.1 AIDA—Singing for the Business 102
2.9.2 Hit Rates and Capture Ratio 104
2.9.3 Being an Incumbent 108
2.9.4 Conclusion 111
2.10 Offers: Bids, Proposals, Quotations, etc. 112
2.10.1 Developing and Submitting the Offer 112
2.10.2 Types of Seller Responses 113
2.11 Binding and Non-Binding Offers 115
2.11.1 Binding Offers 115
xii Project Business Management

2.11.2 The Invitation to Treat 117

2.11.3 Bid Bonds, Performance Bonds 118
2.11.4 Questions Forbidden 119
2.12 Submission Deadlines 120
2.13 Teaming Agreements 122
2.13.1 Informal Relationship 124
2.13.2 Prime/Subcontractor Relationship 125
2.13.3 The Consortium 126
2.13.4 Mixed and Expanded Teaming Agreements 129
2.14 Pricing 130
2.14.1 The “Perfect Price” in a Non-Competitive Setting 130
2.14.2 The “Perfect Price” in a Competitive Setting 134
2.14.3 When the Offer Is Too Low 138
2.14.4 The Customer Dictates the Price 139
2.14.5 The Absolutely Last Price 139
2.14.6 “Mission Success First” in Negotiations 140
2.15 Writing Complex Proposals 140
2.15.1 Where Do You Place the Most Important Contents
of the Complex Proposal? 140
2.15.2 Familiarity of the Audience 141
2.15.3 Behavioral Expectations by the Buyer 143
2.15.4 The Friendly Dog Effect 143
2.16 Non-Disclosure Agreements and Non-Compete Clauses 145
2.17 Submitting and Presenting the Offer 147
2.17.1 The Most Fundamental Consideration for the Presentation 147
2.17.2 Preparing the Offer Presentation 149
2.17.3 Preparing for Q&As 152
2.17.4 Some More Don’ts of Offer Development 152
2.18 The Contract 153
2.18.1 Binding and Nonbinding Agreements 153
2.18.2 Signing the Contract 156
2.18.3 Startup Meetings: On-Boarding and Kick-Off 158
Chapter 3 Contracting 159
3.1 Contracting as a Process 159
3.2 Introductory Questions 159
3.3 Good Faith and Mutual Obligations 161
3.3.1 The Doctrine of “Good Faith” in International Project Contracting 162
3.3.2 Good Faith in Common Law 164
3.3.3 Good Faith in Civil Law 164
3.3.4 Good Faith and Basic Trust 165
 Contents xiii

3.3.5 Concurrent Sourcing 174

3.4 International Contracts 176
3.5 Incomplete Contracts 178
3.6 Project-Related Contract Types 181
3.6.1 Contract Types in Civil Law Systems 182
3.6.2 Contract Types in Common Law Systems 182
3.6.3 Assigning Cost Risks to Contract Parties 183
3.6.4 Motivational Price Adjustments 184
3.6.5 The Capped Target Cost Contract 186
3.6.6 The Rolling Award Fee Contract 189
3.7 Protective and Relational Contracting 192
3.8 Refinements and Changes 194
Chapter 4 Managing Complex and Dynamic PSNs 197
4.1 Change Requests in Complex Project Supply Networks 197
4.2 Introductory Questions 198
4.3 Teaming Agreements 200
4.3.1 Direct Procurement 201
4.3.2 Indirect Procurement 201
4.3.3 Indirect Procurement over a Consortium 202
4.3.4 Mixed Structures 203
4.3.5 Customer’s Involvement in Subcontracting 203
4.4 Managing PSNs Is Managing Interfaces 204
4.4.1 The Sentiments of Industries 204
4.4.2 The Five Dysfunctions 206
4.4.3 How Competitiveness and Cooperation Interrelate 207
4.5 Interfaces Among Contractors 208
4.5.1 Customer Projects with One Customer 208
4.5.2 Customer Projects with Several Customers 209
4.6 Risks from Outsourcing Projects Under Contract 211
4.6.1 Risks from Differences in Software Tools Used 211
4.6.2 Risks from Interpersonal and Social Conflicts 214
4.7 Avoiding Crises in Project Business Management 221
4.8 Supportive Action, Provisions, and Enabling Services 225
4.8.1 Understanding “Mission Success First” 225
4.8.2 Objectives and Constraints 226
4.8.3 Enabling Services and Provisions 228
4.8.4 Institutionalized Conflict Resolution Mechanisms 230
4.8.5 Project Management Information Systems in PSNs 234
4.8.6 Specific Business Interests of In-Between Contractors 235
4.8.7 Work Flow Management Across a PSN 236
xiv Project Business Management

4.9 More Control on the Project Supply Network 238

4.9.1 Naming, Nominating, or Approving Subcontractors? 238
4.9.2 Coaching, Consulting, Mentoring 239
4.9.3 The Other Stakeholders on the Customer Side 239
4.9.4 Professional Integrity in the Project Supply Network 240
4.10 Chicken Races and How to Avoid Them 242
4.11 Closing Contracts and Projects 244
4.10.1 Handovers and Acceptances 244
4.10.2 Contract/Procurement Revisions in Project Supply Networks 245
4.12 Do We Need New Approaches to Contracting in Project
Supply Networks? 246
Chapter 5 Project Business Management and Crisis Management 251
5.1 The Power of Documentation 251
5.2 Introductory Questions 253
5.3 The Dynamics of Success and Failure in Project Business Management 254
5.4 Causes for Conflicts in Project Supply Networks—A Survey 258
5.5 Benefit Engineering 260
5.5.1 Benefit Engineering—The Process 262
5.5.2 Negative Benefit Engineering 268
5.5.3 From Cost Engineering to Benefit Engineering:
A Deep Cultural Change 269
5.5.4 Contractor-Side Benefit Engineering #1:
Application by the Direct Contractor 270
5.5.5 Contractor-Side Benefit Engineering #2: The Subcontractor’s View 270
5.5.6 Customer-Side Benefit Engineering 270
5.5.7 The Caveats of Benefit Engineering 270
5.5.8 Benefit Engineering as a Form of Change Request Management 271
5.5.9 Project Managers as Benefit Engineers 271
5.5.10 Does the World Need Professional Project Business Managers? 272
5.6 Turning a Customer Project Out of Crisis 276
5.7 Project Business Management—Is It an Open or Closed Skill Discipline? 280
5.8 Limitations of Tools for Project Business Management 282
5.8.1 Market Window Theory 283
5.8.2 A Method Cannot be Applied 284
5.9 Conclusion 285
Answers to the Introductory Questions 289

Glossary 293

Bibliography 303

Index 311
List of Illustrations

Figure 1.1 A majority of project managers believe in universally applicable practices. 5

Figure 1.2 Comparison of the two main station projects; the crisis in Stuttgart 21 refers
to the years 2010 and 2011, and the project has since been led mostly back
on a success path. 7
Figure 1.3 Responses from global group on how static and predictable their projects are. 12
Figure 1.4 The differences in lifecycle value creation of engineers’ and gardeners’ projects. 14
Figure 1.5 Multiple handovers deliver value in stages. 15
Figure 1.6 How project managers report deadlines. 16
Figure 1.7 Intercompany business and captive business. 19
Figure 1.8 The percentage of project managers in customer projects was roughly the
same as in internal projects in a survey performed in September 2015. 21
Figure 1.9 The three options to get a work package done. 23
Figure 1.10 Three situations on the customer side that can lead to projects on the
contractor side. 23
Figure 1.11 The complex flow of actions and documents in a customer project, assuming
that Seller #1 wins in a competition against the other two sellers and becomes
the contractor. 36
Figure 1.12 An example of a simple multi-tier contractor structure. 37
Figure 1.13 A stakeholder attitudes influence chart (SAIC) to be consulted when decisions
are to be made, what influence they will have on stakeholder attitudes. 40
Figure 2.1 The word cloud created by the software from the frequency of words named. 46
Figure 2.2 The standard process flow, as it is often seen in project business with non-
incumbents, begins on the side of the organization that is to become the
buyer in the subsequent process, when a make-or-buy decision has been
responded to with buy. 46
Figure 2.3 Investment and return expectations when work is delegated. 49
Figure 2.4 An example of the increasing speed of innovation and change of paradigms:
telephones. 51
Figure 2.5 The different lifecycles around the project and the benefit realization for the
performing organization. 58

xv
xvi Project Business Management

Figure 2.6 The sliders used to answer questions on recent experience and future
expectations on make-or-buy decisions. 59
Figure 2.7 The distribution of the responses on recent experience and future
expectations regarding make-or-buy decisions using the seven-step
sliders shown in Figure 2.6. 61
Figure 2.8 The past and future average trends for make-or-buy decisions grows with
the workload assignment already outsourced. 62
Figure 2.9 The past and future average trends for make-or-buy decisions grows with
the size of the project. 63
Figure 2.10 The average trends for the recent experience and future expectations on
make-or-buy decisions are different over the world regions, but the trend
is toward further growth in all of them. 64
Figure 2.11 Identifying sellers, approaching them, and requesting responses from them
generally follows the make-or-buy decision. 85
Figure 2.12 The venue is now changing to the sellers from whom the buyers would like
to receive an offer. The decision by the seller to make such an offer or not
has many facets. 96
Figure 2.13 A survey among project managers on deadlines revealed that a three-quarter’s
majority of projects has time pressure, and that most of these projects have
not only one. 97
Figure 2.14 TRAC subsumes many common influencing factors for the offer/no-offer
decision. 98
Figure 2.15 TRAC used for a force-field analysis. 102
Figure 2.16 The competition for an offer is more than just the other offerer. 105
Figure 2.17 The top rankings of selling organizations’ expectations of buyers’ selection
criteria are quite well aligned with the top-ranked criteria actually applied
by buyers. 108
Figure 2.18 The cost calculation of the incumbent is commonly easier, because the
investment in the development of the offer is paid back by the combined
earnings from more customer projects. 109
Figure 2.19 Sending the offer to the buyer is a signal of preparedness and capability
by the seller to do the intended project work, and also a commitment to
satisfy the customer’s needs, wants, and expectations. 112
Figure 2.20 An offer can be binding, which makes it an offer in both a commercial and
a legal sense. The acceptance of the offer by the other party then makes
the contract. An invitation to treat is an offer in a purely commercial sense.
When the buyer accepts it, the contract is still not made in a legal sense—
it is the acceptance of the seller that concludes the contract. 117
Figure 2.21 Different forms of teaming agreements for project work. 124
Figure 2.22 A typical build-operate-transfer (BOT) project has the intention that the
contractor invests into the project (mostly for infrastructure) and later
recovers the investment from the return made from operating the
infrastructure. The example above has 35 years’ total duration, including
the build and the operation phase. 127
Figure 2.23 A swim-lane diagram showing acceptable price ranges by two parties.
If these price ranges overlap, a contract is possible. A gap between the
two price ranges makes it unlikely that the business can be developed. 131
 List of Illustrations xvii

Figure 2.24 The three types of limits on the buyer side relating to price and advance
performance, and what response by the buyer is to be expected for the
sectors that are delineated by these limits. (Numbers shown are examples.) 133
Figure 2.25 In a competitive setting, the “naked” price may be what matters most to
the customer, but there are various options to package it and spruce it up
with more beneficial combinations of numbers. 135
Figure 2.26 Quoting a naked price is the easiest task for the seller. Making the offer
more relevant by adding further cost and benefit information is challenging,
but may be the key to success. 137
Figure 2.27 Four quadrants describe whether a seller in a customer environment is
expected to transform the environment or to act within it, and on what
level this should happen. 144
Figure 2.28 Different forms of agreements. 153
Figure 2.29 The competition for the contract with the buyer and with the award and
the signature of the contract. 157
Figure 3.1 The global distribution of legal systems. 163
Figure 3.2 At date n the project team and the vendors have to act in a competitive
way in the procurement items that are in the acquisition phase, whereas they
have to work in a collaborative style in the items that are already worked on. 174
Figure 3.3 The dynamics of stakeholder requirements on projects. 179
Figure 3.4 Differences in planning approaches in project management. 180
Figure 3.5 Assignment of cost risks depending on the project type. 184
Figure 3.6 A score sheet indicates the results achieved by the contractor and how
these are computed from a rating and a weight. 190
Figure 3.7 Cost savings to the left of the target line are shared between customer and
contractor. Sharing cost overruns ends at the point of total assumption,
from which point on the contractor assumes the total cost risks. 193
Figure 4.1 Different structures of teaming agreements. The parties in the black boxes
are in charge of managing the project. The arrows depict the general flow
of money. 200
Figure 4.2 Development of Oil Price 2012–2017, Brent Crude, price development per
March 13, 2017. 204
Figure 4.3 The number of interfaces in a simple PSN (left) with only three contractors
is six, including the interfaces with the customer. The PSN on the right-hand
side has twice the number of contractors, but the number of interfaces has
grown by a factor of 3.5 to 21. 209
Figure 4.4 For a project with one customer and a larger number of contractors,
managing the interfaces among the contractors can be among the most
challenging tasks. 209
Figure 4.5 Privity of contracts: The customer has no contractual relationship with the
sub -contractor. 218
Figure 4.6 Commonly found obligations in a simple two-tier PSN. 230
Figure 4.7 A project begins with high uncertainty. Then, stakeholders follow a learning curve. 231
Figure 4.8 The development of feasible decision options and the costs to implement
them follow an opposite development to the learning curve. The response
should be to accelerate the learning curve. 231
xviii Project Business Management

Figure 4.9 The workflow plan of the project in the case story before and after fast-tracking.
The bar lengths are not proportional with the durations of the work items. 236
Figure 4.10 Preparation to pay or extort bribes in industry sectors from a Gallup survey
in 2010. 241
Figure 4.11 In a project or a program consisting of (sub)projects with a common
deadline, such as a project to enable timely start of production (SoP),
one late project delays the SOP, the deadline of the program. 242
Figure 4.12 The common process flow in project procurement ends with formal
contract close-out. 245
Figure 4.13 The procurement lifecycle includes the various contract lifecycles plus some
time before and after the actual contracting period for preparatory work
and final organization of documentation and other deliverables. Revision
at the end of each lifecycle can help communicate a culture of “cleanliness”. 246
Figure 4.14 The DIKA maturing process of decision making, beginning with (raw) data
and ending with action, which in turn provides new data. 248
Figure 5.1 Many participants of the survey have collected experience in multiple roles,
so that the numbers do not add up to 100 percent. 258
Figure 5.2 The most frequent cause of disruptions among the participants of the
survey were conflicting business interests. 259
Figure 5.3 Repetition—for an internal project, benefits from the project are typically
expected for the future. In a customer project, the contractor expects the
benefits during the project lifecycle, beginning with the first payment and
ending with the last. 261
Figure 5.4 Cost engineering addresses project costs, mostly on the side of the
contractor. Benefit engineering addresses and increases the benefit. 262
Figure 5.5 Benefit engineering builds on a deep understanding of the customer as
well as one’s own organization. 263
Figure 5.6 A project business manager combines business acumen, which helps win
attractive customer projects and expand existing ones, with project
management competency to realize the potential from the business. 273
Figure 5.7 In old-style over-the-fence project management, a number of business units
or independent contractors drove the project along a sequence of phases,
with another unit responsible for another phase. Project managers integrated
the project phases. Project business managers remove the fences and
integrate the remaining phases at project beginning and end. 274
Figure 5.8 Project business managers oversee the entire process from the first contact
relating to the project between buyer and seller to the final closeout and into
utilization and servicing of the final deliverables. 275
Figure 5.9 The flow of invoices and payments between subcontractors and the customer.
Invoice validation is the core process at the heart of the business. 277
Figure 5.10 Market window theory with six groups of participants. Note the development
of initial outflow and consequential inflow over time. 284
List of Tables

Table 1.1 The Typological Dimensions That Were Identified During the Research 9
Table 1.2 Fundamental Differences Between Internal and Customer Projects 27
Table 1.3 Integrating and Fragmenting forces in PSNs 30
Table 2.1 Top Ten Countries with Participants in the Survey 60
Table 2.2 Answering Options for Workload Assignments in Projects and Distribution of
Responses to Them 62
Table 2.3 Answering Options for Project Sizes and Distribution of Responses to Them 63
Table 2.4 World Regions Defined and Distribution of the Responses Across These Regions 64
Table 2.5 Example of a Set of Rules with Staged Requirements on the Procurement
Processes to be Applied, Depending on the Value of the Procurement Item 94
Table 2.6 TRAC Used in a Weighting System to Develop a Total Score That Helps Make
the Offer/No-Offer Decision 101
Table 2.7 A Sequence of Deadlines Imposed by the Buyer to Coordinate the Work of
the Sellers with the Buyer’s Schedule 122
Table 3.1 Some Typical Obligations Contract Parties Have Toward Each Other 161
Table 3.2 Motivational Price Adjustments Used to Motivate a Contractor to Deliver by
a Certain Date Under Certain Fixed-Price Contracts 186
Table 3.3 Step 1: Cost Reimbursable Contract with Fixed Fee 187
Table 3.4 Step 2: Cost Reimbursable Contract with Fixed Fee and Cost/Benefit
Sharing (Target Cost Contract) 187
Table 3.5 Step 3: Target Cost Contract with Price Ceiling 188
Table 3.6 Step 4: Calculating Costs at the Point of Total Assumption (PTA) 189
Table 3.7 The Distinction Between Refinement and Change 195
Table 4.1 Fortune 100 Top Ten Companies to Work For 205
Table 4.2 Objectives and Constraints are Separated by Reserves 228
Table 5.1 The Cost–Revenue Plan of Cicada for the 2013 Business Year, Projected at
the End of the Previous Year 255
Table 5.2 The Cost–Revenue Plan of Cicada, Revised in July 2013 for the Entire Year 255
Table 5.3 The Cost–Revenue Plan of Cicada for the Given Business Year 256

xix
xx Project Business Management

Table 5.4 Requirements Commonly Placed on Managers Today, Compared with

Those in the Past 265
Table 5.5 A Common Approach Generally Follows Three Steps 281
Foreword

I first met Oliver Lehmann in November 2016 at the Project Management Institute (PMI)
“UK Synergy”, the annual conference for its project management professionals, where I was
giving a presentation. I had been developing relationships and collaborating with several global
PMI Chapters (including New York City, Lévis-Québec, Montréal, South West Ontario, and
the Philippines, as well as the UK’s regional satellite branches). There were (are) other Chapters
in the early stages of kennenlernen (“getting-to-know-you”), including Berlin, where I had met
Chapter members in September 2016 after an introduction by Oliver via LinkedIn. Time con-
straints had prevented me from travelling on to Munich, where Oliver is based, after Berlin,
but we had corresponded about collaborating and had resolved to meet when either of us was
in the other’s city.
And so it happened. A beaming man wearing colourful glasses came bounding over to me
at Synergy, bearing a book. I had just given my presentation, The Impact of Law on an Under-
Rated Art, to the assembled 750 delegates in the magnificent Westminster Central Hall in
London. Readers who were there may recall the rather memorable start to my presentation of
Taylor Swift’s Out of the Woods, overlaid with my “new” lyrics about project management. I
talked about the project management profession being a blend of the art and the science, and
emphasised the importance of equipping project managers with basic legal skills so as to enable
them to navigate their way through the straightjacket of law for the benefit of their projects,
and not to their accidental detriment.
I also talked about “internal” and “external” projects, and the differences between when
the project manager’s customer is within one’s own business (“internal”) or is a paying cus-
tomer (“external”). I warned of the need to take care with professional indemnity (errors and
omissions) insurance, which every paying customer demands, and the mistakes which external
project managers can easily fall foul of. Internal projects could be hazardous too, and open to
political sabotage. Project managers had much to juggle and felt heavy responsibilities.
Oliver was keen to talk more about “internal” and “external” projects. “Let me show you my
new book, Situational Project Management—The Dynamics of Success and Failure, which has just
been published”, he said; “I also talk about this differentiation from the project management
perspective. I would like you to write the foreword for my next book”. I agreed, and in return,
asked him to autograph the book, which he obliged. By coincidence, we discovered that we sat
at the same table for the rest of the day too. And so our professional connection was cemented.

xxi
xxii Project Business Management

I carefully read Oliver’s book. It was a fascinating read and chimed with the way I consult
and train on Law and Project Management. As a lawyer who specialises in infrastructure
and commercial development, with over a decade of industry experience as a senior in-house
counsel, and prior to that, six years of private practice experience, SitPM (Situational Project
Management) makes obvious sense to me. The scales must balance for project success: on one
side sits “flexibility” and the ability to adapt to change; on the other side sits “control” and the
need for compliance and process, or protocol.
Oliver’s book is simply very well written: one must thank the precision of the German
language for having gifted Oliver with the ability to write clearly and meticulously. His expla-
nations are comprehendible by experienced and aspiring project managers alike, and they have
improved my (non-professional) understanding of SitPM—the technicalities of the profession,
of methods of practice, and of the hazards, which prevent project managers from performing
well. One hazard is being too rigid, or being fixed on the “plan” or the “process”. Another is
being too flexible, of performing without solid structure or robust plan. In my classes, I empha-
sise that one style of project management does not fit all projects, and despite so-called “best
practices”, none can be applied to every single project permutation. Above all, the contract will
dictate the mechanisms and tools available to the parties, and the project manager. Oliver’s
book, and now his second book, Business Project Management, talk similarly.
Coming back to project strategy and structure, the focus on “internal” vs. “external” proj-
ects yields interesting “pull and push” concepts. This is the core of this book. “Internal” proj-
ects are ostensibly for the good of the organisation, but as a cost centre they must make impact
and yet not unduly upset business as usual (BAU) operations. “External” projects make money
(hopefully) for the organisation, and so are often seen as more important. In addition, the
project management expertise may be “internal” or “external”. All these permutations have dif-
ferent pros and cons. Oliver characterises the “internal” vs. “external” dilemma in his research
as the “make or buy” scenario. Project managers will be interested to hear that his research
shows that customers are increasingly tending to “buy” (i.e., go external) rather than “make”
(i.e., stay internal). There is a sense of buying expertise, and cost-efficiency, whether in relation
to tangible items or professional services.
Where the customer engages an “external” project manager to act on its behalf (whether for
an internal project or an external project), the most important stage is contract formation. In
my legal consultancy and training workshop organization, we have clients on both sides of the
contracting table. One day, I might be working for a customer with a project “vision”, building
the contracting strategy and drafting the project documents, including the project manager’s
appointment. Another day, I might be working for a project management consultancy, sup-
porting them to negotiate their services contract. Since they are at the “sell” end, they must
make money from managing their customer’s projects, making each one count to maintain
profit level, reputation and market access.
A project manager’s service contract may be as few as 10 pages or more than 100. The con-
tract will consist of terms and conditions: the services to be delivered, the payment in return,
and the attendant processes and procedures as well as caveats, applicable law and termina-
tion and dispute resolution procedures. There may be much more too, dependent on the sub-
ject matter (for example, intellectual property, health and safety, sector-specific terms, etc.).
Fundamentally, this “buy” contract will be enforceable in law. By contrast, the “make” scenario
 Foreword xxiii

involves no contract, since the project manager “belongs” to the customer (and even where
there is a separate sister organisation for such purpose, which is usually tax-efficient, it would
be usual to prevent the 2 organisations from suing each other). The “internal” project manager
therefore considers only 1 contract (i.e., the customer-contractor contract). The “external” proj-
ect manager must understand 2 contracts—the customer-contractor contract, and his/her own
appointment. It is my job to ensure that such “buy” arrangements co-exist comfortably, without
clash or conflict. The stakes for project managers between “make” or “buy” are thus different.
In addition to the growing volume of projects due to the “buy” scenario, projects seem
to be getting bigger. This trend will call for more highly skilled project management profes-
sionals: for example, PMI estimates another 1.5m jobs will be created by 2020. It will also,
inevitably, lead to more complex contract arrangements. In major infrastructure, develop-
ment and technology projects, the stakes are particularly high, but in all projects, vendors
want to win the business, and customers want to keep the price low and the delivery output
high. This “pull and push” is normal in contract negotiations in a free market subject only to
the straightjacket of the applicable law. But it also makes it incredibly important to get the
contract provisions right.
Contract negotiations are often done by senior executives who may or may not be project
managers themselves and understand what they are offering or demanding. In my experience,
whatever the project size (value), it is common for the project manager, who “ends up” with the
day-to-day project responsibility, to have no part in the engagement negotiations. In mature
organisations, this is managed via a regular open news channel from the project director to the
project manager team during negotiations to assist with planning resource and task allocation,
review risk allocation/assumptions, seek input on proposed contract terms, etc. In less mature
organisations, “management’ is lacking: news may only filter down to the project management
team once the job is won and an individual project manager is chosen to service the customer’s
requirements. Most organisations I have worked with are somewhere in between. Thus, the
person allocated to wear the project manager hat, whether “internal” or “external”, is likely to
be vulnerable from the start. It is incumbent on him or her to enquire about, and feel comfort-
able with, the scope of services to be delivered (although, if the scope has already been agreed,
the chance to influence is almost nil). If it is unclear at the beginning, it will only get worse.
Mismatched expectations are, in my experience, a sure-fire way to claims, disappointment
and broken relationships, plus stress for the individual project manager. None of these conse-
quences results in a happy customer nor brings money home for the vendor.
As such, I encourage my clients to include project managers in early contract discussions. It
broadens their business acumen and gives early insight into the project, and enables the cus-
tomer to get to know the project manager, both of whom can nurture a fledgling relationship
before the project gets underway in earnest. On a practical level, if a project manager has sight
of, and input into, the customer-contractor contract (plus the project management services
appointment, if external), he/she is more likely to deliver success, and feel empowered in the
role, since the act of inclusion in discussions promotes a feeling of value. Running the gauntlet
between a contractor and a customer, whom the project manager barely knows, is hardly the
right way to start a project! In such a scenario, I have facilitated a 1-day pre-works workshop,
which is to be extremely helpful to project team kennenlernen and stress-testing the practical
against the contract: “what could, and should, we do if X arises on this project?”
xxiv Project Business Management

Charting such legal territory is necessary to protect the project, the customer, the contrac-
tor and the project manager. Losing contractual entitlements or inadvertently adding to a
service scope are hazards to avoid. I have a challenging and exciting practice educating project
management professionals about law, the core of which is: basing your arguments in fact and
applying the correct law means you are rarely wrong. More easily said than done! At PMI UK
Synergy 2016, I summarised the project manager role as one of “damage limitation”. The other
side of the same coin is to “maximise profit safely and make (keep?) the customer happy”. With
a similar voice, what Business Project Management (BPM) really does is to call for superlative,
professional judgment, which is flexible within an appropriate legal and practical structure.
Ideally, a project manager’s basket of skills should contain relevant technical discipline(s),
plus experience in several business-oriented areas: leadership, law, governance and stakeholder
management, people management, risk and financial management. In addition, if the proj-
ect is one of a “bigger picture”, there is scope for relationship solidification (or destruction).
Individual and corporate reputations can be (and are) made or broken in such circumstances.
However, Oliver’s research shows, and this is also true of my experience, that project managers
rarely have all these skills, and are often insufficiently trained to be able to execute all these
functions well. There is much scope therefore for upskilling the profession, and this book will
certainly help with this.
Throw in an international contracting dimension, and the project manager must be mindful
of multiple jurisdictions and cultures. For example, a German project manager managing a
Government-sponsored building project in UAE delivered by an American main contractor and
British architect. Dig deeper, and the project manager finds the sub-contractor is Chinese, who
is using labour from Pakistan. The supply network sending components emanates from a dozen
other countries. Each of those 20+ contracts will be founded on a single applicable law agreed
between the relevant parties. To some extent, this type of complex arrangement explains the
popularity of international arbitration, which transcends geographical boundaries and provides
a neutral dispute resolution forum. Nonetheless, a project of this sort is extremely challenging
for a project manager. Whilst the project manager does not “rule” upon the legal position of
any particular issue, he/she uses independent professional judgment to make decisions about
project matters throughout the delivery phase, which are usually binding contractually unless
challenged using the dispute resolution procedure. Binding is necessary to maintain project
progress: building does not stop while everyone works out what their legal rights and obliga-
tions are. Projects are “live” and multi-layered. What affects one party may not flow down the
contractual chain to another. The project manager must be alive to this as a principle.
Another important project manager skill is record-keeping. Contracts such as the con-
struction industry NEC3 (as of June 2017, NEC4), commonly used in the UK and increas-
ingly worldwide, require the project manager to be the custodian of the project record, which
includes documents such as the early warning risk register and the programme, as well as plans,
drawings, the specification, and communications (instructions, notices, submissions, etc.). In
my experience, what may or may not be done with this data, including security and owner-
ship, is poorly explained in contracts and equally poorly understood. The international rise of
Building Information Modelling takes care of this to a limited extent. It is most definitely a
contractual hazard for project managers.
 Foreword xxv

In my opinion, contracts are fiendishly difficult and, although archaic language is (thank-
fully!) dying out, they can be long and laborious. Words, which look straightforward, can be
deceptive. Taking time to read, understand and react to the contract provisions should be the
right—and duty—of every project manager. I think Oliver would agree with me on this.
Over these last few months, a friendship has been born. Oliver is resolutely passionate about
the value of project management to business, as I am. His humour is infectious. We share a love
of languages too, which enriches both our lives. It seems appropriate that I wish him heart-felt
congratulations, herzlichen Glückwünsche, félicitations, felicitatiónes, and gratulatii for Project
Business Management!
— Sarah Schütte
Solicitor-Advocate, LLB, ACIArb, MPD, member PMI
Managing Director, Schutte Consulting Limited
“Making law work for the construction and engineering industry”
London, UK
July 2017
Preface

Whenever you find yourself on the side of the majority,

it is time to reform (or pause and reflect).
— Mark Twain*

Project management has turned from a technical discipline to a business. Today, many cor-
porations and other forms of organizations not only attribute their business success to the
advances that they achieve by doing effective projects; projects are their direct source of income
as project contractors.
Others must learn as buyers to mature their capabilities in project procurement management
from doing some purchases here and there to engineering and managing complex, dynamic,
and often opaque project supply networks (PSNs). These PSNs often include large numbers of
heterogeneous contractors with the potential of conflicts on various levels.
All these players on the customer and the contractor side have specific business interests and
corporate cultures. Many are headed by big egos, and when these supply networks become
international, differences in time zones, legal systems, and business principles will further
impact the projects. Working under contract in their projects, these corporations have to act
together as PSNs to achieve mission success while their differences permanently threaten to
impact trust, communications, and collaboration. There is a large number of examples of failed
projects that would have been successful if the PSNs had been managed more proficiently.
From time to time, it seems advisable for the project management profession to examine
whether its self-perception of what it is and what it does is still lined up with the actual practices
of its practitioners. It is to some degree satisfying to see our representatives invited to speak at
congresses that focus on economy and international politics, and when new societal concepts
turn up—such as “Industry 4.0” or “Smart cities”—experts from project management are now
commonly among the first people asked by media what they think about it.
While striving toward new devotions, we have to take care that we do not lose the firm
ground of practicality and realism under our feet, The tendency is going towards more proj-
ects performed for customers in PSNs, and while it is taken for granted that qualified project
managers are all also capable of managing these supply networks, many of them cannot. In
*
http://www.twainquotes.com/Majority.html

xxvii
xxviii Project Business Management

addition to project management skills such as planning, scheduling, assigning people to tasks,
and managing risks, they also need business acumen, something not taught thus far in project
management education.
The same is true in the literature. Many publications on project management, and also on
the related disciplines of program and portfolio management, emphasize the strategic aspects
of projects: They say that projects are temporary endeavors that must be aligned with the cor-
porate strategy, support the corporate strategy, and help lead the organization in tumultuous
times to develop a future as intended by management. No doubt, this statement is true for
many projects. For all projects? Probably not.
Project management is about coping with uniqueness. Some projects, as I will show, have
a setup that is different to this description. A good example of a type of project that does not
necessarily follow strategic considerations are mandatory projects, performed by organizations
to meet requirements imposed by law, investors, business partners, or other entities that are
powerful enough to enforce these projects on the organizations without asking first whether
they comply with its strategic goals.
Customer projects are also different. These projects are performed by one or more contrac-
tor organizations for paying customers that are separate economic entities to them, and these
contractors may then use subcontractors, who in turn may hire sub-subcontractors, and so on.
There are exceptions, but as a rule, it is safe to assume that the contractors on these varying
levels generally work for the customer to bring money home. This book focuses on projects that
are performed in such a cross-organizational fashion, which comes not only with new opportu-
nities, but also with substantial risks for all parties involved. Project business management with
paying customers and earning contractors generally means high-risk business.
A customer project can be high-profit business for a contractor and can provide the com-
pany with a lot of satisfaction, knowing that one had contributed to a great project and helped
a customer achieve things that would otherwise not be achievable. It can also turn into an
economic nightmare and destroy companies.
The audience for this book are practitioners in “Project Business Management” (PBM), who
manage projects in complex and highly dynamic project supply networks (PSNs). The number
of these networks and their complexity are increasing, and project managers are facing this
development mostly unprepared. I see an urgent need for a book that helps project managers
understand and master the challenges that come with this development.
In these networks, there are project managers who are managing projects under contract
for external, paying customers. Then, there are commonly project managers on the customer
side, who are running internal projects with major procurement activities, who have to work
together with project managers from the first group, and who need an understanding of the
businesses of the vendors to be effective as customers.
A further audience group is both at the same time—contractors to paying customers and
customers to their subcontractors in complex and dynamic PSNs. These prime contractors and
other intermediates have to consider a multitude of interests: those of their own organization,
then those of the direct customer, and finally the interests of the project as a whole, whose
overall mission transcends the companies involved, and whose dynamics of success and failure
depend on the ability of the organizations involved to act together as a well-aligned system,
 Preface xxix

resisting the temptation of the particular and short-term benefit that at any given moment
threatens the joint success of the parties involved.
A further group addressed in this book are the business development managers on both
sides of a contract—the vendor-side business developers and the customer-side purchasing
executives. Although each of these audiences looks at project business from a different perspec-
tive, the businesses looked at are in essence the same.
This is my second book on Situational Project Management. In the first book, Situational
Project Management: The Dynamics of Success and Failure, I gave an introduction to the basic con-
cept of Situational Project Management—in short, SitPM—and how project managers should
adjust their practices to ever-changing situations. The word situational reflects the simple obser-
vation that the same practices that have been successful in certain situations in the past may fail
in other ones in the future. Practices should be understood here as the collection of approaches,
behaviors, methods, tools, and techniques applied by project managers and their teams on orga-
nizational and interpersonal levels to their projects in order to avoid failures and create successes.
In this first book, I described the development of a typology for projects and project situa-
tions that should help better understand the differences between them and select the practices
that are appropriate. The typology is an open one; I described 14 dimensions, but there are
probably more. Adjusting practices to different projects and changing project situations is a
difficult task, not an easy one. A situational project manager no longer follows a simple “best
practice” model, but needs to master a variety of practices and select the ones for a given situ-
ation that are most favorable and likely to lead to success for both the project and the person.
Alternatively, a project manager may have access to another person who can support him
or her in this role with behaviors that the project manager has not mastered so far. Situational
project management is based on the understanding that project management is not a closed-
skill discipline, in which the project manager simply focuses on his or her own performance
and that of the team and executes a predefined plan without regard to changes that happen
inside the project and around it. Project management is an open-skill discipline, which requires
a proactive and responsive attitude and a lot of situational intelligence to master the dynamics
of success and failure. This is not easy but comes with two valuable benefits: reduction of team
stress and better projects.
One of the typological dimensions described was the distinction between internal projects
and customer projects. An internal project is a cost center for the performing organization. It
does not bring money home, but generates costs, often with the intention of a future business
benefit to be generated in another workstream outside the project—for example, in ongoing
and repetitive operations. The benefits may be additional income or cost reductions, but these
would then be generated by this other workstream. Some internal projects do not create eco-
nomic benefits, but are performed based on strategic considerations to make the organization
future proof. Internal projects may serve other purposes, which could be curiosity or a social
good. Sometimes, none of these business justifications apply, as many internal projects are sim-
ply mandated by law or other undeniable obligations, the mandatory projects mentioned above.
Customer projects, in contrast, are profit centers performed under a written or verbal con-
tract. Project managers in organizations whose business is customer projects typically provide
income for the performing organization. Some organizations performing customer projects
xxx Project Business Management

may rely on this income as their only income, others have it as a more-or-less valuable add-on to
their operational business. In both cases, the environmental factors and requirements on pro-
fessionalism for project managers are different for customer projects and internal projects—a
distinction rarely mentioned in the literature and, as far as I have seen, not elaborated in detail
anywhere else.
One focus of the current book will lie on the second type of projects. The first intended
audience of this book are therefore project managers whose projects are acting as profit cen-
ters. Many customer projects are embedded within complex PSNs that extend organizational,
national, cultural, time-zone, etc. borders and come with legal, technical, organizational, and
interpersonal interfaces that develop complex dynamics, which often grow during the course
of a project to a degree that was not predicted at the onset of the project.
Understanding these project supply networks (PSNs) and their interfaces takes a lot of cour-
age and empathy for all parties involved. They bring new opportunities to corporations and
other organizations and increase their adaptiveness.
The basic desire of parties involved is to tap assets of other organizations and turn them
into project resources. For buyers, these assets may be skilled people, machinery, patents and
licenses, and others. The most important asset that buying organizations commonly want to
tap is management attention—finding someone who will take care for the correct performance
of the outsourced work.
For a seller, the most obvious asset to gain access to is the money of the buyer.
Project Business Management comes with high financial risks that can jeopardize the exis-
tence of an organization, and the troubles or even default of one organization may impair the
business success of other organizations in the network and, in a worst case, endanger the entire
mission. Customer project management is a business task with maximum stakes, and project
managers on all tiers in a complex PSN act at the limits of what is actually manageable. The
same is true for the buying organization, which can massively suffer from troubles on the side
of its contractors.
Readers who know my first book, Situational Project Management—The Dynamics of Success
and Failure, will find some overlap and repetitions in this book. This is natural and to some
degree intended. The two books do not describe different topics but reflect on basically the
same subject—Situational Project Management (SitPM)—from different viewpoints. The first
book describes the basic approach of SitPM and typifies projects and project situations to allow
for deeper analysis and focused problem solutions. This book, Project Business Management,
now puts the spotlight on one type of projects—customer projects—and shows what new
knowledge can be gained from this narrowed focus of research and contemplation.
Another reason for possible repetitions is my wish to make this book sufficiently self-
contained, so that a reader who does not know SitPM in depth can still use it and benefit from
reading and from applying its concepts, tools, techniques, and approaches. A third aspect is of
didactic nature: Repetitio mater est studiorum; repetition is the mother of learning.1

1
Marketers know this principle as the “Rule of Seven”: The target audience of an advertisement or a
commercial must see a message at least seven times before it is grasped and taken in (Eaton, 2014,
p. 48). The same principle applies in education, where repetition can help students learn. It can also
make studies, and commercials, very boring, of course.
 Preface xxxi

My intention with this book is twofold: raising awareness of risks and specific problem fields
and develop solutions that are easy to implement in practice. The audience for which I wrote
the book are seasoned practitioners, who will often recognize the situations described in my
case stories and will value the warnings and advices. I also intend to address educators and
other groups of rarely practitioning experts.
Project management offices (PMOs) in organizations doing customer projects and using them
as their source of income should consider developing themselves into project business manage-
ment offices, to not only streamline methodologies, terminology, and basic approaches, but
also to monitor profitability and liquidity of portfolios with customer projects to ensure early
response when these portfolios run into crises. I hope their staff will find the book helpful.
An audience from companies with increased exposure to liabilities are people working for
prime contractors and other forms of “in-betweeners”. These companies act as commercial
intermediaries between customers and subcontractors, being contractors to the former and cus-
tomers of the latter. The position may be a profitable one, which engages subcontractors’ skills,
knowledge, experience, etc. to earn good money from the customer without overburdening
their own resources.
In other moments, diminutive margins, earned when the costs that are invoiced by subcon-
tractors have been deducted from the price paid by a customer, may make this “ham in the
sandwich” position deeply unappealing, particularly given the risks on financial, technical,
and legal levels that the prime contractor has to assume. When the book looks at both sides of
project business, buyer and seller, staff members of prime contractors actually do business on
both sides.
There has not been much literature written on project business management, and not much
research has been done in the field.2 This in turn is an opportunity for scientists and also for
students to build new knowledge. During my time writing this book, I did some research on a
scale that is compatible with my profession as a trainer and my additional work as an associa-
tion volunteer and author of books and papers. Whenever this research answered a question I
had, two or three new ones turned up. If a reader is interested in Project Business Management as
a topic for academic research, possibly for a thesis or a dissertation, I will be happy to communi-
cate these questions and give advice on how to design studies to find answers and publish them.
Finally, if the book helps practitioners to do better projects in customer/contractor supply
relationships, turning contract parties into project partners, raising awareness of the risks in
the business and support solutions to manage these risks, it satisfies my intention of giving
something back to the profession that has given me income and satisfaction for over three
decades and whose staggering growth I had the joy and honor to observe over that time.

— Oliver F. Lehmann, MSc, PMP®

Munich, 21 April 2018

2
An exception is the book by Robin Hornby, Commercial Project Management (Hornby, 2017).
Acknowledgments

I am most grateful to my wife, Silvia; my children, Antje, Daniel, Sandrine, and Tizian; and
my grandchildren, Amelie and Helena, for their patience with me, when I was busy with this
book and could not give them the time and attention that they deserved from me.
This book is to a great degree a result of deep and lasting friendships. Friendship can be
built on common interests, common enemies, and common values. Interests and enemies are
changing over time. Values last forever.
My special thanks go to Dr. Ginger Levin, my editor, and to John Wyzalek from Taylor &
Francis. I would also like to thank the production staff at DerryField Publishing Services—
Theron Shreve and, of course, Susan Culligan, with whom I worked in tight cooperation, and
who was most critical and helpful to ensure that my English was not too much tainted by
Germanisms.
In addition, I am thankful to the many educators and experts whom I had the honor to meet
in person, and whose thoughts and beliefs helped shape mine, including James R. Snyder, one
of the founders of PMI; William R. Duncan, primary author of the original PMBOK ® Guide
1996 and the trainer for my PMP® preparations; Patrick Weaver, who is one of the few experts
I have met so far who shares my interest in the history of project management; and Cornelius
Fichtner and Jonathan Hebert from OSP International, who challenged me on important
questions in the field and raised my awareness that such a book must not only suit experts
but also give help to practitioners. Thanks also go to Deanna Landers, Robert Monkhouse,
and Kris Troukens, who together with other idealistic friends and colleagues founded Project
Managers Without Borders and opened the profession to a new degree of altruism, benevo-
lence, and magnanimity.
Antje Lehmann-Benz, my daughter and colleague, challenged me repeatedly on the com-
patibility of Project Business Management with agile practices, a field that definitely deserves
more research.
My gratefulness also belongs to Goran Krstulovic, who as a training provider immediately
identified the new opportunities that come with Project Business Management and who put a
great deal of effort into making customers aware of the educational gaps present in this field.
Very helpful was also David Pells, who gave me the opportunity to write a series of papers
for his monthly magazine Project Management World Journal, where I could address many
topics that also found their way into this book and test some of them for acceptance by an

xxxiii
xxxiv Project Business Management

international readership. One of the papers, named “Crisis in Your Customer Project? Try
Benefit Engineering”, received the magazine’s Editor’s Choice Award 2017, and benefit engi-
neering is indeed at the heart of my recommendations for solutions to improve the profitability
of a customer project and the happiness of the customer.
In discussions with several women—particularly Vivian Isaak (Magnum Group, Inc.,
Philadelphia, USA), Barbara Wichmann (Artemia Communications, Inc., San Francisco,
USA), and Sarah Schütte (Schutte Consulting Ltd., London, UK)—I became aware of the
importance of woman-owned business enterprises in Project Business Management. This gave
me the sensitivity to be careful with language and to ensure that the wording used for the book
is fully inclusive to women and the organizations they own.
In the past, I had the opportunity not only to follow a project management path of qualifi-
cation, but also to get certified in the field of business development and proposal management,
which led me to becoming an APMP Certified Trainer in this discipline. I am thankful to
Tony Birch and Cathy Day (Shipley UK Ltd., Yeovil, UK) for making this possible. The lessons
from this qualification influenced this book as much as my personal experience in the field.
Kudos also to Wolfram Seyring (Shipley GmbH, Hilden, Germany), who spent many hours
with me critically discussing the concepts of the book and refining my understanding on the
business development side.
Another deeply influencing person for me and this book is Peter Eigen, the founder of
Transparency International (TI), the world association against corruption. During a joint car
trip in 2005, he explained to me the rationale of the foundation of TI and toughened my posi-
tion against corruption, unfortunately something that impacts Project Business Management
in some countries and industries on a massive scale.
My last “Thank you” goes to my customers and students over a time of more than two
decades in the professional training business. They believed in me but also challenged my
understanding with often tough questions. They helped me question and validate the models
and practices that I trained against their individual realities of day-by-day project management
and sharpened my understanding of the field of business that deals with the collaboration of
companies in contractual situations. Mission Success First!
About the Author

Oliver F. Lehmann was born in 1957 in Stuttgart, Germany. He has

studied linguistics, literature, and history at the University of Stuttgart
and project management at the University of Liverpool, UK, where he
holds a Master of Science degree. He had practiced project manage-
ment for more than 12 years, mostly for the automotive industry and
related trades, when, in 1995, he decided to make the change and
become a trainer, speaker, and author. He has performed seminars for
employees from international companies such as Airbus, DB Schenker
Logistics, Microsoft, Olympus, SAP, and Deutsche Telekom, and he
has had assignments as a trainer in Asia, Europe, and the U.S. He works for several training
providers and is also Visiting Lecturer at the Technical University of Munich. Lehmann is fre-
quently invited to speak at congresses and other events, where he motivates his audience to
welcome the incredible diversity found in project management around the world, and for the
new experiences that wait for discovery by project managers.
Among his diverse certifications are the PMP® certification of PMI, the Project Management
Institute from Newtown Square, PA, USA, which he obtained in the year 2001. In 2009,
he acquired the prestigious CLI-CA (Certified Associate) certification issued by CLI, the
Connective Leadership Institute from Pasadena, CA, USA, which is only held by a small
number of people. He is also a Professional Scrum Master™ (PSM 1), certified by Scrum.org.
Lehmann has been a member of and volunteer at PMI, the Project Management Institute,
since 1998, and serves currently as the President of the PMI Southern Germany Chapter. From
2004 to 2006, he contributed as an analyst for troubled projects to PMI’s PM Network® mag-
azine, where he provided the monthly editorial on page 1 called “Launch”, analyzing troubled
projects all around the world.
Lehmann believes in three driving forces for personal improvement in project management:
formal learning, experience, and observation. He considers the last one often overlooked, but
important, because attentive project managers do not need to make all errors by themselves,
they also learn from the successes and errors of their colleagues.

Image courtesy of Andreas Madjari

xxxv
Chapter 1
Laying Out the Scenery:
The Business Side of
Project Management

1.1 The Importance of Project Business Management

The project managers at Bumble Bee Inc.,1 the prime contractor organization in the software
development project performed for Woodpecker Ltd., their customer, hoped to have a party
after final handover of the project’s deliverables to and acceptance by the customer. They were
certain to get the handover finished that day and to receive the final payment from the cus-
tomer by the end of the month. The project so far had been successful, and the revenue–cost
calculations promised a sound profit that would please management and shareholders. The
expectation was that this would be like a great performance in a car race, a pole to flag victory,
with the driver finally standing on the top step of the winners’ podium.
Everything was going great . . . until the customer’s representatives showed up, began their
acceptance testing following the functional and technical requirements that had been laid out,
and finally said “No” to the deliverables. Too many requirements had not been met, some of
them described in the contract, others in e-mails and communicated in meetings. While the
contractor at one point in time had lost track of them, the customer had not. The condemnation
by the customer on what was developed so far was immense, and Bumble Bee had to accept
that in order to meet contractual obligations, a lot of additional work needed to be performed.
They also had to accept that they would not be able to bill the customer for the additional work;

1
The names of the organizations are changed but the case story is real.

1
2 Project Business Management

instead, the unplanned rework would cause delays that would lead to price deductions, and it
was not clear when the resources would be available again to do this work. The Bumble Bee proj-
ect managers also understood that their subcontractors would charge full rates for the additional
work, and that the margin between their process to the customer and the costs incurred with
their contractors would become very small and could possibly turn into red numbers.
In addition, instead of utilizing the opportunity to shine in front of the customer, Bumble
Bee made the impression of being badly managed and disinterested in customer satisfaction,
which they had never been. From a promising business, the project turned into a financial
nightmare just in some hours, and at this time, there was no way out of the entrapment in
which the contractor found itself.
Although modern project management originated as an engineering discipline, it has always
had a business aspect attached. Funding and costing of projects are central tasks that perform-
ing organizations need to carry out, and there are many other aspects of projects that are more
linked with the business character than with the technical challenges of the endeavor. A very
central one is the mutual dependency that the parties (or partners?) in a project performed
under contract develop once the contract has been closed. The contract comes with obligations,
but also with high risks for both parties involved.
Project Business Management, or PBM, to simplify addressing to it, is definitively not easy money.
The following questions are written in the style of a certification test. They are intended to
give you an understanding of the contents of the following text section and the questions that
will be discussed in it.

1.2 Introductory Questions

It may be interesting for you to answer these questions before you read the section, and then
again once you have finished it. There will be such a section with questions at the beginning
of each chapter.
The answers are found at the end of the book.

1. A project may have no deadline, a single deadline, or a sequence of deadlines. These

deadlines may be internal, may be defined in a contract with a customer, or may be
otherwise mandated. Later in the project, deadlines are often found to be unrealistic,
detrimental to the project, or just impossible to meet.
What should a project manager do in such a situation?
a) The project manager should try to get replaced by a colleague, before the difficul-
ties from the deadline become visible to management.
b) The project should be immediately terminated and the causes for termination
updated to the corporate lessons-learned database.
c) The problems that arise from the deadline should be communicated early to appro-
priate stakeholders to allow for timely resolution.
d) The project manager should make a note and go on with the project—many prob-
lems are self-resolving over time.
 Laying Out the Scenery: The Business Side of Project Management 3

2. The organization for which you are working has a new CIO who has recently sent out
a message to all employees in her department, stating that the company IT wants to
“go agile”. Today, you were told that the software implementation project you and your
team are currently managing has to be adapted to agile methodologies.
How do you react?
a) You immediately transform the methodology applied in your project to Scrum,
appoint yourself as Scrum Master, select a product owner, and reduce the team to
nine people.
b) You make yourself familiar with agile methods in order to understand if these could
be helpful for your specific project situation or are detrimental. Then you report
your findings to management.
c) You tell management that agile is not for you, that you think it never works, and
that when an organization says something like that, it can be nothing but hot air.
Therefore, you prefer to hand in your resignation.
d) You are not sure what you are supposed to do. Therefore, you ask to be transferred
to another project. You know that you want to avoid having to switch methodolo-
gies in a running project.

3. You work for a company that has contracted you out to a big corporation to manage a
project for the financial sector. The head of that organization’s PMO approached you
today and suggested that her team could give you some proven best practices for the
management of projects for the insurance industry.
What is your reaction?
a) You assess whether these “best practices” are rather favorable or detrimental in the
given situation. If they are not, you reject using them.
b) You generally reject using them, as you have not developed them by yourself.
c) You ask her to immediately pass on all relevant information to you, to allow you to
copy the past success in your project.
d) You approach other project managers in the financial sectors about their best prac-
tices and apply these instead.

4. A number of companies have founded a consortium. In the context of project manage-

ment, what is their most probable intention?
a) To organize the lessons-learned documents in a way that will facilitate decision mak-
ing in future projects
b) To share organizational process assets (templates, forms, procedures, etc.) with the
other venturing companies
c) To reduce the strain on the credit line from acting for the project by “hiding” inside
the consortium
d) To build a temporary joint venture to perform a project together that each company
alone would not be able or willing to do

5. An internal project is different from a customer project in what form?

a) An internal project has a project manager, a customer project a project engineer.
b) An internal project is a cost center; a customer project is a profit center.
c) An internal project is a profit center; a customer project is a cost center.
d) An internal project is more operational than a customer project.
4 Project Business Management

6. As the project manager for a customer project, you find out that on the buyer side,
no internal project has been defined, and that there is therefore no buyer-side project
manager and project sponsor formally assigned and documented in a project charter.
What should you be acutely aware of?
a) Omissions and errors on the customer side can impact the contractor’s success. You
should recommend the customer to also build a project structure, and if this fails, to
find ways to protect the project.
b) It is of utmost importance to immediately define the role of each team member on
the contractor and customer sides in a way that helps ensure that everyone knows
you are the only person in charge.
c) The customer is contractually and legally obliged to also build an internal project
when work is outsourced. You make the customer aware of this and prepare to sue
the company in case of noncompliance.
d) It does not matter if the customer is organized for the project. The full responsibil-
ity for the success of the project lies with the contractor and its dedicated project
team.

1.3 The Story So Far

The following paragraphs provide a brief summary of my efforts to develop a typology of proj-
ects2 between 2014 and 2016. If you have read my book Situational Project Management: The
Dynamics of Success and Failure,3 you may skip this section and go to the next. If you have
not, it may be helpful to understand the starting point—situational project management, or
SitPM—better, of which Project Business Management (PBM) is a practical implementation.
Could it be that in its current self-conception, project management is much more sim-
ilar to ancient alchemy than to a modern science or an art? Alchemists were driven by the
desire to find the philosopher’s stone that could turn lead and other cheap metals into gold.
They searched for panaceas, cures for all diseases, and while they developed various laboratory
methods—some of them still in use today—their activities were mostly performed against a
background of mysticism and magic.
There were several steps that took practitioners and scientists from old alchemists’ approaches
to those of modern chemists. A central one was the publication of the periodic table (Mendeleev,
1869), which allowed chemists to classify and typify chemical elements and improve their
understanding of chemistry through the identification of an inner order in the diversity of ele-
ments. A similar step was achieved in biology with the development of the Linnaean taxonomy,
which allowed scientists to classify species and understand their relationships and also their
differences.
Typologies and with them classifications allow us to better manage diversity. Another exam-
ple is provided by burns. Burns happen on a continuum between a minor injury and the most

2
The following paragraphs were previously published in Project Management World Journal (Lehmann,
2016a).
3
(Lehmann 2016b)
 Laying Out the Scenery: The Business Side of Project Management 5

dreadful damage to tissue that can happen to humans. Each burn is different, but a typology
in the form of a system of degrees helps medical practitioners respond appropriately to them.
Burns of a first degree are mostly treated by applying outpatient care and superficial methods.
Burns of the third or fourth degree (depending on the system) will be treated in intensive care
within a hospital. Despite the uniqueness of burns, the typology helps to better select the most
suitable response.
One should note that the classification systems in chemistry and biology are open classifi-
cations, which can be expanded when new knowledge has been explored and new elements or
species, genera, and so on should be added to the existing ones. This is different to the closed
classification of burns; this classification is generally considered to be complete.

1.3.1 “Best Practices” or Uniqueness?

In project management, the common belief in the existence of a “best practice” approach is
a concept comparable to alchemy, and it is widely held. Many project managers believe that
there must be a practice that is applicable to all projects that will generally ensure success in
all of them. Interested in the question of how popular this concept is, the author asked project
managers between April and August 2015 whether they believed in universal best practices. He
received 189 responses, and the majority confirmed that they believed in best practices within
the discipline. Figure 1.1 shows the results of the survey.
In scientific papers and articles, any differences between project types are also commonly
ignored. Searching websites that provide links to published work on project management gives
many results of research in project management generally, but the vast majority is not linked to
specific types of projects. The questions that they raise would be similar to scientific papers and
articles in chemistry asking, “What is the boiling point of an element?”, or in zoology, “How

Figure 1.1 A majority of project managers believe in universally applicable practices.

6 Project Business Management

do animals survive?”, ignoring the fact that boiling points are different from element to element
and also depend on environmental conditions, and that the latter is also true for the survival
strategies of animals.
There are also promotion campaigns for “proven best practice methodologies” that can be
“applied to all types of projects”, which would be comparable to a description of the best treat-
ment practice for all burns, ignoring their degree.
This last point is very common in project management in organizations. When one talks
with managers from the project governance functions, statements such as, “We are moving all
projects to agile methods” (or any other methods that are considered cooking recipes for project
management) is possibly good news for some of their projects, but may be bad news for others.
The claim of “best practices” contrasts with the definitions of the term “project” used in the
various international standards. Here are some examples:
• “A project is a temporary endeavor undertaken to create a unique product, service, or
[other kind of] result”.4
• “Project: [A] unique process, consisting of a set of coordinated and controlled activities
with start and finish dates, undertaken to achieve an objective conforming to specific
requirements including constraints of cost, time, and resources”.5
• “Projekt: [Ein] Vorhaben, das im Wesentlichen durch Einmaligkeit der Bedingungen in ihrer
Gesamtheit gekennzeichnet ist”.6
The International Organization for Standardization (ISO®) standard 21500 (ISO, 2013)
also emphasizes uniqueness as a main characteristic of projects and explains how differences
between seemingly similar projects can arise due to the specific processes applied or how they
may be affected by the unalike environments in which the projects are performed.
In reality, the same practice that has led to success in past projects may lead to failure in oth-
ers, and vice versa. The principle may be relevant not only to entire projects and their lifecycles,
but to situations during these times. Approaches that have led to success in certain situations
may cause troubles in other situations still within the same project. Accordingly, Situational
Project Management (SitPM) is the application of those practices that are favorable in given
project situations while avoiding other practices that are considered detrimental. Situational
project managers are not just confident with the practices that they master but go through a
lifelong learning process, adding new tools, techniques, behaviors, etc. to their existing capabil-
ities, much as a craftsman or craftswoman adds new equipment and tools to their job shops to
help them meet varying demands and requirements.
What happens if a project manager, believing in the comforting certainty of a best practice,
avoids this continuous learning process? If a person only has a hammer to make a living, the
person must convince the world that it is made of nails. Another person may only have a screw-
driver, and this person must tell the world that it is screwed.

4
(PMI 2014, p. 4)
5
(BSI 2000, p. 10)
6
An undertaking that is chiefly characterized by the uniqueness of the conditions in their entirety.
Own translation (DIN 2009, p. 11).
 Laying Out the Scenery: The Business Side of Project Management 7

An example of how a practice that has been successful in one place may lead another project
into trouble is illustrated through the two central station projects in Germany—Berlin and
Stuttgart. They can highlight the insufficiency of “one-size-fits-all” approaches that come with
the postulation of universal best practices:
• Berlin Hauptbahnhof. Berlin Central Station was a new construction opened in 2006.
In its overall appearance, it is mostly considered a successful project, a piece of modern
traffic infrastructure, which meets functional purposes and is aesthetically impressive.
• Stuttgart 21. Stuttgart Central Station is a reconstruction of an existing station, turning
the tracks by 90 degrees to convert a 16-track dead-end station into an 8-track through
station. The project began in 2010, and it was planned to have the new station opera-
tional by 2016. Still in the first year, the project was facing massive resistance from local
citizens who took their rejection of it to the streets and demanded complete project ter-
mination. Their protests caused a delay in the project schedule and led to the resignation
of the project manager in May 2011.
It is interesting to compare the two projects, because at first glance, they are almost identical
(see Figure 1.2).

Figure 1.2 Comparison of the two main station projects; the crisis in Stuttgart 21 refers to the
years 2010 and 2011, and the project has since been led mostly back on a success path.

To make the difference even harder to understand, both projects were performed by the same
project manager (in the Stuttgart 21 project until May 2011), using the same approach, which
was obviously beneficial for the Berlin project but detrimental in Stuttgart.
On the surface, it is hard to understand why the project in Berlin was successful while the
project in Stuttgart was not. The typology described below should help in making sense of the
differences and lead to adaptation of approaches by project managers and other supervisors.

1.3.2 A Research Project

To better understand how projects have commonalities and differences that can influence the
dynamics of success and failure, the author performed a research project with the intention to
tap knowledge from experts. He brought together a group of 17 project management experts,
8 Project Business Management

who have been practitioners in the past, but used their experience in the field in their new roles
as instructors; authors of articles, books, and blogs; in project governance or in volunteering
in professional associations. The experts had between seven and 36 years of experience each,
which accumulated to 393 years of project management experience as practitioners and in the
later roles. Twelve of the experts held the PMP® certification7 from the Project Management
Institute (PMI), one of them also held a Level B® certification8 from the International Project
Management Association (IPMA).
In interviews, the experts were asked to answer two questions:
• Dysfunctional question: “During your time as a practitioner or as an expert, do you
remember a moment when a practice, a method, a behavior, or a tool for project man-
agement that had led to success before, then led to failure?”
• Functional question: “During your time as a practitioner or as an expert, do you remem-
ber a moment when a practice, a method, a behavior, or a tool for project management
that had led to failure before, then led to success?”
All experts had examples that answered the dysfunctional question, sometimes more than
one, but not all had an example that answered the functional question. During these inter-
views, the examples that the experts remembered were recorded and, in a next step, further
investigated by applying the “Five whys” technique, a root-cause analysis method used to dig
deep into the underlying origins of problems in management and production.9 Another applied
technique was “Affinity diagramming”, which allowed the team to consolidate the thus far
anecdotal stories and to identify underlying principles, finally resulting in the definition of
project types that are relevant for the selection of project practices.

1.3.3 A Typology of Projects—Project Types

The project typology is considered open, which means that the following dimensions are not
considered a complete description and that further exploration could identify many more.
The dimensions that are described below were just those which turned up during the research.
Table  1.1 gives an overview of these dimensions. The column “Occurrences” describes how
often the dimension appeared among the answers. The column “Mode” was introduced based
on a discovery by one of the experts that some dimensions describe dichotomies (“B/W” for
black and white), while others describe continua (“Greyshades”).

1.3.4 Mark 1 vs. Mark n Projects

The terms are borrowed from British engineering, sports cars, and Japanese cameras.
A Mark 1 project is the first of its kind, at least for the people involved in it. As a break-
through project, it has a high degree of novelty and cannot rely on existing processes and

7
Project Management Professional®.
8
Certified Senior Project Manager.
9
(Adams 2008)
 Laying Out the Scenery: The Business Side of Project Management 9

Table 1.1 The Typological Dimensions That Were Identified During the Research

solutions; they must be developed during the course of the project. Mark n projects, in contrast,
are similar to former projects, and the teams involved have a lot of experience with this kind of
project. They often have processes and readily developed solutions to rely on.
This dimension has been identified and described above by Aaron Shenhar and Dov Dvir,10
who stated that a Mark 1 project has higher risk than a Mark n project, which seems generally
plausible. However, the result of the author’s research gave a different picture: In two out of
seven cases in which the dimension was influencing success and failure, it was the novelty of
the project that caused the problems. In five out of seven cases, troubles came from the Mark
n character of projects, from complacency and from the lack of attention to seemingly small
issues that grew and became major crises later in the project.
Seven cases for an analysis may be too small a sample size to make a final statement on the
risk exposure of Mark 1 projects versus Mark n projects, and the topic would be an interesting
one for further in-depth research. The example shows how a typology can open doors for future
exploration and discovery that is more focused and more tightly connected to the realities of
projects in this world.

1.3.5 Greenfield vs. Brownfield Projects

These two terms are quite popular in construction and infrastructure projects. Greenfield proj-
ects are built on virgin ground, literally or metaphorically. Their managers do not have to take
too much care of legacies, and the number of stakeholders involved is mostly small, allowing
project managers to focus on the project. In a brownfield project, there may be a lot of legacies
and stakeholders impacting the project, often massively, and expectations, hopes, and fears raise
high. Organizational and interpersonal issues add to that.
Berlin Central Station is an example of a greenfield project in a literal sense. The station was
built on a green strip, which had been left over from the former “death strip” between East and

10
(Shenhar & Dvir 2007)
10 Project Business Management

West Berlin. The wall was dismantled, the barbwire and spring guns were removed, and a strip was
left crossing the city from its north to the south, wide enough to make space for a new and mod-
ern traffic infrastructure. The project team did not have to give much consideration to nearby res-
idents; instead, they focused on keeping too much political influence at a distance to the project.
Stuttgart 21 is a brownfield project. Due to the hilly surroundings, it consists of vast tunnel
drilling activities, which need to be undertaken inside difficult geological layers (anhydrite)
that can swell in contact with water, with a chance to cause massive damage to the houses atop
it. The owners of these houses asked the project manager to meet them and talk about their
concerns, something he rejected.
Repelled stakeholders often come back bringing friends, lawyers, and the press with them.
The approach of isolating the project from its stakeholder environment—something that had
been successful in the greenfield project in Berlin—drove the seemingly similar project in
Stuttgart into crisis.
Meanwhile, the project managers in Stuttgart have learned their lesson the hard way
and implemented a system to improve stakeholder involvement and engagement called the
Bürgerforum 21 (Landeshauptstadt Stuttgart, 2011), in which the concerns and worries of
citizens are discussed in a transparent and open fashion.

1.3.6 Siloed vs. Solid Projects

Projects can be siloed in various ways. There may be different organizations that work together
as partners or are distributed over complex and often highly dynamic project supply networks,
each of these organizations with specific business interests and different ways of how they want
to perform the project. Teams may be distributed over various countries, cultures, legal systems,
etc. “Siloing” may relate to age groups, genders, and many more aspects.
Siloing may also be a result of phase models, when a sub-team has the responsibility for a
project phase and, when this has been finished, throws the result “over the fence” in a figura-
tive sense to another team that will be responsible for the next phase. Siloing can make project
management difficult, but it is often unavoidable.
Solid projects instead are like “bands of brothers”11 and sisters that act tightly together, under-
standing that then the result will be more than just the sum of its parts. Solidifying projects can
include measures such as colocation and concurrent engineering, overlapping of phases with
the intention to improve communications. There are limitations for the application of these
measures, so project managers should be able to manage siloed projects as well as solid ones.

1.3.7 Blurred vs. Focused Projects

According to a major part of the literature, each project has a clear start date and a clear end
date, desired deliverables have also been specified and agreed upon, and the team is assigned to
the project, so that people know if they belong to the project or not.

11
(Shakespeare 1599)
 Laying Out the Scenery: The Business Side of Project Management 11

This organizational and interpersonal separation of the project from the performing organi-
zation(s) is often not more than wishful thinking. The internal requestor or paying customer
has no clear understanding of the deliverables that would allow for specification, and if they
have, this understanding is often open to change. The performing organization too often does
not have the resources at hand that it can dedicate to the project, so there is a continuous com-
ing and leaving of human and other resources.
And as much as the project has slowly grown from some kind of limbo into existence, there
is also no clear, definable point at which it can be said that the project is over and closed. While
focusing is desirable, project managers must also be able to manage the ambiguities and uncer-
tainties of blurred projects.

1.3.8 High-Impact vs. Low-Impact Projects

High-impact projects commonly have more management attention than low-impact projects.
The impact comes with opportunities, but also threats, and the higher these are, the more
management attention that can be expected. Management attention is often the scarcest, but
most valuable, resource in a project. While its presence does not guarantee the availability of
other resources such as funding, people, or equipment, its absence is a sure reason that these
other resources will also not be available for the project.

1.3.9 Customer Projects vs. Internal Projects

This is the most obvious typological dimension in SitPM and is the focus of this book.
An internal project, performed for an internal requestor, often called an “internal customer”,
is a cost center. There may be future expectations that the deliverables of the project will give
the organization monetary benefits, but the project as such costs money and does not earn it.
Projects can be performed for a variety of future goals, including new income, cost savings, or
strategic benefits. Some are made to build a monument to an influential person or just for fun.
Internal projects may have complex business cases or are initiated in an ad-hoc decision.
Customer projects are mostly profit centers. The organizations involved perform these proj-
ects for paying customers, and it is the job of the project managers to bring money home.
Initiating these projects is far more complicated, as it involves a business development pro-
cess jointly performed by a buyer and a seller, who will later become the customer and the
contractor.
The following chapters will dig deeper into this differentiation. The book’s focus will then
be on:
• Customer projects, seen from the perspective of the contractor.
• Internal projects that include procurement, especially when this procurement leads to
complex and dynamic project support networks (PSNs).
Project Business Management is a discipline that I recommend to develop in economic
theory and business practice—one which describes the complex interfaces among the organi-
zations inside these projects.
12 Project Business Management

1.3.10 Standalone Projects vs. Satellite Projects

Many projects do not stand alone, as is normally assumed in the literature. Their project man-
agers and teams perform projects “in the wake” of other projects (which the experts call “prin-
cipal projects”), and the success of the satellite projects relies on the work of the project’s own
team, as well as on that of the principal project’s team. A crisis in the principal project may
swiftly translate into a crisis in the satellite project. The dynamics of success and failure can
become very complex, especially when there are more than two projects involved.

1.3.11 Predictable Projects vs. Exploratory Projects

The most significant discussion in project management during the last couple of years explores
“agile methods” versus “waterfall methods”. Agile was a hype in recent years, but looking at
presentations in congresses and also observing publications, it seems that a renaissance of the
predictive approaches is occurring at the moment. The author also made a survey on this topic
in 2012, asking project managers how static and predictable requirements in their projects are.
The responses from 140 respondents from a global group are shown in Figure 1.3.

Figure 1.3 Responses from global group on how static and predictable their projects are.

The first group of 7.1 percent is the group of projects that require predictive approaches with
long-term forecasts and planning. The third group are projects in which “the way is made by
walking”—projects for which agile methods have been developed.
Between these two groups that are best managed using waterfall or agile methods is another
one in which requirements have been defined but are open to frequent change, and for which the
teams should apply an approach variously called “Progressive elaboration”, “Iterative incremental”,
 Laying Out the Scenery: The Business Side of Project Management 13

or “Rolling wave”. A decision to perform all projects in a portfolio using highly predictive
methods, or performing them all applying agile methods, is probably a decision that will benefit
a minority of projects but will be detrimental to others.

1.3.12 Composed Projects vs. Decomposed Projects

A traditional approach to project management responds to a challenge that comes with probably
the oldest definition of a project, written in the late 17th century by Daniel Defoe, who stated
that, “The true definition of a project, according to modern acceptation, is a vast undertaking,
too big to be managed, and therefore likely enough to come to nothing”.12 In order to manage
this undertaking, it is commonly decomposed into smaller, better manageable items along a
tree structure called the Work Breakdown Structure (WBS), hoping that the re-integration of
these items will lead to the complete set of results that the project is required to deliver. The last
pieces of wood in this tree are commonly called work packages, and these work packages can
then be performed either by the project’s own team, by other business units as internal provid-
ers inside the performing organization, or by external vendors.
Some projects are developed using the opposite approach. Friends come together, or organi-
zations that have a more or less vested interest in the project join together, or a customer
organization requires contractors to work together. These organizations then come together,
each offering a contribution to the project, and the WBS is then not developed by decompos-
ing the project but by composing it from individual contributions. If the contributions are
able to bring about a complete set of deliverables, and if the parties involved adhere to their
commitments, such projects can become very powerful. They are also vulnerable to changes in
the business situations of the contributors, and project managers must rather have great mod-
erating skills than be traditional managers.

1.4 Further Types of Projects

I found further types of projects in my own work or in discussions with and observations of my
students, types that did not turn up in the research project, as follows.

1.4.1 Engineers’ Projects and Gardeners’ Projects

See Figure 1.4 for the different value streams in the two project types.
Project management has its origins in engineering, and for many project managers, there
is only one value development curve that they know: The value of their deliverables is highest
during handover and will then depreciate because of wear and tear, aging, outdating, and other
causes. People who are responsible for the deliverables may slow down the process by careful
treatment, regular maintenance, and updates from time to time, but they will not be able to stop

12
Abridged quote (Defoe 1697)
14 Project Business Management

Figure 1.4 The differences in lifecycle value creation of engineers’ and gardeners’ projects.

the process. Gardening projects are different, because the value of the deliverables is expected to
grow after handover, and it may take years for the deliverables to develop their full value.
There are projects that deliver benefits that are more similar to gardening: At the moment of
handover, the deliverables are still immature and their value—business or otherwise—is rather
low but is expected to grow over time. The maximum value may be achieved years after the
transfer of the deliverables, comparable to a garden, in which the plants then have grown to a
size that they can yield a valuable benefit.

1.4.2 Discretionary Projects and Mandatory Projects

Discretionary projects have a business case or another aspect that make them attractive for the
performing organization. The business case is often a tangible benefit that the organization
wishes to obtain by the project, such as additional earnings, cost savings in operations, or
improved strategic position. Some readers will be familiar with project selection methods such
as strategic scoring, net present value, or internal rate of return; discretionary projects are those
to which these methods would be applied.
Mandatory projects, in contrast, are required by law or are necessary to avoid an emerging
business crisis. Their purpose may also be to master such a crisis if it has already occurred.
Mandatory projects may be deliberate responses to compliance rules, but they also may be done
in sheer panic, especially if they have been procrastinated and started too late, and law has set
firm deadlines that are enforced with severe penalties but are difficult to meet.
Although internal projects are commonly performed in a weak matrix, which means project
managers have difficulties to obtain resources for their projects, these projects generally enjoy
a strong matrix, and the project manager is generally expected to obtain tangible support from
the functional organization.
 Laying Out the Scenery: The Business Side of Project Management 15

1.4.3 Single-Handover Projects and Multiple-Handover Projects

A project may have one moment of handover, which mostly finishes the work in the project
and starts the usage of the deliverables of the project. Depending on the industry and on the
deliverables of the project, the handover may be given a different name; common other names
are delivery, start of production (SoP), start of service, goLive, grand opening, and more. The left
part of Figure 1.5 describes how the value of the deliverables from the recipients’ perspective
develops in a project of this type.

Figure 1.5 Multiple handovers deliver value in stages.

Projects with multiple handovers are different: The deliverables from these projects are not
transferred as one massive piece but in portions during the course of the project. Multiple hand-
overs can be a solution in a situation of time pressure: A project will not be able to finish all
work by an imposed date, so prioritization is done. What is most important? What is mature
enough to be finished on time and then delivered? Multiple handovers may also be part of a
proactive organizational project management strategy of providing quick wins to the requester
or customer and allowing the use of a partially finished product in order to gain the first bene-
fits early, build trust in the project team, observe how users come to work with the deliverables
and how these deliverables perform, and to make adjustments for further development where
necessary.
Staged deliveries in this strategic understanding are also called evolutionary deliveries, and
there is even an extreme form called continuous delivery. This latter approach is mostly used
for software development with the intention to have frequent handovers of small increments
of the software to its users. Some users will find the approach fantastic, as it ensures tight
interaction between them and the developers; others may be terrified by the expectation of the
need to learn new software functions every other week and the outlook that functions one has
understood may be changed again. One obviously has to use these approaches with a sense of
situational proportion and empathy for people involved.
16 Project Business Management

1.4.4 No-Deadline Projects, Single-Deadline Projects, and

Multiple-Deadline Projects
In the literature on project management, but also in training, a common presumption is that a
project has a deadline that it must meet. This presumption often comes together with the previ-
ous one of the single handover or delivery. Again, I wondered to what degree this presumption
correctly describes the situation that project managers are experiencing, and I asked them in
an ad hoc survey in 2015. I received 402 responses by individuals who are managing a project,
with results shown in Figure 1.6.

Figure 1.6 How project managers report deadlines.

Forty percent, the largest group of respondents, said that their projects have not just one
deadline but several of them. The second group of a bit more than one-third of the respondents
met the presumption of one deadline. Almost a fourth of the respondents stated that their proj-
ect does not have a deadline, which does not necessarily mean that the project is not performed
under time pressure.

1.4.5 One-Shot Projects vs. Multi-Shot Projects

In many projects, the team has only “one shot” to deliver results successfully. The situation is
indeed similar to shooting: If you have only one shot, you have to aim more diligently—if you
miss the target, you will not get a second chance. In one-shot projects, the project manager
needs a realistic and viable plan.
One has to create predictability and must plan for the things one knows as well as for the
foreseeable uncertainties. And one has to anticipate the relevant bottlenecks and develop the
entire project around them.
 Laying Out the Scenery: The Business Side of Project Management 17

There are other projects in which the project manager and his or her team have several shots.
They can use staged deliveries and handovers of partially completed products to develop their
final product in a step-by-step approach and fix errors as they occur. They can easily allow for
change requests, as long as they are given the resources and time to manage them in a coordi-
nated and controlled fashion.

1.4.6 Open Typologies and Closed Typologies

The typology above is not a closed one, postulating “the 32 types of projects, structured along
the 16 typological dimensions”, but instead assumes that there are many more criteria that can
be used and that will lead to identification of further types. There are probably many more
dimensions to typify projects that are relevant and helpful for the day-to-day practice of project
managers. These are just the types that I identified from my own practice, from talking with
experts and practitioners in project management, and from observing others, always wonder-
ing what the root causes are that practices that have been successful in one project may fail in
another one.
It may also happen that a project changes its type, and some projects do this repeatedly
during their lifecycles. To give an example: A project to build a bridge may go through a first
phase, which is mostly driven by creativity, asking, “What should the bridge look like?”, and
by exploration of the underlying geology, of future traffic requirements, and of other consider-
ations. It may be impossible to predict and plan the details of this phase—if these details were
known, the phase would become unnecessary.
Later, when the bridge is planned and construction is on its way, long-term planning on
a granular level will be necessary to ensure the availability of funding, people, equipment,
and materials at the time when they are needed and to have all approvals granted before their
absence leads to delays. A street-art project may have the opposite lifecycle: First, resources must
be planned, approvals must be obtained, and the project must be publicized—activities that
depend on a long-term approach to develop the free space for creativity that will follow on the
days of the event.
The typology relates to entire projects, but also to situations inside a project. A challenge
for a project manager adopting Situational Project Management (SitPM) is to master different
practices and to be able to choose the one that is most promising in a given situation.
Another challenge is to make such changes without giving the impression of being erratic
and unreliable. Situational project managers understand that their discipline is built on life-
long learning. They are good communicators who can explain to others the details of their
approaches, helping others to develop a deeper understanding of the needs of the project and
how it interacts with the organization’s operations and with the often conflicting needs of
stakeholders.
A good friend of mine is a project manager in the information technology department of a
major automotive corporation. He often boasts of his “agilism”, something he is a true expert
in. Recently, he explained to me that for a certain project phase, he had to adopt another
approach, as he believed that his favored agile methods would not be appropriate. This is a
perfect example of a situational project manager.
18 Project Business Management

1.5 An Introduction to Project Business Management

There are internal projects and customer projects. “Customer” in the context of this book
means a real customer—an organization that is external to the organization that performs the
project and pays this performing organization, called the “contractor”, for this performance.
“Customer project” is understood here as a project in which deliverables travel across organi-
zational borders—often also across national borders—and so does the money involved. It is
also understood here as a general rule that the contractor, the contract party whose job it is to
deliver, creates financial income to secure its own existence. There are exceptions to this rule
that I will discuss later—customer projects not performed to generate income but to support
other business goals, sometimes called “strategic projects”, and even “pet projects”, wherein a
manager wishes to have a customer among the company’s customers because he or she likes the
company or its products so much.13
I am using the term “customer” here in this very narrow sense and separate from its use in a
looser habit: In many organizations, a model called the “internal customer” is used, often mir-
rored by an “internal vendor”. In these organizations, the flow of deliverables and money inside
the organization is modeled in a manner similar to an external supply channel, with internal
charges mimicking billing systems between organizations. These models are mostly connected
with operational “profit center” concepts, in which each business unit acts as an almost inde-
pendent little company inside the organization. Promoters of such systems commonly state that
internal and external customers should be regarded as equal entities, which may be a strong
approach in certain situations but can lead to troubles and inefficiencies in others, when work
and, with it, money that could circulate inside the organization leaves it instead to pay bills.
This happens when the external contractors’ bills would be less costly than the charges of the
internal provider of the same products or services. From the perspective of the project, this
decision looks like a cost reduction, while from a costing perspective of the entire organization,
the project becomes expensive, especially when it leaves the resources of the rejected internal
contractor idle. Profit center models can lead to disintegration of organizations.
Peter F. Drucker, who coined the term “profit center” in 1945, later changed his mind on the
concept “. . . because inside a business there are no profit centers, just cost centers. Profit comes
only from outside. When a customer returns with a repeat order and his check doesn’t bounce,
you have a profit center”.14
There are two criteria that separate the “internal customer” from a true and real paying cus-
tomer: The risk of (1) lawsuits and (2) public embarrassment when things go massively wrong.
When a project under contract between two separate legal entities gets into trouble, the
worst case is that it will end at court. Parties must be acutely aware of these risks at any given

13
It may sound ridiculous, but I had a boss in my younger years who wanted me, the General Manager
of the German operations, to do business with Mercedes Benz and Porsche, because he drove their
cars and wanted to tell his friends during golf matches that his company had them as customers.
Developing business with these companies in our field of business meant stepping into already exist-
ing high competition, at a time when it would have been much easier and more profitable to attract
business from other manufacturers who were currently receiving shoddier treatment than these giants.
14
(Drucker 2013, p. 34)
 Laying Out the Scenery: The Business Side of Project Management 19

moment in the project, and all actions must be documented in a way that these documents
could support their own case in such a situation. The threat of legal action also means that poor
performance of the contractor may get scrutinized in public, at least inside the industries to
which customer and contractor belong.
A project performed by an internal vendor for a customer in trouble will not be brought to
court but will be resolved inside the organization, commonly by high-level management. It is
often “swept under the rug” to avoid the public embarrassment that comes with such fiascos.
In this book, whenever I use terms such as “customer” and “client” for one side and “seller”,
“vendor”, or “contractor” for the other, I mean two or more organizations that are organization-
ally and financially independent from each other but have made a voluntary and more-or-less
well-prepared and -contemplated decision to temporarily act together—one providing goods
and services, the other one in most cases paying for them. Through the contract, they finally
step into a voluntary dependency on one another, a dependency that is often hard to escape.

Figure 1.7 Intercompany business and captive business.

What about “captive outsourcing”? The term describes a business situation in which the
“internal vendor” is a wholly-owned subsidiary company of the “internal customer”. Figure 1.7
shows the difference for a group of companies under a holding. When Company A does a proj-
ect for the holding of the group, the internal customer and vendor are not on the same level, as
the group holding is also the governing body for the company. Based on the two criteria above,
this is also an internal situation—a group internal one, to be more accurate: Company A and
the group holding company would never sue each other at court, and failures are commonly
kept private.
A subsidiary in a captive business is often in an ambiguous position: The customer is at the
same time the owner and therefore dictates what this company must do and not do, hence the
name “captive”, which sounds a bit like slavery. At the same time, this subsidiary company is
measured for its business success as if it were an independent company. The owner company
may allow them to win external customers from outside the group or not, but in both cases
expects full availability of the subsidiary’s resources when it needs them. This expectation gen-
erally does not come with a guarantee of the utilization of these resources, and often, the sub-
sidiary must quote for the business of the owner against competition from external companies.
Another expectation by the owner/customer company is that captive providers are better
at protecting business secrets and intellectual property than actual third-party vendors. The
group may further benefit from a different location of the subsidiary company with better
20 Project Business Management

infrastructure, easier legislation, or less expensive workers. Employees of the subsidiary company
often have a deep feeling of uncertainty as to whom they should dedicate their loyalty, the group
or the company. They may feel that their colleagues on the group level treat them as second-class
employees, and the payment schemes inside the group often confirm this perception.
Business models have become highly dynamic. At one point in time, the group may find
someone to sell the subsidiary to, and then things may change completely. The customer is no
longer also the owner but just a customer, and the subsidiary company will become free to find
other customers from outside the group. The guarantee of availability of resources for the group,
as weak as this assurance often is, will finally vanish, and the business relationship could undergo
legal remedy when it sours beyond a degree that can be handled in negotiations. The former
subsidiary will then get into the same situation as other external companies that are financially
and management-wise independent but perform a project under contract for a customer.
Sometimes the opposite happens: A formerly independent company is bought by another
one, possibly an existing customer, and becomes its dependent subsidiary. Such a case was
Dragonfly Inc., a company developing mission-critical software solutions for project manage-
ment in large-scale development environments. They had a strong focus on building systems
that combined cutting-edge development methods with high reliability of their products and
applicability in highly complex environments. They had a tight focus on one market segment—
in which they were the global market leader, while they were almost unknown elsewhere—and
they paid their staff better than their competitors did, thus ensuring technological excellence
and perfect responsiveness to customer needs.
They had an all-around perfect business approach with only one exception: They were a “JAM”
company, an acronym sometimes used for families that are “just about managing”,15 but also
suitable for many companies, especially from the field of customer project business. JAM com-
panies bring enough money home to avoid going bankrupt, but not enough to allow for major
investments into the organization’s future and to build sound contingencies for times of crisis.
Dragonfly Inc. had a profitability that allowed the company to run the daily development
business as long as it followed the expectations by management. In 2012, one customer required
massive investments in network diagramming software functionality, something that many
competitive products had, but not Dragonfly’s. Their CEO had always insisted that customers
would not use network diagramming anyway, so that the company could save the investment.
This had been true for a while, until their largest customer made a decision to implement
network diagramming in their product development. They were tired of late projects and even
more of late communication of project delays, a normal consequence of not using network
diagramming—without application of this technique, it is hard to make long-term predictions.
Developing the functionality (together with some other financial burdens) soon over-
stretched Dragonfly’s financial strength, and it became illiquid and had to apply for insolvency
and creditor protection.
They were finally taken over by their largest customer, who was interested both in keeping
alive the service for the existing solution, which was used to manage several hundred develop-
ment projects and could not be easily replaced, and also in getting new functionality developed
when the company identified a need for that.

15
(Tetlow 2016)
 Laying Out the Scenery: The Business Side of Project Management 21

Dragonfly’s project managers originally had the job to bring money home; after the take-
over, they had to guarantee to the new owners that resources would be available for them when
needed. After the formal end of Dragonfly’s insolvency phase, shares of the company were sold
to other investors, and the company again became an (almost) independent software vendor.
The dynamics of success and failure in project supply networks (PSNs) are complex, and it is
often hard to predict what the future of a company may be.

1.5.1 The Significance of Customer Projects

I have asked project managers in my seminars whether they are in customer projects or in inter-
nal projects, and the distribution was roughly 50/50. For my previous book, Situational Project
Management: The Dynamics of Success and Failure,16 I wanted to replace my observations with
numbers, and therefore, in September 2015, I asked project managers in a dedicated group on
the social network LinkedIn in what type of project they are active. I received 246 responses,
and the result quite well confirmed my experience from the classroom (see Figure 1.8).

Figure 1.8 The percentage of project managers in customer projects was roughly the same as in
internal projects in a survey performed in September 2015.

This is an interesting point: While I am writing this book, the project management literature
generally focuses on strategic alignment of project management and the related multi-project
disciplines of the following:
• Program management. Managing a number of projects that contribute to achieving a
common goal.
• Project portfolio management. Selecting projects, prioritizing, load balancing across
the performing organization, and some more tasks.

16
(Lehmann 2016b)
22 Project Business Management

The Project Management Institute (PMI), for instance, requires that the collective portfolio
of projects and programs advances the organization.17 The competing International Project
Management Association (IPMA) defines projects as means for implementing organizational
strategies.18 Both definitions assume that an organization does projects for its own future
development and to meet strategic goals. Projects in this understanding are investments done
today to secure benefits for the future. This is generally true for internal projects.19
There are probably exceptions to all rules in project management, including the following,
but customer projects are generally performed to bring money home. In the survey cited above,
more than 50 percent of the responding project managers had a main objective different to the
great strategic goals of so many internal projects: managing a project so that it is profitable for
the performing organization as a contractor. A second objective is often to not overstretch the
liquidity of this organization. In short: bringing money home with projects.
Active empathy for this group of project managers, possibly the majority among them, is
also important for project managers doing internal projects: When they procure work items
for the project from outside the organization, they have to understand the business situation of
their contractors and the people working there. The contractors may in turn have subcontrac-
tors, who can further employ sub-subcontractors, and so on. Understanding, managing, and
integrating such multi-tier PSNs can become complex. They often develop their own inner
dynamics, and project managers are rarely educated for the challenges in technological, legal,
social, and interpersonal dimensions that they encompass. While integration management is
the pinnacle of project managers’ competencies anyway, integrating across complex PSNs is
particularly exigent.

1.5.2 Procurement as Part of the Architecture of a Project

It is helpful to first look at a Work Breakdown Structure (WBS) to understand whether con-
tracting can be an essential part of a project, act as a rather marginal activity, or may be not done
at all in other projects. I already quoted above the oldest definition of a project that I am aware
of, made in the late 17th century by Daniel Defoe: “The true definition of a project, accord-
ing to modern acceptation, is a vast undertaking, too big to be managed, and therefore likely
enough to come to nothing”. A commonly used approach to manage such a vast undertaking
is to decompose it into smaller, more manageable components over several hierarchical outline
levels. The last level of this decomposition is commonly called the work package, which is the
lowest level of management supervision. Beyond this level, another planning element called
“Activities” would be defined, which relates to people performing the actual work.
Every complex system needs a kind of architecture, a fundamental design structure that pro-
vides inner firmness and gives each of its constituting elements a place where it belongs and to
which it is attached. Complex software has an architecture; cars, aircraft, spacecraft, and build-
ings have it. Architectures are commonly made in a combination of stiff and flexible elements

17
(Langley 2015, p. 2)
18
(IPMA 2016, p. 33)
19
There are also exceptions here—for instance, mandatory projects, which do not enhance an organi-
zation’s future but ensure compliance with laws or other kinds of binding rules.
 Laying Out the Scenery: The Business Side of Project Management 23

to make the systems both resilient and flexible to the degree needed for the task they have been
created for. The WBS is the architecture of a project.
There are three options for how the activities inside a work package can be performed (see
Figures 1.9 and 1.10):

Figure 1.9 The three options to get a work package done.

• A work package can be given to a contractor—a legally separate entity. From the point
of view of this contractor, the work package is often considered a project on its own—a
customer project.
• Another business situation that can lead to a customer project is a decision to outsource
an entire internal project. The customer in this case gives away the management func-
tion of its own project, not just of parts of it, and generally expects a turnkey solution
at the end.
• A third situation is a customer project with no internal project on the customer side. The
customer has some kind of business goal and asks a contractor to make all arrangements
necessary to meet it, and the contractor then makes a project from that.

Figure 1.10 Three situations on the customer side that can lead to projects on the contractor side.
24 Project Business Management

Each of these common project situations comes with specific challenges to the contractor;
among them are the following.

Outsourced Projects
The responsibility and with it the accountability for success and failure of the entire project lies
almost exclusively with the contractor.
This model takes most of the burden from the customer and places it on the contractor.
Except for some obligations on the customer side—for provision of items needed for the project
and for the performance of enabling services to the contractor—this supplier or service provider
will have to take the blame for everything that goes wrong in the project. An outsourced project
consists actually of two projects: an internal project on the customer side and a customer proj-
ect on the contractor side, and the two projects are tightly linked together.
One can take as an easy example a family that has a turnkey house ordered from a construc-
tion company. From the family’s point of view, the house will be an internal project. It will be
a cost center: The benefits that may come include living in a new house built in consideration
of their own requirements, saving rents to a landlord, and being free to make decisions on the
house that one could not make in rented space. These benefits will be enjoyed only after the
family has moved into the house. From the perspective of the construction company, the house
is a customer project, undertaken to bring money home, and the company has to consider and
reconcile two spheres of interests—its own and those of the family. Sometimes, the interests will
be shared; often, they are in major conflict.
Many customer projects are performed physically inside the customer’s premises and can
even be performed organizationally inside the customer’s functional structure. Then, situations
can develop wherein the employees of the contractor feel more familiar and “comfy” inside the
customer’s than in their own firm, losing the natural and often necessary distance that employ-
ees of a seller should have to those of a buyer, and vice versa. In such situations, it is then often
difficult to separate the customer’s employees from those of the contractor, and sometimes, the
latter tend to forget who sends them their pay checks and to whom they owe their final loyalty
in moments of conflicts.

Outsourced Work Packages

In these projects, the contractor does not have the responsibility for the customer’s full project
but for a component of it, which may be anything from a critical element to a fringe task. The
customer has an internal project defined and develops a more-or-less formalized WBS, a tree
hierarchy of tasks and their deliverables that the project has to achieve. When a WBS component
is then procured by an external provider, this company develops a customer project out of it.
This approach leaves more responsibility with the customer: In addition to obligations on
the customer in the form of the already mentioned provisions and enabling services, the cus-
tomer must coordinate the contractor’s work package with the other actions inside the project,
some or all of them possibly done by other contractors, and must protect them from too much
disruption caused by the concurrent work on the same project.
The customer will also have to manage a number of dependencies between these work pack-
ages—for example, when one work package creates a result that another work package has to
 Laying Out the Scenery: The Business Side of Project Management 25

use as input for its work, or when two work packages occupy the same space and must therefore
be done in a sequence so as not to clash.
In some industries, the procuring projects on the customer side are called programs, par-
ticularly when the scale of procurement is high; in others, the name project is still used for
them, and the outsourced work packages may then be called external subprojects or something
similar. There is no uniform language for these structures, but the structures are very common.

No Project Defined on the Customer Side

This can become uncomfortable for the contractor, as on the customer side there is no project
manager as a single point of contact. Instead, a multitude of communication channels between
contractor and customer can make managing the project difficult. Organizational conundrums
of the customer can turn into financial problems for the contractor, and understanding what
needs to be delivered gets confusing, especially when different stakeholders on the customer
side communicate contradicting requirements on the work and its results.
Another aspect that can bring projects into difficulties is chemistry among people—each
communication channel can become a source of misunderstandings and conflicts. While chem-
istry can be a problem in all contracting environments, without a project manager on the
customer side, no one has the formal responsibility to deal with that. Small misunderstand-
ings, disagreements, and personal wrangles can then grow and become major disturbances that
threaten the entire project.

The External Project Manager

There is a fourth form of project work under contract that is not quite a customer project
but often also called so: The external project manager assigned to an internal project. It is
still an internal project, as the performing and the requesting organizations are identical and
the resources are provided by the requesting organization itself, including the externally hired
project manager. This person is often self-employed or may be leased to the customer by the
person’s employing company. It is also not untypical that the project manager brings a team
with himself or herself, but this team is not performing the project for the customer in its own
responsibility—the decisions in the project are finally made on the customer side. This model
is common for consulting jobs and for professional development projects, including major
investments in training and coaching.

1.5.3 The Basic Nature of Customer Projects

Internal projects and customer projects have many things in common—for example, their
temporary nature and their fundamental uniqueness. They also have differences. As mentioned
above, the most fundamental difference between an internal project and a customer project is
the legal nature of the contract in the second.
Think of a project in dire straits. An internal project in crisis needs to be remedied by manage-
ment, often in a confidential setting, as the failures are too embarrassing and could damage
the reputation and trust of shareholders, customers, and other important stakeholders in the
organization.
26 Project Business Management

Customer projects in crisis frequently culminate at court, as mentioned earlier. This perma-
nent threat is the strongest characteristic of a customer project, and many experienced project
managers have already had more than one lawsuit related to their projects in their professional
life. There are also lawyers who have specialized in lawsuits relating to projects, and many of
them have a natural preference for projects with high monetary value, which promise attractive
fees for them. Court cases are among the things that most project managers and their compa-
nies try to avoid at almost any price. The old Romans had a saying that “Coram iudice et in
alto mare in manibus deorum soli sumus”,20 pointing to the unpredictable nature and therefore
high risks that come with legal proceedings. Judges often have difficulty understanding what
the contested project is about and why people behaved as they did, and must then render their
verdicts based on incomplete and not fully understood facts. Another impact of a lawsuit for
both parties, customer and contractor, is that it massively binds management attention—the
scarcest and most valuable resource in a company. The desire to avoid the threat of legal action
is a strong disciplining factor. Project managers in customer projects are mostly in a much
stronger position than their colleagues in internal projects, and the desire to avoid lawsuits is a
strong factor that empowers them: Most companies do not want to be in a breach of contract
situation.21
Table 1.2 describes the most fundamental differences between internal projects and cus-
tomer projects that can often be found.
The risk of legal action is indeed a permanent Damocles’ sword hanging over the engaged
teams. They must always be acutely aware that performing customer projects is a high-risk
business for themselves and for all other parties involved, including customers, subcontractors,
business partners, and so on. This does not necessarily mean that project managers find them-
selves frequently at court. The desire to avoid legal action, which comes with uncertainty and
possibly public embarrassment, is in most cases sufficient to drive parties to compromises, but
the party that could develop a stronger position at court would also be the one that gets the
more favorable arrangement.
Sometimes, conflicting parties are not able to find an out-of-court settlement, and then a
customer project may finally end at court.
In a project under contract, two or more organizations are entangled with each other in a
tightly woven and complex arrangement, and minor hiccups in one organization can easily
translate into massive problems for the other one(s). Managers of these organizations are basi-
cally aware of these risks and therefore desire to protect themselves and their companies from
such influence. Then, these organizations tend to develop protective mechanisms for them-
selves to avoid being damaged or held liable for things going wrong under their own domain
or that of the other party, and the more corporations apply these protective mechanisms, the
more their projects will suffer from organizational fragmentation and disintegration. A central
element of any business relationship is the set of legal risks involved, and legal remedy of con-
flicts is highly competitive by nature.

20
“Before a judge and on the high seas, we are left alone in the hands of the gods”. Own translation.
21
One should also be aware that the concept of “Pacta sunt servanda”—of the strong binding character
of contracts—has a cultural perspective: Different traditions exist as to whether a contract should be
considered “sanctimonious” or is just seen as a sketchy and non-binding memorandum.
 Laying Out the Scenery: The Business Side of Project Management 27

Table 1.2 Fundamental Differences Between Internal and Customer Projects

Commonly observable differences

Internal projects Customer projects
Are . . . for the performing organization Cost centers Profit centers

The project requester is . . . Located inside the own organization A legally separate entity

The project team has to consider . . . The interests of the performing The interests of the performing
organization organization and the customer

Project approval mostly follows . . . A project request/approval process or An offer/acceptance process

no process at all leading to a contract

Disputes are to be finally resolved . . . By management At court

The performing organization does the Deliverables and change Income

project to attain . . .

Project selection is made as . . . A sequence of internal decisions A bid/no-bid decision

(contractor side), contract
award (customer side)

Project work for the requester is based on Internal requests and agreements Legally binding contracts
...

Team’s familiarity with the target High Low

environment at project start is generally
...

A project budget is developed through . . . A more-or-less informed management Deducting a margin from the
decision, or not at all price to the customer

A project budget is usually managed by The project sponsor or a supervisory The project manager
... board or may be nonexistent

Inside matrix organizations, most project Rather weak Rather powerful

managers are . . .

Obtaining internal and external resources Rather difficult Rather easy

is generally . . .

Availability of booked resources is rather Unreliable Reliable

...

Management attention for the project is Rather low Rather high

mostly . . .

Project managers must consider . . . The interests of the own organization The interests of both the
customer and the contractor

Staffing and procurement is mostly Functional units Project manager and project
managed by . . . management team

Reputation of project managers inside the Rather low Rather high

performing organization is mostly . . .
28 Project Business Management

In opposition to this legal perspective stands the relational perspective. Melvin Conway
observed that the functioning of complex systems necessitates effective communication struc-
tures of the teams involved in developing them.22 I will discuss Conway’s law in more detail
in the second chapter. In projects with complex and often dynamic team structures, mutual
empathy, communications, and common understanding are the key skills necessary to build
functioning systems. There are many examples of failures due to the lack of such skills:
In 1999, NASA lost its Mars Climate Orbiter probe when it maneuvered to insert itself
into an orbit around Mars. The cause was a confusion of non-metric and metric units in com-
munications between teams, which led to a trajectory that brought the probe into the Mars
atmosphere, where it disintegrated.23
Just a month later, still in 1999, NASA lost its Mars Polar Lander, probably due to miscom-
munications between the landing gear software and that of the main descent engine, which
assumed that vibrations from the operations of the systems were a signal that the probe had
touched down on Mars’ surface, which led to a cut-off of the engine while the lander was still
40 meters above.24
In Taiwan, the Taiwan High Speed Railway Consortium, which was tasked with the con-
struction of a high-speed railway link—a “bullet train” designed for a speed of 300 km/h (186
mph)—from Taipei in the north to Kaohsiung on the southern end of the island, over a distance
of 345 km (214 miles), became a victim of the dynamics and complexity of PSNs. In 2009,
after they had switched contractors during the course of the project from German–French
Siemens–Alsthom to Japanese Shinkansen, mixing two independently developed technologies
and cultures without any experience in such integration, thus frustrating their vendors—both
the rejected ones and the new ones, who had to work according to standards set by the original
vendors. Being a private venture, they had to be bailed out by the state before they went bank-
rupt and left the island with one of the largest industrial ruins in the world.
Boeing’s 787 Dreamliner passenger aircraft had cases of burning batteries in 2013. These
were purchased from French Thales Group, which made the electronic control systems and
sub-contracted the batteries to the Japanese manufacturer GS Yuasa. The burning batteries led
to the grounding of the entire fleet of aircraft for three months.25
In 2015, German car manufacturer Volkswagen found itself confronted with a time bomb—
hidden in the engine control software of its most widely distributed motors—that changed the
parameters of the engine’s exhaust treatment system when it identified that the motor was on
a test bed and not on the street. Volkswagen management said that they were unaware of the
deception.26
While all these failures seem to be first of all due to technical causes, they have root causes
underlying organizational errors and confusion. Effective communications among sub-teams in
a solid project may not guarantee success, but fragmentation among these teams and siloing of

22
(Conway 1968)
23
(Stephenson et al. 1999)
24
(Casani et al. 2000)
25
(NTSB 2014)
26
(VW 2015)
 Laying Out the Scenery: The Business Side of Project Management 29

the project by fragmenting its inner organization beyond the unavoidable almost always guar-
antees failure. Projects with different organizations working together are at higher risk of siloing.
In addition to the many aspects of fragmentation that one can find in all major projects, differ-
ent business interests among contract parties are added as another strong disintegrating factor.
The problem of siloing can occur in any project. In customer projects and in complex PSNs,
the dimension of the problem increases, when in addition to the technical, organizational, and
interpersonal aspects that require attention, a fourth is added: the legal aspect.
To complicate the matter further, modern PSNs are developed crossing national borders
as well as spreading over business cultures and different legal systems. Having a contractual
relationship over two countries means that at least one party must act in a cultural and legal
environment that is not its familiar environment and may often be largely unknown. This is a
strong handicap: What is perfectly legal and ethical inside its own country may be unacceptable
or even illegal in the other country. From the standpoint of a lawyer educated for a generally
competitive world,27 the answer to such a challenge is simple: Make sure that the law of your
own country applies, so the other party has the handicap when the relation is getting sour and
the project is turning to a bumpier road. From a project manager’s point of view—someone
who is much less interested in the outcome of a court case than in the forming of a mutual suc-
cess culture, ideally based on reciprocated empathy and cooperation with the intention to have
a great project—the focus is more on avoiding the misunderstandings and mishaps that can
damage the project, and competitive behavior is a strong driver for these misunderstandings.
A major goal of this book is to help project managers in complex PSNs develop a situational
“Mission Success First” culture, in which all parties involved are prepared to invest in project
success, placing their particular interests on second priority and upholding the team spirit nec-
essary to go beyond not failing to developing true successes.
There is a multitude of forces active in contract-intensive projects, in which project managers
on the vendor side have the task to bring money home. Table 1.3 shows some of them. The
larger the project and the more parties involved, the stronger the fragmenting forces become.
Additional influence can come from distribution of these organizations over different locations
with all the difficulties for communications and coordination.

1.6 Projects as Profit Centers

Some companies that perform customer projects exist only for the purpose of doing such proj-
ects as a business and making their living from it. Some exist for merely one project—may even
have been founded for the specific project and are planned to be liquidated when the project
has been finished. Others have a portfolio of customer projects that they are performing con-
currently, and their business is a continuous process of market research, making contact with
new prospects, business development with these prospects, bid/proposal writing, contracting,
and post-contract services when the project has been finished. Several settings are common,
among them:

27
Even the degree of competitiveness of this education differs between cultures.
30 Project Business Management

Table 1.3 Integrating and Fragmenting forces in PSNs

1.6.1 Small Consultancies and Development Offices

Corporations often give development and design work that is outside their area of expertise and
strategic interest to small, independent providers. Sometimes, this work is the provider’s only
business, and while this is performed, there are no time and resources left to find other business,
so consumed is the provider by the project.
The provider may consist of just one person or a small team of people, mostly experts in the
field, and is often founded by a former employee of the customer organization, in which case
the provider knows many internals of the customer. Consultancies and education providers
supporting development projects or even performing complete projects for their customers are
another example.

1.6.2 Large Consortia

A consortium, as the term is used in this context, is a temporary joint venture by two or more
companies to combine resources in order to perform a project. Depending on the business sit-
uation, a consortium may also operate the project’s deliverables for a limited time.
In construction, infrastructure, and other application areas of civil engineering, projects can
become very large, and with them the firms established for the single purpose of managing and
performing them. Take as an example the construction project of two new lock complexes for
the $5.2 billion Panama Canal expansion in the years 2007 to 2016. Four companies founded
a consortium as a temporary joint venture:
 Laying Out the Scenery: The Business Side of Project Management 31

• Sacyr Vallehermoso S.A. (Spain)

• Salini Impregilo S.p.A. (Italy)
• Jan de Nul n.v. (Belgium)
• Constructora Urbana, S.A. (Panama)
The consortium was named Grupo Unidos por el Canal, and its leading venturer was Sacyr
Vallehermoso. It was formed for the single objective of performing the lock construction.
If there are no operational tasks for the consortium to be done in the aftermath of the proj-
ect, like handling claims, complaints, and warranties or post-project operations, such a consor-
tium is either liquidated, which mostly includes selling all the equipment that has then become
redundant and laying off the entire staff, or it finds a new project and remains busy for some
more years.28 I will discuss consortia again later as a form of teaming agreement.

1.6.3 Major Project Providers

The organizations described above are in most cases projectized organizations. For each of them,
the single project (or a very small number of projects) performed consumes their resources fully,
and the customer has chosen the contractor because of the expectation that the project will not
have to compete with a functional organization or with a major number of other projects for
resources. The customer expects that the contractor’s focus is fully on the project, putting the
customer in a VIP position, because the contractor’s justification to exist is just this specific
project. The project is not a profit center inside an organization; the entire organization’s profit
is generated by the project.
A different setting on the contractor side are corporations that perform a major number
of customer projects concurrently. The number of projects performed at a given moment can
become quite large, and many statements that I have made on customer projects and their typ-
ical strong matrix setting may then no longer apply in these companies.
Customers with their projects then tend to no longer be the focus of all attention by the con-
tractor, and the customer’s confidence and happiness may no longer be the highest objective of
the project. When a provider of a customer project normally reminds us of a tailor’s shop, where
all activity is dedicated to the client and his/her distinctiveness in physical traits and taste, these
businesses are rather similar to a fashion outlet, where the customer is just the person expected
to take a ticket and wait to be served, or a lost soul standing in a waiting line at the cash desk
to be allowed to pay.

28
An interesting observation: Joint ventures that have been created and designed for long-term cooper-
ation often do not survive their first two years of business, because they get too disrupted by different
business interests and consequential distrust. Consortia, established as temporary joint ventures for
specific projects, often outlive these projects and find new tasks. It seems that once the venturers have
gone through hard storming times without the opportunity to split, because they had to meet con-
tractual obligations with a customer, they had their modus vivendi normed to be successful together,
and they then want to keep this modus alive. Some deeper research on this observation may be
interesting.
32 Project Business Management

An example is Hyacinthus Beetle,29 a corporation that is active around the world, with a
major number of national and regional service centers providing software and IT services,
mostly in the form of development and implementation projects. Their largest service centers
perform over 115 projects for different customers at any given time, mostly from the public
sector, but also for privately held companies.
The corporation has a focus on a well-working customer interface, but even stronger is the
desire to “operationalize” these projects in order to ease governance over the portfolio. Some
measures that the organization took in the last couple of years include:
• Development and implementation of unified organizational process assets, including
o a unified project management methodology including templates, forms, checklists,
etc., with a focus on standardized cost reporting and forecasting
o a company-wide project management handbook that was considered mandatory for all
project managers in customer projects
• An electronic Enterprise Project Management (EPM) system, soon expanded with a team-
ware solution to improve online collaboration.
• Definition of focal areas of interest, including fields of business and technologies, that
were considered strategically attractive, and increased effort was made to win new busi-
nesses in these fields, to win new experience and gain reputation in them.
• Certification of all business development managers and proposal writers as Project
Management Professionals (PMP® certificate holders).
The operationalization through standardization seemed necessary due to the low margins
that the organization made on the projects, often less than 10 percent, and many projects ended
with a clear loss.
Although it indeed helped to bring order to a previously chaotic company, it did not help to
improve the margins and led to massive dissatisfaction of project managers and customers, who
experienced the system rather as a straightjacket and a bureaucratic burden than as a means to
improve efficiency and effectiveness.
Inside these larger provider companies, project managers are generally no longer in a strong
position against a functional organization as the generators of corporate income. The line organi-
zation comes more in the form of a set of governance functions such as portfolio decision and
review boards, project management offices (PMOs), quality departments, compliance officers,
safety managers, and many more; and while the projects do not perceive much competition
with operations for resources, they compete with one another.
We will discuss below how management attention can become the scarcest and most valu-
able resource, and project managers then compete for this resource much as children compete
for the attention of their parents.

29
All names in the example are changed.
 Laying Out the Scenery: The Business Side of Project Management 33

1.6.4 Providers of Supportive Projects and Freebie Projects

Freebie projects or “razor-and-blade projects”30 are free business endeavors for a customer
—at least for the moment. The expectation is that the resulting business will pay back the
investment of the provider and that the customer gets strongly bound to the contractor and
cannot simply move to competing vendors of the same services or products any more.
An example are logistics providers that gain their income from services using trucks, ships,
aircraft, and warehouse operations for customers. Modern logistics providers, sometimes also
referred to as “Third-Party Logistics Providers” (3PLs) do much more—they manage the com-
plete external logistics systems for their customers and, to ensure flexibility and scalability of
their offerings, rely heavily on complex teaming networks with other suppliers. The complex
systems they develop for that task must be tightly linked with the internal logistics systems of
the client organization, and many complex IT projects are performed to ensure the collabora-
tion of the vendor’s shipping management with the customer’s internal systems. Many of these
projects are freebies for the customer, who gets a great product for nothing.
Well, almost nothing: The customer’s business is made reliant on the logistics provider for
years, and the logistics provider will use this dependency to get its investment paid back. It is
similar to the traditional business model of razorblade manufacturers, who subsidize the razors
to bring money home with the blades.
A similar business strategy is known from makers of instant cameras, inkjet printers, and
capsule coffee makers, which are sold at a cheap price by companies that hope to make the gen-
uine profit with the consumption materials. The business model comes with risks—for exam-
ple, when other vendors hijack the business by copying the consumption materials, or when the
earnings from consumption materials sales do not cover the initial investments.
Freebie projects are an example of customer projects that are not performed for their own
sake and business purpose but are an add-on to an operational business to help its managers
bring money home. Component manufacturers in automotive, aerospace, and similar indus-
tries support their customers with free development work, based on a business case that they
will later sell the developed components to the customer.
Software companies have a similar business case, centered around the license that the cus-
tomer will finally pay when the component has become a part of the final product. In my busi-
ness—education—a contract trainer may develop a seminar for the customer free of charge, in
order to perform the classes and live on the fee.
A second reason for a trainer to apply such a business model is copyright—the trainer is
then free to perform the seminar for other clients, as the original customer has never bought
the intellectual property.
Freebie customer projects come with high risks. One risk is that someone else may step
into the business with a copycat product. The manufacturer of razor blades, who subsidized
the holder to earn from the blades and the high margins that they brought, were at times

30
Referring to the old business model of Gilette to subsidize the distribution of the holder and then
make money with the razor blades. Manufacturers of instant cameras, inkjet printers, and other
products applied this model later (Lehmann 2016b).
34 Project Business Management

confronted with blades from other manufacturers that were compatible with the holder, but
much cheaper. It may also happen that later, when it comes to the operational business that
should refinance the freebie customer project, the buyer does not honor the investment of the
vendor and does not become a customer.
A case that I have followed from some proximity was that of Cricket AG, a German manu-
facturing company that could look back on several hundred years of history, with many ups and
downs, which took them finally into becoming an automotive supplier with a focus on brake
components and some other automotive parts for passenger cars and trucks. They had a strong
business focus developed on just one customer, who made almost half of their business.
Management found in the early 2010s that this situation entailed too much risk, and new
customers should be found. It was the US company Locust Inc. that promised big business for
them. Cricket developed a new type of hydraulic pump for the new customer and also devel-
oped the production lines necessary to make the pumps in the numbers projected and required
by the customer. The business was intended to yield approximately €100 million ($130 million
in the exchange rates of the day when the business was developed) over a five years’ production
cycle, which would pay back the original investment and allow for a moderate profit. Internally,
the hope at Cricket AG was that the demand for the car and hence for the pump would exceed
expectations. There were some warnings to Cricket that Locust was a very difficult customer to
deal with, but the hope of new successful business was higher than the fear to fail.
In January 2017, half a year before start of production, Locust made a decision to terminate
the contract with Cricket. There were several reasons discussed for this decision: The customer
required a high degree of confidentiality on the business from the vendor, and Cricket AG, in
desperately looking for more new customers, used the business with Locust as a promotional
reference (without naming the company, but it was easy to make out who they were talking
about). Cricket had recently had an IPO and needed success stories for the stock exchange to
keep their share value high.
Then, Locust expressed frustration that Cricket was late in their development and would
threaten the start of production of the new car for which the pump was developed, something
the vendor denied. In private, one could hear from Cricket staff that a constant stream of
change requests on the new product and also on the production lines dedicated for it made it
impossible to meet deadlines.
Locust Inc. were known for some erraticism in their decision making and expected their
vendors to swiftly follow their wishes without additional costs or delays. In other words, they
expected a full service of implementing expensive and time-consuming change requests as part
of the freebie project without questioning the deadlines. Locust also said that the pumps would
not meet certain specifications, a statement rejected by the vendor.
Another influencing factor was the political change in the USA in January 2017, when a new
president took office who followed a protectionist agenda and put automotive manufacturers
under pressure to get cars and their components made in the USA.
Locust, the customer, re-opened the make-or-buy decision already made and decided this
time to make instead of buying. How could they make such a decision half a year before the start
of production? Normally, one would expect that it was too late to change the manufacturing
strategy. Locust had most of the drawings, bills of materials, production flow plans, etc. that the
vendor had developed for them. They were developed to a major degree as a joint undertaking,
 Laying Out the Scenery: The Business Side of Project Management 35

and for the customer, it seemed clear that they were under shared ownership. Therefore, they
took the investment made by the vendor to develop the product and the systems to finally
produce it and implemented them in their own house. For Cricket AG, the business model for
the freebie project virtually fell apart. The company had to consider the project performed for
Locust Inc. lost and had to write off all investments that they had made in the customer.
Investors at the stock exchange reacted immediately, and the company shares lost 6 percent
value in less than a week. Customer projects are generally a high-risk business for all parties involved.
There is a second business model for operations supporting freebie projects. It can be found
in projects to implement new software or equipment on customer premises and integrate it
with legacy systems already in place there; then the actual income is often derived from the
sales of the products, not from the implementation projects. The project team’s job is to help
operations by doing major parts or the entire implementation work for the customer, utilizing
its insider knowledge of the product. The expectation on the project may not be a commercial
one at all—the project may be fully paid for by the margins calculated on the product. It may
also be that the project is paid for by the customer, but the expectation is not for the project to
make a profit, just to cover its own costs.
Some supportive projects are required to make their own profit and contribute their share
to the overall profit from the business with the customer. These projects are tightly linked to
this business but are considered profit centers on their own, and their success is measured inde-
pendently from that of the entire business with the customer.
Managers can be quite effective when it comes to leaving it unclear what kind of projects
they are running for the customer. At the beginning of the project, the team may be told that
their major objective is to support the product business, and later the question is raised as to
why they are not making a profit on their own. In other projects, the team starts with the clear
intention of making its own profit, to find out later that they have to subordinate to the strate-
gically higher valued product business to a degree that makes it impossible for the team to run
a profitable project.

1.6.5 Mixed Customer Projects

Some customer projects are performed in a simple one-to-one relationship between a customer
and a contractor, and then it is relatively easy to describe the role of the contractor along the
descriptions above. Often, we find complex and dynamic multi-tier PSNs with the conse-
quence that the types described here come in much less clearly defined composite structures,
and over time, the role of the contractor and its relationship to the customer is commonly
undergoing change. It is also common that for different players in such a PSN, the project type
looks different.

1.7 The Players in Project Supply Networks

During the course of a customer project, different actors come on the scene, some for the entire
duration, others temporarily; the latter will leave the project again when their tasks are done.
Such a course of action can be different from project to project, but an order of actions as is
36 Project Business Management

shown in Figure 1.1131 is quite common. It gives a first understanding when certain players
turn up in the process and leave it again.
The flow shown in Figure 1.11 is rather assuming project business with a new customer–
contractor relationship. Business among incumbent parties can differ to some degree.

Figure 1.11 The complex flow of actions and documents in a customer project, assuming that
Seller #1 wins in a competition against the other two sellers and becomes the contractor.

1.7.1 The Buyer

The buyer initiates the project. Often, the buyer is considered a “prospect” before the award of
the contract and becomes the “customer” after that moment. As the customer (as the term is
used here), the organization becomes the sponsoring organization of the project. The customer
may contract out the entire project or parts of it that are large enough for contractors to define
a new project for them.
In business-related projects, the buyer has some obligations to fulfill in a timely manner,
including:
• Making information available to the seller(s) that allow them to meet their obligations
timely.
• Paying invoices.
• Catering enabling services and delivering provisions to the seller, particularly after con-
tract award.
• Being available for field changes (discussed later).
• If more than one contractor is used, coordinating them and protecting the project from
conflicts between them.
• Listening to the expertise of the seller, where the buyer does not have that.

31
Note: The diagram is descriptive, not prescriptive. It does not say “this is how the process should be”
but describes what it often looks like.
 Laying Out the Scenery: The Business Side of Project Management 37

Sometimes, organizations cooperate to buy together. The project would then have several
customers. As a contractor, one must then take care that organizational and interpersonal snags
on the side of the customers do not obstruct the project and damage their own business.

1.7.2 Sellers #1: The Contractor

When the contract has been awarded, a seller (or vendor) becomes a contractor. In a smaller
procurement situation, a customer may just have one contractor allocated to do the outsourced
work. The contractor may use subcontractors or not; from a customer perspective, this is often
not transparent, and the customer may not be interested in that at all.
Obligations of the contractor include:
• Delivering what has been ordered and what the customer is prepared to pay for
• Making information and documentation available to the buyer in a timely fashion
• Making the buyer aware of issues early, so that measures can be discussed at a time when
many affordable options are still available
• Offering expertise to the buyer in fields where this seems necessary

1.7.3 Sellers #2: The Prime Contractor

A prime contractor selects other companies as teaming partners and forwards major parts of
the work, possibly the entire contract scope, to them. These companies then become subcon-
tractors of the prime contractor, as shown in Figure 1.12. The prime contractor is in a hybrid
role, as the organization acts as a contractor in the business relationship with the customer, but
is at the same time a customer of the subcontractors. The prime contractor’s job is mainly to
pass on work from the customer to subcontractors and money in the opposite direction, similar
to a dealer in product business.
The “sandwich” position of the prime contractor between customer and subcontractors can
be financially attractive, because, located in the center, the organization has knowledge that

Figure 1.12 An example of a simple multi-tier contractor structure.

38 Project Business Management

the other players do not have and that can be monetized. It may also be that the organiza-
tion’s margins get squeezed between the customer and the subcontractors, making the business
uncomfortable, unprofitable, and risky. As the prime contractor is both seller and buyer, the
obligations are a mix of both, as described above.
The prime contractor is commonly also the party that has to manage most contracts. Contract
management can then become a challenging task. Here are some of the challenges:
• Answering the question “Does anyone know where the original of the contract with
company ABC is?” can become difficult. It takes a lot of discipline by the prime contrac-
tor’s employees to ensure that contracts do not get buried in stacks of other documents.
• Change requests need to be managed across several contracts, which all must be examined
as to whether they need to be amended, and if they do, all parties involved have to agree.
• The prime contractor is the party responsible for the completeness, timeliness, and quality
of the work done by the subcontractors. The prime contractor will also need to consider
operational disruptions on the side of the client—a commonly overlooked hidden cost of
a project that can lead to major conflicts with the functional organizations, both internally
and on the customer side.
• When project managers must bring money home, they should understand the influence
of contract types on the dynamics of success and failure. Differences in contract types
with the various business partners can create a complexity, possibly an incompatibility,
that is hard to predict and manage and can finally eat up all margins from the business.

1.7.4 Sellers #3: Subcontractors over Various Tiers

Some subcontractors will be at the bottom level of the PSN. They provide resources such as the
people, space, and equipment to actually do the project work and deliver the results.
Other subcontractors may be in a similar situation to the prime contractor. They further
outsource work to subcontractors at the next tier, and particularly in very large projects, the
number of tiers can become quite large.

1.7.5 Freelancers
Self-employed freelancers are a special type of subcontractor. They act as small companies,
sending invoices to customers, and they may also subcontract work, mostly to other freelancers
with whom they have teaming agreements. They are not employees, who send a CV, a bio, or a
résumé to a recruiter when they apply for a job. Freelancers send a CV focused not on a descrip-
tion of a complete professional life but on focal moments and periods that explain why the
freelancer is the right person for a given job. While contracting brings flexibility into projects,
this is particularly true for freelancers. They are commonly the fastest to obtain new knowledge,
apply new technologies, and accept the customers’ missions as their own.
Freelancers are not to be confused with mock self-employed people, who are actually normal
workers forced into a role in which they are mostly left without entitlements such as social
benefits. For the employers, this pays back in the form of tax savings, avoided social security
 Laying Out the Scenery: The Business Side of Project Management 39

contributions, ease of hiring and firing, and freedom from trade unions. To gain these advan-
tages, employers then give people the choice to be either bogus self-employed or unemployed.
This works well in asymmetrical markets, where a sufficient number of people chose being
bogus self-employed, so that the employer could run the business with them.
Freelancers, in contrast, act in projects as true contractors who are mostly well-paid and fully
self-managed professionals, who enjoy the boss-less life and the responsibility that they have taken
for themselves. They decided for themselves to be self-employed in full awareness of the oppor-
tunities that this style of life and work brings, but also aware of the risks that they are assuming.
Customers are often unaware that their contractors use freelancers as subcontractors, and
the freelancers are often obliged to not reveal their status to the final customer. In the eyes of
the customer, they then seem to be employed staff. Alternatively, contractors may use the good
reputation of the freelancer to enhance the value perception by the customer for their offering.
The freelancer is then sold to the customer more like a top expert—a superstar or a guru—and
the customer will then have to pay a surcharge for the work that will reflect this perception.
Very good freelancers are fast learners. They have their professional development under con-
trol, and as they know that their professionalism and competency are their foremost business
assets, many invest time and money in themselves. Another asset is their preparedness to travel
when this is necessary for an assignment.
A very specific problem with freelancers can come from the timing of their assignments to
projects. Such an assignment can take some months, in which most freelancers are expected
to be highly available for the project, often by 100 percent. About one to two months before
the end of the assignment, they should look out for their next assignment, but this is just the
time when the workload on the freelancer is commonly highest, having a deadline ahead and
pressing for finishing and deliverable handover. Often, they go for a multi-week sabbatical
between two assignments to relax and take care of their own professional development, but
also because they do not have an immediately following next assignment. Some use agencies to
ensure timely follow-up business, which comes with a cost but may also increase the number of
billable days and possibly the daily rates they can achieve.
Sometimes, the opposite problem can also happen: A next assignment offers stable income
for the next months but would need to be started before the current assignment can be finished.
From time to time, I hear complaints about freelancers who did not fully finish their work in a
project, and the lure of the next assignment is a common reason for that.

1.7.6 Other Players

Depending on the business environment and the project, there may be many more stakeholders
more or less directly involved. Some contractors may not contribute to project work being
done but provide infrastructure, special expertise, or help supervising the work. For projects
that entail major workloads in construction, engineering, and similar areas, those who help
disposing waste are also a kind of contractor, assuming that the project team is not simply fly-
tipping its waste. Government agencies may play a major role in customer projects, particularly
in larger ones. Even competitors can be important stakeholders who can influence the project
positively—but also negatively.
40 Project Business Management

It is generally advisable to have a stakeholder register to keep track of all the stakeholders,
and it may be a good idea to allow the various organizations access to the document to allow
them corrections where appropriate.

Figure 1.13 A stakeholder attitudes influence chart (SAIC) to be consulted when decisions are to
be made, what influence they will have on stakeholder attitudes.

I also recommend using the Stakeholder Attitudes Influence Chart (SAIC, see Figure 1.13)32
with a focus on contract parties of the project. I have customers who have printed the chart in
a large format and put it on the wall in the team office. Whenever they make decisions on the
project, they review the chart, asking if the decision option they are about to take supports the
objectives regarding the development of stakeholder attitudes that they have outlined.
The following chapters will describe how the players act in Project Business Management,
and what opportunities and threats they are facing from this coordination. Too often, actors in
Project Business Management focus on competing more than on completing, jeopardizing the
mission success of the project. Then, they often need help to get out of crises and develop joint
success strategies.

32
(Lehmann 2016b, pp. 216–217)
Chapter 2
The Difficult Way to
the Contract

2.1 Bringing Order Into Chaos May Not Be Enough

Grasshopper Ltd.1 considers itself a successful company in winning project business with cus-
tomers. They have invested a lot in having a strong online presence with perfect search engine
optimization (SEO), which has brought them a growing number of customer inquiries, from
which they could generate a reliable stream of customer projects. The further growing number
of concurrent customer projects seemed a perfect foundation for the company to do great
business, and this is how it promoted itself in media and congresses: a fast-growing provider of
a multitude of project services, packed with proficiency and experience, and always there for
customers when these services are needed. In other words: a successful player in a highly com-
petitive business environment.
An unsettling observation some years ago was that, while the company’s turnover grew,
the profit from the project portfolio did not. The number and overall financial value of these
projects grew, but the margin made per project got less, and costs for organizational overhead
to govern the growing project portfolio also went up, so that the overall profit remained static.
The observation was made first seven years ago, and management did some analysis on what
the numbers truly meant. They concluded that these numbers were not unsettling at all—
they were just a sign that the company’s young and wild years had gone, and with them the
extremely challenging and stressful but also profitable projects, and that the business was steer-
ing into calmer waters. Grasshopper Ltd. considered itself an established and robust organi-
zation that had stabilized its business, from which it enjoyed a steady and reliable income. The
company’s management felt assured that the high turnover achieved so far was a good basis for

1
The name has been changed.

41
42 Project Business Management

future profit increases, and that the main task to achieve this would be to streamline processes
and increase efficiency.
The whole project business got operationalized as far as possible. A strong project manage-
ment office (PMO) was established, which unified the project management approach and com-
munications. These were previously differing from project to project, and the implementation
of strict rules was regarded as the most promising attempt to bring down costs for project
governance and gain positive scaling effects. In addition, procurement and recruiting became
centralized, and customers were forced to accept contracts with standard terms and conditions
that covered most aspects of project management as it was done by Grasshopper.
The assignment of roles and responsibilities in the organization was clarified much more
strongly, and the involvement of department managers in the projects, for which they had to
provide the resources, was also strengthened. Bid and proposal management got streamlined
by implementing a standardized process with gate reviews and a set of templates that eased
winning new business and reduced the workload. Grasshopper’s management was dedicated to
bringing order into the perceived chaos, and they were very successful in that.
In the next year, the profit of Grasshopper Ltd. increased; indeed, these measures proved
to be successful—Grasshopper’s management loved to call them “Best Practices”—only to
fall back again to the former poor level in a year later, and then to decrease even further.
Something was going fundamentally wrong. To make things worse, the profitably of the proj-
ects varied strongly: There were highly profitable projects, but their margins were eaten up by
projects with substantial losses, and these were often crisis projects in other aspects too, such
as deadlines or poor deliverables.
Grasshopper’s management tried to find a common pattern of these negative-margin projects—
the loss projects—but wherever they looked, the data remained inconclusive. One idea was that
they had good project managers and worse ones, but closer analysis showed that the same project
manager who brought good money home in one project produced losses in the next, and vice versa.
Another approach was the implementation of software for enterprise project management
(EPM) to increase the accuracy and reliability of data for management decisions, but, poorly
understood and finally ridden with political restraints, the software delivered the wrong data.
When managers base decisions on data, wrong data can lead to poor decisions.
This was the time when the company contacted me to use my training services. Discussions
with seminar attendees gave me many insights into the processes—insights that helped me to
identify the areas in which the project business went wrong.
The basic problem was the overall operationalization of the customer project business:
• The proposal templates focused more on the quick and simple proposal development
than on offering customers what they asked for and needed.
• The hit rate was on average at 10 percent, which meant that one out of ten proposals led
to a business contract—a number that is somewhat normal, but looking at the capture
ratio, this was at under 5 percent, which meant that the majority of these won contracts
were of low value.
• The high number of projects with negative margins showed that Grasshopper not only had
no protection to avoid harmful business, but was instead successful in winning just that.
• The Grasshopper internal project management processes commonly collided with the pro-
cesses defined on the customer side, forcing project managers to meet the demands of both
process worlds when they should have focused on effective and cost-efficient delivery.
 The Difficult Way to the Contract 43

• Grasshopper simply did too many projects at a time. The company was great in winning
business but did not have sufficient resources to perform them all. The problems arose
particularly in projects that required special skills and knowledge that could not be easily
found by hiring people from the street. Trained external resources were already booked
by other companies, and internal staff would have to go through a time-consuming train-
ing process to build the expertise needed. This inability to provide the needed resources
in a timely manner often disappointed just those customers who would have otherwise
guaranteed profitable projects, and the soured relationships elbowed many projects from
the profit to the loss side of the costing equations.
• The last-minute search for resources often forced project managers to accept as subcontrac-
tors vendors who had no record of successful projects in the specific fields and no custom-
er-centered management approach, and in addition, some were financially in dire straits.
This last group caused some of the greatest losses in Grasshopper’s customer projects.
• The software solution added to the problem: Many calculations that would manually be
done in a considered process, were now done by the software “under the hood” and were
never reviewed. These calculations then too often did not reflect reality, but the results
were considered sacrosanct and decisions were based on them.2
• The increased influence of the line organization had changed the organization’s focus
from extrospective effectiveness—seen from the customer’s perspective—to an intro-
spective process emphasis, converging around the simple question, “How can we do
things more efficiently?” This led to unexpected cost increases when customers struck
back with uncooperative behavior.
• The process emphasis came with a perception of project management as a closed-skill
discipline, communicated in statements such as: “All our project managers need to do is
follow the process; projects then will go perfectly well”.3 The ability of project managers
to address the open-skill requirements of their projects with responsiveness and adapt-
ability were not valued at all.
• Project managers lost their joy in their profession; their approaches became instead grim
and cheerless.
• Young people assigned to projects without sufficient preparation got consumed quickly,
damaging their bios and their self-esteem.
I recommended that they change their basic approach and de-operationalize the company. I
considered it beneficial to focus on bidding only for those projects that promised good business
and ensured high capture ratios, then developing open-skill approaches to manage them in
an environment dedicated to complete, not just to compete. I further recommended that they
ensure an environment for the project managers that allowed for reliable mid- to long-term
planning, enabling early booking of resources, and making sure that they had the backing of
the organization.
My advice was not followed, and the actual company that is the role model for Grasshopper
Ltd. in my case story is doing worse today than ever. They brought order into chaos, but
2
This is similar to astrologers some decades ago, who strove to increase the credibility of their horoscopes
by calling them “computer-generated”. Interestingly, today, the human-made horoscope is considered
more reliable by many of those who believe in horoscopes.
3
The concept of open-skill vs. closed-skill disciplines is discussed in more detail in my book Situational
Project Management: The Dynamics of Success and Failure (Lehmann 2016b).
44 Project Business Management

improved neither their profitability nor the happiness of their customers, employees, and con-
tractors. Project Business Management has many facets, but profitability and happy customers
are probably the most important ones.

2.2 Introductory Questions

The following questions are written in the style of a certification test. They are intended to give
you an understanding of the contents of the following text section and the questions that will
be discussed in it. It may be interesting for you to answer these questions before you read the
section, and then again once you have finished it.

1. What is the economic reason for a company to choose the buy option during a
make-or-buy decision?
a) Tapping the assets of another company
b) Transferring the risk of project failure
c) Reducing overall costs
d) Keeping project details under control

2. How is the global market developing for customer projects?

a) The market has mixed expectations.
b) The market is robustly growing.
c) The market is robustly shrinking.
d) The market is generally static.

3. Online business-to-business (B2B) marketplaces bring together professional buyers

and sellers in forum-like systems and help them develop the project business together.
What is hard to develop in such systems?
a) Comprehensive lists of sellers for highly specialized products
b) A competitive situation with many bidders
c) A contract that meets the requirements of the project
d) Interpersonal relationship between buyers and sellers

4. If the terms are used accurately, how is a request for proposal (RFP) different from
an invitation to bid (IfB)?
a) The RFP describes the items or services to be procured in utmost detail; the IfB
leaves them rather open.
b) The RFP is generally not competitive, whereas the IfB is.
c) The RFP describes the objective of the items or services to be procured; the IfB
specifies them in detail.
d) The RFP is used in industrial procurement, the IfB in public procurement.
 The Difficult Way to the Contract 45

5. A seller and a buyer have signed a memorandum of understanding (MOU) during

negotiations as a baseline to document the momentary state of the agreement in
order to make the further negotiations easier and more efficient. Two weeks later,
the buyer ends the negotiations without a result. If the term is used accurately, what
will this probably mean?
a) An MOU is an obligation for the buyer to also sign the full contract when it is
complete.
b) An MOU is a legally binding document, but the seller will not be in a position to
claim significant damages.
c) An MOU is a legally binding document. The seller can claim significant damages.
d) An MOU is a diplomatic document. The seller cannot claim any damages.

6. At certain points during project work, errors are being made. What is true for them?
a) Over time, it gets cheaper to fix an error; it is therefore best to delay error fixing
until it gets unavoidable.
b) The cost and difficulty to fix an error grows with the local, temporal, and orga-
nizational distance from its origin.
c) It is generally cheaper to let the error be fixed by another contractor than the
one who made it.
d) One can always convince a customer that the error is a valuable feature, and it
will then not have to be fixed.

2.3 The Lure of the Buy Option

In November 2017, I had the opportunity to attend a global conference of project managers at
a major manufacturer of high-technology goods in Europe. There must have been around 500
project managers present, almost all employees of the organization.
The initial keynote speaker started by asking attendees to open a website and type one word
into a form field. He asked them to name the one thing that requires most of their attention and
is most likely to keep them sleepless at night. The software then made a word cloud from these
words. The frequency that a word was mentioned was reflected in its size—the more often, the
larger the word; and its position—the dominant words were in the center of the cloud.
Figure 2.1 shows the results. The key word turned out to be Resources. One should note that
the word is displayed more than once, particularly in French spelling as ressources and also in
singular. If one puts them together, the dominance of resources as the number one hot topic in
projects becomes even clearer.
The company purchases project services and products from outside, and the main driver for
this decision is obviously just that: Resources. Project managers and their supervisors hope that
they can make resources that are not available internally temporarily available from outside.
The following paragraphs will dig deeper into this observation.
46 Project Business Management

Figure 2.1 The word cloud created by the software from the frequency of words named.

At the beginning of project business relationships, we still do not have a customer and a con-
tractor. It is a good approach in project management to call them buyer and seller, because these
are the intentions that the two have. In essence, both are prospects—a prospective customer
and a prospective contractor. The stimulus to enter the business relationship lies on one of the
two sides—commonly on the side of the organization that is going to become a buyer and later
a customer. As discussed above, the focus of this book is on new business, unless it is stated that
it is dealing with business between incumbent customers and contractors. Figure 2.2 describes
where we begin with the analysis to get some first insights.

Figure 2.2 The standard process flow, as it is often seen in project business with non-incumbents,
begins on the side of the organization that is to become the buyer in the subsequent process,
when a make-or-buy decision has been responded to with buy.
 The Difficult Way to the Contract 47

On the buyer side, the business commonly begins with a need or a want: It may be a stra-
tegic decision by the organization whose management wants a project to improve processes,
stabilize the business, gain financial benefits, or follow other considerations, monetary or not.
These discretionary projects4 are sometimes decided based on a business case—an elaborate
document that, ideally, discusses the pros and cons of the project and possibly also those of not
doing it. One variously observes projects without such a business case description, especially
when the project has been initiated in an ad hoc decision. Another reason may be that the proj-
ect is mandatory, initiated to meet a binding requirement like a law, a regulation, or another
necessity that makes it inevitable to do the project. Another starting point for this project may
be a contract with a customer.
While this project is being initiated and planned, a first decision presents itself, which is
referred to as make-or-buy. An organization may decide to outsource a project entirely or in
parts, or may consider itself able to perform the project with its own resources. The decision
can be made based on many aspects, among them the following.

2.3.1 The Dilemma of Management Attention

The ability of management to pay attention to the projects that the organization is performing
is the most valuable and often the scarcest resource in an organization. In my seminars, I gen-
erally recommend project managers to stay alert to the fact that the presence of management
attention is no guarantee that other resources such as money, people, equipment, etc. will be
available, but its absence should assure them of their dearth. There are many things that con-
sume the attention of managers at any time in an organization, many of which are too import-
ant and too urgent to be left neglected. Then, they have families, hobbies, and other kinds of
engagements. The amount of attention that managers can pay to their projects is limited, as all
humans can pay attention to only a limited number of things.
Attention is time intensive, but it also consumes a lot of energy and mental resources. When
I talk with project managers, almost all of them have had the experience of idle times in their
projects caused by project sponsors and other key stakeholders who were unable to take the
time to listen and make swift but informed decisions. The project managers will cc them in
messages on issues such as delays, cost overruns, or extended times of operational disruptions
that have become necessary, just to find later that these managers did not read the messages
because others had higher urgency and because they were sent to them directly. Often, project
managers notify their bosses directly of things that are about to go wrong and need manage-
ment attention, but the message is in the sixth paragraph, sent to managers who do not read
beyond the third one unless they are somehow forced to do that.
It is often said that the devil is in the details, and managers may therefore desire to know
more about the background behind a decision that needs to be made by them—a decision for
which they will later be held accountable by their superiors and other stakeholders, but for
which they feel unable to reserve time to obtain this information. It may, for instance, be nec-
essary to read a lengthy business case disquisition or to attend a meeting with experts. Another
difficulty may be that they do not understand the special language and “cant” of these experts,
who live in their own intellectual world and communicate in their own lingo.
4
See the discussion on project types above.
48 Project Business Management

Another factor that commonly limits management attention is the competition between
the need to focus on internal structures and processes—where the requirement is mostly on
corporate introspection, repeatability, and sustaining predictability and order—and the need
to focus on external interfaces inside the various markets that the organization needs to deal
with. Both areas of focus contribute in their specific ways to the stability and profitability of
the organization, but while they are expected to complement each other, in business practice,
they often compete for management attention.
Attention is definitively a resource, and as discussed above, in many organizations, it is the
scarcest resource of all. There is an “economy of attention” in families, in organizations, and
in society, and humans often value other people for the time and energy that others invest in
them and, as such, for the attention that others “pay” to them. A corollary of this statement is
that stakeholders often look negatively on managers who do not pay enough attention to them.
Stakeholders here includes subordinates, but also superiors, shareholders, and many more. I
am not trying to promote compassion for managers—they are mostly well paid for this kind
of suffering—but rather to describe the nature of the attention dilemma in the environs of
many managers.
Delegation of attention to subordinates promises help. These subordinates may have less
distance to the people and things that need to be taken care of, and they may have more of
the special understanding and language skills needed. There are unfortunately some caveats
for that.
One is that certain tasks need to be dealt with by top management and cannot be delegated.
There may be legal requirements, or it may be imposed by the largest customer or supplier of
the company that the boss must put himself or herself in direct charge and control of a task.
Delegating that task may be perceived as priority reduction and downgrading, or the risk of
being finally being held accountable can be beyond a threshold that allows for delegation.
Accountability differs from responsibility in that the latter can be delegated, the former can-
not. When a manager delegates responsibility to a subordinate, who in turn may delegate the
task further, and so on, the accountability remains with the manager, as he or she was at the
beginning of the delegation chain. The risks that come with this accountability, which the
manager cannot delegate away, may be too high to do any delegation at all.
A second caveat, often overlooked, lies in the need for an increased investment in energy and
time in developing the fitness for the task in employees who are expected to later take some
burden off the manager’s shoulders. Figure 2.3 describes this expectation.
If one waits too long to begin delegation, it may be too late to expect tangible relief. It takes
a long time to bring the new staff member to performance, and the investment in time and
energy may be no longer possible, as the workload on the manager and the organization is
already crushing. Compare this with the increased speed of change concurrently happening at
many dimensions of responsibility, as discussed below.
A third caveat is that it takes time to recruit people for the responsible position, and the
task may be too urgent for that. An example: Some readers may remember an “Open letter”
submitted 28 September 2012 by Tim Cook, CEO of Apple Inc., which was directed to users
of a new and buggy mapping software launched only a week earlier. In this letter,5 he wrote:

5
(Savitz 2012)
 The Difficult Way to the Contract 49

Figure 2.3 Investment and return expectations when work is delegated.

“To our customers,

“At Apple, we strive to make world-class products that deliver the best experience pos-
sible to our customers. With the launch of our new Maps last week, we fell short on this
commitment. We are extremely sorry for the frustration this has caused our customers
and we are doing everything we can to make Maps better”.
[. . .]
“Everything we do at Apple is aimed at making our products the best in the world. We
know that you expect that from us, and we will keep working non-stop until Maps lives
up to the same incredibly high standard.
“Tim Cook
“Apple’s CEO”
The letter was obviously intended to separate the highly valuable Apple brand from the
software troubles. Apple’s mapping solution came with a new sixth version of the iOS oper-
ating system used on iPhones, and it was not the only problem that users reported.6 It would
be interesting to run some scientific research into whether there is a measurable correlation of
new product quality and involvement of corporate management in lawsuits, but when I observe
corporations such as Apple and others, this seems to exist, and it is generally plausible. During
the time when iOS 6 was developed, Apple was involved in patent wars with their competitors,
including Samsung, Motorola Mobility, and others. By that time, there were over 50 lawsuits
reported just with Samsung,7 mostly on matters of patent infringement and similar intellectual
property issues, and they must have consumed massive management attention that was then
unavailable for their software development projects.
It seems that managers are generally aware of the attention dilemma. I’ve spoken with many
of them in private about their perception of this impasse, and some considered it their strongest

6
Excessive use of cellular data was another one, which could lead to high mobile costs (Rosenbaum
2012), and users also reported fast-draining batteries.
7
(Mueller 2012)
50 Project Business Management

personal shortcoming that they could not pay immediate attention to all things that necessitate
it, and many feel guilt-ridden for not being able to give all people and things the attention they
deserve. Giving the project work to an external organization is often linked with the expecta-
tion that the managers of that organization will provide the necessary attention to the project,
and that these managers can be controlled by defining appropriate contractual conditions.
It also includes the expectation that the contractor’s management has more time and energy
available to pay such attention, particularly as this project provides income for the company,
but also because it is performed inside the contractor’s area of core competency. As I stated
earlier, management attention is often the scarcest and most valuable resource in a project. Its
continuous presence does not guarantee that the project will receive all the other resources it
needs, such as people, money, infrastructure, and more, but its absence will generally lead to a
shortage of these resources.
In a matrix organization, a project has to compete for management attention with opera-
tional activities. In a project portfolio and in a program—both kinds of multi-project environ-
ments that will be discussed later—the project competes with other projects. Outsourcing
project work can indeed take the burden from management to pay attention to this work, but
there is a risk that the contractor’s management does not pay the attention expected, or pays
more attention to aspects of the project that are not in the interest of the customer, such as cut-
ting costs, where the contractor cannot see it immediately, but may later have a disadvantage
from a cheap solution.

2.3.2 Agility and Speed of Change

Businesses are facing alterations at an accelerating pace in many dimensions: Technologies,
political and social environments, paradigms of markets, and many other factors that influence
their success and failure have become highly dynamic, and concepts that have been appropriate
and successful in the past may fail today. An example: For over a full century, beginning with
the first commercially available telephones and transmission systems in the late 1870s, it was a
matter of course that a telephone had a cable attached, which limited the range of its use, which
was normally confined inside private houses or at workplaces. When one family member used
the phone, it was blocked for all others. When people were away from home or the office, they
had to use pay phones in public phone booths or had to find other line-bound phones—for
instance, in hotels.
Beginning with Motorola’s DynaTac in 1984, mobile phones became popular, first mounted
in cars, then getting smaller and lighter, so that they could be carried by users in suitcases
and later, with further miniaturization, in pockets. With the growing popularity of these “cell
phones”, the paradigm of a phone that was linked to its location changed to one linked to the
person carrying it, and interest in the old style phones decreased.
This process lasted until the year 2007, when Apple launched the iPhone. It came again
with a shifted paradigm, in which a phone is no longer just an electronic device to allow two
individuals to talk with each other, but one that connects its owner with the mobile internet. It
allows reading newspapers, booking flights, using social networks—another new paradigm—
to stay connected with family members and friends.
 The Difficult Way to the Contract 51

The next paradigm change is already on its way with wearables, mostly in the form of fitness
trackers and smart watches, digital glasses, and other items that people can wear on their body
without much hassle. In essence, these replacements for wristwatches and other items are small
computers that can complement or even replace smart phones for a growing number of tasks.
This technological development has implications: The number of phone booths worldwide
is in decline, and even in homes and offices, landlines are more and more replaced with smart
and mobile items (see Figure 2.4). But not all of them. Some of the old technologies remain
in existence, and new technologies grow alongside them. But sometimes, old technologies
become extinct.

Figure 2.4 An example of the increasing speed of innovation and change of paradigms: tele-
phones.

These new technologies and paradigms do not fully replace the old; instead, they give peo-
ple more options to choose from. One should also note that the change is not limited to the
handsets, but also includes the infrastructure that supports them and the handling of these
items, which has come a long way from old mechanical dials to capacitive screens that allow
swiping and to wearables that even respond to a person’s pulse. With the changes of para-
digms, new key players turned up, and the old stars of the markets lost a lot of their influence
and relevance.
Large companies have difficulties developing the agility to cope with the speed of change.
They are more like large tankships that require a long distance to accelerate to full speed, take
turns, and finally to come to a halt again. Large companies hire small ones as contractors for
their projects when they do not expect that their own personnel will be able to develop the
necessary skills quick enough and instead rely on companies that have the developing process
already done or are agile enough to perform it on demand.

2.3.3 Diversity of Skills

The growing diversity of technological options, which comes with the speed of change in tech-
nologies and paradigms, leads to an increase in the number of competencies that organizations
must master today. While old technologies remain alive, in smaller demand but not fully
extinct, and with them the skills necessary to use them for business, new technologies and new
skills are needed in advance.
52 Project Business Management

Henry Ford sponsored the project to develop the famous T-Model in the years from 1906
to 1908 in the Piquette Avenue Plant in Detroit, Michigan, USA. Colocated in a room only 5
× 4 meters (app. 16.4' × 13') small and secretly walled off from the assembly hall, Ford used a
team of only four men:
• Charles Sorensen, a patternmaker and engineer
• Joe Galamb, a draftsman
• Gene Farkas assistant
• Louis Halmesberger, another assistant
A fifth role was Henry Ford himself, who spend a lot of time in this room in a rocking chair,
ensuring that the car developed by the team would meet Ford’s ideas of design simplicity,
production-friendliness, and drivability.8 For its time, the Ford T-Model was revolutionary in
materials selection and technology and also in manufacturability, allowing for major scaling
effects to reduce costs with growing production numbers, and also to lower price.9
Today, hundreds of developers have to work together, and they come from a variety of
disciplines—including mechanical engineering, electronics, software, interior design—for the
development of a vehicle and another team with a similarly broad spectrum for the design of
the production. The small Sino-British car brand MG, for example, communicates that it has
a “team of 300 engineers based in the European Engineering Technical Centre . . . responsible
for developing the initial concepts for all new MG vehicles.” The product development as
such would then be carried out in China, but testing would happen in Britain again.10 And
MG’s development facility is similarly small. BMW’s Forschungs- und Innovationszentrum
(FIZ – Development and Innovation Center) is the workplace of 20,000 BMW employees and
additional 10,000 employees from contractors, and an expansion program named “FIZ Future
2050” is intended to increase the numbers by 50 percent to 80 percent.
The number and variety of disciplines involved in automotive development is tremendous,
and the same applies to many other modern project environments. Organizations are often
not able to staff all involved disciplines whose involvement would be necessary. They may also
struggle with disciplines that they need only temporarily, when their own staff would expect to
be hired for a fixed duration or indefinitely. These organizations therefore define core compe-
tencies that they want to control continuously and that they feel able to implement with their
own people, and so, they will seek help from outside the organization for all other disciplines
and buy other competencies from external partners, when they need them.

2.3.4 Unlocking Growth Potentials

Growth in the customer market requires expansion of internal structures. New products, pro-
ductions, and services need to be developed, and they come with the need to provide additional
space, hire people, and locate these people in an expanding organizational structure, define
and implement processes, and ensure that all these systems do not get out of control when

8
(Duncan 2008)
9
Another name to be mentioned would be C. Harold Wills, who conceived the idea of using high-tensile
steel and ensured its availability for mass production from steel mills. Furthermore, he developed the
car’s planetary two-speed transmission (Donnelly 2005).
10
(MG Motor UK Ltd. n.d.)
 The Difficult Way to the Contract 53

they are ramped up too fast. There are factors that limit how fast this internal growth can be
performed, including availability of capital, market conditions, quality and speed of recruiting,
and, again, management attention. This internal growth comes with two kinds of risks:
• When the demand for the products or services is less than expected, the indirect and
fixed costs of both running the business—administration, rentals, insurance, etc.—and
of paying back credits and outlays for the initial investment may not be coverable by the
margins generated by these products or services, and the organization’s growth will lead
to losses instead of profits.
• Limiting internal growth can in turn limit growth of sales, when the market demand
for the products or services cannot be met, when their unavailability on the market leads
to a lack of visibility on the customer side, and, worst of all, when the organization is
outperformed by a competitor who does not have these limitations.
Sharing the burden of the development is a common solution for faster growth. Outsourcing
development to contractors frees the customer from the need to internally keep pace with the
external growth by using other organizations’ resources, including, again, their competencies
and management attention.
There is of course the caveat that this benefit can only be achieved if the customer’s under-
standing of the goals of this development is shared by the contractors, and if their approaches,
business interests, and cultures are compatible.
• Outsourcing project tasks can also support organizations in the opposite direction: Not
all projects are tasked to develop something; projects may also serve purposes such as
obsolescence management—disposal of outdated, redundant, or otherwise no longer
wanted items. These items must have been assets in the past, but at one point have turned
into liabilities. They may include building facilities, services, software, and other items.
The same may even apply to people who are actively outplaced. Contractors will then
be used by customers to divest themselves of these assets and to organize the process of
making merited people redundant, people whom the customer organization does not
want to simply fire, or where this is prohibited by contracts or law. The contractors would
then take care of the obsolescence process, thus allowing the customer to focus its own
resources, including management attention, on tasks that are relevant to sustain current
operations or for the development of future business.
• Obsolescence management is rarely a thankful business for the sponsoring organization:
One may decide to build a nuclear power station, run it for several decades, and make
money on the electricity and possibly the excess heat generated. One can develop a busi-
ness plan for the construction period, and then for 30 years’ or similar operating time,
and when all costs and income numbers have been estimated and calculated, make a
decision based on the Return on Investment (ROI) or more sophisticated methods such
as Net Present Value (NPV) or Internal Rate of Return (IRR) projections.
• Dismantling a nuclear power plant at the end of its lifecycle is an even larger project, and
it takes decades to be finished. No one has yet knocked down a production reactor whose
time has come and either turned it into a business center or a residential neighborhood
or renatured the plant. While the investment in time and money will be significant, the
business value of the project deliverables will probably not be very high—who wants to
work or live in an area where a lot of contamination may still be present.
54 Project Business Management

To make things worse, a lot of uncertainty surrounds the final disposal of tons of radi-
ating waste that will pose a security risk and a source of costs for decades. It is no surprise
that the operating companies of these power plants try to hand over the responsibility
for these tasks to third parties—ideally, in their understanding, including the future
risks that are so difficult to foresee. Demolition and disposal of obsolete nuclear power
plants will be a safe business for a small number of experts in decades to come. It may
also become a playground for organized criminals, who will dump the radiating rubbles
in places where they will cause maximum damage.

2.3.5 Buying to Save Money or Time

An important factor for the outsourcing decision is, of course, the desire to save costs. In opera-
tions, it has become a common calculation to balance the additional cost and delays of out-
sourced productions and services against the savings from lower wages, lower environmental
standards, and cheaper energy and raw materials. Similar calculations are done in project
management, but, given the dynamics of success and failure in our discipline, with much less
reliable results. In project management, each project is a new learning process, and part of this
process may be the insight that the buy option brought more financial benefits than expected,
or fewer, or possibly none at all.
External vendors may have cost benefits due to their location, being able to utilize lower
costs for personnel, materials, or environmental protection. They may be smaller and therefore
able to circumvent minimum salaries dictated by law or agreed upon with unions for larger
companies, or they may be large enough to use their market power to reduce costs. A set of
tasks may constitute a Mark 1 project11 for the customer—new and unknown. For a certain
contractor, the project may be a Mark n project, because the person or organization has done
similar work in the past, found the knobs and switches that help save costs, but also knows the
caveats that can lead to unexpected and massive cost increases.
This mostly comes with the expectation that the contractor will be faster. While the spon-
soring organization would have to hire people first, purchase equipment, and possibly develop
new know-how in house, the contractor is expected to have all that already. Decisions that
would necessitate long discussions in an in-house project can be made much more quickly by
the contractor, who brings much more knowledge about and experience with the specific task,
at least in the expectation of the customer. The same is considered true when it comes to devel-
oping staff and helping them learn new skills. The contractor is expected to bring educated
people who can start working immediately.

2.3.6 Buying as a Political Decision

Crazy Ant, Inc. is a global consulting agency that works for large-scale corporations and gov-
ernment agencies, performing organizational development projects that affect all aspects of the
businesses of these customers. Their projects integrate organizational, technical, cultural, and
business aspects of these changes, promising improved business success through streamlined
11
The distinction of Mark 1 and Mark n projects is discussed in the previous chapter.
 The Difficult Way to the Contract 55

processes and increased efficiency. I was working temporarily for this organization on several
projects in the late 1990s. One of the projects that I was involved with was the re-definition
of sales channels of the Mantis Corp. airline in response to changing reservation behaviors by
customers, which included travel agencies—some of them booking online over centralized
systems (Amadeus, Sabre), others booking over the phone—but also included corporate travel
departments and self-booking travelers.
It was the time when the internet was turning from a noncommercial information network,
predominantly used by science communities, large corporations, and insiders, into an omni-
present business platform. The airline identified the risk that the booking behaviors of their
customers was about to change and that the airline might not be sufficiently prepared to cope
with this change, both marketwise and also technologically and organizationally. In addition,
they hoped for cost advantages from an increased use of the internet for direct bookings, cir-
cumventing agencies and saving the fees they took.
The project seemed at first glance to have a small impact: The company already had a simple
booking solution on the internet, and the basic infrastructure to link online bookings with
the internal backend systems was also in place. The question was raised whether these systems
would be able to cope with a demand that was expected to grow rapidly. The system was not
built for easy scalability, and a major part of the processing still needed to be done manually
and was often time-consuming. The change would have meant the need for many employees
to learn new skills and accept a different approach to managing customer contacts. The proj-
ect had the objective to make internet booking the leading system and to add manual agency
booking as an alternative process, while so far the core system was manual and the online
booking was the add-on.
Resistance inside the organization was immense. The internet was still new for most employ-
ees, and was particularly difficult for those with intensive contact to the travel agencies. They
did not have to fear a loss of their jobs—at least not in the short term—but expected major
changes to their job environments, including the contacts to the agency employees with whom
they had developed close relationships over many years. The telephone and telefax as a major
means for communications would be replaced with the PC, with which many people at that
time were not yet familiar and confident. Some found that the manual processing time for
bookings was reduced, so their jobs might still be threatened. One criticism actually came from
employees who were concerned for the future of Mantis Corp.: They were afraid that customers
would not change their preferred booking channels that quickly, and that neglecting the exist-
ing channels could damage the standing business before the new business was being developed.
For an outsider, it may be difficult to imagine how fiercely and angrily the dispute became
over a time of a few months between the backers of the project and those opposing it, which
caused rifts inside the organization that massively disrupted both the organization’s operations
and the project. Probably even more damaging to the project was a sublime refusal to go along
with it by many employees. They slowed the corporation’s processes down just to the point
where they could not be held accountable for the loss in efficiency. Travel agencies already
considered shifting their customers to competing airlines, where they felt processes moving
swiftly, not frustrating as if they were stuck in a kind of jelly. The same happened in the travel
departments of customer companies. In a project, you can have all the tools and techniques in
the world, but slow and sticky resistance often finally wins out.
56 Project Business Management

Mantis’ management soon had to pull the emergency brake and halt the project to avoid
further damage to the company. In discussions that followed, the bitterness of the employ-
ees was more and more focused on Crazy Ant, Inc., the consultants who did the project for
Mantis. Depending on who one listened to, the consultants allegedly did the change too fast
or too slow, too vigorous or with not enough dedication, listened not enough to people or spent
too much time in interviews and meetings, and so on. Mantis Corp. terminated the contract
with Crazy Ant, Inc. at favorable conditions and soon restarted the project more as a “sub-
marine project” or “black project”, which slowly came up with the same change but with less
confrontational attitude to the employees and with much less politics.
By making the consultants the culprits, management saved face in front of their employees,
and vice versa, and allowed the company to get back to normal operations. Between management
and the consultants, there was an understanding that this was the best solution for the moment.
The buy decision may also be taken in order to deal with politics. Internal project team
members often run into conflicts with other employees. Among the hidden costs of projects are
operational disruptions, and, in addition to the economic consequences that these effects may
have, they can lead to organizational and interpersonal disturbances.
The conflicting employees will still have to work together in the future, when the project is
over. They will meet each other in the hallways, the company restaurant, and at other oppor-
tunities, and may have to go through more difficult situations in other projects, for which
grudges and frustration from older projects may be a heavy burden. A project manager who
was perceived to act against colleagues will be met with distrust in the future, and even if the
person was highly successful in rebuilding rapport and mutual understanding, some of the
mud will be certain to stick.
Management may decide in such situations that it may be better to buy the project team, or
major parts of it, from outside the organization, as these can act with less considerateness. They
can be more result oriented, because they will leave the organization again when they are fin-
ished and do not have to take long-term relationships, good or bad, into regard. These external
resources are therefore expected to create faster progress and earlier results in environments in
which high resistance is expected.
This approach comes with a corollary: When the project is on its way to fail, possibly because
of this lack of considerateness and because resistance is growing too strong and compromising
for managers, they can locate themselves at a distance and put all the blame on the contrac-
tor. It may well be that, for the contractor, the payments from the customer then become less
remuneration for performance but a kind of monetary solatium paid to a scapegoat.
In such environments, the proclivity of managers toward the buy option to overpower or
circumvent opposition inside the organization signals definitively a kind of weakness when it
comes to implementing controversial decisions, and of muddled governance in conflict-ridden
environments toward those who are finally expected to carry results home.

2.3.7 Tapping External Assets

One can subsume the luring elements described above, and many more, under the general
heading “Tapping external assets”. Sellers have hard assets such as facilities, equipment, and
similar, or soft assets such as skills, licenses and patents, or management attention, that buyers
 The Difficult Way to the Contract 57

desire to use as resources in their projects against payments. In some projects, these external
assets have a rather marginal function. In others, they are combined with the internal assets
of the buyer organization. There are also projects in which the external assets are the only
ones used as resources for the project. Contractors can have different roles in projects, but the
expectation is always that they are an external source of resources that the buyer organization
needs for the project but is lacking.
Sometimes, assets turn into liabilities, and this is also true for contractors. I will discuss the
risks that come with selecting the buy option later.
One may argue that all the risks that come with procurement of project work on the seller’s
side can be avoided by running projects with their own resources only, avoiding procurement
whenever possible. There are organizations that follow this path on the asset-heavy projects,
and some of them are very successful.
One may also argue that making a corporate living from offering oneself as a contractor to
buyers is too high a risk to take, and one could find easier ways to bring money home than
with projects. But then, this business is thriving worldwide, as I will show below, and many
small to mega projects would not be possible without the tight cooperation of buyers and sell-
ers, customers and contractors, simply because no one has all the assets that would be needed
as project resources, including money, equipment, skills, licenses, expertise, and, most impor-
tantly, management attention.
Project Business Management has become an essential element of economics worldwide,
and given its wide distribution, is it not astonishing that there is no literature, education, and
research on the specific topic? I am happy to fill this gap at least partially and hope that others
will follow, addressing the topics that I may be missing and correcting statements in which I
may be wrong.

2.4 Customer Project Management: Where Does

the Market Stand?
In the preparation for this book, I was interested in obtaining market data and information
on customer projects from empirical research, but I could not find any. I decided therefore to
explore the market by performing a micro-survey.

2.4.1 The Rationale of the Research

In the typology of projects and project situations presented briefly in the first chapter of this
book, the distinction between internal projects and customer projects is one of the most obvi-
ous. Internal projects are commonly done to implement organizational strategies, to meet busi-
ness goals, or to respond to mandatory demands from law or other binding conventions. If they
are expected to create financial benefits such as cost savings or increased income, the majority
or all of these benefits will come after the project lifecycle.
Customer projects are generally expected to produce this income while they are performed,
and the timeliness and sufficiency of the income are the most crucial metric for project success.
58 Project Business Management

Customer projects must support the organization’s profitability and liquidity. Their benefit
realization is commonly ended when the project is finished, possibly earlier, notwithstanding
subsequent income from services that are then operational and no more projects.
Figure 2.5 shows how the lifecycles of projects and benefit generation commonly relate.
An essential element of the benefit realization lifecycle is obviously the contractual payment
scheme that the contractor has agreed to with the customer. The essential benefit from a cus-
tomer project is the money that the project must bring home.

Figure 2.5 The different lifecycles around the project and the benefit realization for the perform-
ing organization.

When I tried to find information on customer project management in scientific and busi-
ness literature, I found an astonishing shortage. It seems that this topic has not yet been the
subject of research and professional contemplation. I wished to fill some of these gaps to sup-
port the future of customer project management with better data and a better understanding
of their mechanics and dynamics.
A major factor that defines the future market for customer projects are make-or-buy deci-
sions. Selecting the make option leads to an internal project. When a customer decides for the
buy option, a “want” or a “need” is sent on a path that will finally turn it into a customer project
on the side of a seller, who will later become the contractor. If the general trend goes for an
increase in the buy option selected, there will be more customer projects in the future; a trend
toward make would reduce their rate of occurrence. The research described here asked where
the trend of the recent past and the future lies.
 The Difficult Way to the Contract 59

2.4.2 The Design of the Research

The research was designed around a micro-survey that allowed for a participant to finish in less
than a minute. Brevity was indeed a major objective of its design, as one can observe a noteworthy
survey weariness, which has evolved among project managers over some years. It can make it dif-
ficult to get a sufficient number of responses for a survey to consider its results meaningful. In the
recent decades, project management has become a subject of academic discussion and research,
and project managers are therefore often asked to respond to surveys—requests that they tend
to ignore due to the time pressure under which they have to work in their projects. In addition
to these requests, project managers are asked to respond to surveys by companies, associations,
and other organizations, and many project managers therefore reject dealing with surveys at all.12
In my experience, micro-surveys are still accepted by an audience of project managers. They
consist of a few questions only, and it must be communicated right from the start that they are
easy and quick to answer. The survey therefore consisted of only four questions, plus a free-text
field for comments and an opportunity to add an e-mail address for respondents who would
be interested in the results.
The research presented here is based on such a micro-survey, open for responses over 17 days
between 21 December 2016 and 8 January 2017. It received 590 responses during this time.
The first two questions asked for trends in make-or-buy decisions, using seven-step sliders
with scales between –3 and +3, referring to recent experience and future expectations. Figure 2.6
shows how respondents could use these sliders to select their degree of agreement to one of the
two contradicting statements.

Figure 2.6 The sliders used to answer questions on recent experience and future expectations
on make-or-buy decisions.

12
US comedian Bill Maher has made a nice joke from that: “You know, I was actually pretty happy with
your customer service, up to the point where you asked me to take a survey about your customer service”.
60 Project Business Management

Responses to two more questions allow for stratification of the results:

1. By vendor involvement in projects: “How much of the workload in the projects you are
involved with is generally done by vendors?” The answer options were:
a. Our own people do all the work.
b. Vendors do less than 50%.
c. Vendors do about 50%.
d. Vendors do more than 50%.
e. Vendors do all the work.
f. I do not know.
2. By project size: “What is the most typical total number of people actively involved in
your projects from start to finish?” The answer options were:
a. 1–10
b. 11–100
c. 101–1,000
d. 1,000–10,000
e. More than 10,000
f. I do not know
These two questions allowed only for one answer to help identify differences among projects
with different degrees of outsourcing and of different sizes.

2.4.3 The Survey Respondents

The respondents were addressed in professional groups in social networks (mostly LinkedIn
and Xing) and by directly inviting contacts by email. The 590 participants came from 85 coun-
tries, with the “Top Ten” by participating individuals shown in Table 2.1.

Table 2.1 Top Ten Countries with Participants in the Survey

Rank Country Responses

1 United States 113

2 Germany 92
3 India 63
4 Canada 24
5 United Kingdom 22
6 Saudi Arabia 19
7 United Arab Emirates 18
8 Australia 11
8 Italy 11
10 Pakistan 10
 The Difficult Way to the Contract 61

The approach was global and cross-industry. I would generally encourage repeating this
survey with an additional focus on countries, industries, application areas, and other more
specific areas of interest, but this would have been beyond the scope of this micro-survey. The
questions in this survey related to the market of customer project management in its entirety:
Can businesses expect it to grow, or is it rather static or even shrinking?
The survey also yielded a major number of interesting comments. Some of them will be
quoted and discussed later.

2.4.4 The Overall Result

This research was undertaken to answer the question of whether the market for customer
projects should be considered a growing, a static, or a shrinking market. As shown above, the
respondents could make selections on two sliders what their recent experience in their project
environments has been and what their expectations for the future are. Figure 2.7 shows how
the responses were distributed.

Figure 2.7 The distribution of the responses on recent experience and future expectations
regarding make-or-buy decisions using the seven-step sliders shown in Figure 2.6.

The average values among the selected responses were:

• Recent experience: 0.95
• Future expectations: 0.74
Both the distribution of the responses chosen and the average values show a trend toward
more frequent buy than make decisions during the recent past and for the future, with an expec-
tation that the growth on the buy side will go on, but at a slower pace in the future. The reason
for this result may lie in an often communicated desire by management to reduce dependency
62 Project Business Management

on external vendors, while business necessities force organizations to buy more and make less.
It would be interesting to repeat such research from time to time to see whether the projected
slowdown of the tendency to buy more signals a true future trend or is just wishful thinking.

2.4.5 The Influence of the Workload Assignment

I was further interested in discovering the degree by which the results were dependent on
the workload that was already outsourced. Could it be that projects with fewer parts of the
workload already outsourced are different in trends to those in which more work is given to
contractors? Participants were therefore asked to state how significant vendors were in doing
the workload in their projects. The participants could choose from six options. The answering
options and the distribution of the responses among them is shown in Table 2.2.
Table 2.2 Answering Options for Workload Assignments in
Projects and Distribution of Responses to Them

Answering option Answers %

Our own people do all the work. 55 9.3%
Vendors do less than 50% 204 34.6%
Vendors do about 50% 105 17.8%
Vendors do more than 50% 192 32.5%
Vendors do all the work 26 4.4%
I do not know 8 1.4%
Total: 590 100.0%

Figure 2.8 shows that project environments with more outsourcing were experienced to have
a stronger growth in buying, and the expectation for growth in the future was also higher. The
market for outsourcing is obviously the most dynamic when a lot of outsourcing is already done.

Figure 2.8 The past and future average trends for make-or-buy decisions grows with the work-
load assignment already outsourced.
 The Difficult Way to the Contract 63

2.4.6 The Influence of the Project Size

To what degree are trends on outsourcing dependent on the size of the projects? I further asked
the participants to state how large their projects were, measured in number of people involved.
The participants could choose from six options. The answering options and the distribution of
the responses among them is shown in Table 2.3.
Table 2.3 Answering Options for Project Sizes and
Distribution of Responses to Them

Answering option Answers %

1–10 187 31.7%
11–100 313 53.1%
101–1,000 72 12.2%
1,001–10,000 10 1.7%
>10,000 4 0.7%
I do not know 4 0.7%
Total: 590 100.0%

Figure 2.9 shows that project managers from environments with larger projects experienced
a stronger growth in buying, and their expectation for the future was also that of a stronger
trend. The market for outsourcing is obviously more dynamic for larger projects.

Figure 2.9 The past and future average trends for make-or-buy decisions grows with the size of
the project.13

2.4.7 The Influence of the Project Location

Another question related to location: Are world regions different in their observations of past
and expectancy of future trends?
13
The outlier in the fourth stratum (1,001–10,000) for the future expectation may be explainable with
the small number of only 10 cases.
64 Project Business Management

Based on the IP addresses of the responses, I located the respondents in six world regions, as
shown in Table 2.4. The table also shows how the responses were distributed over these regions.

Table 2.4 World Regions Defined and Distribution of the

Responses Across These Regions

Region Answers %
Africa 27 4.6%
Asia 110 18.6%
Australia 10 1.7%
Central & South America 21 3.6%
Europe 218 36.9%
Middle East 62 10.5%
North America 141 23.9%
Total: 590 100.0%

Figure 2.10 shows the distribution of the responses over the six regions. The average results
are positive in all regions, which shows that the expectation for growth in outsourcing business
is unbroken in all of them, only expectation on the speed of future growth is different.

Figure 2.10 The average trends for the recent experience and future expectations on make-or-buy
decisions are different over the world regions, but the trend is toward further growth in all of them.

2.4.8 Conclusions from the Research

The business of bringing money home by performing projects for paying customers is obviously
a very robust one, which shows no signs of decrease. The global trend for this type of business
is a growing demand, driven by an increasing number of make-or-buy decisions in which the
buy option is preferred over the make option. Differences could be found in the speed of this
 The Difficult Way to the Contract 65

growth for the past and the future, but the growth as such is not broken. It may also be inter-
esting to repeat the research in the future, to better understand why the growth expectations
for the buy option (averaging at 0.74) were smaller than the experiences in the past (aver-
age: 0.95). This may indicate an upcoming saturation in the market place. It may also signal
management strategies to insource, and it would later be interesting to see if managers were
able to implement these strategies or whether changing market conditions dictated an increase
in the intensity of outsourcing beyond what they had intended.
Another observation from the author’s seminar business is interesting in this context: Project
managers are commonly not sufficiently prepared to take over the responsibility for customer
projects, which should be considered temporary profit centers in complex and highly dynamic
environments. Project managers in customer projects have to consider the interests of two or
more parties.
These interests are sometimes in alignment, but at other times are contradictory. Particularly
when the survival of the organization depends on the financial success of its customer project,
and when the satisfied customer is necessary to provide a reference for winning future business,
the requirements on the business acumen of the project managers are beyond the education
and training contents delivered to them in classical project management seminars. There is a
future need for specific Project Business Management education with a focus on customer proj-
ects, helping their project managers to ensure that they bring money home with their projects
and bring a smile to the face of the happy customer.
Project managers in customer projects are not a minority group inside the entire project
management discipline, as I described in the previous chapter. In my survey, 51 percent of the
responding project managers selected the option that they do a project for a paying customer,
and that the project provides income to the project manager’s employer. For these project
managers, it is not sufficient to be technically competent—they must understand the highly
complex dynamics of the customer–contractor interface.
Because many customer projects are part of project supply networks (PSNs), with a multitude
of organizations involved, and in which self-employed freelancers contribute additionally as
one-person contractors, the number of interfaces is growing further. Let the PSN extend itself
over different countries, cultures, time zones, business styles, and legal systems, one can easily
imagine what requirements are put on project managers.
In a further globalizing world economy, in which distances across the world are shrinking
and the wind of change has turned into a class 7 storm, educators in this field are also not
sufficiently prepared to instruct project managers to cope with these challenges, and while I
am writing these lines, I do not exclude myself from that statement. Whether an educator is a
trainer or coach in business or a teacher in academia, this statement is probably true for all of us.
The description of insufficient preparation of project managers inside the contractor team
is also applicable to their colleagues who sit at the opposite side of the negotiation table: They
develop and manage these complex PSNs, often across country borders, as described above,
spanning cultures, legal systems, time zones, business interests, and many more environmental
factors that lead to fragmentation and siloing of the project team. Understanding and manag-
ing such complexity—which is generally not included in the preparation of professionals for
project management—is a key challenge for these project managers, and I have to repeat that
the educators doing such preparation are still not in the marketplace.
66 Project Business Management

2.5 Risks of the Buy Option

The survey above had a free-text field for comments by attendees. Out of a total of 590 responses,
185 used the field to leave a comment as an additional response to my questions—that is, 31.4
percent. The focus of these responses was on the reasons for organizations to choose make
or buy. Some responses discussed the risks that come with the buy option, and the following
paragraphs elaborate these risks. From a seller’s perspective, these and more risks must be con-
sidered, but also from the buyer side, it is important to understand these risks; they are a driver
for the behavior of the prospective customer, and addressing these risks in a way that brings the
customer peace of mind may be essential to finally winning the business.

2.5.1 Time Losses

The lure of choosing the buy option is set off by many risks. The most obvious is the time lost
for procurement activities, particularly when they prove futile and when one finds out late that
the make-or-buy decision needs to be put on the desk again and that one needs to choose the
make option this time or find an entirely different solution.
• An example was Tesla Motors, the maker of electric cars, in the years 2005 to 2008 in
Menlo Park and later in San Carlos, CA, USA.14 Tesla, by that time still rather a small
but fast-growing garage development company than a well-organized manufacturer, had
so far built two prototypes of a fully electric car based on the British two-seater sportscar
Lotus Elise and was going to develop a production car from that called the Tesla Roadster.
They identified the need to include a two-speed transmission to better sell the car to
wealthy early adopters—a high gear capable of speeds of over 200 km/h (130 mph) for
normal cruising and a low gear for maximum acceleration (0 to 100 km/h in 4 seconds).
The latter was considered a major sales argument for the intended consumer group; it
would enhance the driving experience of the car and make it competitive in the Sprint
discipline with expensive traditional sports cars. A British manufacturer of transmissions
was asked to develop and later manufacture the gearbox, which so far was considered an
unproblematic item.
• The launch date of the Tesla Roadster was originally envisioned for early 2006. This was
then shifted—and communicated—for middle of 2007, but it soon became obvious that
unexpected problems with the transmission needed to be resolved, and it was at that
point clear that this would take longer than expected.
The electric motor ran at much higher revolutions than a traditional combustion
motor, typically over 14,000 rpm, and the spread between the two speeds was much
larger than between two neighboring speeds in a conventional multi-speed gearbox, so
that each switching action created an increased mechanical stress on the transmission.
The average running distance of a transmission before it failed was at 3,600 kilometers
(2,000 miles), far too short, especially for a car in the $100,000 price range.
Tesla repeatedly changed the manufacturer, but without improvement. It turned out
that a root cause of the problem was that the manufacturers seemed not to have put their
14
(Vance 2016)
 The Difficult Way to the Contract 67

best efforts into the development for Tesla because they did not consider them a great
future investment. Tesla’s strategy was to start out with a high-price, low-volume prod-
uct and then over time increase the volume and reduce the price. For the time being,
Tesla’s output numbers were too small for the suppliers to take them seriously, and they
did not believe in the production numbers predicted for the future.
• Tesla finally changed the basic design of the motor to allow for a simple one-speed trans-
mission. In combination with a reduced weight of the car, they could still get basically
the same performance data without the need of changing speeds. This change took them
about ten months to implement, and cars delivered earlier to customers received it in the
form of a free upgrade.
• The delay from the inability of vendors to deliver the transmission with the necessary
robustness jeopardized Tesla’s basic funding. Investors developed doubt whether Tesla
would be able to deliver finally, and this doubt was reinforced by the negative press
that came with the delays. It was a critical time for Tesla. Finally, they came out with a
better solution, replacing a mechanical system with an electronic one, which allows easy
updates, ideally over the air, while an update or a repair of a mechanical part generally
needs a visit to the repair shop. The solution is more aligned with the basic paradigm of
Tesla, but it took the detour over the non-delivering vendors to finally arrive there.

2.5.2 Unclear Scope

Before one goes shopping, one should have a clear idea of what one actually wants and needs.
Otherwise, caveat emptor15 —one will pay more money when one has bought the wrong thing
and has to buy again, or needs to rework the purchase to make from it what was originally
desired. Buying over the internet, depending on applicable business terms and legal require-
ments, one will possibly be able to send the product back when it is found unsuitable. When
customers procure services and products as projects, the same applies.
Transport for NSW (TfNSW) in Australia was founded in 2011 through the merger of
a major number of previously separate public transport agencies of the state of New South
Wales.16 It had around 25,000 employees and had also inherited around 130 software systems,
which they wished to replace with just one new enterprise resource planning and asset manage-
ment (ERP/EAM) system from SAP. They hoped to save AUS$100 million (US$73 million)
annually from the consolidation of the existing systems. The investment for that seemed appro-
priate: AUS$151 million.
The project should have started in 2012 and been finished by the end of 2015. After this
time, the new system should be set up, the data migrated into it, and operations of the old
systems should then have been discontinued. In June 2014, the project underwent an audit,
which came out with a warning that the business transformation aspect on top of the technical
aspects seemed insufficiently addressed and that frequent changes of scope and team threat-
ened timely delivery.17

15
“Cautiousness is the buyer’s job” (not the seller’s).
16
(Wallbank 2017)
17
(Cowan 2014)
68 Project Business Management

Migrating a single IT system can be a tedious task. Legacy systems rarely have the con-
sistency and quality of data that modern systems require, and data structures and processes
implemented in them differ from those in the new system, so a lot of manual work will be
needed. Migrating and consolidating 130 old systems, each with its own internal structures
and processes and without interrupting agency operations, sounds like a nightmarish task.
To make this task possible with contractors takes a high degree of discipline in requirements
management on the customer side, so that the contractors can develop and implement a clear
plan and do not get disrupted by changes due to unclear requirements, specifications, and pro-
cesses to be implemented. In August 2016, it was reported that various contracts with project
contractors grew in cost by over 100 percent and that major delays were to be expected18 —a
common result when a project has to many scope changes, which in turn is a common sign of
insufficient requirements management.

2.5.3 Fragmentation
I already mentioned Conway’s law in the first chapter and referred to projects that ran into
crises due to its disregard. Conway’s law says that “Organizations which design systems [. . .]
are constrained to produce designs which are copies of the communication structures of these
organizations”.19 Written by a computer scientist, this sounds complicated, but it can be put
into two simple statements:
1. Team structures must be compatible with the structures of the system they produce. If
you ignore the intended system architecture when you structure a team, the team may
not be able to build the system. In project management practice, people mostly follow
this principle.
2. If sub-teams communicate well while they develop and integrate system components,
the system has a chance to work well too. If the sub-teams do not communicate well,
the system they make will be flawed and destined for failure. In project management
practice, this principle is commonly ignored.
The buy option gives many examples of Conway’s law in action. You buy a complex software
program and expand it with an add-on from a third-party vendor. When the add-in crashes
the program, the vendor of the add-on will tell you that the blame is with the program maker
(“They changed something in the software without telling us”). The program maker will tell
you that it is of course the buggy add-on, and that its developers have ignored timely commu-
nications by the program maker. As the customer, you fall between two stools and are left with
the disruption of your work, the difficulties of finding a solution to the problem, and with all
costs involved.
Fragmentation also occurs when the parties involved—customer(s) and vendor(s)—follow
different business interests. The customer wants the ready-to-use solution at the lowest costs
possible, while the vendor wishes to deliver the most simple and easy-to-make product at
the maximum price. At the moment of contract signature, they had an understanding and

18
(Coyne 2016)
19
(Conway 1968)
 The Difficult Way to the Contract 69

a common ground, often called a meeting of the minds, but as time passes, this commonality
may get lost.
Fragmentation can also happen between contractors in a project. A certain task needs to be
done, and both can do it. The task may be financially or otherwise attractive, and both would
like to make it. Or it is tedious and badly paid, and both avoid it. Contractors may prefer not
to take a risk and instead transfer it to someone else. When all of them do that, the risk will
remain unaddressed—often the most certain way to make the worst occur.
The greatest risk for organizations and people comes with trust. If one trusts the wrong peo-
ple, one will be deceived. But it also holds true that distrusting good people will deprive a proj-
ect of many opportunities and can finally bring it into crisis. Trust as the foundation of actions
in project management comes with the risk of failure; distrust makes this failure certain.
Between the two monsters, project managers have to navigate a way that protects the proj-
ects from getting damaged. In order to maintain a sound and mutual trust relationship, it is
helpful to focus on one’s own trustworthiness first, as Stephen R. Covey said: “If you want to be
trusted, be trustworthy”.20 A second step would then be to look for clues for the trustworthiness
of the other person or organization. In project management, where we often have to deal with
new contacts, this might be difficult.
Selecting the buy option increases the relevance of the trust/distrust dilemma. Both contract
parties, customer and contractor, select to work with someone with separate business interests,
possibly with someone with whom they have no experience. Reference organizations can be
helpful in building trust:
• Reference customers support the contractor’s claim: “We have worked successfully for
companies A, B, and C and would now like to work for you too”.
• Reference contractors: “Past contractors were the companies X, Y, and Z, and they have
profited from working for us”.
Personal relations, rapport, and demonstrated empathy can also help build trust, but during
the lifecycle of the joint work in the project, events will happen that challenge this trust. In a
PSN with several parties involved, one event may damage trust in one business relationship,
and this may be the first domino piece to tumble and fall, taking others with it.
When the buy option is taken, it should be clear that solidification of the project is a contin-
uous endeavor that consumes time and energy. Fragmentation into silos can occur quickly at
any moment when this endeavor has been disregarded. Then, the project has parties involved
that are able to compete, but unable to complete.

2.5.4 Unattainable Cost Benefits

Many years ago, I was working as a workplace coach for Centipede AG, a German software
company, and had to go to another building to get to the workplace of my next coachee, when
it rained heavily. Someone recommended me to use the basement to go to the other building,
as the houses were interconnected underground, and as my guest badge would allow me to
take this way.

20
(Covey 2004, p. 51)
70 Project Business Management

Hurrying along the basement corridors, I noticed many open doors leading into makeshift
work rooms, in which I could see people apparently from Southern Asia sitting at PCs and
coding software. They were obviously very surprised to see a person passing by and greeted me
in a friendly way. Later, I asked my direct contact officer in the company about my observation
and was then told that these developers worked for a number of contractors who were officially
located in their home country. At one point in the past, the company found itself unable to
manage the developers over a distance and colocated them in their basements. They failed to
keep the team working across continents, time zones, cultures, legal systems, etc. and made a
decision to secretly colocate.
Projects are continuous learning processes, and part of these learning processes may be
that outsourcing can be hard to manage and may not yield the expected results. Among the
software offerings of Centipede AG were products to support offshore work and virtual project
teams, and it was very embarrassing for the company and its project managers that they could
not overcome the team fragmentation from team virtualization and had to get back to what
they considered “old-style” colocation. Their problems were not a lack of technology but of
team cohesion and interpersonal performance.
Corporations often have expectations on outsourcing that reality may not meet. The exam-
ple of Centipede above is one, where cost benefits were expected. Buying instead of making
can open new growth options by tapping external assets and using them as resources for an
organization’s own projects.
Managers who have these expectations must be aware of the strong likelihood that they may
be disappointed.

2.5.5 Narrowing Strategic Options

The buy option can constrict the space for strategic decisions quite dramatically.
Buying is generally used to free management attention, the scarcest and most important
resource in an organization, for tasks that are considered core tasks, are defined as strategic, or
are commercially attractive. Sometimes, these core tasks are neither strategic nor commercial
but are more or less clearly mandated by law, and outsourcing of other tasks can again allow
more focus on meeting them. So organizations define core competencies which will be man-
aged in projects using the make option. Others will be seen as fringe or supportive competen-
cies, and project work linked with them will then be bought from outside.
It may happen that the strategic core competencies defined are later found to be the wrong
ones. While contracting helps the customer tap the resources, competencies, and agility of the
external contractor, it may be difficult to fully exploit them as desired. Harvestman, Inc. was a
provider of equipment for home security devices such as alarm systems and burglar-proof door
and window locking mechanisms.
The company’s CEO regularly visited congresses and seminars that dealt with strategic
management, and the lesson communicated in these events was mostly the same: Focus on
meeting strategic objectives. There, David Ogilvy, the guru of advertisers, was quoted say-
ing “The essence of strategy is sacrifice”,21 and attendees of these seminars were taught to
21
Quoted in Hoffman (2012). The quote is also variously attributed to the French emperor Napoleon
and to Prussian general Moltke.
 The Difficult Way to the Contract 71

either entirely give up non-strategic and off-focus activities or to hand them over to third
parties. Harvestman, Inc. had a research and development department for future products,
which included a small team of three software developers working on a web-based “Internet
of Things” (IoT) alarm system that would use sensors and cameras located in private homes,
which would send alarms over an internet connection to a monitoring center that, in turn,
would be able to forward these alarms to the nearest police or fire station.
At one point in time, the CEO of Harvestman, Inc. adopted a view that the company’s core
competency was in the development and the manufacturing of the hardware, and considered
the internet connectivity a dispensable add-on to that, which consumed resources and manage-
ment attention beyond its business value. He preferred to say, “Our job is making profit. We
have to focus on the essentials, not the bells and whistles”. He also found that the small num-
ber of customers who were prepared to pay for the additional online service would not justify
setting up the alarm centers that would have to be manned around the clock. He sacrificed the
development team, laid off its developers, and gave the web part of the business to a contractor.
The development team members left with “Golden handshakes”, payments that enabled them
to start up their own company, which became financially self-supporting very quickly. The focus
of this company was interconnectivity solutions for home alarms. They bought the systems
from their former employer, as these were the systems that they understood best, they grew fast,
and after 24 months, they made more profit than their former employer, who was by then only
one contractor to them among others, and the price pressure on Harvestman Inc. was high.
Outsourcing the most future-relevant parts of the business deprived Harvestman Inc. of growth
potentials and forced them finally to accept the role of a low-margin vendor of commodities.
The interests of a customer and a contractor will have many commonalities, such as creating
great deliverables, avoiding undue stress, and having fun together during the project while
both are mastering major challenges. There are also natural differences. A first one is of a
financial nature: The amount of money that is available to both parties is limited, so the money
that one of them claims cannot be used by the other one. Other conflicts of interest deal with
assignment of risks, liabilities, workloads, causes of delays, and many more.
A further example of the often divergent interests of contractors and their customers is the
need to exchange knowledge. This coincides with the desire of the contractor to make the cus-
tomer dependent on the services and supplies provided to ensure a steady source of income for a
long period, while the customer often wishes to keep the contracting relationship temporary and
remain fundamentally independent. The contractor will then just communicate the amount of
knowledge that is inevitably necessary and contractually mandated for the project. The cus-
tomer may have hoped that contracting out tasks that are considered peripheral would allow
a stronger focus on core competencies while ensuring that these tasks are professionally done.
Instead, the customer may find that the outsourcing of fringe competencies can impact the core
competencies to an unexpected degree and damage future business instead of improving it.

2.5.6 Remoteness of Error Fixing

A general principle of any production, both project and operational, is that the cost, workload,
and difficulties of finding and fixing an error grows with the distance to its origin. This is
probably even more true in projects, where work goes through different hands and locations
72 Project Business Management

during the course of the project. The person whose hands made the error is mostly in the best
position to fix it, particularly when not much time has passed between making the error and
finding and fixing it. This individual knows what has been done and has the skills and the
infrastructure available to fix it comparatively easily. The further the erroneous item is trans-
ported along the subsequent production process, given to other people with different skills and
competencies, in other locations, using different methods, infrastructure, and tools, the harder
it gets to fix. It gets most expensive when the error is identified on the customer’s site, which
may necessitate sending service there or recalling the product. Then, the error can result in loss
of reputation and, with it, market share.
This principle gets amplified when a number of contractors are involved. In addition to the
local and temporal distance and the change in people, at some point another organization has
the item, with its own processes, culture, and business interests. This organization may fear
that its work will be disrupted while error fixing is being done and may then decide not to
allow it. And so the temporal distance will grow further.
Another common source of conflicts in PSNs is the question of who needs to take responsi-
bility for fixing errors, particularly when this cannot be billed. Error fixing is a form of rework:
something has been considered finished and must now be taken again and work must be spent
on it. Contractors therefore prefer either to have someone else do the work or to do it against
additional payment. The further the distance of error finding and fixing is, the harder it gets to
identify who should take the responsibility for it. One contractor will point to the other one as
the origin of the error, and no one will take the responsibility to simply fix it and let the project
move ahead.
This does of course not occur in all projects, and in a project supply network culture based on
a “Mission Success First” attitude among all parties, such conflicts are quickly resolved. I will
describe this “Mission Success First” later in detail in this book.

2.5.7 Speed Blindness

Another hazard that comes with the buy option is speed blindness. While speed blindness can
turn up in any project, it is especially threatening in projects that span several organizations.
Tiger beetles are a group of fast insects.22 Very fast. They are among the fastest runners
in the world, at least when one puts their speed in relation to their size. One of them, the
Australian Cicindela hudsoni, runs 2.5 meters/second (over 8 feet/second), which is 125 times
its body length of 20 millimeters. This would translate to an average human—1.75 meters
(5.74 feet) tall —running at a speed of almost 800 km/h (500 miles per hour (mph), not much
under the cruising speed of a jet airliner. The beetle lives a predatory life, and its speed, together
with its good vision, helps it to run down any animal that is small enough to become its prey,
but also to run away from most predators that would in turn consider the beetle a nice meal.
In the past, scientists were confused about the running style of the beetle: It approaches
the prey at high speed, then waits for some seconds, and starts running again. It can do this
several times before it finally strikes its prey. Then they found out the reason: While the beetle
is running fast, it is virtually blind. During this time, the beetle keeps its antennae forward

22
This time, the example is really about insects.
 The Difficult Way to the Contract 73

and uses them to feel obstacles in its way before it runs into them, just like a person moving
in the night does, who stretches the hands in front of the body to feel impediments before
stumbling over them.23
Vision necessitates a complex chain of events: Photons reach a photosensitive surface in the
eye, generating nervous signals that need to be transported to the brain and be processed to
gain information from them and build a mental representation of the observed objects. When
the tiger beetle is running, it loses sight of its prey and of anything else around it. The prey may
have moved meanwhile to another place, and the beetle is no longer running in the right direc-
tion. The beetle also needs to re-assess the distance to the prey. So it stops, looks, and when it
has refreshed the representation of the situation in its small brain, sets off again and repeats the
run and stop activity until it finally catches the unsuspecting victim.
Humans are astonishingly effective in managing high speeds. One reason may be that our
eyes have much more optical performance than those of beetles. Our brain adds to that, as it is
much better in processing the data coming in from the eyes. But at certain speeds, we experience
the same phenomenon: It begins with tunnel vision, partial speed blindness that drivers of fast
motorbikes, cars, trains, or aircraft perceive at very high speeds.24 The vision field narrows to
focus the brain’s resources on the small spot in front that is important for immediate survival.
In a car at 800 km per hour, for most people, the spot would become so small that we would no
longer be able to actively drive at all—we would be left speed blind and simply black out.
It is surely no coincidence that the current holder of the land speed record (at 1,228 km/h,
763 mph, or Mach 1.02) is a former RAF wing commander, Andy Green from the United
Kingdom. He has been trained intensively to travel at high speed on Phantom and Typhoon
fighter aircraft without getting speed blinded. When an author of the magazine Wired made a
flight with him in an aerobatic plane, he found his “vision starts to narrow and turn grey at the
edges”, as he later reported, while the pilot remained “completely calm”.25
Another kind of speed blindness happens when information is available, but people are
blind and deaf to it due to an overpowering intention to be quick. This occurred when the
Titanic was on its maiden journey from Southampton to New York City with 2,208 crew and
passengers on board in the night of 14 May 1912, just before it crashed against an iceberg at
11:40 PM. Two hours and 40 minutes later, the vessel broke in two and sank, killing 1,514
people in the cold, arctic water. Before the collision, the ship had run full speed at 21.5 knots
(40 km/h, 25 mph) to meet its scheduled arrival time in New York. It had repeatedly received
warnings of pack ice and major icebergs on its way26 but kept on at full speed, and as even
the crow’s nest crew had no binoculars that might have helped in the black night to spot the
iceberg earlier and negotiate it safely, it was running blindly into disaster. It is reported that the
wireless operator of the Titanic responded to a warning sent to him by his colleague on another
ship, the Californian: “Shut up. Shut up. I am busy. I am working Cape Race”.27
23
(Zureck and Gilbert 2014)
24
(Pozzi 2014)
25
(Franklin 2014)
26
(Box 2004)
27
The message meant that he was busy sending a backlog of private passenger’s messages to a wireless
station at Cape Race in Canada, and that he felt disrupted by the warnings sent by his colleague to
him (Titanic Inquiry Project 1912).
74 Project Business Management

Speed blindness is an effect seen in many projects, both internal and customer projects.
Teams run fast, creating deliverables against pressing deadlines, just to find out later that
they developed the wrong deliverables. The reason may be misunderstandings in what the
requesting people or organizations actually wanted or needed, or what degree of operational
disruptions from the project they consider acceptable. Speed blindness can also happen when
these stakeholders’ wants or needs are changing, but the project teams, busy with work, are not
notified or were notified but did not take notice.
Speed blindness commonly takes the form of technical, organizational, or interpersonal
carelessness. Then, things go wrong in the project, which the teams do not perceive and that
threaten their success. Highly focused and working industriously on the project, the project
manager and the team can overlook that a team member or a contractor is on the way into a
crisis and needs help, or that the project needs to make adjustments for the lapse. Speed blind-
ness in projects can be present when a team should be acting cautiously, taking care of obstacles
and threats in its way, but instead ignores all hazards and steams on at full speed, possibly into
irreversible disaster.
Speed blindness increased by a complex PSN was an experience that Horsefly, Inc.28 recently
made. The company builds heavy premium motorcycles (over 500 ccm) at a costly production
location and sells them at a premium price. To expand into the market of beginners and of
countries with lower purchasing power, five years ago they made a decision to launch a mid-
size model.
While they made product development mostly by themselves, for the development of the
production facilities and later the production, they teamed with Ladybug Company, a manu-
facturer in a low-cost country, who was highly successful too, but only in mopeds and small
bikes (up to 200 ccm).
From Horsefly’s point of view, the cooperation was dedicated to making production afford-
able and expanding into a smaller segment; Ladybug, in turn, expected to expand into a
larger segment and a premium market which promised higher margins but also had higher
expectations regarding reliability, durability, and application of technology. The companies
had planned to launch the motorbike in the summer of 2014, and Horsefly’s management
emphasized in an early announcement its importance for the company’s product strategy and
international outreach. The schedule for the development of the motorbike and its production
was challenging but seemed feasible, if project tasks were done right the first time.
An important aspect of speeding up development was the inclusion of third parties into
the process to distribute the load on more shoulders. Ladybug, the contractor for the develop-
ment and the operation of the production, further sub-contracted the six-speed transmission to
Earworm, who were also located in a low-cost country. Then, Earworm built some first rough
prototypes, which gave an initial understanding of what the later product would look like, but
when they were shown to Horsefly, Horsefly was not fully happy but accepted that these were
first prototypes.
Most worrying were the difficulties of changing the gearbox into neutral, but as these were
the first prototypes, this seemed acceptable—something to improve in further development.
More prototypes of the gearbox were delivered and soon were built into prototypes of the full

28
Insect names here are again aliases for existing companies.
 The Difficult Way to the Contract 75

motorcycle, but the problem with the gearbox persisted. Well, Horsefly thought, the proto-
types were made with development tools, and as soon as the tools for mass production would
be used, the problems should be resolved. They were not.
Summer 2014 approached, and while brochures, pricelists, and marketing materials for
distribution were already handed out, and production of the motorbikes was already started,
these motorbikes could not be finished. There were still no gearboxes delivered by Earworm
that could be used. The semi-finished bikes had to be stored in a warehouse—a nightmare for
a company used to applying just-in-time production and management—to wait for the gear-
boxes to be delivered to allow for final assembly.
The problem with the gearboxes gradually improved, and in December 2014, some selected
bikes could be given to journalists for testing. Still then, some complained about the problems
with switching to neutral—one called it “a bit of a notchy tranny action”.29 The time lost
before the motorbike finally hit the market was almost a full year, and the main reason was
that Horsefly’s engineers, performing their part of the development work in high speed, were
speed-blinded and did not pay enough attention to the subcontractor, who desperately needed
help their help.
Speed blindness in projects is a general problem. One of the most difficult tasks for a proj-
ect manager is to know what is going on in the project—in any project. Project work given
to vendors tends to become a kind of “black box”. As the customer, you do not really know,
and sometimes you do not want to know, the details, making sure that the contractor remains
responsible for the results. While for the customer side, this releases managers from a heavy
supervisory burden and frees attention for other tasks, it comes with the risk that no one knows
when things go wrong.

2.5.8 Bringing Strange People into the Project

From time to time, the buy option will bring your project team members into business rela-
tionships with people who can compete but not complete: big egos, true bullies, psychopaths,
and sociopaths.
Like it or not, in project business we often have to deal with people of questionable educa-
tion, character, behavior, and trustworthiness. With violent people—people who take joy in
humiliating, scaring, and in scapegoating others for their own faults. These are the kind of
people that get you into a cooperation with high hopes, but when they ring the division bell
for your project, you will find that all the early successes get lost after a while and your project
turns noisily onto a path of failure.
The official term is “Antisocial Personality Disorder” (ASPD).30 It is used for people who
commonly pay no attention to laws and social rules. In normal language, they are commonly
called big egos and bullies. They have contempt for the rights of others and do not regret when
they hurt people with their behavior. They make their own rules for life and believe that others
have to follow them. They can be astonishingly successful in business, and also in politics,

29
“Tranny” for transmission.
30
A great explanation of the commonalities and differences between sociopaths and psychopaths can
be found in a Psychology Today article (Bonn 2014).
76 Project Business Management

sports, and culture. Often, their success is not built on cooperation and win–win solutions but
on driving others into bankruptcy to easily take away their assets. Project managers commonly
meet these people as sponsors of a project, or just among the people whom they have to trust
and rely on to a certain degree in order to make the project proceed.
Astonishingly, many of them have traits that others consider leadership skills. They will
therefore have their followers, often deeply fanatic followers, on whose support they can reli-
ably build. They love to build walls where others would build a bridge, and while the followers
will discredit bridges, they will acclaim the walls.
If egomaniacs sponsor your project, you should expect deep troubles. They will come with
change requests at a frequency that cannot be managed with reasonable impact analysis and
sound implementation processes; even the term “change request” is inappropriate—these are
clear orders that must never be questioned.
Things can become even worse. Berlin-Brandenburg Airport is a troubled construction
project in Germany, over which the project teams lost complete control. The project had
three sponsors—the mayor of Berlin, the prime minister of the state of Brandenburg, and
the German Federal Minister for Traffic—and their frequent change requests included many
without a good business case, but were claimed by the politicians competing for authority and
political weight.
The opening date was originally planned for 30 October 2011. In summer 2010, the date
was delayed into 2012, then later to late 2013, and so on. While I am writing these lines in
January 2017, the airport is still not open, and recent news says that it is highly unlikely to be
opened in this year.31 Unofficial sources say 2020 to 2023 are more realistic.
In any case, three sponsors is two too many for a project; a project can be successful with
more than one project manager, but more than one sponsor is a setting that is most likely to kill
the project. They make things worse—all three were career politicians and, as such, dominant
males. Change requests were frequently used not to improve the airport but to display domi-
nance, and warnings that these changes might be detrimental and that the impacts needed to
be assessed before a final decision could be made were ignored.
The main area of change requests was non-aviation infrastructure, particularly the shopping
areas. A modern airport is much less a traffic-centered piece of infrastructure, but a shopping
mall with attached aviation facilities.32 The greatest impact were fire protection systems. An
example: Locations that originally should be empty as waiting zones for people (empty zones
do not burn, and humans also have low flammability) were turned into clothing shops, and
textiles burn easily. One big ego in a project can be a problem, several egos in competition spell
massive disaster.
The buy option brings together people who often have not met each other before. There is
not much time for them to go through the process of team building and find a common mode
to work together. Among these people will be some who are much less interested in completing
than in competing. They can become a major risk to the project. Inside their own organiza-
tions, it may be possible to get rid of them, but when one is bound to them by a contract, it
may be difficult to separate them from the project.

31
(DPA/The Local 2016)
32
(von Gerkan 2013)
 The Difficult Way to the Contract 77

2.5.9 Opening the Project for Corruption

In my classes, students are sometimes surprised when I discuss this topic. There are “clean” cul-
tures in matters of corruption and others that are massively polluted with corruption. Cultures
here refers not only to different regions and countries, but also to industry cultures and even
specific corporate cultures. People who have never been in contact with corruption cannot
imagine its disastrous effects, and those who have often do not want to talk about it.
I still remember a procurement manager of an automotive company many years ago, who
generally sat in confidential negotiations wearing seven expensive rings on both hands. All
non-thumb fingers had a ring on, apart from the middle finger of his right hand, as a unspoken
signal to me of what he expected from me. When the man was fired one day without notice
and his practices researched by his employer, I was glad that I had never surrendered to the
temptation of making my work for the company easier by responding to his signal.
Like it or not, corruption is a problem. In summer 2005, I had an opportunity to talk
with Peter Eigen, a former director of the World Bank and, in 1993, founder of Transparency
International, the global association against corruption,33 during a joint journey through
Bavaria along a German autobahn. I asked him why he had founded the association, and he
explained to me that he observed, in his role at the World Bank, how money that was made
available to save lives and help people out of poverty instead oozed away in sinister channels.
Lots of money. “Corruption kills children”, was the main reason for him, and as there were no
mechanisms in place to stop this oozing, he decided to develop them.
Many project managers do not care about corruption. They consider it as a greasing-the-
wheel technique, just like lubricating a bearing. In their understanding, project managers must
ensure that the wheels are turning, and it does not matter how they do that. There are several
reasons to rethink such a position, among them:
• Loss of freedom. While corruption seems to be an effective addition to a project man-
ager’s toolbox for some people, it actually dispossesses them of personal and professional
freedom. To quote South-African lawyer Guido Penzhorn in a report on a massive cor-
ruption case in Lesotho: “Clearly once you involve yourself in the murky world of brib-
ery it is not open to you to simply opt out whenever you like”.34
• Dysfunctional processes. When an organization creates a milieu that accepts cor-
ruption for its benefits—for example, in order to win business—it should not be sur-
prised if this is taken as a precedence and is then also applied against its own business
interests, often on a massive scale. A common example is when it sub-contracts work
to vendors. If an organization does not want to pay excessive prices to vendors, who
then kick money back to procurement executives, the organization has to actively fight
corruption in any form.
• Hampered communications. Penzhorn further wrote on the Lesotho case: “There is a
wall of silence which is very difficult to penetrate. The reason for this seems to be that
everyone who is in a position to talk cannot do so because someone else in turn has
something on him. Once corruption creeps into, for instance, a department of state it

33
(TI 2016)
34
(Penzhorn 2014)
78 Project Business Management

is very difficult to know how far the rot has spread. There is no obvious victim as, for
instance, in an assault case. The victim is society”. A key aspect of great projects is open
and trustful communication. Corruption makes this impossible. In turn, I recommend
that, if communications are a problem in a project, to research deeper; it may be a signal
for corruption occurring, threatening the integrity of the entire project.
• Punishments and public humiliation. Venice, Italy, is a tourist marvel, but also a city
slowly sinking into the soft ground of the lagoon in which it was built on wooden poles
in mediaeval times. This is not the only problem of the city. In July 2014, the Newsweek
magazine published an article entitled: “Venice is Sinking Under a Tidal Wave of
Corruption”.35 The background of the story was a project called Progetto MOSE (for
MOdulo Sperimentale Elettromeccanico, Experimental Electromechanical Module), a sys-
tem of 78 barrier elements in the form of hollow steal containers that would normally be
filled with water and rest on the sea ground at the entrances of the lagoon, but in case of
predicted high waters would be filled with air and float on one end to the sea’s surface
while the other one is hinged at an undersea concrete foundation. The project is intended
to prevent the city grounds from being flooded during “aqua alta”, floodings that occur
several times a year.
A consortium named Consorzio Venezia Nuova (CVN) was founded for the work
on the project, which was led by Italian construction company Impregilo. CVN has
been working on the mobile gates since the year 2004, and they are currently scheduled
to become fully operational in 2020. The project suffered from severe cost increases,
starting at an original budget of around €2 billion,36 but expected to finally come out
at costs of €5.5 billion. It was also hampered by technical problems, such as barrier
elements rusting in salty sea water and one of the barriers being damaged by a storm. It
had to be replaced.
The most massive technical problem is the sinking of the heavy concrete foundations
by 4 centimeters each year into the silt underneath, compared to a yearly sinking of the
city by 2 to 3 millimeters.37 The gates were intended to protect Venice from water tides
up to a height of 3 meters, but sinking at this speed will naturally reduce this protection
in just 25 years to only 2 meters. The Newsweek headline mentioned before referred to
another problem: A major anti-corruption raid of Italian finance police in June 2014
resulted in arrests for 35 persons, among them the mayor of Venice and other politicians
and high-ranking public service agents. The mayor stepped down from his position in
the ensuing days.

2.5.10 Coercing Behaviors by Contractors

When one observes that a couple fights out its conflicts in front of their children, common
friends, and other third parties instead of seeking solutions in private, one knows that the
issues between the two have become very serious. The same is true for organizations, when they
communicate their conflicts with each other over press releases, as happened in the following
35
(Manera 2014)
36
(PMI 2004)
37
(Gatti 2016)
 The Difficult Way to the Contract 79

case story in early 2014. As it all has been published by the two organizations in the form of a
temporary avalanche of press releases, I am not telling secrets inappropriately here.
I mentioned already the Panama Canal expansion project, one of the largest infrastruc-
ture projects in the world. It had started in the year 2007 and was originally scheduled to be
finished in August 2014. By the end of 2013, the project had made a progress of 70 percent,
when the prime contractor, Grupo Unidos por el Canal (GUPC), reduced working intensity
to 25 percent of what was agreed upon. In January 2014, they stopped working completely.
The canal was by that time scheduled for opening in 2015; this then had to be delayed to June
2016. The main cause behind the delay was that in late 2013 GUPC had run into massive
technical problems with considerable monetary consequences. The consortium had been hired
as a contractor to build the new ship locks, which were the most important work item of the
expansion project.
The first canal project in Panama done was conducted from 1881 to 1894 under the lead of
French diplomat Ferdinand de Lesseps. It failed due to several reasons, among them geology:
The soft ground under the channel, which additionally become soaked during rainy seasons,
made it impossible to dig out the channel route as planned. During the rainy season, which
in Panama is eight months a year, landslides repeatedly came down and smothered the con-
struction site with mud, and while the angles of the slopes needed to be reduced repeatedly,
the amount of earth that needed to be moved grew beyond what the project team was able to
do—technically, but also financially. They had to give up the project, which was later taken
over and concluded by US American engineers in the years 1904 to 1914.
The technical and financial problems associated with building on soft ground came back
in the expansion project, where GUPC said that “unforeseen geological conditions” (among
other causes) led to cost increases of “$1.6 billion”.38 By the end of 2013, GUPC wanted to step
into negotiations with the Panama Canal Authority (Autoridad del Canal de Panama, ACP)
over the coverage of these additional costs. ACP rejected these negotiations, pointing to the
contract, which did not have clauses for ACP to cover such increases. In press releases, ACP
was then pressured, for example on 20 January 2014: “Failure to reach an agreement on co-
financing of the unexpected costs will result in a serious delay and it will mean that the works
will not be finished in 2015 causing damages to all parties involved”.39
An aspect to increase the pressure were the 16 lock gates that were made by an Italian sub-
contractor. A first delivery had already been made in 2013, but the bulk of the deliveries was
scheduled to be starting in late 2014. Without locks sufficiently completed, the gates could not
be put in place directly from the transportation vessel, and would have had to be temporarily
put in storage—at dimensions of 58 m × 28 m × 10 m (190' × 92' × 33'), no easy task.40
Beginning on 20 February 2014, the work was ramped up again, while attempts were run
concurrently to resolve the situation in negotiations.
The contract parties in a project become strongly dependent on each other. If GUPC would
have terminated all working finally, or if they would have gone into insolvency, the state of
Panama would have had the largest industrial wreckage in the world.

38
(GUPC 2014a)
39
(GUPC 2014b)
40
(Anon. 2016)
80 Project Business Management

2.5.11 Opening New Doors for Malware

I mentioned already my past assignment to work at Centipede AG, a major IT and software
corporation, for which I was hired to perform a series of structured and on-the-job coaching
sessions for about 80 project managers. The measure was part of a major reorganization and
qualification project. I was a subcontractor of a training and service company who was in turn
contracted by Centipede. When I started working with Centipede, it soon turned out that I
needed to bring my own hardware. The PCs they could make available for me as their tem-
porary human resource were a bit oldish, left over from when employees were given new PCs
and not able to cope with the technical demands that the project came with. Before I could
use my own PC, I had to show that antivirus software was installed and up to date and that
the general settings of my PC were so that it would be difficult for malware to infect my PC
and, once connected with the customer’s network, jump over to other computers. This check
was done once. I worked for the company for over two years, and the risk that I would bring
in malicious programs was only addressed once.
One could argue that by the time I worked for Centipede, the threat from malware was
much smaller than it is today. Professional observers such as AV-Test observed a low and con-
stant threat from malware by numbers of viruses and other malicious programs until 2005,
and almost an explosion in the years after that.41 Malicious software has ripened over the years
from a nuisance developed by bored and mischievous youthful hackers into a genuine threat
with massive economic impact for individuals and organizations, and behind this malware
stands a professionalized industry, including a number of governments, with a lot of criminal
energy. It is used for industrial espionage, theft of data and blackmailing. In times of “Industry
4.0” and the “Internet of Things”, the attack surface of organizations is growing. Any smart-
phone, printer, observation camera, roboter, and any other item that is mostly or permanently
linked to the internet can become an entry gate for malicious software into the corporate net-
work or be used by such software to shovel critical data out of the organization. Malware may
simply add corporate computers to so-called botnets, where they act for criminals. While they
do not cause damage to the hosting system, they consume valuable resources such as processing
power and bandwidth.
The threat was still at the lower level when I worked for Centipede, but they should have
nevertheless put more energy and dedication into protective measures—too much value lay
in their own data and the data of their customers, which they also had. The corporation has
meanwhile changed their attitude toward malicious software and has one of the most profes-
sional cyber-protection teams in the world. Most companies would not be able to have such
people at hand. The use of contractors can add to this risk, when they are given access to the
customer’s corporate computer networks.

2.5.12 The Reputation at Stake

Still some years ago, a customer, who bought products or services from sweatshop manufactur-
ers and other dubious sources could still dispute responsibility for illegal, immoral, or dishonest

41
(AV-Test 2017)
 The Difficult Way to the Contract 81

actions of a contractor, asserting that the accountability for activities of the contractor are solely
with the contractor. Times have clearly changed. The following examples are from companies
that understood the challenge of maintaining integrity in their PSNs and addressed it actively:
• Apple Inc., seller of the iPod, the iPhone, the iPad, the Macintosh series of PCs, and
other premium level electronic consumer articles, buys products from original manu-
facturers in China and other countries. In August 2006, the British newspaper The Daily
Mail visited the production facilities of Taiwanese company Foxcon in Longhua, China,
and reported harsh working conditions with 15-hour labor shifts, low payment, group
dormitories for workers, and military-style drills.42 In the following years, more reports
turned up, adding allegations of exposition of workers to hazardous chemicals and high
risks of injuries in the production environments across Apple’s network of suppliers.43
Apple responded with two documents titled Supplier Code of Conduct 44 and Apple Supplier
Responsibility Standards 45 and audits against these rules.
• Since 1994, Sweden-based furniture store chain IKEA46 was repeatedly confronted with
allegations of child labor and other forms of exploitive work conditions in its global
PSN. The company upholds a cozy image before customers and maintains internally a
standard of environmental and social responsibility that is communicated to customers
as an additional sales argument, in addition to low prices.47 IKEA is among the small
number of corporations that have a chief sustainability officer, giving social and envi-
ronmental matters a voice in the executive team. For a company that bases its marketing
and corporate culture on such high standards, these allegations were deeply detrimental.
In response, IKEA not only published a Code of Conduct but teamed with NGOs and
committed to influencing and educating suppliers actively to change their practices.
They also put in place an intensive auditing process to identify violations of their rules
and identify the need for corrective actions.48
The examples are not taken from project management but illustrate how highly successful
corporations address the reputation risks from their PSNs and influence contractors to comply
with the high internal standards of these corporations.
To my knowledge as the first country in the world to do so, France adopted an update to
its Code de Commerce in February 2017 to hold corporations accountable for “serious viola-
tions of human rights and fundamental freedoms, the health and safety of persons and the
environment” not only by actions of themselves and their subordinate companies, but also of
contractors and suppliers.49 The law requires organizations to develop vigilance systems for the
protection of humans and the environment and allows for damage claims as well as for fines.
These new rules of law do not explicitly include projects, but as these are also not excluded, one
42
(Mail Online 2006)
43
(Sacom 2016)
44
(Apple 2017a)
45
(Apple 2017b)
46
Changes in the financial structure has turned IKEA into a de-facto Netherlands-based group.
47
For example, in IKEA (2013).
48
(Christopherson and Lillie 2005)
49
(L’Assemblée nationale 2017)
82 Project Business Management

should take care when working in a project with contractors under French law. Other countries
are likely to follow the French role model.
Projects, as impermanent endeavors, from time to time run into similar troubles. The tem-
porary nature of the projects as such, and even more of the business liaisons between customers
and their vendors, makes it difficult to identify the problems in a timely manner and act pro-
actively. In a short time, contractual relations must be developed and resources made available,
and while ensuring integrity and adherence to standards takes a lot of time and attention to
details, these are rarely available when deadlines are pressing.
To give an example: In September 2013, British newspaper The Guardian published an arti-
cle entitled “Revealed: Qatar’s World Cup ‘slaves’”, in which it reported of Nepalese workers in
debt bondage relations and under a de-facto enslaving system called “Kafala” 50 working on the
construction sites that build the infrastructure for the 2022 Football World Cup in Qatar.51
The articles was further subtitled:
“Exclusive: Abuse and exploitation of migrant workers preparing emirate for 2022—World
Cup construction ‘will leave 4,000 migrant workers dead’—Analysis: Qatar 2022 puts
FIFA’s 52 reputation on the line”.
FIFA, ridden by a massive corruption scandal in its top ranks, rejected in November 2013 to
actively respond to the allegations, pointing to amendments of laws announced by the Qatari
government.53 By that time, the government had assigned a consulting firm to research the
allegations, which were confirmed in the final report by the firm, dated April 2014.54 It then
took the government of the Emirate until December 2016 to enact the announced new laws.
Kafala and other mechanics of forced labor have been formally forbidden, but the punishments
for corporations still applying them is limited to QR50,000 (~US$13,750)—virtually peanuts
compared with the fortunes made by the contractors based on forced labor.
The US American sports television channel ESPN broadcast a 17-minute documentary on
the construction work for the World Championship in May 2014. The focus of the documen-
tation lay on workers from Nepal, but also from India and the Philippines. The documentary
focused on young men who left their homes in healthy condition, looking forward to their new
jobs that would bring income for their families far away, and were returned some months or
years later in coffins, with papers saying that they had died from heart attacks or committed
suicide. The documentary did not put the blame on the contractors but on the Emirate of
Qatar and on the FIFA, their contractors. Both are considered corrupt in major parts of the
public opinion, and their construction contractors strongly contributed to this opinion.
The examples show how, left unmanaged, the ethical shortcomings of contractors can leave
marks on the reputation of a customer.
50
Kafala is a form of forced labor based on the confiscation of the passport of a migrant worker by an
employer in order to trap the worker in the job contract for a long time, making it impossible for the
person to resist massive exploitation.
51
(Pattisson 2013)
52
FIFA: The Fédération Internationale de Football Association, the international governing body of asso-
ciation football (“Soccer”) based in Zurich, Switzerland.
53
(Al Jazeera 2013)
54
(DLA Piper 2014)
 The Difficult Way to the Contract 83

2.5.13 The Contractor as a Data Leak

The following case story happened to a training customer of mine some years ago; I therefore
have to anonymize names again. The corporation, which I will name here Millipede S.A., used
a contractor, Termite Ltd., for different development tasks in the field of automotive motor
management software. They had some new algorithms developed that they considered worth
patenting, but a deeper analysis showed that the protection from a patent would be insufficient,
and the risk of laying open the functions of the software to allow for easy copying would be
high. The algorithms were able to dramatically reduce the fuel consumption of an engine
in low-throttle situations, and as car motors spend over 90 percent of their running time in
situations with such low output demand, even small savings can add up to numbers that are
attractive for car owners; the update would be much less costly than changing the hardware
of the engine.
A joint team of Millipede and Termite staff did the development work together, and while
a cost reduction program at the customer, Millipede, made some of the developers leave with a
“golden handshake”, actually without considering the potential effects on the project, Termite
was happy to recruit these people, use them in the same project, and bill the customer for their
work at quite an expensive rate.
The project became more expensive for Millipede, but not many people on their side seemed
to notice that. Termite, in turn, made good money on development as a contractor, lending
Millipede its former staff at high rates, and employees seemed much happier in their new
position, where they were not given the impression of being no longer welcome. As the project
team could go on with its work based on existing relationships, everyone seemed to be happy
with the solution.
This changed when Charles, an employee of Termite, the contractor in the business, sent
out an email to a major number of its own employees and of another customer, for whom the
company was working on a similar project, in order to coordinate the software development
around some key components and their interfaces. He had attached the files that included
original source code for these software components, and which would be easy to read with just
the programming environment that was used to make them originally.
Erroneously, Charles added a developer of Millipede to the distribution list and sent off the
message. A minute later, he noticed his mistake and sent a second message to the Millipede
developer, asking him to delete the message without reading it. The developer was a trustworthy
person and had no intention of reading a message that was not his business.
However, at the moment that he went to delete the message, he noticed something familiar:
The files had the same endings as their own source files, a signal that this competitor had used
the same development environment.
Even more familiar were some names of the files. It seemed highly unlikely to him that two
independent development teams would use precisely the same file names, so he opened one
of them, and his curiosity was rewarded: It was software that he himself had written—for his
company’s project, of course, not for the benefit of competition. He informed his management,
who then contacted the contractor and the competitor. The whole story ended at court, where
the three parties finally reached a settlement that helped liquidate some of the damages on the
side of Millipede S.A.
84 Project Business Management

It could never be finally clarified whether the theft of the intellectual property of Millipede
was arranged by a Termite developer who wanted to make his life easier, or by Termite’s manage-
ment to reduce the workload for development and meet a tough deadline, or was even mandated
by their customer. Millipede S.A. found Termite Ltd. as a contractor no longer trustworthy
and ceased business with them project by project, and they also made sure that the market
knew, which made it hard for the contractor to win new business. Today, the company is
expected to not survive the next five years.
Once bitten twice shy—Millipede’s make-or-buy decisions today are more often responded
to with “make” than in the past, but corporations tend to forget lessons like this one over time,
and they will then probably return to their old practices.

2.5.14 Other Risks

There are more risks for the customer that come with outsourcing, and many exist in the oppo-
site direction as well:
• Bankruptcy. A contractor can go bankrupt and deliverables built so far become part
of the managed insolvency assets, which makes them inaccessible for the customer. The
problems with contractor insolvency can happen even long before this formally occurs,
when the contractor’s management—desperately trying to prevent the company from
bankruptcy—makes a sequence of seemingly strange decisions, and while the contractor
has explanations for this behavior, the needs of the customer no longer turn up in these
explanations. A company on its last breaths can be highly dangerous as a business partner.
• Thieving magpies. The contractor may have employees or subcontractors who do not
respect the customer’s privacy or property. When these employees or subcontractors steal
items, data, or other tangible or intangible assets from the customer, it may be impossible
to identify the culprit; the customer does not have the same freedom to run investiga-
tions on the contractor side as the organization would have internally.
• The complexity trap. While a team works on a project to build some kind of system,
in the normal course of events, complexity on technical, social, functional, and inter-
personal levels goes up. At one point in time during the course of the project, the team
may no longer be able to manage this complexity. By that time, the number of interfaces
and interdependencies has become too large to overlook, and a minor change at one
point has the power to wreak havoc at many others.
The complexity is easy to identify: A failure search run has been performed and a
number of errors identified. The errors get fixed and another error search is performed,
which yields the same number of errors, or an even higher number. When error search
and fixing no longer reduce the number of errors in a system, one sits in the complexity
trap. Examples of the complexity trap are the legal systems and the tax systems in many
countries—both are highly complex, with many inner contradictions and inconsisten-
cies that permit abuse by those who understand and exploit them. Whenever politicians
try to fix these issues, they create new ones.
When work is outsourced, some intricacies may be eased, but at the same time, a new
dimension of complexity is added—the legal dimension. In the project, the different
parties have to act as one team, but when conflicts embitter relations beyond a degree
 The Difficult Way to the Contract 85

that parties can handle by themselves, they may seek remedy in legal action, and then
they turn into competitors.
In international contracting, the different particularities of legal systems add further
complexity: A certain behavior that is perfectly appropriate in one country may be wrong
in another one. Under US American “Common law”, one must take care what one doc-
uments in the project; the documentation may one day be required by the judge to be
handed over to him or her. Judges in central European “Civil law” do not have such
power. Here, project teams should document any detail that is related to the contract and
its enactment; the lawsuit will be won by the party with the stronger written evidence.
Contracting adds a new layer of complexity to the already existing ones. With this com-
plexity come new risks. Contractors and their employees’ smartphones, PCs, and other items
are additional entry gates for such criminal software, often without the contractor knowing.
Customers often take measures to make the systems safer, but remaining risks will still endure.
The tight contractual and organizational bond between the organizations involved makes it
possible at any time that deficiencies or problems of the contractor turn into a problem for the
customer—and vice versa. Project Business Management can be highly profitable, but is also
high-risk business for all parties involved.

2.6 Finding and Approaching Sellers

In the previous chapter, I described a standard process that turns buyers into customers and
sellers into contractors. The first step was the make-or-buy decision on the seller side. When the
buy option is chosen, the process enters the next stage, still on the seller side, to identify poten-
tial contractors, make contact with sellers, and ask them for responses. Figure 2.11 describes
how this stage is embedded in the common procurement process for new sellers.

Figure 2.11 Identifying sellers, approaching them, and requesting responses from them gener-
ally follows the make-or-buy decision.
86 Project Business Management

The following paragraphs focus on the development of new seller–buyer relationships. A

lot of project work is actually done by incumbent contractors, which simplifies and accelerates
the processes to start up the business. Because it builds on an existing relationship and mutual
familiarity, the contract parties know each other, and the mutual expectations are much clearer.
There are several reasons that a buyer may wish—or need—a new seller. The kind of work may
be new, and the buyer has no experts among the incumbent contractors.
Another common reason is shortages in capacity of existing contractors, who are not able to
obtain new resources fast enough. Dissatisfaction with a contractor can be the reason, or the
desire to try out another seller, who may be cheaper, faster, or simply a better communicator.
It may also be that a business unit that needs a certain seller is not aware that another unit has
already contracted with them. Organizations are not monoliths and internal communications
between units are rarely perfect.

2.6.1 Personal Recommendation

Many sellers are found by personal recommendation. A member of the project team may have
worked with them, or a contractor already in business with the customer has had positive experi-
ence with this company. Also, corporations search the internet to find vendors in a specific field.

2.6.2 B2B Marketplaces

Online business-to-business (B2B) marketplaces have become a great trend in wholesale busi-
ness and other operational business networks. They can become quite a gamechanger when
they move their business model into the domain of project procurement. They connect sellers
and buyers that, under other circumstances, would be rather unlikely to come together by
comparing catalogues of listed sellers’ offerings with lists of demands and requirements pre-
pared by the buyers.
These marketplaces can be horizontal, benefitting general suppliers and service providers
who are free to offer a wide variety of products and services and are not limited to countries or
regions. Vertical B2B marketplaces focus on a specific industry or a particular type of solution.
There are, in addition, national, regional, or local marketplaces. Some buyer or seller organi-
zations have proprietary 1-n markets for their specific business, or have teamed to run such
markets in collaboration. The horizontal B2B marketplaces are often quite large, such as Ariba
in the USA and Ali Baba in China being among the largest. The vertical B2B markets are more
limited to niches, but they can be very successful within them, with their focus on and under-
standing of certain industries and services.
Typical functions of online B2B marketplaces include:
• Vendor side:
o Profi le page
o Multi-stage role models: Who can submit and access what?
o Integration with ERP systems
o Catalogue management
o Management of reference lists
 The Difficult Way to the Contract 87

oSubmission of RfIs, RfPs, IfBs, RfQs, ItTs and SOWs,55 etc. from buyers
o Development of seller responses to these enquiries
o Question and answer management
o Contract negotiation and award
o Contract management
o E-invoicing
o Handling and securing of payments
o Customer rating (e.g., on general communications, handling of provisions and enabling

services, timeliness of payments, disruptions of the vendor’s business)

• Buyer side:
o Profi le page
o Multi-stage role models: Who can submit and access what?
o Integration with ERP systems
o PSN management
o Development of RfIs, RfPs, IfBs, RfQs, ItTs and SOWs, etc., and submission to sellers
o Submission of seller responses to the buyer
o Reverse e-auctioning (The vendors bid their prices openly in the system, trying to

undercut each other until they feel forced to drop out, one after the other; the last and
therefore cheapest bidder in the auction will then make the business.)
o Question and answer management
o Contract negotiation and award
o Contract management
o Order and shipment status
o E-payments
o Handling and securing of payments
o Vendor rating (e.g., on general communications, on handling of change requests,

timeliness of deliveries, disruptions of the customer’s business)

Vertical B2B marketplaces that focus on a specific market or a specific technology may
add particular functions that are of importance in the specific field. Marketplaces dedicated
to project management may, for instance, include access for sellers to bios or profiles of the
professionals that the seller intends to offer as project managers, which can contain informa-
tion that is considered relevant for business development by either side. Regional or local B2B
marketplaces can in turn include information on the geographic area of service and delivery of
a particular seller.
To some degree, professional social networks can become B2B marketplaces, mostly for
self-employed freelancers. Examples are Viadeo from France, German Xing, and of course
US-American LinkedIn. They do not have the specific business functions for reverse auction-
ing or payment handling, but rather they connect the self-employed one-person contractors
with the departments in organizations that may wish to hire them. Some have specific add-on
services for dedicated groups of freelancers, such as Coaches.Xing.com for business coaches

55
These acronyms describe different types of requests for information or offers. They will be explained
later in detail.
88 Project Business Management

and trainers, that give students of these persons an opportunity to evaluate the instructor. A
similar approach can be found in the British CourseConductor.com portal.
B2B marketplaces have something in common with traditional farmer’s markets, flea mar-
kets, and trade fairs: They need buyers to lure sellers and sellers to lure buyers. If one group
is missing, the other group may either turn up but then leave the market again very soon in
disenchantment or not turn up at all. Another similarity: Either one or both parties must be
prepared to pay a fee to make the business model work. Often, providers have a free entry offer-
ing with limited functionality, with the goal that soon interest will be sufficient for marketers
and buyers to be prepared to pay a fee. Additional fees are then charged to make offerings or
requests stand out by placing them on top of results lists, adding images and additional texts,
or similar means.
B2B marketplaces can speed up procurement processes and open up the process to more
players. A caveat is that many of these new players are unknown, not only inside the buyer’s or
seller’s organization but also inside the industry. They come from other countries or industries
or are just new on the marketplace, and one of the shortcomings of electronic procurement is
that it is not an effective tool to reconcile cultural differences and build teams across different
business entities.
Some cases have also been communicated that B2B marketplaces have been abused by
fraudulent behavior—for example, when great business is promised to freelancers, but the
interested person is told to first submit a payment to the person promising it, and when the
payment is made, the one who received it is gone. B2B marketplace providers work hard to
keep such swindlers out, and the cases are not common.

2.6.3 Public Tendering

In government settings, one of the most important objectives is complete fairness to all com-
peting vendors. This has a moral aspect, of course, but depending on the applicable law, prob-
ably also a legal one: A rejected vendor may take legal action against the procuring agency at
court, and if the court accepts the case, the consequences for the project may be dramatic. The
project will, depending on the national law, not be allowed to move on and create a fait accom-
pli that would create a precedence for the subsequent decision by the judge. The project will
have to be put on hold until the court has made and communicated its decision on the case.
• Courts generally do not act quickly unless an emergency situation is about to occur from
which no recovery is possible, and projects are rarely considered to be among such situa-
tions. The waiting time will probably take some months, possibly years. While this time
will be mostly idle time for the project, costs can still occur—for example, to pay infra-
structure that needs to be sustained, or for damage payments to contractors and other
business partners who have resources blocked for the project that will not be needed, at
least not at the time for which they were booked. And the possibility of losing the lawsuit
and being penalized is still another sword of Damocles hanging over the project’s head.
• For decades, the established process for public tendering was classical advertisement in
special magazines, governed by laws that defined in which magazine the advertisement
needed to be placed, how often, at what size, and containing what information. This
 The Difficult Way to the Contract 89

form of advertisement still exists in some jurisdictions, because the old laws are still
in force, but most governments have turned to e-procurements, and their business-to-
government (B2G) marketplaces strongly resemble the B2B marketplaces in industry.
A difference is that they are often (not always) free for vendors, but vendors may have
to make a small investment in a digital signature that is needed as an identifier to access
and use the online marketplace or, in a similar measure, to protect the procurement
process from fraud.

2.6.4 Bidders’ Conferences

Bidders’ conferences are commonly used for major projects such as infrastructure or produc-
tion development, where hundreds of sellers from different industries are invited to gather in a
conference center or a major hall in a hotel. Sometimes they are also held in smaller settings,
and the term is also inaccurately used for open B2B reverse auctioning sessions, at which sellers
are requested to bid for business in an open meeting. Modern bidders’ conferences may also
take place as online meetings to save costs and add flexibility.
Bidders’ conferences are used for several purposes:
• Introduction to the intended project in one event for a greater number of potential bid-
ders simultaneously to save cost and, even more important, to save time. The project is
explained, some PowerPoint slides and possibly a little video is shown,56 a question and
answer (Q&A) session is held, and the bidders are handed a packet with all relevant
information for them to offer their services, including a catalog of services and deliveries
that need to be procured, details to contract types that the project intends to use, contact
data of the relevant managers on the buyer side, terms of business, and possibly a code
of conduct.
• Ensuring a protest-proof process for public projects. The bidders’ conference setting allows
for well-documented fairness, with the intention to ensure that a bidder cannot later pro-
test a rejection based on allegations of discrimination and unfair treatment. A bidders’
conference allows later verification that all bidders (1) have been provided with the same
level of knowledge on the project and the bidding process, and (2) have been present
during the same Q&A session; it is then documented that they got the same treatment.
• Making it obvious for the vendors that they will be bidding under competition to ensure
that they will calculate competitive prices and offer high-quality service. Their compet-
itors are also present during the bidders’ conference, and all know that they can easily
lose the competition for the business.
• Making participation in the project alluring for bidders on more than plain financial
interests. The bidders’ conference is also a sales event, used to give vendors a buzz of
enthusiasm for the project, which may increase the chances for the buyer to obtain great
offerings. A critical moment will be the bid/no-bid decision that the vendor will make,
and the buyer will promote the project to avoid selection of the no-bid option.

56
These videos can be later extended with real-life footage from the actual project and then be used as
a documentary to promote the business of the companies involved.
90 Project Business Management

The buyer also desires offers developed with care, consideration, and diligence, and
not just based on reusable templates. Bringing money home with projects is the basic
driver for vendors to be in the business of customer projects, but being part of a great
undertaking, together with other great vendors and creating an outstanding result, is
also an inspiring performance driver for many people—during and after the project,
mentioning the great reference in promotional materials can make winning new busi-
ness much easier for a vendor.
The bidders’ conference will try to create a realm of such inspiration for vendors. And
because this is much easier in a physical setting than in a virtual one, it is unlikely that
online bidders’ conferences will fully replace the meetings in the congress hall.

2.7 Requesting Seller Responses

2.7.1 Traps in Terminology
In my first book, Situational Project Management: The Dynamics of Success and Failure,57 I
discussed ambiguities in terminology and how they can lead to misunderstandings and con-
fusion, even for experts. Such terminology traps are present in many cases in the project
management context, but they are probably worst in the realm of bid and proposal. Critical
misunderstandings are commonly found among the top reasons for project failure; they are
also a major cause for distrust and team fragmentation, which can also become a reason for
project failure—even when the misunderstanding as such was not critical for the project, the
discord it caused may be.
These ambiguities are especially common in the two complementary fields of bid and pro-
posal management on one side of the contract development table, and project procurement
management on the other. Terms are often mixed up, even when the language used for such
expressions is actually very clear, and all that people would need to do is simply to look at the
meanings of the words that they are using. Public standards should clarify these terms but are
often not truly helpful.
The project procurement management section in the PMBOK ® Guide, 6th ed.,58 for example,
provides some clarification on the terms “bid”, “proposal”, and other similar terms to then state
that the terminology used may differ depending on the industry and location. Although this
second statement is generally correct, one would expect from such a standard that it would
create clarity where so far confusion reigns.
I will try to develop some clarification in the following definitions, but I recommend to not
expect from colleagues and business partners that they understand and share these definitions.
They may have their own definitions, use different terms for the same things, or have no defi-
nition at all. The last is the most common one—people in the bid and proposal management
discipline seem not to care much about clarity and unambiguity of language.

57
(Lehmann 2016b, 22–27)
58
(PMI 2017, 477)
 The Difficult Way to the Contract 91

Request for Information (RfI)

Typical timing: After the make-or-buy decision, at the beginning of the procurement
process.
Submitted to __ sellers: Many
Typical purpose: A shortlist of sellers to be included in the further procurement pro-
cess and possibly information to give the buyer a better understand-
ing of what this process should look like.
Response desired: Information on the seller’s preparedness and ability to offer services
and deliveries that the buyer wishes to procure, plus some basic data
on the company.
Freedom for the seller: High
Degree of formality: Low to moderately formal

Prequalification Questionnaire (PQQ)

Typical timing: With the RfI as an attachment or following it as a next step.
Submitted to __ sellers: Many
Purpose: A shortlist of sellers to be included in the further procurement pro-
cess, assuming that the buyer already has an understanding of what
this process should look like.
Response desired: A filled-in form with basic data on the seller.
Freedom for the seller: Low
Degree of formality: Very formal

Request for Quotation (RfQ)

Competition type: No formal competition, but alternative quotations may be asked for.
Typical timing: After the RfI/PQQ or at the beginning of the procurement process.
Submitted to __ sellers: One to three
Purpose: Finding a suitable seller for a smaller procurement item that does not
justify a formal competition.
Response desired: A quotation: A confirmation that a seller is able to deliver products or
services that satisfy the described wants and needs, a description of
what they will look like, and a price for that.
Freedom for the seller: Low to high
Degree of formality: Moderately formal

Invitation for Bid (IfB)

Competition type: Price competition
Typical timing: After the RfI/PQQ or at the beginning of the procurement process.
92 Project Business Management

Submitted to __ sellers: Three to five

Purpose: Opening a (mostly) price-driven competition for the procurement
items that are well understood by the buyer and that the buyer can
easily describe in a statement of work (SOW) or a similar context.
Response desired: A bid: A confirmation that a seller is able to deliver the procurement
items and a price for that.
Degree of formality: Very formal

Invitation to Tender (ItT)

Competition type: Price competition
Typical timing: After the RfI/PQQ or at the beginning of a (commonly) public pro-
curement process.
Submitted to __ sellers: Three to five
Purpose: Opening a (mostly) price-driven competition for the procurement
items that are less well understood by the buyer and that the buyer
cannot easily describe in an SOW or a similar context, but for which
the buyer is desiring to identify the cheapest solution.
Response desired: A tender: A confirmation that a seller is able to deliver products or
services that satisfy the described wants and needs, a description of
what they will look like, and a price for that.
Degree of formality: Highly formal

Request for Proposal (RfP)

Competition type: Solution and price competition
Typical timing: After the RfI/PQQ or at the beginning of a procurement process.
Submitted to __ sellers: Three to five
Purpose: Opening a price- and solution-driven competition for procurement
items that are not fully understood by the buyer and that the buyer
cannot easily describe in an SOW or a similar context. The buyer
describes in an SOW or a single document the needs or wants that
the seller would be asked to meet, and the decision will be made
based on the attractiveness of the solution and its price.
Response desired: A proposal: A confirmation that a seller is able to deliver products or
services that satisfy the described wants and needs, a description of
what they will look like, and a price for that.
Degree of formality: Very formal, depending on the procurement items and the people
involved.
 The Difficult Way to the Contract 93

Invitation to Pitch (ItP)

Competition type: Solution competition or non-competitive
Typical timing: After the RfI/PQQ or at the beginning of a procurement process.
Submitted to __ sellers: One to three
Purpose: Opening a solution-driven competition or a non-competitive deci-
sion process for procurement items against a generally fixed budget
that are not fully understood by the buyer and that the buyer cannot
easily describe in an SOW or a similar context. The buyer describes
in an SOW or a single document the needs or wants that the seller
would be asked to meet, and the decision will be made based on the
attractiveness of the solution and its adherence to the budget.
Response desired: A pitch: A confirmation that a seller is able to deliver products or ser-
vices that satisfy the described wants and needs, a description of what
they will look like, and a confirmation that the budget will be met.
Degree of formality: Informal, depending on the procurement items and the people
involved.

2.7.2 Statement of Work (SOW)

Any of the documents above can be accompanied with a statement of work (SOW), a detailed
description either of the procurement items or of the needs and wants that these procurement
items will have to satisfy. There are different types of SOWs:
• Internal SOW. Used during initiation of an internal project. It may be developed by
a functional department to describe its identified requirements including needs, wants,
and expectations to a project team inside the same organization.
• Procurement SOW. Sent with a request for a seller response such as an IfB or RfP to
give the seller an understanding of the prospective customer’s wants, needs, and expec-
tations that the response is intended to address.
• Contract SOW. In most cases a procurement SOW that has become part of the con-
tract. This means for the contractor, that if any requirements stated in the SOW are not
met, the contractor is immediately in a breach of contract situation. The desire to make
an SOW an element of the contract is mostly desired by the customer.
• Terms of service (TOS). In consulting and similar service businesses, the term TOS is
sometimes used instead of SOW. The TOS specifies the service mandate that the buyer
intends to give to a seller and allows the seller to offer the desired services.
SOWs used for a price competition, mostly using an IfB or a similar request for sellers’
responses, are, at least in theory, different to those used for a solution competition with an RfP.
The first type will focus on a complete, detailed, and unambiguous description of the products
or services desired. The intention is to tell the seller precisely what they are expected to offer,
so that the decision can be made on price as the only difference between them. The SOW for
94 Project Business Management

a solution competition, in contrast, accepts that the buyer is not able to describe the product
or service in sufficient detail and focuses on the buyer’s needs, wants, expectations, problems,
visions, etc., allowing the seller a high degree of freedom in offering a solution for this problem.
The literature assumes that requests for seller responses commonly have an SOW attached.
In practice, many procurements come without this document, and it will then be the seller’s
responsibility to explore the needs, wants, and expectations of the prospective customer. Many
SOWs come in poor quality: They have been written by people who do not have the necessary
process knowledge on the customer side and have only a limited understanding of the environ-
ment in which the customer and the contractor will have to act after award. Employees on the
buyer side with such knowledge are too busy with other tasks to write an SOW. Availability is
often no sign of competence, and the unavailability of capable people that led to selecting the
buy option in the first place may also impact the quality of the procurement and, finally, of the
entire customer project. I will come back to this problem, which jeopardizes so many customer
projects, later.

2.7.3 Thresholds for Procurement

In public procurement, but also in larger companies, there is often a ladder of requirements
on the procurement processes to be involved, depending on the total value of the procurement
items and possibly also on the risks involved in the procurement process. One of my customers
uses the numbers and rules shown in Table 2.5.

Table 2.5 Example of a Set of Rules with Staged Requirements on the Procurement
Processes to be Applied, Depending on the Value of the Procurement Item
Thresholds
Procurement
Procurement Method to SOW
Item Value be Used Needed Description
Under $10,000 No requirements No Informal and non-competitive
selection of a suitable seller
$10,000 to under RfQ No Formalized selection of a suitable
$100,000 seller
$100,000 to under RfQ sent to three No Formalized selection of a suitable
$500,000 sellers seller with informal competition
$500,000 and more RfP or IfB Yes Formalized competitive selection of
a suitable seller

A problem with such thresholds is that many procurements tend to grow over time—
whether through higher bidding prices than expected, change requests by stakeholders, or suc-
cessful benefit engineering by the contractor—and then may fall into a higher category. Laws
in some jurisdictions and internal rules in corporate procurement may then make it necessary
to step back into the procurement process and start it again. Parties involved should be aware
of this risk.
 The Difficult Way to the Contract 95

2.8 The Offer/No-Offer Decision

The next section is more interesting to sellers than to buyers, but it may be good for the latter
to better understand the former for great procurements, so go on reading.
A word to vendor companies: Don’t expect a buyer, once turned into a customer, to throw
money at you out of delight and appreciation. Project business is hazardous business, and the
future of your organization as a vendor has many uncertainties. One of the few certainties that
one can name is that the customer will be happy for every dollar (or euro, sterling, yen, etc.)
that can be saved at your expense. Be diligent with the decision for whom you are prepared to
work, as much as buyers should be diligent in selecting vendors. The better your name and your
position in the marketplace, the easier this gets.
Another essential question has to do with advance payments, services, and deliveries made.
Each party naturally tries to put the burden of such outlays on the other party. These advance
outlays come with risk, and they also impact an organization’s liquidity. Liquidity and profit-
ability are tightly connected but not the same. Profitability in a customer project refers to the
money that the project brings home. Liquidity refers to the question of whether this money
will be at home in time when rents must be paid. Repeated losses within an organization will
reduce its liquidity, and liquidity problems will force an organization to make emergency deci-
sions that diminish profitability. A subject in any off er/no-off er decision, on top of profitability,
should be liquidity: “Can we afford the outlays that we need to make for services and deliveries
that we will have to make in advance?” One of these advance services will be offer develop-
ment, and for new customer business, the likeliness is on average higher that it will not return
business and with that income at all, as I will discuss later.
There is a lot of literature available on how to write persuasive and winning bids and pro-
posals. The discipline of bid and proposal management has developed its own set of practices
and skills, and it even has its own professional association, the globally active Association for
Proposal Management Professionals (APMP).59 They have some relevant standards—namely,
the Shipley Proposal Guide 60 and the APMP Body of Knowledge.61 There is also a multi-level
certification system for its experts.62 The discipline is well prepared to satisfy a market with
growing relevance.
One point addressed in side notes only in this literature is the question of whether it would
be good business to win a particular buyer as a customer. The approach in the bid and proposal
management literature is that one would decide not to offer when the chance of winning the
business is considered low. There is a second caveat: Customer projects are high-risk business,
and the decision of whether one wants to make an offer or not in response to a request for
seller response is also an act of risk management. It may often be much better to leave the bad
business for others, keeping competitors busy with difficult customers, and focus on easier and
more profitable prospects elsewhere. An essential start on the seller’s side is therefore the off er/
no-off er decision.
59
See www.apmp.org
60
(Newman 2011)
61
(APMP 2014)
62
I have in the past prepared candidates for the certification.
96 Project Business Management

Figure 2.12 shows how the off er/no-off er decision is positioned in the common workflow
described here. The location of the events is now moving from the buyer to the sellers, who have
received the request to submit an offer and have to make a decision on whether they are going
to comply with this request or not.

Figure 2.12 The venue is now changing to the sellers from whom the buyers would like to receive
an offer. The decision by the seller to make such an offer or not has many facets.

2.8.1 Risks of an Offer Development Process Without Input from

Project Managers
There is a strong difference between small and large vendors: The smaller the organization, the
more likely it is that at this moment a project manager will be on-boarded to the new business
opportunity and bring project management understanding early into the process. It is also
likely that this will later be the person who manages the project for the customer. In large
organizations, it is rather common to first win the contract with the customer and then get a
project manager assigned to perform the contract.
The second approach is cheaper and faster. The offer team does not have to wait for input or
even approvals from project managers. They do their job of submitting the offer right before
the deadline set by the customer, win the business, and when this job has been finished—suc-
cessfully or not—they will be free for the next prospect. These benefits come with high risks:
The dedicated proposal team has only limited project management competence to assess the
feasibility of the project and consider the restrictions on the resources of the seller and on the
means and infrastructure that the company can make available for the project. Such matters
should be assessed by a person who is experienced in delivery and would ideally later have
the responsibility to manage the project, if the contract is awarded. Part of the offer may be
a commitment to deadlines set by the buyer, each of which are possibly linked with financial
 The Difficult Way to the Contract 97

penalties. Practitioners who are used to navigating inside the resource restrictions of the organi-
zations are commonly in a better position to assess the achievability of these due dates.
Figure 2.13 is a repetition from the previous chapter as a reminder of the different exposures
of project managers and the teams to time pressure under deadlines. Many of these deadlines
have not been put into place by the seller, but by the buyer’s organization. The promise to sub-
mit an offer and, even more, the offer itself are commitments by the seller to accept these dead-
lines as binding for the project, and missing them constitutes a breach of contract situation.
The deadlines may be enforced with contractual penalties (common in civil law countries) or
with either liquidated damages or not-payed incentives (typical for common law countries).63

Figure 2.13 A survey among project managers on deadlines revealed that a three-quarter’s major-
ity of projects has time pressure, and that most of these projects have not only one.

2.8.2 Templates
Many organizations do not send requests from buyers through a formal off er/no-off er decision.
The fear of missing a business opportunity is great, and every enquiry, as remotely promising
it may be, is responded to with an offer. The tool for responding to a greater number of buyers’
requests—and doing so in the short time typically available before the submission date—is a
set of templates that can be easily reused. This approach comes with major problems:
• The greatest enemy of a good offer is the template. A template leads to offering what has
been offered before and what the seller is happy to offer. This may differ widely from
what the buyer wants or needs. When I am asking project managers, who do a lot of
procurement, their most common complaint is that vendors offer goods and services that
were not asked for, and do not offer what is required.
63
The difference between common law and civil law and the consequences for Project Business Manage-
ment will be discussed in the next chapter.
98 Project Business Management

Templates are among the reasons that many contracting organizations have poor hit
rates, and these hit rates force companies to simplify processes by using more templates,
which in turn reduces the hit rates again and so on. This is definitely not considered a
good practice, at least when templates lead to reduced preparedness to diligently identify
customer requirements and to match them honestly with the seller’s own capabilities, as
this can cost a lot of time and blocks the best people.
• Things that can be done easily and quickly are often done at the last moment. The urgent
is the most vicious enemy of the important, and there are more pressing things to do
than working on the offer. When a lot of time has been wasted that could have been
spent asking questions, discussing details, and elaborating a winning offer based on the
customer’s stated needs, templates come in handy to develop a quick and cheap offer for
the prospect.
• Because the companies that build their bid and proposal management around templates
do not select the attractive businesses from the unattractive, they will have too many
of the second group at the end—projects that consume their resources beyond what is
acceptable for a profitable business and that is also satisfactory for all people involved,
including employees and the customer. When many project vendors in a globally growing
market are “just about managing” (JAMs) today, the fundamentally unselective approach
toward bid and proposal development and submission is among the main reasons.

2.8.3 TRAC: Influencing Factors for the Bid/No-Bid Decision

A variety of factors influences the off er/no-off er decision (see Figure 2.14). Often, different
people or business units focus on different factors, so the decision can become quite difficult.
To make matters worse, the decision requires forecasts in an uncertain business environment,
under immense time pressure: If the chosen option is “Yes”, one will have to meet a submission

Figure 2.14 TRAC subsumes many common influencing factors for the offer/no-offer decision.
 The Difficult Way to the Contract 99

deadline, and, because the procurement activity on the buyer side can be part of a larger proj-
ect, the deadline is likely to be short, possibly less than two weeks. I recommend using the
TRAC64 model to ensure a 360° approach to the decision. TRAC stands for Time, Resources,
Attractiveness, and Chances. Each of these dimensions has criteria involved that one would
want to assess in order to make a decision. These criteria can point to the “Yes” or the “No” side
and can be weighted or not. I will show examples for that later.

Time Dimension
• Requirements. Is sufficient time available to study the SOW (if one exists) and speak
with the buyer’s staff to get answers to open questions?
• Development. Is sufficient time available to develop a convincing capture strategy on
which to base an offer?
• Submission. Is sufficient time available to submit the finished offer to the buyer before
the deadline, if one has been given? How fixed is this deadline, actually?
What would be addressed in these dimensions?

Resources Dimension
• Keeping resources busy. Will it be necessary to avoid idle phases for human resources
or for facilities and equipment?
• Availability. Will the resources be at hand to meet the requirements from the busi-
ness? If not, would they be easily acquired from the marketplace, or would a persistent
resource shortage jeopardize the project?
• Getting blocked for other projects. If the project will block resources for other proj-
ects, what will the seller then be losing?
• Best use. Will the project actually make best use of the resources, or could other projects
better use and further develop their skills?

Attractiveness Dimension
• Legal. What threats and opportunities will derive from the contract type (and the appli-
cable legislation in international projects)? In case of crisis, what options will be left to
the contractor to withdraw from the business, and at what costs?
• Commercial. What impact will the project have on the seller’s profitability? How can
layouts impact or promote the seller’s liquidity?
• Challenge. When parts of the project become stretch assignments, they will overpower
the team’s skills and abilities for the moment, but the team can use them to develop new
skills useful for future projects. They may also lead to disaster if the team cannot pass
the learning process.
• Reference. A customer with a good name may be a valuable reference, particularly when
the seller enters a new market, in which a reputation of proficiency still needs to be built.

64
Not to be confused with Trac, an open-source software for web-based software project management.
100 Project Business Management

Chance Dimension
• Winning the contract. Who are the competitors and what is the seller’s chance to win
against them and get the contract awarded?
• Winning the project. How likely is it that the seller will win the business but, unaware
of certain details, later will lose during implementation when these details arise and
prove damaging.
• Winning (or losing) the customer. How likely is it that the project helps win a great
customer and becomes an incumbent? How likely is it that a failed project will sour an
existing relationship? What consequences can a won or lost customer have for share
values and creditworthiness?
Further criteria can be added that are of particular relevance in the specific organization
or market. Some projects may be detrimental to people’s health, and this question may also
influence the off er/no-off er decision. In other environments, such as IT or organizational devel-
opment, this question will not have such significance.
The TRAC model allows a systematic approach to evaluate the pros and cons of the project
for the organization before an offer is made, which consumes resources for its development and
often comes with first binding obligations towards the customer, such as a letter of intent. I will
show two easy ways to implement it: a weighting system and a force-field analysis.

2.8.4 A TRAC-Based Weighting System

The process has four steps:
1. Assign a weight to each of the criteria above (or ask management to do that). I recom-
mend using a scale of 1 to 10.
2. Rate the customer request and the subsequent project on a scale with positive and nega-
tive numbers. I recommend a scale from –10 to +10.
3. Multiply weight × rating to receive a weighted score for each criterion.
4. Sum up the weighted scores to develop the total score of the project.
Table 2.6 gives an example of a weighted score developed for a customer project prior to the
off er/no-off er decision in a small workshop or by jointly filling out a form.
A score of 175 makes the project look, in general, quite positive, particularly given its com-
mercial attractiveness. Emphasis should be placed on the urgency of the offer process, on the
high likeliness of losing it anyway, on legal risks, and on the possibility that resources may not
be assigned in their best way. The score may also be a helpful tool when the organization has
received two requests from customers for responses and wants to make a decision about which
one to respond to, if any, and on which one to put more emphasis on when resources for offer
development become scarce.
Experience shows that such a tool, used for the first time, leaves many people somewhat
helpless on the numbers to add, but it gets easier over time. It is also advisable to record the
workshop or other kind of session during which the table was developed. Important aspects of
the projects may appear for the first time during the meeting that should be remembered and
taken into consideration during the offer and the later project phase.
 The Difficult Way to the Contract 101

Table 2.6 TRAC Used in a Weighting System to Develop a Total Score

That Helps Make the Offer/No-Offer Decision

Weight Rating Weighted score

Criterion (1 to +10) (–10 to +10) (Weight × Rating)
Time
Requirements 3 –4 –12
Development 5 –4 –20
Submission 1 –4 –4
Resources
Keep busy 4 3 12
Availability 7 6 42
Blocked 1 –3 –3
Best use 8 –5 –40
Attractiveness
Legal 10 –2 –20
Commercial 10 9 90
Challenge 8 6 48
Reference 4 0 0
Chance
Winning the contract 4 –4 –16
Winning the project 9 7 63
Winning the customer 7 5 35
Total Score 175

2.8.5 A TRAC-Based Force-Field Analysis

Force-field analysis65 is a great tool to see in a situation of change how driving and restraining
forces balance out, and the moment when the offer has been submitted to the enquiring buyer
changes a lot in the organization: Resources will be dedicated partially or in full to the develop-
ment of the offer and to winning the contract, and in case that this will be successful, the
organization will be busy doing the project for the customer, possibly for a significant period of
time. If the contractor is a small company, doing a major project can be their primary source
of income for some time, possibly the only source.
Figure 2.15 shows an offer force-field analysis (OFFA66). The focus here is much less on accu-
rate data but on visualization. Adding a separate weighting field would probably overcharge the
method, so the weighting should already be included in the numbers estimated.
On top of visualization, there are two numbers of interest:

65
(Lewin and Weiss 1997)
66
See also StaFFA, the Stakeholder Force-Field Analysis (Lehmann 2016b).
102 Project Business Management

• The average value of the numbers, interpreted as an equilibrium of forces. A positive

value signals a dominance of driving forces; a negative value says that restraining forces
dominate—a hint that it may be better not to develop and submit an offer.
• The span between the strongest driving and restraining force, which signals stress in the
system.

Figure 2.15 TRAC used for a force-field analysis.

The example in Figure 2.15 has an equilibrium of 1.14, a positive number, which is a recom-
mendation to develop and submit an offer. The span of 15, however, on a total scale with 20
steps signals tension in the force field. The hope for commercial success is great, but be pre-
pared to not win the contract and be also prepared to avoid or fight costly legal battles.
Methods such as the two described here often bring new answers as a benefit. A much
greater benefit may be that people ask the right questions first. They direct attention to the
influencing factors of a difficult decision, which may have strong implications on the future
of the organization but are too often neglected. The results are poor hit rates and disastrous
customer projects.

2.9 Winning the Contract

2.9.1 AIDA—Singing for the Business
AIDA stands for an old model in sales that is perfectly applicable to the development of the
contract business with the buyer, who will then become the customer. AIDA stands for phases
 The Difficult Way to the Contract 103

that a prospective customer passes through on the way to the final purchase. It is simplified and
idealized, but nevertheless quite realistic:
• Attention. The buyer has become aware of the vendor. When the buy decision is being
made and the buyer is seeking contact with appropriate sellers, this vendor will be
approached and not ignored if there is some overlap between the products and services
that the buyer wishes to buy and those that the vendor can sell.
In reality, the presence of the vendor may very much influence the make-or-buy deci-
sion, and often, vendors actively participate in developing the procurement documents.
This is particularly true for incumbents, but great account managers can also be very
helpful to procurement people, reducing their workload and, at the same time, making
sure that the procurement documents ask for products and services that this particular
vendor can successfully offer.
• Interest. This phase is driven by the aspiration of the buyer to learn more about the ven-
dor’s organization and its offerings, but also about those of its competitors, if these have
been also invited to quote. This phase is mostly driven by the questions of the buyer and
the responses of the vendor. The responses to the questions are important for the buyer,
but the buyer will also be influenced by the timeliness and responsiveness of the seller.
A second important behavior during this phase is proactivity by the seller. It means
communicating knowledge that the buyer didn’t ask for, but which should be relevant for
the decision process. Communicating such information is a signal of competency and of
interest in the customer. During the information phase, it will also be important to offer
the information in a way that is understandable and informative for the different groups
of formal and informal decision makers on the buyer side. More on that point later.
• Desire. The desire may be simply to buy as cheap as possible. The more experienced
the purchasing staff on the buyer side is, the more likely it is that other factors may get
higher priority. The foremost is whether the vendor understands the wishes, needs, and
constraints of the buyer.
Another is the overall attractiveness for the buyer in quantitative and qualita-
tive aspects. The process tries to lead the buyer through a three-step process, in which
the buyer begins by liking the offer, then develops a preference for the offer over
other options, and is finally convinced that this is the offer to accept.
Well-communicated lifecycle costs or total net benefit of ownership (TBO) forecasts may
make an expensive price look attractive. I will discuss this later in more detail.
Another important element of desire building is the communication of a customer-
centered and proactive attitude that makes the vendor a great partner to work with.
• Action. In the development of a contract, this is the phase in which the customer is
expected to sign the contract. This is also the phase during which objections on details
are raised again, and everyone is waiting for the approval of management to finally start.
In reality, most contractors have already begun their work during that time, because
resources were just freed and the deadline(s) of the contract would otherwise become
unachievable.
The risk that the signature will finally not be made was weighed against the risk of
delay, and the second was considered greater. In other projects, it is impossible to start
104 Project Business Management

without the signature of buyer management, so that every day that gets lost makes it
more difficult for the vendor to meet the deadlines.67
The AIDA sequence does not fit all project business development situations, because life is
more complex than what can be described in four letters, but it is often a great help to structure
the process and track progress. It helps further manage the process with the skills of a project
manager, understanding that the way to the contract is a project in itself, and given the often
low hit rates, one for which the risk of failure is higher than the risk of success.

2.9.2 Hit Rates and Capture Ratio

There is another interesting aspect of low hit rates: how much time, money, and energy can a
non-incumbent vendor invest in identifying and understanding the customer’s requirements
and those of other key stakeholders relevant for project success and profitability? If a statement
of work (SOW) exists, a first step for the vendor is commonly to analyze it, list the keywords
found in the document, and develop an assessment to validate whether the vendor organiza-
tion is positioned to do the project; then finding out how the project can be performed as a
profitable business with a satisfied customer at the end is a major investment in this business.
In the case that no SOW exists or an SOW has been provided but does not go into the level
of detail necessary for a good offer, spending time with the customer to research this infor-
mation takes also time—typically unpaid time. Access both to locations to obtain first-hand
knowledge and to people on the buyer side who have this detailed knowledge may also be
limited. There is still no contract between the seller and the buyer that would make such access
mandatory. It is also likely that the people on the buyer side who would have the knowledge
needed will be busy with other tasks and may not be available for the seller at this early time.
In the absence of hard facts, the first understanding of the demands of the buyer will, to a large
degree, rely on assumptions and estimations, sometimes even on pure guessing. During this
time, uncertainty is highest for the vendor, and gaining certainty is difficult.
One can often use internet research to refine the understanding of the prospect’s business
situation, corporate culture, imminent challenges, and strategic setup. Whether this rather
broad information will be helpful for the specific business case that is underlying the enquiry
is yet questionable, and research is time intensive. The resources for bid and proposal devel-
opment are generally limited, and because many offers are developed “last minute” before the
submission date, there may not be sufficient time left to do the necessary research.
In highly siloed organizations, one may also find that other departments have the knowledge
needed, because they have a business relationship with the buyer or know the organization as a
cooperation partner, competitor, or otherwise, but there is not enough communication to pass
this on to the offer team. I observed this effect even for account managers, who have main-
tained contact with the prospect for years, and who passed information to a proposal team
writing the offer to the buyer only parsimoniously. The persons considered this knowledge
their personal assets, not organizational assets, and were not prepared to give it away freely.

67
I generally recommend for every contract that has deadlines included to make the obligation of meet-
ing them conditional on timely signature of the contract.
 The Difficult Way to the Contract 105

They were measured by the quantity of requests for offers coming in; the success of these offers
was someone else’s success metric.
To make things even more difficult, the majority of offers developed do not lead to contracts
at all, at least not in business development attempting to win new customers. When a vendor
places a bid, a proposal, or another kind of offer, the company faces four kinds of competitors:
1. Other vendors, who want to do the same business.
2. The option for the buyer to rethink the buy decision and turn it into make, now that the
vendors have released know-how to them. Each vendor may have been parsimonious
with the know-how communicated, but the buyer, who has just ceased to be a buyer, can
put the mosaic pieces from the various offers together to create a fairly complete picture.
3. The option to do nothing. As an example, the customer may have hoped to get offers
in a range of $1 million but received offers starting at $2 million and even much more.
The company may not have the budget to go ahead with the project, or it may not have
enough value for them.
4. The buyer’s decision is already made. The decision makers on the buyer side have already
decided with whom they want to make the project and need competitive offers as “fillers”
only to satisfy the requirements of strict internal procedures. In such a case, the seller’s
chance to make the business is near to zero, unless the offer is surprisingly convincing
or coincides with the souring of the incumbent seller’s relationship with the customer.
Given the often significant investment in a bid or proposal by a vendor who has near to
zero chance to win the business, one should consider such behavior outside the bound-
aries of fair and appropriate business ethics.

Figure 2.16 The competition for an offer is more than just the other offerer.

Figure 2.16 illustrates the various “competitors” that impede high hit rates in business with
new customers. It also shows why incumbents have much easier business development chances
than new vendors—these competitive forces are much smaller for them or do not impede their
business development at all. At least, the incumbent knows the customer much better and
should be able to better predict how strong these forces are.
Another detrimental factor for the seller may be re-organization initiatives on the customer
side. The process of inviting seller responses on the buyer side was initiated in a specific demand
106 Project Business Management

situation by individuals with tasks assigned and with the responsibility for particular corpo-
rate goals. Then, while the procurement process is conducted, the organization is changing its
structure, the business goals are no longer valid, and the persons who performed the process
have been moved to new positions or have been fired. When you hope to conclude the business
with the customer, this business no longer exists. I personally had a case some years ago when,
by the time an offer was ready, the entire buyer organization no longer existed; the holding to
which it belonged had closed it down for lack of profitability.
When I ask vendors for their hit rates in new customer business, particularly in competitive
offer situations, the numbers are mostly somewhere between 5 percent and 20 percent, with
a most common value at 10 percent. This number stands in sharp contrast to the commonly
named 90 percent hit rate for business won by incumbent vendors. Hit rates of 10 percent
means that nine out of ten offers do not lead to a contract. Things are getting worse when
online B2B marketplace systems, which I described earlier, are used, which allow managing a
larger number of sellers concurrently than what is possible in traditional procurement. Having
a greater number of vendors involved in the procurement process is particularly desired for
reverse bidding, the aim of which is to buy something at the cheapest price possible, and as ven-
dor management is simplified, the auctions can be done with far more than the three vendors
that commonly come from a traditional pre-selection system. For the vendors, this means that
while their overhead for developing offers gets reduced, their average hit rates will also go down.
This leads to the problem that the overwhelming majority of offers will not lead to success.
Sellers have two ways to respond to this dilemma:
• A quantity-based approach. Simplify the selling process to allow more offers with the
limited resources given.
• A quality-based approach. Apply an elaborated offer/no offer process as described above,
and then focus on those prospects that seem business-wise attractive, trying to increase
the hit rate by developing a small number of convincing bids, proposals, and other kinds
of offers.
From a pure selling perspective, both approaches may be successful. From a project manage-
ment perspective, in which we not only want to win the contract but also to win the project
for the organizations involved—seller and buyer—and finally come home with a profit and a
happy reference customer, the second is clearly superior.
How can one increase hit rates? I again used a survey to ask practitioners for their observa-
tions and experiences regarding not only their own companies, but also the customers for whom
they work. The survey was open from 9 February to 2 March 2017 and received 551 answers.
The respondents came from three groups of organizations:
• Sellers only: 203 39.6%
• Both buyers and sellers: 217 36.7%
• Buyers only: 131 23.8%
There was a question dedicated to respondents from selling organizations, and another one
for respondents from buying organizations. Respondents from organizations that do both
answered both questions.
 The Difficult Way to the Contract 107

The questions were:

Question To be answered by
Please rank the decision criteria of your prospective customers, Sellers of products and
which you would expect them typically to apply when they services for projects
select a vendor from the options they have.

Please rank the decision criteria of your own organization, which Buyers of products and
it commonly applies when it selects a vendor from the options it has. services for projects

The criteria that respondents were asked to rank were the following:
• Price
• Operating costs of the results
• Operational disruption on customer side
• Openness for change requests
• Reference customers/projects
• Profile of the intended project manager
• Seller’s reputation
• Success record
• Appeal of the offer
• Licenses and certificates
• Proximity
• Bribes
• Understanding of customer’s needs, wants, and expectations
• Others (please describe below)
The criteria were presented in randomized order to prevent this order from influencing the
results. The respondents could rank a criterion as first place, another one as second, and so on.
They could also select that a criterion is not applied at all. For the “others” selection, I offered
a free-text field. Many additional criteria were named in the field, including past experience,
whether the vendor is listed, and more. There was not much repetition in these criteria, con-
firming that the 13 criteria named above were the most common ones.
Figure 2.17 shows the percentage that each of these criteria was given in the survey as top
rankings for both the expectations by the sellers and for the criteria actually in use by buyers.
Among the two most common top criteria applied by customers was price, but it came
second after “Understanding of customer’s need, wants, and expectations”. Balancing these
two criteria is obviously a major task during the development of the offer. Developing a good
understanding can be expensive for the development of the offer, but the customer also does
not want to pay more than what is unavoidable.
A common response by sellers is “low-balling”: Offering a price that is expected not to cover
the costs, hoping that during the time of the project a situation may occur for which additional
money may be billed to the customer, turning the project to into a profitable one. Such oppor-
tunities include change requests, claims, and an approach that I call benefit engineering. They
will be discussed later.
108 Project Business Management

Figure 2.17 The top rankings of selling organizations’ expectations of buyers’ selection criteria
are quite well aligned with the top-ranked criteria actually applied by buyers.

Hit rates, quantity of offers, quality of offers, costs of developing offers, and the revenues
from the projects won through these offers build a complex network, which adds more risk to
the already high-risk nature of Project Business Management. When too many providers of
project services today are JAM (just about managing) companies, this is the root cause from
which it originates. Most project service providers have many experts in the technical aspects
of their business, plus some people for sales and marketing, but the two groups do not talk
enough with each other, and their activities are not sufficiently integrated.
Sometimes, experts in bid and proposal management recommend using a number called
capture ratio instead of the hit rate as a better metric of success. Capture ratio asks how much of
the monetary value of offers submitted finally led to contracts. The number can become quite
misleading. When a customer makes a budget available of $10 million for a project to be out-
sourced, and the vendor offers to do it for $25 million and therefore does not win the business,
the capture ratio would consider the second number as a business value not captured, when
the actual business value is described by the first number. Capture value based on customer
budgets would be a great success metric, but in most cases, customers do not communicate
their budgets, because they expect that this would prevent vendors from given their best price
in a competitive setting.

2.9.3 Being an Incumbent

As discussed above, life is much easier for the incumbent: The customer is known and knows
the contractor, personal relations have been built over time, a team that consists of customer
and contractor already went through the difficult phases of team building and should be per-
forming well, and the understanding on applicable contract terms and conditions should be
 The Difficult Way to the Contract 109

developed on both sides. The hit rate is commonly nearer to 90 percent rather than 10 percent,
which makes developing offers much more cost effective. In addition, the much higher hit rate
brings an economic benefit, as is shown in Figure 2.18.

Figure 2.18 The cost calculation of the incumbent is commonly easier, because the investment in
the development of the offer is paid back by the combined earnings from more customer projects.

The comparison shows a new vendor with a 10 percent hit rate and an incumbent with 90
percent, numbers that are commonly achieved. The solitary project of the new vendor in the
example must not only pay back the cost of the bid or proposal development that preceded just
the project that was successful, but also the nine futile offers; otherwise, the company would
one day go into insolvency—even if the project is profitable—from too high costs invested in
winning the business. The investment for the incumbent is more predictable, as is its outcome,
and with a 90 percent hit rate as in the example, only one failed offer must be paid from the
income of nine projects. So, the world of Project Business Management seems very gloomy,
and the incumbent seems always the winner. But is this always true?

A Case Story
Snail, Inc. is a major engineering company in the field of energy, with its business mostly in
oil and gas. Some years ago, they saw the need to diversify into sustainable energy sources
and decided to outsource their complete IT needs on a two-year framework agreement to
have heads and hands free for the new challenges. For their first two-year contract as an IT
customer, they selected Slug LLC over other information technology service providers in a
highly competitive invitation-for-bid process, which included two rounds of pre-selection and
a reverse auction. The framework agreement covered virtually all day-by-day project services
and, in addition, the quick implementation of changes and amendments to Snail’s computer
networks and server landscape, which Slug operated for its client in the form of mostly minor
projects performed under the existing framework agreement.
The expectation by Snail was that Slug would provide a team of over 100 specialists to both
ensure reliable 24/7 operations of the IT systems and respond to project requests by immedi-
ately producing a quotation, which, if accepted, would be instantaneously implemented. The
contract promised, on the one hand, a secured stream of income for Slug LLC, and, on the other
hand, a contractor perfectly prepared and integrated with the customer to run operations and
projects on a maximum service level for Snail, Inc. It looked like a perfect win–win solution.
110 Project Business Management

After mastering a small number of initial problems, the contract went well for the most
part for the first nine months, but at about half-time of the contract, Snail, Inc. found that
its contractor was becoming slower and less responsive to its requests. At the beginning of the
contract duration, Slug did its best to exceed the contractually agreed service level and was very
swift in resolving problems and answering requests from the customer. But after 12 months,
Slug often took all the time allowed by the contract to resolve operational problems and send
quotations requested by the customer.
The start of projects ordered by Snail also took much longer, and the performance during
the course of the projects dropped significantly. The behavior of Slug was not infringing the
framework agreement, but the spirit and motivation of the early months was lost; Slug staff
worked rather as clock-punchers—by the book, testing and sometimes even stretching the
contractual limitations.
After a while, the reasons for the reduced service quality became apparent. In order to save
costs, Slug had made staff members who were working on projects for other customers redun-
dant, and the employees who were originally fully dedicated to support the contract with Snail
had to work on these other projects in addition to their work for the Snail contract. Slug manage-
ment assumed that these staff members had idle times that Slug could make use of—an assump-
tion that was only partially true: Although many staff members were at times on standby for
the requests and necessities of Snail, using these standby times for other work meant that, when
Snail needed them, they had to finish the other work and were not immediately available.
A second problem with these staff members was a rising burnout effect. They developed a growing
feeling of effort–reward imbalance (ERI), the perception that they were putting considerable effort
into both their own company and the customer’s, but that this effort was not sufficiently rewarded.
They expected not only monetary rewards, but appraisal of their proficiency at work and its value for
the organization, as well as assistances such as training and other forms of professional development.
In addition, they got increasingly exhausted from the many hours of overtime required to finish the
work for Snail in a timely manner, plus the additional work for other customers.
The combination of ERI and exhaustion is known to be a common cause of burnout syn-
drome. People got sick much more often than normal, one left the company, and the availabil-
ity problem that Slug already had was amplified by absenteeism and people quitting, and also
by a loss of energy when they were at work.
To further increase the problem, the pressure at Slug led to communication problems. Their
staff did not have the time that it takes to communicate and socialize, and as technical prob-
lems were increasingly responded to with finger-pointing instead of searching for solutions,
the ability and willingness of people to cooperate for the common goal also decreased. It took
less than two months to turn the contractor organization from a high-performing and reliable
service provider to a disintegrated and unsteady “wild bunch”—the term was actually used by
the customer in reference to the 1969 Peckinpah movie, which was more driven by violence and
chaos than by a somewhat logical plot and a purpose to entertain or inform.
As the responsiveness of the contractor for project quotations under the framework agree-
ment declined in both timeliness and quality of the offers, the customer gave more and more
of the projects to other providers, who used them to show superior service quality and build a
relationship with Snail, Inc.
During these projects, the providers developed a deep knowledge of the customer, its culture
and processes, and also of the formal and informal decision makers. At the end of the two-year
 The Difficult Way to the Contract 111

period of the framework agreement, it was very clear to Snail that the agreement with Slug
would not be renewed, giving another vendor the opportunity to replace the incumbent—at a
higher price, one should add.
As the trainer of Snail, Inc. in the engineering field, I was not directly involved in the business
with Slug, but I did notice the overall dissatisfaction with their services. When Snail managers
asked their colleagues at Slug for a clarifying meeting toward the end of the contract, I was asked
to attend, as both an observer and as a witness, in case Slug made a statement that could be used
against them by Snail to claim back payments or, in a worst-case scenario, to sue them at court.
Slug’s managers did not talk openly about their problems—one should never expect this
in the presence of the customer—but made statements that allowed for conclusions, given the
messed up situation by that time. The highly competitive procurement process by Snail, which
included two pre-selection steps and a reverse auction, left Slug with a contract that was not
sufficiently profitable. They would have had to recruit new staff in a very short time from a
market that was rather empty.
They were then expected to have a major number of people on standby during the contract
duration to be able to respond to problems and requests immediately, but they could not afford
that from the income stream from the customer. In order to save costs, not only did they not
hire sufficient new staff, they also fired some old employees whom they considered unqualified
for the business; they also laid off two middle managers, whose job would have been to ensure
coordination, communications, and work appraisals to the employees involved. Slug would have
been able to subsidize a small project for the customer here and there, but this business would
have required them to accept permanent losses accumulating over two years in both projects and
operations, and the contractor’s top management was neither willing nor able to do that.
I also had the impression that the desire to win every competitive bid lay deeply within
Slug’s business genes. It seemed plausible that this was not their only business as an incumbent
in which financial problems turned to organizational and interpersonal problems. They entered
every bidding competition for new business with the hope of finding the money to help them
sort out existing problems, but instead they slipped deeper and deeper into trouble. With the
distance of some years, my impression got even stronger that their managers enjoyed the thrill
of competitive bidding and of implementing successful capture plans, but then got bored and
distressed when they found themselves tasked to ensure reliability and dependability of ser-
vices. They were much better in competing than in completing.

2.9.4 Conclusion
The case story shows how an incumbent contractor can suffer from the requirements of sustain-
ing consistency in purpose and service, continuity of interpersonal relationships, and coordinat-
ing business interests for a successful cross-company mission. I should also note that the new
engineering tasks that Snail wanted to focus on—developing marketable solutions for sustainable
energy—were massively impeded by the inability of the IT systems to provide them the agility and
adaptivity needed. The business of customer projects is a high-risk venture for all parties involved.
My recommendation for Slug would be to collect and communicate knowledge on custom-
ers early, develop a sound off er/no-off er decision process, and understand the business with cus-
tomer projects and operational services as a form of portfolio management, where one tries to
avoid overwhelming the organization with too much work and weakening its foundation with
112 Project Business Management

unprofitable business. I would further recommend hiring managers who can sustain long-term
working relationships instead of helicoptering from one competition to the next and from one
project crisis to the other.
My recommendation for Snail would be to reduce the competitive pressure on contractors to
give them the financial resources that they need to provide great service. The money they saved
in the bidding process was much less than the costs of poor projects and services. I am aware
that it is often difficult to change such overly competitive behaviors, when the cost savings are
considered the success of one department, but the additional costs must be borne by others.

2.10 Offers: Bids, Proposals, Quotations, etc.

On the following pages, we assume that the off er/no-off er decision was made by choosing the
“offer” option, so that the procurement process can move ahead. I am sometimes asked if one
should tell a buyer when the no-off er option has been chosen. My answer is generally “yes”,
even if the buyer is rather unimportant for the success of one’s own business, just out of basic
respect; besides, one never knows if one will meet the people involved again in a different con-
text. A short but friendly message should always follow a no-off er decision.
It can become quite frustrating for a buyer when all vendors approached decide not to
develop and submit an offer, or start developing an offer but cannot finish and submit it in
the time left. This can delay a project massively and make it impossible for the buyer to meet a
deadline. Project Business Management is high-risk business, as I wrote before, and it may be
a good idea to have a contingency plan for such a situation.

2.10.1 Developing and Submitting the Offer

Figure 2.19 Sending the offer to the buyer is a signal of preparedness and capability by the seller
to do the intended project work, and also a commitment to satisfy the customer’s needs, wants,
and expectations.
 The Difficult Way to the Contract 113

2.10.2 Types of Seller Responses

When I explained above the different forms of requests for seller responses, I warned that
one should not assume that the people involved understand them accurately and use the cor-
rect terminology. This is somewhat surprising, because the plain wording as such is clear: In
normal language, no one would confuse a bid and a proposal, but in offer management, this
happens very often. Many proposal managers who never write a simple bid, but whose job it is
to develop complex proposals that also promise meeting complex customer needs, nevertheless
have the title “Bid Manager” on their business card. The terms as used here are in compliance
with the definitions of requests for seller responses above.

Information (In This Context)

Responds to: Request for information (RfI)
Typical timing: Before the bid/no-bid decision, at the beginning of the business
development process.
Typical purpose: Helping the customer to develop a shortlist of sellers and ensuring
that one is on the list.68
Response desired: Note that the seller is included in the further procurement process.
Freedom for the seller: High freedom to present their own organization and its offerings.
Time to be invested: Mostly short
Degree of formality: Low to moderately formal

Filled-in Prequalification Questionnaire

Responds to: Prequalification questionnaire (PQQ)
Typical timing: With the response to the RfI, as an attachment or following it as a
next step.
Purpose: A shortlist of sellers to be included in the further procurement pro-
cess, assuming that the buyer already has an understanding of what
this process should look like.
Response desired: Note that the seller is included in the further procurement process.
Freedom for the seller: Low
Degree of formality: High
Time to be invested: Significant
Degree of formality: Very formal

Quotation
Responds to: Request for quotation (RfQ)
Competition type: No formal competition, but alternative quotations may be asked for.
Typical timing: After the off er/no-off er decision.
Response desired: Contract
68
Another purpose may be to get excluded from the shortlist early to avoid wasting time if the business
is not regarded as desirable or promising even at this early stage.
114 Project Business Management

Freedom for the seller: High

Time to be invested: Significant
Degree of formality: Moderately formal

Bid
Responds to: Invitation for bid (IfB)
Competition type: Price competition
Typical timing: After the off er/no-off er decision.
Response desired: Contract
Freedom for the seller: Low, often limited to the freedom to name price.69
Time to be invested: Can become a major project.
Degree of formality: Very formal

Tender
Responds to: Invitation to tender (ItT)
Competition type: Price competition
Typical timing: After the off er/no-off er decision.
Response desired: Contract
Freedom for the seller: Low, often limited to the freedom to name price.70
Time to be invested: Can become a major project.
Degree of formality: Highly formal

Proposal
Responds to: Request for proposal (RfP)
Competition type: Solution and price competition.
Typical timing: After the off er/no-off er decision.
Response desired: Invitation to a presentation, contract.
Freedom for the seller: High, different sellers are expected to offer different solutions.
Time to be invested: Can become a major project.
Degree of formality: Very formal, depending on the details of procurement process and
the people involved.

Pitch
Responds to: Invitation to pitch (ItP)
Competition type: Solution competition
69
Even this freedom may be restricted: The customer names a price, and vendor bids are mostly stating
whether they are prepared to do the business for that price and what the customer will get for it.
70
Even this freedom may be restricted: The customer names a price, and vendor bids are mostly stating
whether they are prepared to do the business for that price and what the customer will get for it.
 The Difficult Way to the Contract 115

Typical timing: After the off er/no-off er decision.

Response desired: Invitation to a presentation, contract.
Freedom for the seller: High, but limited by the budget that the buyer has available.
Time to be invested: Can become a major project.
Degree of formality: Informal, depending on the details of procurement process and the
people involved.

2.11 Binding and Non-Binding Offers

2.11.1 Binding Offers
What does it take to make a contract? Many people will say that a document is necessary, but
to the extent that I know international legal systems, none of them requires that. One can say
that there is a distinction between the commercial and the legal understanding of a contract.
The commercial understanding of a contract is commonly either a document with two or more
signatures or a system of two or more documents that together make the contract. In a legal
understanding, most—presumably all—jurisdictions allow for verbal contracts, and often a
contract may not be concluded by words but may be construed based on actions by a party.
A supermarket presents goods on a shelf, and a customer takes them to the cashier to pay for
them. The legal offer in this example is made by the customer, and the cashier by registering
the purchase and taking the money concludes the contract, while both may talk about the
weather or the children or may not talk with each other at all.71
Contracts are made by offer and acceptance and are mutually binding. If one party offers a
performance in a legally binding form, and the other party accepts the offer, also in a legally
binding form, a contract has been made, and unless there is a clause that allows one or both
parties to easily terminate the contract for convenience, or one party allows the other one to
terminate the contract as a gesture of goodwill or against a damage payment, it will be difficult
to get out of the obligations promised in it.
Both the offer process and the project stretch over long periods, and changing business situ-
ations during these times can make it difficult to meet contractual obligations. Not being able
to meet such obligations is often considered a “luxury” problem. It is certainly no such thing.
The case of Tiger Moth Ltd. is such an example. Tiger Moth sent a bid to Butterfly AG in
January 2015 for the renewal and expansion of their communications and IT infrastructure.
Butterfly makes heavy use of high-definition video-conferencing on a global scale, and the
bandwidth used by this data-intensive technology had repeatedly brought their existing infra-
structure to a breakdown. Butterfly sent out an invitation for bid (IfB) to a number of service

71
Please note that this information, as are all statements in this book relating to contracts in project
management, is given without warranty and is not intended as legal advice; different national legal
systems may have different rules deviating from the broad descriptions given in this book. The topic
here is to teach project management in a contractual environment, and before applying any state-
ments made here as recommendations, it is advisable to double check with a lawyer.
116 Project Business Management

providers to help them replace their hardware and implement software with higher perfor-
mance on a global scale.
At the moment when Tiger Moth received the IfB, and also later, when the decision was
made to send a bid and when this was actually done, Tiger Moth’s ability to perform the
project seemed obvious. They were doing a project for another customer that was coming to
its end, so that resources would be free again for new tasks. They also had a small recruitment
project to find three new specialists in digital communications, and as they got responses from
16 well-educated applicants, it seemed easy to hire new staff when they won the contract.
In order to limit risks, Butterfly put a deadline for approval of their offer into the bid, which
would be invalidated if it was not accepted eight weeks after submission. Some days before the
end of the eight weeks, Butterfly sent a message to Tiger Moth that they accepted the offer and
welcomed the supplier as their new contractor.
Butterfly had no idea by how much Tiger Moth’s business situation had changed in just
under two months, and even Tiger Moth’s management spent some time analyzing where
they actually stood resource-wise inside their own organization. They found themselves indeed
unable to do the business. The other customer project that should have been finished mean-
while had had some lengthy delays, caused (1) by unexpected technical difficulties that were
only identified by the team in the last weeks and needed to be fixed, but also (2) by the rejec-
tion of the customer to accept the results of the project because they only partially complied
with the agreed-upon specifications.
Of the 16 applicants on the job adverts, only five were finally considered acceptable; the
others had promised experience and knowledge that they actually did not have. Tiger Moth
found that they had beautified their bios in a similar way, following an article in a popular
online magazine that described how this could be done so that an employer would not notice
it—unless, of course, the employer read the same article. Actually, it was a member of the HR
department who spotted it.
Of the five remaining candidates, three had found other jobs meanwhile and were no longer
available, so that Tiger Moth could only hire two new employees. Instead of expanding the
work force, Tiger Moth found it actually shrinking, when three employees left the organiza-
tion, obviously to set up their own company, and another one had to leave as a result of con-
flicts with colleagues that seemed irresolvable.
To make things worse, at the end of January, Tiger Moth received an acceptance of another
offer previously made to another company. They now had a loss-making project with missed
deadlines that they were unable to close out and a new project that they would find difficult
to perform, and they definitely had no free capacities when the signed copies of the contract
with Butterfly was finally submitted to them, placing obligations on them that they were not
capable to meet.
Tiger Moth’s management was a victim of the corporation’s great performance in winning
the contracts and much less great performance in also winning the customer project. They had
to visit the customer to ask for release from the contract, and only when they offered a payment
to Butterfly to make up for loss of time and money for the futile IfB did Butterfly agree to the
termination. By that time Tiger Moth had a loss-making project, a major payment to be made
to a non-customer, and another new project that they had to perform, for which they also had
no resources free.
 The Difficult Way to the Contract 117

In most jurisdictions, contracts are made by two identical declarations of will called off er
and acceptance, a process often referred to as “meeting of the minds”; but in project business,
the minds may in reality not meet at all. It is more like two people at the same location on
different days; they do not meet, but nevertheless the contract is created. There can be weeks
between the two declarations of will, and a lot can happen on both sides during that time.
How can the seller gain protection from having a valid contract with obligations that they can
no longer fulfill? They can mark the contract as an invitation to treat, a purely commercial,
non-binding offer.

2.11.2 The Invitation to Treat

To understand the character of an invitation to treat—a non-binding offer—it is helpful to
remember the different definitions of the term contract by commercial people and by those
coming from a legal discipline (see Figure 2.20).

Figure 2.20 An offer can be binding, which makes it an offer in both a commercial and a legal
sense. The acceptance of the offer by the other party then makes the contract. An invitation to
treat is an offer in a purely commercial sense. When the buyer accepts it, the contract is still not
made in a legal sense—it is the acceptance of the seller that concludes the contract.

The invitation to treat is not an offer in a legal sense. It is an invitation to the other party to
make such an offer. The items displayed in a supermarket shelf or in a shop window are invita-
tions to customers to offer the seller a business transaction in which the customer buys them
and pays for them. If a bid, proposal, etc. should be understood as a non-binding invitation to
118 Project Business Management

treat, it should be made clear in the text that the contract only becomes valid after the seller has
formally accepted the buyer’s legally binding offer to buy.
This allows the seller at the moment of contract conclusion to verify that the resources to do
the project are still available and to possibly step back from the business if this is not possible.
The seller will then have to write off the costly and essentially successful investment in offer
development, but this prevents the company from adding more cost on top of that for running
a loss-making zombie project for the customer.
Invitations to treat must be used with care:
• In some civil law countries such as Germany, sending an invitation to treat (Freibleibendes
Angebot or unverbindliches Angebot) can be considered a legally valid offer, when the
buyer accepts the offer and the seller does not immediately and unambiguously reject
the conclusion of a contract. This can even be true if the buyer has changed significant
parts of the original non-binding offer, such as reducing the price. In these countries,
it is necessary to react immediately when an unwanted contract is being concluded by
the other party, but the good news for the seller is that it is still possible to say “No” and
avoid stepping into obligations that one cannot meet.
• Before an invitation to treat is used in response to a request in public procurement, one
should verify with a legal expert whether this can lead to the exclusion from the further
procurement process. Some legislations consider accepting non-binding offers a breach
of the principle of fairness in public procurement, because offerers with binding offers
would have a disadvantage. One should remember that this fairness principle is not just
an ethical principle but must be upheld by public buyers to avoid protests from rejected
vendors. These protests may take the form of legal action, and if a lawsuit for discrim-
ination is accepted by a court, it will definitely lead to massive time losses and budget
overruns while the project’s progress gets stalled over many months, waiting for the
decision of the court, before it can start again. It will then take further weeks, possibly
months, to bring it up to speed again.

2.11.3 Bid Bonds, Performance Bonds

Whereas the invitation to treat reduces the risk for the seller in case the offer wins but the
performance is no longer possible by that time, bid bonds increase the risk for the seller. Bid
bonds are commonly used in major construction projects and in infrastructure and are mostly
unknown in most other industries. A bid bond is either a cash deposit or an insurance sum that
the buyer can use as a guarantee in case the winning offerer does not perform what was offered.
It is commonly used to pay the buyer the price difference to the second lowest offer, which will
then be taken instead, if it is still open by that time. Depending on the jurisdiction, there may
be caps on bid bonds—10 percent or similar—but these do not exist everywhere. The rejected
offerers can generally expect either to get their deposit back, or, in case an insurance has been
used, that the insurance contract is closed down without a payment by the insurance.
The last point may not always be true. I remember a case in which cash deposits were
required to be made by the sellers of 10 percent of the offer value (fixed price); the customer
would otherwise not have considered their offer, but no return payment was promised to the
seller rejected in the process. In such a model, 10 offerers’ deposits, or even less than that,
would be sufficient to finance the entire project, because the cheapest seller would be selected.
 The Difficult Way to the Contract 119

In another case, the buyer was no buyer at all, but a group of fraudsters who built a Potemkin
village of an intended infrastructure project, then cashed in on the deposited bid bonds and
ran away. In such environments, Project Business Management turns into pure gambling, and
vendors should ask themselves if this is the kind of business they want to participate in. It is,
in any case, recommended to discuss the matter with a legal expert when a customer requires
a bid bond, just in order to understand the magnitude of the risks and to request clear and
legally enforceable commitments to protect the deposit. The high time pressure during bidding
and the expectation of high profits from working in a great project should not make managers
blind to the risks they are entering into.
A performance bond is similar but is typically used later in the project as a guarantee to
protect the customer from poor contractor performance or from no performance at all. It
commonly is a much higher percentage of the project value, but because the project often
grows during its course, the percentage number may get smaller over time. In some business
environments, bid bonds and performance bonds are confused or even considered the same.

2.11.4 Questions Forbidden

The information that sellers receive from buyers before the contract has been signed is com-
monly incomplete and leaves many questions unaddressed. Statements of work are rarely
written by experts in the prospect’s organization, and those who write them are rarely given
sufficient time for research and writing. Environmental conditions may also change during
this period and are then rarely captured in writing and communicated to sellers. One should
also not forget that with a statement of work, the buyer hands out information on current or
upcoming problems, future plans, long-term strategic goals, and many more facts that they
prefer to be kept invisible to their competitors and other stakeholders.
Another problem is that the authors of statements of work are rarely trained in the skills
of developing a complex document that is both precise and concise. The development of the
statement of work may be contracted to a specialist, who in turn may be a great writer but does
not know enough about the buyer’s organization, its desires and needs, and technical details,
especially when these are about to change. For these reasons, one should not expect a statement
of work to be well written, unambiguous, and truly up to date.
Sellers will commonly need to make contact with the buyer to ask questions and to get
uncertainties clarified. This question and answer handling may be an important element of the
pre-contract process, but some buyers disallow sellers to contact their staff —again predomi-
nantly in public project procurement.
As before, the reason is documented fairness with the purpose to make the project protest-
proof. A rejected seller may be able to verify that the winning seller had more knowledge and
take this to court as a case of discrimination. If the court decides that the case will be accepted,
the project will have to be put on hold. The project will lose a lot of time and will have to bear
further recurring costs such as wages, office rents, etc. while it is idle, and contractors who have
blocked resources for the project may still bill the project for their availability or may claim dam-
ages for lost profits. Project managers in public projects must always be acutely aware of this risk,
and not allowing vendors to talk with their staff is a common solution for them.
Given that many statements of work are ambiguous and incomplete, this turns into a risk
for vendors: The prospect requires sellers to commit to prices, deadlines, and other obligations
120 Project Business Management

without sufficient clarity on what these obligations are. In training and coaching for both
proposal management and project management, I have repeatedly been asked by students how
to behave in such a situation, and when I offered my services in governance projects for profes-
sional development, I was in the same situation myself. Here are my recommendations:
• Propose to the customer that they have an anonymized platform, ideally in the form of
a simple password-protected website, on which sellers can place their questions and the
buyer can answer in writing, so that all sellers can watch the Q&A communications and
take part in them. The customer should make sure that all vendors involved have access
to this website, and this should be documented to avoid later disputes.72
• If this is not possible and the customer is not prepared to discuss other solutions, con-
sider not offering anything.
The second recommendation has a simple background: The public buyer is correct in assessing
the risk of a discrimination case for the project and managing the risk. The buyer is not correct
in disregarding the risks to the seller. This may be a general part of the organization’s culture,
and working with such a customer, who is unable to develop a partnership based on mutual
understanding and empathy, is likely to become sour over time. A business partnership is like
driving together in a car. You do not want to sit in a car that is dedicated to running people
over—and certainly not to be in front of this car.
Depending on the project, the contract type, and the role of the future contractor, such
customers may also be an easy source of a future stream of income with not much work to
be done. Just consider that it is your job to place temporary fences around construction sites,
and part of your calculation is to bring the fences to the sites, relocate them there from time
to time as needed due to the progress of the project, and, at the end of the contract, take them
home again. When this construction gets disrupted because of poor planning and—very com-
monly—poor change request management, your fences will remain there for a much longer
time than originally expected. They will stand there for long periods, and as the project has no
true progress, they will not require much work. All you need to do in such a situation is write
your monthly invoices.
I consider this situation an exception rather than the rule. Mutual understanding and empa-
thy are generally important to do a project with different organizations involved, and if one
finds that the prospect lacks these fundamental characteristics, it is often best to not offer and
leave the foreseeably difficult business to the competition.

2.12 Submission Deadlines

In my work as a trainer in proposal management, I was asked by a student some time ago, when
an offer should be submitted to the customer. They had a case in which the deadline of the
prospect lay shortly before Christmas day and had sent the proposal package so that it would
arrive just on time. They forgot to account for the risk that, during this time of the year, the
workload of parcel delivery companies is temporarily growing. It is typically highest in the days
72
Some B2B online marketplaces have the functionality to provide an anonymized Q&A forum.
 The Difficult Way to the Contract 121

before Christmas, when the late gifts need to be delivered on time, and even with temporary
staff hired for the holiday period, parcels may take them same days more to deliver. In the case
of my student, the parcel was late, and the work of a proposal team of four over almost two
months was made futile.
Submission planning should be part of any proposal development. In an online environ-
ment, the timing is rather simple, but with physical documents to be submitted, the risk is
much higher.
Developing the offer can take a lot of time. Especially, some complex proposals and tenders
against unclear customer requirements can consume a lot of time, energy, money, and profes-
sionalism invested by the people involved. Offers for very large projects are regularly done with
consulting support from retired business professionals from the field—an approach one finds
in defense, infrastructure, and energy projects.
On the other side of the business table sits the buyer, who also runs a kind of initiative—
probably a project, possibly a customer project as well—that has deadlines too and a budget
that needs protection from costly delays. The buyer has already booked resources for certain
dates and made other kinds of commitments, and it is therefore in the buyer’s interest to make
the pre-contract business swift. Buyers therefore put a deadline on the submission, and missing
the deadline may make all the work invested by the seller in the development of the offer lost.
It is also a signal to the customer that this vendor does not have a habit of meeting deadlines.
On the supplier side, the departments winning the business and doing the project may be sepa-
rate and their habits may be different, but a customer would not be aware of that. Approaching
the customer early when one finds out that a submission deadline is impossible to achieve is at
least a signal of respect. It may also be that the deadline of the buyer is much less fixed than it
seems and that the vendor is given some extra time.
How does one justify asking for postponing of the deadline? There is a simple argument
that most customers will accept: All resources are currently busy with ongoing business, and
meeting customer requirements in running projects has the highest priority, more than win-
ning new business. This message is given to the buyer, combined with the promise that, once
the business has been won, the rule will also apply for it.
Most submission deadlines will not be open for re-definition, for the reasons described
above, and the submission of physical documents comes with risks. A solution that I found
working well with customers was to recommend a two-way submission:
• Submission as a digital package on a server provided by the seller or on a third-party
internet server, and communicating the download address per e-mail. If the package is
small enough, it may instead be just attached to the e-mail. This needs to be submitted
in time before deadline.
• Simultaneous submission of the physical package per delivery service. If the e-mail is on
time, this may take some additional days.
If the buyer allows such a two-pronged approach to all vendors, this is a fair offer. The vendor
wins another two days for proposal development and the security that the offer will be submit-
ted in a timely manner. The buyer benefits from having two versions of the offer, a paper ver-
sion that is easier to read and a digital version that allows the use of a search function. Another
benefit is that the submission date is documented with the e-mail.
122 Project Business Management

In my previous book Situational Project Management: The Dynamics of Success and Failure,73 I
described that, in contrast to the assumptions found in most literature, projects can have more
than one deadline. Figure 1.6 (page 16) describes the result of a survey that I made on the
question of projects with no deadlines, one deadline, and multiple deadlines in September 2015. I
received 466 responses, and projects with multiple deadlines were the most common among them.
During offer development and submission, managers are also faced with multiple deadlines.
A timeline that I came across in 2016 during a request for proposal process that my customer
attended is shown in Table 2.7. It displays how a buyer imposes the deadlines to coordinate the
progress on the sellers’ side with their own schedule.

Table 2.7 A Sequence of Deadlines Imposed by the Buyer to Coordinate

the Work of the Sellers with the Buyer’s Schedule

Activity for
Timeframe Buyer‘s Activity Participating Sellers Deadline
a
01–12 February Seller prequalification and Submission of PQQ, notice 10 February
shortlisting of seller’s intention to send
proposal
15–19 February Submission of RfPb with Confirmation by seller to buyer 19 February
SOWc to shortlisted sellers of receipt of SOW
22 February– Completing and refining Submission of concerns and 26 February
4 March SOW questions for clarification
7 March– Development and submission 29 April
29 April of proposal
2 May–6 May Proposal presentations 6 May
10 May Vendor selection
a
Prequalification questionnaire
b
Request for proposal
c
Statement of work

Multiple deadlines mean that there is a critical deadline. In the case above, it may be simple
to meet the first deadline on 10 February, but the truly difficult deadline lurks further in the
future, to be finished and have the proposal submitted to the prospect by 29 May. The danger
with a critical deadline in the future is that teams tend to focus on the nearest deadline and
ignore for the moment the later ones. When they then become aware of the schedule risk, it
may be too late to make resources available to meet it. Looking at deadlines one after the other
may be an inappropriate approach—one needs to assess them all right from the start.

2.13 Teaming Agreements

Teaming in this context stands for independent organizations that act together as one team
to do projects that a single one would not be able to do alone. Teaming is a difficult task,
73
(Lehmann 2016b)
 The Difficult Way to the Contract 123

developing a “Mission Success First” culture across the network of teaming companies without
completely ignoring business needs—one does not want teaming companies to go bankrupt or
be liquidated during the course of the project—or in the near future, when one may still need
them. One should want to protect the project from corruption, one of the greatest obstacles
of long-term success and of professional independence. One has to reconcile differing business
interests and at the same time make sure that when the relation turns sour, one’s own position
is well-protected.
It is possible that the members of the teaming agreement have experience from joint business
in the past, but often they are working together on the project for the first time, so to function
well, the companies that participate in teaming will have to go through the Tuckman team
development phases74 similar to those that individuals go through when they come together for
the first time to work as a team:
• Forming. The team roles, formal relationships, communication rules and channels, and
other formal things are fixed. During this phase, good project managers organize teams
for success.
• Storming. The team members now focus on things that separate them. In this phase,
organizations that participate in the teaming agreements build cross-company processes
and business rules, just like individuals developing their interpersonal interfaces. Th is
process is often driven by conflicts about whose rules to apply, what interfaces regarding
business and communications should look like, and how to deal with differences in pro-
cesses, cultures, business style, and many more. Particularly if the teaming partners have
not worked together previously, these differences may not be known yet, and discovering
them can become a painful process.
For a project manager, this phase allows the least influence, and the productivity
during this time is also lowest. One should listen to concerns, make sure that conflicts
do not escalate beyond an acceptable threshold, and hope that the phase will be ended
soon. To avoid misunderstandings: This phase is often distressing and troublesome, but
it is important for later reaching the performing phase.
• Norming. The focus of team members is changing from the separating to the common
and connecting. It could be a favorite sport or even sports team, some common opinions
in politics or rock music, common interests in children, or dogs, or even stamps—what-
ever it is. For organizations, this phase is often driven by the identification of common
business interests, which can be better achieved together than by one organization alone.
During this phase, the influence of the project manager is generally growing again, and
so is the productivity.
• Performing. There is no guarantee that this phase will ever be reached. The team went
through thick and thin together and has found modes to embrace and cultivate the
common and to control the separating. Positive messages are communicated loudly,
problems and sensitive issues are discussed in private. When teaming organizations
have entered performing, they perceive and regard business benefits as outweighing the
investments that the cooperation requires from them and as justifying the limitations
that come with the cooperation.
74
(Tuckman 1965)
124 Project Business Management

Figure 2.21 describes the three most common types of teaming agreements. Each type of
teaming agreement comes with specific benefits, but also specific risks, as follows.

Figure 2.21 Different forms of teaming agreements for project work.

2.13.1 Informal Relationship

The customer selects and contracts each of the contractors and has a direct contractual rela-
tionship with each of them. It is possible that one contractor is in a lead role, informally or
with a commission agreement paid by the other contractors for helping them to also enter the
business.75 The lead contractor may be the one who has the best relationship with the customer,
has the largest part of the business, has licenses that the other contractors can use, or has some
other advantages that are beneficial for the other contractors.

Benefits for the customer:

• It saves money. The customer manages and coordinates the contractors and does not
have to pay a fee to a prime contractor for this work.
• Only one set of interests matters—that of the customer. Decisions are not influenced by
other, often opposing interests.
• The customer is much more directly involved in the project and will learn many details
that will be important later, during the operations of the result of the project.
• Implementing change requests will be easier, but the customer will have to take the full
risks for their consequences, particularly if they are handled poorly.
• In case of default of a contractor, only a part of the project is jeopardized, and as soon as
a replacement has been found, the project can go on as originally planned.

Disadvantages and risks for the customer:

• The customer may be inexperienced in the topic of the project and does not know to
what degree one should trust contractors.
75
In most cases, the customer will be kept unaware of such commissions.
 The Difficult Way to the Contract 125

• The customer is often not sufficiently aware of the special language and of caveats in the
field of the project; this increases the risk of errors, whose costs will normally have to be
born by either the contractor or the customer, and which can lead to delays, quality and
security problems, etc.

2.13.2 Prime/Subcontractor Relationship

The customer has only one business partner—the prime contractor—who then selects sub-
contractors and outsources project work to them. In some contractual settings, the customer
may reserve the right to name a subcontractor, with whom the prime contractor then needs to
work. Instead of naming, the customer may nominate subcontractors, which means that the
prime contractor is given a short list of potential subcontractors whom the customer considers
acceptable, and the prime contractor can choose one of them.

Benefits for the customer:

• The customer has only one business partner, who coordinates the work and should be
knowledgeable of the language and the specific caveats in the field.
• Depending on the contract type, risks that come with the use of subcontractors are fully
or partially owned by the prime contractor.
• The prime contractor, like any other contractor, can be a vehicle for knowledge transfer
based on the experiences made in other projects.

Disadvantages and risks for the customer:

• The prime contractor is an additional cost driver. The organization invests resources into
the project for the customer and bears major project risks; they will want a fee to cover
this and, in addition, make allowance for a profit.
• When the prime contractor defaults, the entire project is probably lost. In an almost worst-
case scenario, and depending on applicable legislation, deliverables made for the customer
but still not formally handed over may become part of the contractor’s insolvency estate,
and it may then become legally impossible for the contractor to get them handed over.
To make the scenario full worst-case, the deliverables have been de-facto handed over,
but without a document that verifies the legal transfer of property, and the customer may
have to give the deliverables back for addition to the insolvency estate.
• The project is driven by two sets of business interests—those of the customer and those
of the prime contractor. At times, these business interests are in alignment, but not
always. The prime contractor may from time to time make decisions that are not in line
with the interests of the customer.
Sometimes, the consequences of such decisions are hidden from sight, becoming visi-
ble only after the end of the project and a potential warranty period, and sometimes taking
the customer years to identify.

Benefits for the prime contractor:

• Business. The difference between the price paid by the customer and the costs to pay sub-
contractors is the prime contractor’s contribution margin.
126 Project Business Management

• The proximity to the customer opens new business opportunities without expensive mar-
keting and often without competition. Many prime contractors are long-term incum-
bents with their customers.
• The ability to employ subcontractors temporarily as needed gives the prime contractor a
high flexibility to scale teams up and down in relatively short term, mostly much more
quickly than it would take to hire employees; it is easier to finish a business with them
than to make employees redundant who rely on the long-term income from the job and
expect job security from the employer. Employees organize themselves from time to time
in unions; subcontractors don’t do that.

Disadvantages and risks for the prime contractor:

• During the project, it may turn out that the contribution margin, essentially the differ-
ence between the price paid by the customer and the costs incurred by hiring subcon-
tractors, is becoming too small or even negative, both leading the project to a loss for the
prime contractor. It may then be difficult to step out of the business.
• The prime contractor must meet contractual deadlines as well as scope, quality, and
safety requirements imposed by the customer. If the subcontractors do not perform as
intended, the prime contractor cannot meet such requirements.

2.13.3 The Consortium

A consortium is a temporary joint venture. It acts as a prime contractor, but some or all of its
subcontractors are also venturers, investors into the consortium, based on a mutually binding
consortium agreement.76 Consortia may be made just for a project. Often, consortia are devel-
oped for a combination of project and time-limited operation of the results. A common model
is used in construction and infrastructure projects under public–private partnership (PPP)
called build-operate-transfer (BOT) projects.
In this type of business, the consortium builds or expands infrastructure, operates it for
a given time—allowing the consortium a profit to return the initial investment—and then
transfers the deliverables to the actual customer, the licensing country, whose infrastructure
has been developed this way.
An example was the Taiwan Highspeed Rail Corporation (THSRC), a consortium to build
and operate a highspeed rail link from the city of Taipei in the north of the island Taiwan to
Kaohsiung in the south.77
The lifecycle of the consortium began with its foundation and the preparation for the bid
and ends when the infrastructure is handed over to the country. After the completion of the
construction project, planned for 2003, THSRC was allowed 30 years to utilize the train sys-
tem and make a profit, and then the system would be handed over to the state.78 Unless the

76
Sometimes, organizations that are neither temporary nor joint ventures also call themselves “consortia”.
An example is the W3 Consortium, an association that defines the standards for the World Wide Web.
77
(PMI 2005)
78
(Chang and Chen 2001)
 The Difficult Way to the Contract 127

consortium has no other business to go on by the time the license period ends, it would then
be liquidated.
Figure 2.22 shows another lifecycle of a BOT project, in which the contractor is given 35
years from the beginning of the license period until the final transfer to the country. This gives
the contractor a strong incentive to do the project quickly, as delays not only affect the time
when the cash flow turns positive, it also reduces the time that the consortium can cash in.

Figure 2.22 A typical build-operate-transfer (BOT) project has the intention that the contrac-
tor invests into the project (mostly for infrastructure) and later recovers the investment from the
return made from operating the infrastructure. The example above has 35 years’ total duration,
including the build and the operation phase.

BOT projects promise self-funding infrastructure development and have therefore become
very popular in the public sector. Some private companies have also discovered the BOT model
for their internal infrastructure projects, which then are investments by a third party that get
payed back through a fee paid for the usage of the infrastructure, until the contract for this use
expires and the infrastructure is handed over to the customer. In a private setting, the contract
duration is normally less that the 30–35 years in public projects; typical are rather 5–15 years,
and the contractor may not be a consortium but a single company.
Except in the field of BOT projects, consortia are also used for political reasons. For the
European military airlifter Airbus A400M, the consortium Europrop International was
founded to develop and build the turboprop engines as a contractor to Airbus. Europrop is a
joint venture by
• German MTU Aero Engines
• French Snecma
• British Rolls-Royce
• Spanish Industria de Turbo Propulsores
The workshare among the four venturers follows precisely the number of aircraft purchased
by each of the four partner nations. It is no surprise that such a corporate construction, which
follows more political wishes than technical, organizational, and business requirements, has
not proven to be the most efficient and effective organization.
128 Project Business Management

A consortium can also be just one contractor among others in a major project. The expan-
sion of the Panama Canal performed in the years 2007 to 2016 was budgeted at $5.2 million,
and roughly half that was planned for the construction of new locks, which was done by the
consortium Grupo Unidos por el Canal, comprising:
• Sacyr Vallehermoso S.A. (Spain, lead venturer)
• Salini Impregilo S.p.A. (Italy)
• Jan de Nul n.v. (Belgium)
• Constructora Urbana, S.A. (Panama)
A consortium may have a leading venturer, which may be the investor with the largest share, the
organization that has the best contact with the customer, or the organization that is entrusted
by others to do the majority of the management tasks and allow others to focus on technical
contributions.

Benefits for the customer:

• From the customer’s perspective, the consortium is just another prime contractor.
The customer has only one business partner, who coordinates the work and should be
knowledgeable of the language and the specific caveats in the field.
• Depending on the contract type, risks that come with the use of subcontractors are fully
or partially owned by the consortium.
• The consortium, like any other contractor, can be a vehicle for knowledge transfer based
on the experiences made in other projects.

Disadvantages and risks for the customer:

• The consortium is an additional cost driver. The temporary organization invests resources
into the project for the costumer, bears major project risks, and will want a fee to cover
this and, in addition, make allowance for a profit.
• When the consortium defaults, the entire project is probably lost. All the consequences
described above for a defaulting prime contractor also apply for a consortium, and
because the consortium is intended to exist temporarily anyway, terminating it in a crisis
situation is easier done by its venturers than doing it with an organization that has been
set up with the intention to last.
• The project is driven by a multitude of business interests—those of the customer, and
also those of the various members of the consortium. In addition to the risk that comes
with a prime contractor, dysfunctionality of the consortium caused by incompatible
interests of the companies involved pose an additional risk, which may be a major one.
• The consortium has no history of successes and failures. A customer can ask offerers to
provide reference customers, but the consortium is new, founded just for the project.
I recommend in such a case to get information on the venturing companies, but
although this may be a good way to know more about the competency, reliability, and
integrity of each of them, it does not provide information on how the companies can
work together.
 The Difficult Way to the Contract 129

Benefits for the venturers:

• Together, the companies can work on projects that a single company alone could not do.
The teaming allows the joining of free resources, skills, licenses, and so on.
• A teaming partner in a consortium may use the consortium to transfer knowledge from
another one.
Disadvantages and risks for the consortium and its venturers:
• During the project, it may turn out that the contribution margin—the price paid by the
customer minus the costs occurring from using the venturers also as subcontractors—is
getting too small or even negative, both leading the project into a loss for the consortium
and its venturers. It may then be difficult to step out of the business.
• A teaming partner in a consortium may use the consortium to transfer knowledge from
another one. While this is a benefit for the receiving venturer, it may by a disadvantage
for the company that gives the knowledge away. The partner in the consortium may turn
up in another business setting as a competitor, strengthened with the knowledge gained.
• The consortium must meet contractual deadlines as well as scope, quality, and safety
requirements imposed by the customer. If the contributing venturers do not perform as
intended, the consortium cannot meet such requirements.

2.13.4 Mixed and Expanded Teaming Agreements

In reality, it is common to mix teaming agreements. A customer may have several prime contrac-
tors for different work packages in a project, who then have subcontractors. The teaming rela-
tionship between these prime contractors would then be informal. Or a consortium may have
subcontractors who are not members and venturers but just selling their products and services.
Many projects today are built as complex PSNs.79 They stretch over a multitude of tiers,
and it is common that they are not engineered but have grown over time. It is also not rare
that no one in the organizations involved has a complete picture of which organizations are
actually involved in the project. The types of teaming agreements described above help gain an
understanding of the complexity. Today, it is rarely sufficient to talk of just a customer and a
contractor. Many parties are involved, and in large PSNs, the majority of participating organi-
zations are at the same time both:
• Contractors to their customers
• Customers of the subcontractors
The subcontractors help these organizations meet their obligations, but they also require a fair
share of the money that the customer is prepared to pay for the work. In a later chapter, I will
discuss how to both engineer and grow the PSNs with the objectives of not losing control,
deciding which organizations are actually involved in the project, and motivating those who
are to build a strong teaming relationship.
79
I consider the term “supply chain” no longer adequate for the intricate and dynamic networks used
in project procurement today in many fields, and the complexity and the speed of change in them are
growing further.
130 Project Business Management

2.14 Pricing
2.14.1 The “Perfect Price” in a Non-Competitive Setting
“Customers always want to negotiate the offer made. This is so annoying. We were asked to
give them our best price and our most generous payment conditions, and we did just that.
Then, they come back, telling us that we are about to be selected, but open new discussions, in
which they want to negotiate the price again. Why don’t they simply accept what we offered?”
I often hear statements like this from classroom attendees who deal with prospects in business
development, and the frustration is commonly strong. I then try to convince them that this is
actually good news. Here is why:
The competitive phase has been left. This means that the procurement done by the buyer
uses non-competitive methods such as an invitation for quotation (IfQ) as defined above, or
that a vendor selection has been finished, the vendor has been selected, but the contract is still
not concluded and signed by the customer, and the customer wants to use the situation for
renegotiations. There may still be many details that need to be agreed upon, and the customer
may hope to bargain an even better price, a faster delivery, or other additional benefits.
Price is an important yardstick for a buyer when the vendor is picked from the options avail-
able. The survey on vendor selection criteria in Figure 2.15 (page 102) has shown that price
came directly behind the understanding of the needs and wants of the customer on second
place of the decision criteria used.
The complaint above on renegotiations is something I hear often from team members in bid
and proposal teams and from sales staff. Pricing is a complex thing, and the complexity begins
with three uncertainties (independent of the contract type, by the way):
• What will it actually cost us to perform the project for the customer?
• What is the customer prepared to pay?
• When we quote against competition, what numbers will they talk about, and by how
much would we be allowed to quote higher or by how much would our price be lower?
As a reminder, competition is not necessarily another vendor; it can also be the make option. I
will discuss pricing in a competitive setting in the next section.
In a non-competitive setting, there are different ways to look at a “perfect” price. The first
is to compare the value of the business for both sides, as shown in Figure 2.23, or to be more
accurate, the minimum price the seller organization is prepared to accept for its products and
services, and the maximum price the buyer is prepared to pay for them.
In the upper situation, a price between US$3 and 4 million would be inside the corridor,
where the value perceptions of buyer and seller overlap. In the bottom example, the business
is almost impossible, because there is a gap between the maximum price that the buyer is pre-
pared to pay and the minimum price that the seller wants. It is still not fully impossible, given
the following additional factors:
• The project may be mandatory. The customer is not free to make the project or leave it,
due to legal or contractual obligations.
• The seller applies benefit engineering and successfully increases the value perception by
the buyer.
 The Difficult Way to the Contract 131

Figure 2.23 A swim-lane diagram showing acceptable price ranges by two parties. If these price
ranges overlap, a contract is possible. A gap between the two price ranges makes it unlikely that
the business can be developed.

• External or internal influences change the value perception by the buyer or the seller, with
the effect that the value gap gets closed and a meeting-of-the-minds corridor is opened.
Value perceptions are indeed highly dynamic, as people experience in day-by-day life as much
as in project management. A well-written article in a business magazine, for example, can
change the value that a manager assigns to a business item and either increase its value or
diminish it. Another strong factor is the unforeseeable behavior of competitors, to which an
organization must swiftly respond.
As much as business would still be possible if a value gap exists, the business may also not
take place in spite of a common price corridor among the parties. One reason is timing, com-
bined with distrust: One party has to advance something, either the buyer a payment or the
vendor work or a delivery, and a lot of trust is necessary for the initially outlaying party to meet
the obligation. Trust can be based on the basic trustworthiness of the other party or on the
assumption that the interest of the other party in a long-term business relationship is stronger
than its interest in a quick win from cheating.
Experience with past business situations also influences a basic attitude on trust. When
someone has bought goods repeatedly and business was conducted correctly, the person will be
more trusting to a new vendor and assume that business will also be performed correctly. In
contrast, a person who has just experienced being cheated will be more fearful when the next
business requires advance payments, deliveries, or services. Distrust can make it impossible to
gain benefits, but too much trust will inevitably lead into getting cheated. Trust is a situational
task, depending on the people involved but also on the business situation.
Trust is about the preparation to advance payments, deliveries, and services. Another ques-
tion is ability. Customer projects can diminish a vendor’s liquidity quite strongly, when a lot
132 Project Business Management

of work needs to be done that will be paid for later. Excessive advances can drive a contractor
into financial jeopardy, even if the project is profitable by the numbers. The project allows the
vendor to bring money home, but the money comes too late to pay the rent.
As discussed above, profitability and liquidity are not the same, but they are in tight interac-
tion. The customer is often in a similar situation, in that the burden to pay early for the project
may cause the organization’s liquidity to peter out. Even if the organizations trust each other,
they will have to balance out payment terms as much as price.
The description of pricing using the concept of the common price corridor above is difficult
to apply in practice for a simple reason: Seller and buyer do not tell each other where these
limits actually are. They may give each other a number, a “best price” by the vendor or a “max-
imum budget” by the buyer, but it is unlikely that these are the true limitations of what the
parties consider acceptable.
In my book Situational Project Management: The Dynamics of Success and Failure,80 I describe
an approach using three types of limits as signals for behavioral change—a very situational
concept taken from quality management, where it has been in use for decades:
• Specification limits. Exceeding them likely leads to rejects or other kind of massive
problems. In the context of this discussion on pricing, I will instead use the more appro-
priate term walk-away limit, but, in essence, this is the same thing.
• Control limits. Exceeding them is a signal that corrective action may be necessary.
• Warning limits. Exceeding these limits is an indicator that more attention is needed.
In the context of this discussion on pricing, I will instead use the more appropriate term
just-buy limit, but, in essence, this is the same thing.
An interesting approach on pricing occurs when the concept is applied to the buyer in the
procurement process. As described above, pricing has two dimensions—the price quoted and
the payment terms that come with this price—which define who will perform in advance and
by what time.
Figure 2.24 illustrates an example of price limits by a customer for a project that is currently
procured. The limits on the right-hand side are driven by the “get today, buy later” promise of
protection of the credit balance. The limits on the left-hand side are driven by the desire to be
low cost and make the organization profitable.
The limits delineate sectors that in turn will trigger behavior of the buyer, and depending
on the business goal of the offer and the intended buyer behavior, the combination of price and
payment terms should target for the right sector.

Under the buyer’s just-buy limit:

• The buyer will just buy.
• Targeting this sector is favorable when:
o A very quick and uncomplicated contract conclusion is desired without any discus-

sions and negotiations.

o Further communications with the buyer is impossible.
o The seller wants to focus solely on technical aspects of the project and not on commercial

ones (e.g., when the project is intended to become a pilot project for future business).
80
(Lehmann 2016b, 212–214)
 The Difficult Way to the Contract 133

Figure 2.24 The three types of limits on the buyer side relating to price and advance perfor-
mance, and what response by the buyer is to be expected for the sectors that are delineated by
these limits. (Numbers shown are examples.)

Between just-buy and control limit:

• The buyer’s attention to the price will increase, which leads to a request for a better price
or more time to pay.
• Targeting this sector is favorable when:
o A quick contract conclusion is desired without lengthy discussions and negotiations.
o Further communications with the buyer is difficult.
o The seller wants to focus on technical aspects of the project more than on commercial

ones.

Between control and walk-away limit:

• The buyer takes action to reduce the price or delay the payment.
• Targeting this sector is favorable when:
o The seller desires a contract at the highest price or with the least advance performance.
o The seller has personnel capable of performing lengthy and often difficult negotiations.
o The seller understands and accepts the risk that the negotiations may fail.

Above the walk-away limit:

• The buyer walks away from the negotiations.
• Targeting this sector is favorable when:
o The seller desires to have no contract, but the buyer is too important to reject sending

an offer.
o The seller has no personnel capable of performing lengthy and often difficult negotia-

tions and to satisfy the customer.

So, what is then the perfect price? I started this section with the common complaint of people
involved in project offers that buyers so often do not simply accept the offers made to them but
134 Project Business Management

want to renegotiate. This is not necessarily a bad signal. If the prospect just accepts an offer,
maybe with a careful request to reduce the price or allow for longer payment terms, the price
may have been too low. After offer acceptance, the prospect has become the customer, and it
could be much more difficult to get a better price.
If the buyer walks away, the price may have been too high. The prospect who wants to nego-
tiate the price and the payment conditions essentially signals that the price offered is near to
the walk-away limit, but still not exceeding it, and if the intention is to sell the project at the
highest price, this is a good signal.
In practice, it is very hard to know where a prospect’s limits truly are, and even a prospect
who is prepared to answer such a question may not really know. These limits are mostly used
in an intuitive fashion, not in full awareness.
I nevertheless recommend drawing these limit lines based on estimations and on the knowl-
edge about the buyer organization that is accessible. The understanding of where these limits
are will improve with the knowledge of the prospect, and one often overlooked aspect of know-
ing the prospect well is better pricing, which in turn leads to more profitability for vendors of
project services and products. When a major number of these vendor companies are JAMs,
companies that are “just about managing” financially, poor understanding of their buyers is
among the major reasons for their difficulties.

2.14.2 The “Perfect Price” in a Competitive Setting

In a competitive setting, the desire is to not be outpriced by other vendors. But things are again
far more complex. The cost that the buyer will need to pay will have different elements, and it
may be interesting to look at them individually and then decide at which of them one considers
oneself superior to competition. It is a kind of packaging, as my favorite Italian restaurant does,
when the owner serves a glass of Grappa or Limoncello with the receipt to reduce the anger that
some guests may have when they see the high price that they are expected to pay. Figure 2.25
shows how the price can be packaged or left just as it is.
It is advisable to have a detailed knowledge and a good understanding of the customer and
the competitors to understand how a price can best be packaged. The knowledge is needed to
have the correct numbers at hand, the understanding is needed to know to what arguments
the customer will be prepared to listen and what arguments will be raised by the competitors.
A price offer for a project can be packaged differently:

Just the “naked” price:

• If this what the seller is good at—being inexpensive for a mostly standardized product or
service—and if this what the customer wants, one should focus on this number.

Costs and benefits of the usage of the project deliverable:

• The deliverables that the project is intended to make will be taken into operations by the
customer and then generate running costs, possibly for years, or may become input to
another project and save the costs there or bring benefits.
• Together with the benefits of the project deliverables, these costs may be more relevant
for the decision.
 The Difficult Way to the Contract 135

Figure 2.25 In a competitive setting, the “naked” price may be what matters most to the cus-
tomer, but there are various options to package it and spruce it up with more beneficial combina-
tions of numbers.

Lifecycle costs/benefits:
• Lifecycle costing means combining the project costs and the costs of operating the
results of the project in one model.
• Project costs are one-time costs, whereas the operational costs are recurring, so one will
have to model the lifecycle costs based on assumptions such as the operation time and
intensity of the deliverables of the project.
• One can also add benefit calculations over the lifecycle, as shown later in the discussion
of benefit engineering.

Fringe and peripheral costs and benefits:

• Fringe and peripheral costs may sound as if they are marginal, but often they are not.
They can vastly exceed lifecycle costs:
o The cost of implementing a new database with connectivity to lots of legacy systems

may be high, but the much larger costs are those to make the old systems fit for this
connection, particularly if their data structure is inconsistent and the quality of the
data is poor.
o It may be expensive to build a new chemical plant, but it may be much more expensive

to also design and develop the surroundings of the plant in a way that avoids a glitch
or an accident at the plant that leads to an environmental disaster.
o Re-developing an organization may be an expensive and difficult activity, but manag-

ing the consequences of these internal changes in the local and organizational prox-
imity of the organization may be even more difficult.
• The benefits for the buyer that come with a seller’s offer may also lie outside the imme-
diate realm of the project and its results:
o A book publisher has paid a famous author a royalty for the rights to the person’s

book and earns money from the sales of the book. The publisher may profit even more
136 Project Business Management

from the reputation of being this particular author’s publisher, which then lures other
authors and makes book buyers interested in trying out more of this publisher’s books.
o A chemical manufacturer may procure a plant to decontaminate and reduce waste
water and benefits from reduced operation costs, tax benefits, and other incentives
that come with such a plant. They may also be able to win new customers who prefer
to buy from a company that feels responsibility for its environmental impact. Pointing
to the investments they have made and to the effectiveness of these investments may
be the final decisive arguments in a competitive field. Many managers are intelligent
enough to understand that increasing profit is not the only responsibility of a corpo-
ration towards society.
o A new business software program in a corporation reduces waiting times, when data
are crunched internally before they can be presented to the user, as a lifecycle costing
benefit: The user can handle more transactions over a given time. This in turn can lead
to a fringe benefit: The organization becomes more responsive internally and in the
marketplace, reducing frustration all around and leading to more satisfied customers
and employees, with the effect of growing business. This fringe benefit can greatly
exceed the direct operational benefit.

Total cost/benefits of ownership:

• Total cost of ownership (TCO) calculation includes all costs that are directly assignable to
the project and the use of its results, with those fringe costs that are incurred elsewhere
but must be paid by the same organization. Total benefits of ownership (TBO) calculation
does the same for the benefits.
• These calculations can include many of the elements described above, such as:
o The price—what it will cost the customer to do the project with the vendor.
o The costs directly assignable to using the deliverables of the project, which may include

further business with the vendor on consumables and service.

o The directly assignable benefits from using the deliverables of the project benefits, such

as additional income, cost savings, etc.

o The costs and benefits that are not directly assignable to the project and its results,

which the buyer would also own.

A problem for the seller is that the first number, price, is easily and reliably assessed. The seller
just decides upon it. The following numbers are much more difficult to find out, as they are
based on data that are hard to assess by the seller, and though they can be much more relevant
to the buyer, they remain inaccessible to the seller, particularly when the buyer considers them
confidential.

Net total benefits of ownership:

• The highest art in pricing is to package all these different kinds of costs and benefits into
one calculation and include the price in a convincing number. Net total benefits of ownership
(NTBO) calculation asks what net benefits the project and its deliverables will bring after
deduction of all costs. If the project is mandatory, the number may actually be negative,
because the project is not done to gain benefits but to comply with law or other binding
 The Difficult Way to the Contract 137

regulations. If the project is discretionary and a seller would want to use this number in the
offer, the seller would need a lot of quantitative data as well as qualitative information on
the customer and the competitors, and then compute the numbers from that.
Figure 2.26 visualizes how simply quoting a price to the buyer is generally the easiest task for
the seller, because it depends on the number in the offer that the seller generates. Moving to
the right leads to cost and benefit forecasts that make the offer for the customer more relevant.
These forecasts are based not only on actual data and facts, but also on estimates and other
assumptions, and these all are much harder to collect.

Figure 2.26 Quoting a naked price is the easiest task for the seller. Making the offer more rele-
vant by adding further cost and benefit information is challenging, but may be the key to success.

Moving to the right may also mean an increased investment in time, effort, and costs to
obtain the data, and this investment is limited by the resources that the seller is prepared to
invest, in their availability, and in the business that is to be expected. One will probably be
more prepared to drill very deep into data for a project with a value of $100 million than for
another one with a business value of $100,000.
Estimating saves cost and time and may be necessary in cases for which data are inacces-
sible, but the more estimates are used, the less reliable and accurate the forecasts will be. A
negative response from the buyer may then be that the forecasts are inaccurate or unreliable
and that costs and benefits that they promise are not realistic.
Another negative reaction could be that the buyer considers the existence of too many and
overly accurate forecast numbers intrusive. A perception that should be avoided would be
that the seller used spy-like methods to tap data that the buyer considers private. It is there-
fore important to clearly mark all these forecasts as based on assumptions that have been
derived from experience and basic market analysis and include uncertainties. If the numbers
that underlie the assumptions are then found correct, it can then be taken as a signal that the
assumptions were accurate. This approach also helps if the forecasts prove wrong.
138 Project Business Management

As a seller, one will then ideally address which of these packages for the price are the most
convincing for the offer, based on one’s strengths and on the desires and wishes of the buyer, and
then try to direct the buyer’s attention to it. If one can just deliver cheaply, and the customer
desires a low price, this is the perfect one, the one that should be offered. If the price is not the
lowest but looks friendlier in a context with other cost and benefit data, such as in lifecycle cost-
ing or in TCO calculations, the seller will prefer to direct the buyer’s attention to them.
Another limitation of the data and knowledge that a seller can develop about the buyer
stems from the informal character of the relationship before a contract has been concluded.
The buyer has no obligation to provide the seller with sufficient information, and as gathering,
processing, and communicating this information on the buyer side binds resources that may
be needed in other tasks as well, the seller is finally dependent on the good will and intentions
on the buyer side to share information. One may argue that it is important for the buyer to
make sure that sellers are fully informed when they are asked to submit offers, but the buyer’s
organization may have other, more urgent obligations, and the urgent is always the greatest
enemy of the important.
I generally recommend for all binding offers to add a clause similar to the following: “The
price, fees, deadlines, scope of work, commitment of resources, and all other considerations
(obligations) in this offer are valid to the degree that the information given by Buyer is correct
and complete. Information that Buyer makes available to Offeror only after submission of the
offer and that is relevant for defining the mutual obligations invalidates this offer”.81

2.14.3 When the Offer Is Too Low

Sometimes, buyers have another limit: when an offer seems too good to be true—when buyers
have the impression that there is a catch in the offer and that a seller may finally rip them off,
or that the offer is rather low-balling to get more than a foot in the door and then make the
best out of the buyer’s dependency on the seller. In Swabia in south-western Germany, the
area around Stuttgart where I was born and have grown up, people often say, “Buying cheaply
means having to buy twice”. Some say instead, “I am too poor to buy cheap things”.
A price that is far below a cluster of prices from other vendors could be taken by a buyer as
a signal that something is wrong with this price. A low-balling vendor is a possibility, a lack of
understanding of the requirements another. A vendor who does not understand what it takes
to do the project will later become a problem. Either the vendor is unable to do the job and all
consultations turn out after a while to be wasted time and money, or the vendor will come back
later to renegotiate price, fees, and deadlines. Actually, I met purchasers who follow a strategy
to not award the business to the vendor with the lowest price, but the second lowest, to avoid
such risks. So, being the cheapest vendor may not be a promising strategy at all.
A good account manager or sales representative may be able to obtain from the buyer infor-
mation about how numbers are perceived. Experience from earlier offers may be also helpful. It
could also be that the person who is in charge of procurement is known from a previous job in
another organization. Just when it comes to pricing, it is in the vested interest of the vendor to
make as much information available as possible. A buyer may support the seller in the endeavor
81
This is advice on contracting to the degree that it relates to project management under contract. For
the correct wording of such a clause and the possible consequences in the applicable legal system, it is
necessary to consult a lawyer.
 The Difficult Way to the Contract 139

to know more, or may prefer to keep it unclear to the seller, depending on the perception of
the process as a kind of poker game or as an attempt to find a capable partner with whom one
wants to develop a relationship based on mutual trust.

2.14.4 The Customer Dictates the Price

This is another purchaser’s strategy. The buyer has a set of fixed numbers for price and fees,
approaches a vendor who is considered trustworthy and capable, and if the vendor accepts the
numbers, this company will get the job. The buyer’s main desire in this approach is predict-
ability of the costs of the project, more than finding the cheapest seller, and it saves the buyer
from performing a costly and time-consuming competition. Vendor selection can actually be
done in a fraction of the time that it takes to go through a competitive tender, bid, or proposal
process, and the final price may even be cheaper.
For a vendor, the situation bears some risks when in internal discussions sales people clash
with execution people over the decision to go for the business or not. The first want the business
at any price, in order to win the customer and become an incumbent, and the second doubt
both that the project can be done for that price and that the incumbency with this customer
has so much value. The first—correctly—point to the business being a safe bet, because there is
no competition; the second may—possibly also correctly—consider the business a loss and the
buyer not worth the effort. The strategy of approaching just one seller with a pre-determined
price can put this seller under tough pressure, and the risk of an unhealthy decision is high.

2.14.5 The Absolutely Last Price

Buyers tend to ask sellers to give them their lowest price right at the beginning of the negotia-
tion process. Sellers expect that even when this number has been named, there will be further
negotiations and will therefore state a higher price. Buyers assume that there is still some
leeway to further reduce the “best price” given by the seller and start negotiations again. This
may spiral the price further down as long as the seller allows or until the buyer considers the
negotiations as finished, with or without a result.
A question that I am often asked by students is about the moment that a seller should select
to quote the very last price: the one price (or fee, depending on the type of future contract) that
is the absolute minimum for the vendor to quote, that the organization would avoid quoting at
almost any price, and that describes the red line at which the business becomes uninteresting
for the vendor. As a rule of thumb, I recommend to never state this number at the negotiation
table. The negotiation table is a place for competitive behavior, and when the vendor quotes the
very best price, this should be done at a moment when competitive behavior has failed and the
buyer seeks cooperation.
Personally, I had good experience with the exit door. The negotiation was considered ended
and failed by the buyer’s purchasers, because it was their desire to come out of the meeting
room with their job done, and instead they will have to undergo further negotiations. The lust
for further negotiations is gone, and a feeling of realism creeps in. Just at the door, on the way
out of the meeting, I turned around, seemingly contemplating over other options, and then
told them: “I am just wondering . . . I have a little marketing budget that I could make available
for our business”.
140 Project Business Management

I then observed their reaction: did they signal interest and relief, or did they consider the
negotiation finally finished? If they signaled further interest, I offered them my very last price
in exchange for something that costs the buyer not much money but has a high business value
for the vendor. A recommendation letter is a good example of that, or a joint press release or
article in a special-interest magazine. Something that helps the vendor sell in exchange for a
very special price. Something that builds on the good will of both parties, that can often not
develop at a negotiation table, where both parties are restricted by the constraints of their roles.

2.14.6 “Mission Success First” in Negotiations

Negotiations can be a stressful time, when each party tries to squeeze a maximum out of
the needs of the other party. Negotiations are then like a tug of war, which is won through a
combination of physical strength, stamina, concentration, grip of shoe soles on the ground,
and—when larger groups pull on each end—also team function.
Negotiation can be done in a different spirit: A mutual “Mission Success First” attitude can
shift the focus from the question, “What’s in it for me?” to the question, how one can serve the
other party best, in exchange for gains that one may get. This turns the parties into partners,
putting completing over competing and taking the distress out of the negotiation situation.
One side in the negotiation will offer such a positive exchange of benefits by actively show-
ing interest in the wants and needs of the other one and making offers based on them. If the
other side responds in kind, the mutually beneficial negotiation can develop. It is then much
less like a competitive power game and more like two persons building a team to achieve
common goals. Developing a common “Mission Success First” attitude requires empathy and
understanding between the future partners and the desire to get the maximum benefit, not
simply the cheapest solution, out of the relationship.
This entire book is written around such a “Mission Success First” attitude, which helps
ensure collaboration and communication in teaming organizations. Trying to implement it
during negotiations has another benefit: Contract parties in projects often find it difficult to
switch from the competitive behavior that mostly dominates business development to the col-
laborative behavior that is needed after contract award to perform a successful project. If the
collaborative behavior is already applied before the contract is signed,82 it is not necessary to
switch behavior, and the joint working style can be implemented as a matter of course.

2.15 Writing Complex Proposals

2.15.1 Where Do You Place the Most Important Contents
of the Complex Proposal?
Proposals and, to a lesser degree, tenders and bids can be long and complex documents. Several
aspects must be balanced out, including the level of detail that the assessors of the proposal
82
There may be legal matters to be considered, particularly in public contracting, where competition is
regarded as a means to save costs for tax-payers.
 The Difficult Way to the Contract 141

on the side of the prospective customer need to make a decision in support of the proposal.
The proposal may follow a statement of work from the customer and needs to show that this
document has been fully read and understood and that the concerns in it are all addressed in
the proposal.
On the other hand, the seller may want to make reading the document not too difficult and
time consuming and will also consider the amount of information that is given away to the
prospect. The major body of the proposal is dedicated to the buyer’s employees who assess the
details, but these may not be the people to finally make the decision.
Complex proposals are commonly introduced with an executive summary, which describes
in a small number of paragraphs the central arguments for the proposal that will then follow in
detail on the next pages. The generally correct assumption is that decision makers do not have
the time to read the proposal in detail and need some quick help to understand its focal points.
The approach is based on the assumption that they may delegate the analysis of the details of
the offer to employees and will read in person only the summary. For some managers, this
assumption may be true, not for all.
One problem may be that sometimes even the executive summary is too long, or that some
executives may not want to read text that consists more of self-praise and marketing lingo
(“Gobbledygook”) of the seller than of the information that the buyer needs to make the deci-
sion. Observing this group when they assess proposals is interesting.
A common practice is to first look for the price, which is assumed to be near the end of the
proposal. From there, they scroll backward through the document looking for something that
catches their attention, and if they find nothing, they will then directly hand it over to their
experts or place it on the stack with the competing proposals.
What may capture their attention? Text boxes with short text snippets in large fonts, of
course, possibly also tables, but definitely images. This is related with the (simplified) model of
the brain as made of two hemispheres. The left one deals mostly with words, texts, and other
logical things, the right one with perceptions of images. Delivering information to the right
hemisphere is quicker and less arduous for the recipient, but the information is less concrete.
So the person may then read the caption of the picture to understand what it shows and how
this is linked to the proposal.
Speaking captions, which repeat argumentation made in the text in brief form, so called
action captions, may be the only pieces of text that decision makers read at all. Many images in
this book also work as action captions, with which I try to convince prospective buyers of this
book that it is worth buying. The opposite of the action caption is the horse title, which stands
for an image of a horse with a caption saying something like: “Image_3.2.16_Horse”.

2.15.2 Familiarity of the Audience

The public transport system of the municipality of Munich, the city where I live, has about
200 different fares, depending on distance that one wants to travel, including differences for
adults, children, students, or seniors. It has fares for the trips, the number of trips, weekly or
monthly cards, and so on. The tickets can be bought in person at kiosks and vending machines
or digitally using smartphone apps.
142 Project Business Management

Munich has a complex system with rings and zones that can make it difficult to find the
right price for the trip that one wants to make. The system is run by a syndicate of local trans-
port providers called Münchener Verkehrsverbund GmbH (MVV), which from time to time
conducts surveys among its customers to determine how satisfied people are with their offers.
The response is generally very positive, and the MVV commonly communicates these positive
results as press releases and online. In particular, the vending machines are often praised by
customers for their perceived usefulness, as they give access to all these 200 different fares so
that every customer can find the best one.
In July 2014, in the context of a research project, I studied the application of the Technology
Acceptance Model 83 for the ticket vending machines at Munich’s light rail stations. The Tech-
nology Acceptance Model states that three factors influence the degree to which users will be
prepared to accept an unknown technology:
• Perceived usefulness—can I achieve my complex objectives when I use the technology?
• Perceived ease of use—can I adopt the technology without major difficulties?
• Behavior intention—does the technology help me achieve the objectives and goals for
which I am using it?
To better understand how they worked for different user groups, I defined three clusters of
passengers and asked each passenger or passenger group to which they belonged:
• First-time users—travelers who have not used the Munich ticket vending machines before.84
• Rare users—regular passengers who use the vending machines less than once a month.
• Frequent passengers—those who use the vending machines at least once a month.
I measured for each user the time it took from the first physical contact to the moment when
the machine dispensed the ticket and, possibly, small change, before I asked for further infor-
mation. It took the frequent users on average 30 seconds to buy the ticket from the machines;
most of the time was spent either sorting the coins needed or processing credit or debit cards. It
took rare users on average 1:10 minutes, and first-timers on average 4:00 minutes. Three first-
timers gave up; they could not figure out what the correct fare was and how to buy the ticket for
that fare. I do not know whether they took a taxi instead or took the light rail without paying
(Munich has no barrier system that prevents from that), but in any case, they were lost as paying
customers for MVV, after having blocked the vending machine for a lengthy period of time.
Why does the city of Munich communicate high rates of satisfaction with the vending machines,
when a group of customers has so many difficulties using them? People from this group do not
turn up in the surveys conducted by MVV. The surveys focus on regular customers. Munich has
many visitors, and understanding their needs better would probably further increase its reputation
as a destination for city travelers. I consider it no good idea to frustrate them this way.
A similar situation can be found when we are writing complex proposals. Are we writing
for those who are familiar with the topics addressed, or rather for novices? Can we expect
readers to be experts, be accustomed to the terminology used and the concepts underlying the
argumentation, and be able to understand the metrics applied and technical data given? Are
83
(Davis 1989; Hess, McNab, and Basoglu 2014)
84
This group would also have included locals who used the MVV ticketing machines for the first time,
but this group did not show up.
 The Difficult Way to the Contract 143

we convincing the readers with a variety of options from which they can chose, so that they
are finally able to select what they actually need or want and configure the project and product
that suits them best? Or should we avoid overwhelming readers with details that they do not
understand, numbers that they cannot put into context, incomprehensible special lingo, and
choices that make them feel lost between equally attractive solutions?
Sometimes we have to write a separate section for each group, and may even have to create
an “in-between” category, as my observations at the ticket vending machine show, and we may
need to provide clear entry points for each of these groups, so that they understand which part
of the offer is written for them. One reason may be that we do not know who will read the
proposal, particularly if the process is done online; another reason may be the presence of a
mixed group with both experts and laypeople. It may then be a good idea to mark text sections
as dedicated to experts and others as moderately difficult or easy reads. The idea is always the
same: not to frustrate the reader with text that is either incomprehensible or lacks the desired
accuracy and depth of information.
I have found that organizations that make such a separation of groups of audiences are more
successful. One of my favorite examples is a pizza home delivery service, which has two entry
points in their online order service: One allows customers to order a “classic” pizza—that’s the
quick and easy way for the beginner, simply selecting a “preconfigured” pizza—or, for those
who want to configure a personal pizza, there’s an “expert’s mode” which is open to all options
and choices that the delivery service has on offer.
Aircraft manufacturers do precisely the same: An Airbus A380, the largest passenger aircraft
in the world, can be individually configured, which is a project with seven engineers working
for a year. An airline may instead choose to order a standard configuration, which is only spe-
cial in branding, such as colors, logos used, and similar small adjustments. The preconfigured
aircraft is cheaper, and the process of ordering and manufacturing is faster, but it will not have
special attributes or features that set it apart from the aircraft of competitors.
As with the pizza vendor or the aircraft manufacturer, I recommend providing two or three
entry points for readers of proposals: one with a focus on perceived ease of use, the other with
a focus on perceived usefulness for the expert, and possibly a third in between. The topic here
is not technology acceptance, it is proposal reception, but the underlying principles are the same.

2.15.3 Behavioral Expectations by the Buyer

When developing the offer, the seller should have a clear understanding of the expectations
that the decision makers have on the buyer side on the kind of leadership behavior by the seller.
Figure 2.27 describes how a seller is expected to propel change in a customer environment—
transactional or transformational—and on what level this is expected to happen.
Without such a clear picture, misunderstandings can lead to losing the business opportu-
nity, or to winning it and failing to meet customer expectations and finally losing the project.

2.15.4 The Friendly Dog Effect

Youth is the only problem that resolves itself over time. As a young project business manager,
I made a mistake more than once, until I learned my lesson and made sure that I was talking
144 Project Business Management

Figure 2.27 Four quadrants describe whether a seller in a customer environment is expected to
transform the environment or to act within it, and on what level this should happen.

with the right person on the buyer side for development of the business. This is probably the
person who is most difficult to arrange a meeting with—the person who has a lot of knowl-
edge of the organization, its strengths and weaknesses, desires and fears, and either makes the
critical decisions or strongly influences those who make them.
Families know the effect when they decide to get a dog as a pet for the children, and to get it
from the place where pets are found that need a family—the animal rescue. When the family
visits this animal sanctuary, they will be approached by some dogs that are exceptionally cute
and friendly, and with every glance of their eyes, they seem to say “please, take me with you”.
These may just be the wrong dogs. They may be the ones that chew on carpets and socks
until they need replacement, playfully bite the children (who do not consider this fair play
at all), and may be infested with parasites such as ringworm—which can be transmitted to
humans; and while these skin infections are not dangerous, they are hard to get rid of, and one
does not want to have them in the home.
So while the family was so much lured by the friendly and extravert behavior of this dog,
another one may be far more suitable, but this dog does not approach the visitors but stays
calmly in the background and remains unseen.
In large organizations, a similar effect can often be seen. The visitor from the vendor com-
pany is welcomed by a friendly person who listens to the full sales argumentation, watches the
presentations shown, and promises all-over helpfulness.
But this may be the wrong person. The person is pleasant, likable, and an easy contact
partner to talk with, but is not in a position to make the critical decisions. No one else in the
company listens to this person, and this is why he or she talks to the stranger, who has an open
ear and is grateful for any help offered. The person may have time because he or she does not
get too many challenging tasks, based on the assumption that this work would not be in good
hands. The person may promise to be a great door-opener for the vendor but does not have the
keys to open the right door.
One of the main concerns for a seller when trying to find entry to a prospective customer
organization is to separate the decision makers from those who are, in the end, not much more
than a comforting waste of time.
 The Difficult Way to the Contract 145

2.16 Non-Disclosure Agreements and Non-Compete Clauses

Some years ago, I was invited by a major multinational corporation to offer my services for
a qualification project with 80 project managers involved. The invitation had a document
attached entitled “Non-Disclosure Agreement” (NDA), which I was required to sign and
return. Only after that would I be allowed to phone the company contact given to schedule
an appointment. The company’s message made it very clear that without the valid NDA, there
would be no initial meeting and no business. For a self-employed trainer, who needs to fill a
schedule with training assignments and still has free slots, the decision to reject the NDA and
with it the business with the customer is a tough one. The NDA had seven pages written in
legalese that was hard to comprehend for a non-lawyer, like me and most people I know. It was
made enforceable by an amount of roughly US $120,000, which I would have to pay to the
company if I were to infringe the agreement.
Such NDAs come with a sequence of difficult decisions for a potential contractor. First,
there is still no business with the buyer, but one is first required to accept risks that may be
considered negligible for a major customer but are significant for a self-employed person. It may
well be that the business will never occur—something more likely than unlikely, as described
above—but the risks would nevertheless persist.
A second consideration was whether I should consult a lawyer to get a professional opinion.
The fee that I would have to pay to the lawyer would be my first investment in this customer.
I accepted that cost, and the opinion was worth the money. In essence, the clauses would have
prohibited me from successfully defending myself legally if I were falsely accused of a breach
of confidentiality, because such defense at court could be considered further breach of confi-
dentiality. The applicable law of the agreement would not be German law, the law that I know
best. It was a foreign legal system, which would cause additional uncertainties and might make
it finally impossible to defend myself from false charges.
For a qualification project of the enquired size, I would have to subcontract assignments to
trainer colleagues, which would add more risks, as I would have no control over their behavior.
A competitor might fake allegations against me, and I would have difficulty defending myself.
And so on. The risks that came from the NDA would jeopardize my professional existence
dramatically, and my first thought was to simply reject it.
I then decided to respond in a different way: I changed some sections in the document,
making the NDA a mutual agreement, in which the customer protects the confidentiality of
the contractor as much as vice versa. I changed the applicable law to German law and reduced
the liquidated damage amount to $60,000, which would also apply mutually. Then, I sent it
to the customer as required. They had told me to return the document, but not to do so with-
out changes, so I met the requirement. Some days later, I phoned the company. In this first
conversation over the phone, the woman I talked with confirmed the receipt of the NDA, but
it seemed that no one had so far opened the document. We then appointed a meeting. Two
days before that happened, I was informed that someone had opened the NDA and was angry
at me. The company still did not cancel the meeting but told me to be prepared for a difficult
discussion. I took this as a signal that they were still interested in buying my services.
During the meeting, the person responsible for purchasing training services showed me how
dissatisfied he was with the changes that I had made. The discussion then became a lesson in
146 Project Business Management

the “Golden Rule”,85 and on the reciprocity of obligations and rights that form the basis of a
partnership among equals. We also discussed how a major company can easily work under dif-
ferent legal systems, but a self-employed trainer cannot. We ended with a document that had
mutual obligations that were not enforceable with a liquidated damage threat or a penalty under
German law. The business was easy to win, because all other vendors had dropped out due to
the NDA. We then had a great staff development project, based on mutual trust and respect.
From a buyer’s perspective, entering a process to find future contractors bears natural risks
of mishandling of confidential information. This information may become accessible to third
parties, or the seller may use the information to compete with the buyer. Descriptions of a
buyer’s wants and needs regarding the desired products and services allow identification and
analyses of the company’s immediate plans and long-term strategies, but also of its weaknesses
and the threats it is encountering. Names and contact data of employees on the buyer side can
become effective targets of head-hunting measures. Because many sellers also serve the buyer’s
competitors, forwarding such information may not happen due to bad will, but may be caused
by negligence or coincidence.
The seller has the same risk: The buyer may use the information passed on in the offer to
boot out the seller and use the knowledge to self-make the service or product that was originally
enquired for purchase. The buyer may also transfer the knowledge to another, preferred seller to
enhance this company’s competitiveness. In an even worse case, the buyer may use the knowl-
edge acquired from the offer to develop new offerings and directly compete with the seller.
To protect from such risks, organizations have such NDAs, also called confidentiality disclo-
sure agreements (CDAs). There are various other names, but the purpose and the basic setup are
mostly the same: One or two parties (if only two parties are involved) agree to keep secret the
other party’s or parties’ confidential information, to which they get access during a developing
or existing relationship and for a given time period after the end of the business relationship.
Sometimes more parties are involved in a multilateral agreement; then several or all of them
may guarantee this confidentiality to others. The idea of an NDA is to allow one partner in the
business relationship to talk openly to the other about confidential issues without having to
be afraid that this confidentiality will be broken by the other party. Such issues may include:
• The business relationship as such. The future, current, or past business partner may, for
instance, not want the other party to use the name and logo on a reference list or in a
cloud of logos used on a presentation slide.
• The broad or specific contents of the relationship; for example, the products or services
that are to be delivered.
• The names of people involved on the customer side—they may be approached by head
hunters.
• Business secrets, technical secrets, and similar confidential information.
To be fully binding, effective, and enforceable, non-disclosure agreements must be contracts
by nature. They are not project contracts that will only be established later in the process, but
instead preliminary contracts with often much lower value; but while they are intended to
reduce risk for one party, they may increase risk to the other one, as the case story at the begin-
ning of this section showed.
85
“Treat others as you want to be treated”.
 The Difficult Way to the Contract 147

My recommendation is definitely to either have no NDA at all; have it as a non-binding,

diplomatic document with mutual responsibilities; or have it as a mutually obligating contract.
On top of the “Golden Rule” argument, the mutuality is necessary in some jurisdictions to
consider it enforceable, if indeed the NDA is considered a contract. An agreement that obliges
only one party is in such countries considered “gratuitous” and therefore invalid, or at least
unenforceable, because it lacks consideration—obligations on both sides.
Often, parties leave unclear which information is considered confidential and which is not.
The document should clearly state the conditions that make information confidential. The clear-
est way to achieve this goal would be to refer just to documents that are marked as secret, confi-
dential, etc. For some parties, such a clause may be too restrictive, so a wider reaching definition
may be found, but this should nevertheless be clear when defining the protected information.
Having signed an enforceable NDA as a seller, I recommend documenting everything that
may help you defend against allegations in a possible court case, including:
• Information published by the buyer and the buyer’s employees in magazines, social net-
works, and other media. This documentation may help you make your point in case you
have to verify that certain information was not treated as confidential by the buyer.
• Breaches of confidentiality by the buyer to your disadvantage. In case the buyer raises
claims, this will allow you to defend yourself by raising counterclaims.
• Documentation of infringement of the buyer’s confidentiality by a third party. In case
of claims by the buyer against you, this may show that the claim is unjust, because other
parties after similar actions have not been sued.86

2.17 Submitting and Presenting the Offer

2.17.1 The Most Fundamental Consideration for the Presentation
My customer Chicken Flea GmbH87 was perfectly prepared to present their proposal for the
customization and implementation of an issue management and tracking system at Earthworm
S.A. The company had spent a significant effort in the short time of two weeks analyzing the
needs of the customer for such a system, and on what would be necessary in regard to cus-
tomization of functions and features to adapt the software to the specific needs of the buyer.
They had interviews with the key people at Earthworm to ensure that they would support the
software implementation actively by communicating the change to employees and by provid-
ing resources.
Chicken Flea’s presentation team members made sure that they knew the details of the
presentation environment, so that they had the right materials with them, including their own
data projector, which was brand new and better than those in Earthworm’s meeting rooms.
In addition, they provided Earthworm with some expensively printed and bound copies of the
proposal to make a positive impression and had an A1-sized poster made that included the
basic concepts of the proposal as an easy-to-understand infographic. Because the pricing of

86
This defense will not work in all jurisdictions.
87
I changed the name and some details of the case story to protect my customer.
148 Project Business Management

Chicken Flea also seemed reasonable, they considered the chances good to win the business
with Earthworm.
I was invited to attend the meeting in order to give me some insights on Chicken Flea’s
business that would help me adapt seminar contents to their needs. During the meeting,
Earthworm’s executives raised many questions that related to their own uncertainty as to
whether the proposal addressed their actual needs. This was not meant as criticism against
Chicken Flea’s offer, they were actually uncertain. They had never used an issue tracker before
and were not sure how to make best use of such a product and how to integrate it into their
processes and working style.
In response to this uncertainty, the Chicken Flea people pointed to their vast experience
in implementing and adapting such software for customers and insisted that they had already
investigated what the customer needed and would respond to these needs with a standard
approach that had been found to work with other customers. Chicken Flea also emphasized
the need to ensure the integrity of their internal processes and how important it was that their
methodology would be implemented (the one on which I was about to train the company’s
project managers).
During the meeting, I had the impression that it was it was turning adversely for Chicken
Flea, and this impression was right. I later had an opportunity to talk with Earthworm’s execu-
tives, and they confirmed my impression that Chicken Flea’s presentation came over as arro-
gant and disinterested in their concerns and worries. Chicken Flea (my customer, with whom I
had experience) was actually great at resolving such customer problems, but at least during the
presentation that I had attended, its employees were unable to give the customer the peace of
mind that they would do that.
The decision a buyer has to make in hiring a project contractor is different from a standard
product order at an online web shop or from a physical supplier. There, a product is ordered,
and once the ordering and payment process has been completed, the business relationship is
over. There may be some long-term commitments, such as complaints, warranty, and service
needs, or software updates from time to time, but the essential business in most such cases
would be considered finished.
The decision of the buyer in a contract developing process for a project, and particularly
during and after an offer presentation, is based on several objective and subjective questions,
such as understanding of customer needs, price, and the capability record of a seller. On top of
this is a more delicate, often unspoken, and even unconscious decision criterion—the question:
“Do we want to bind ourselves with these people in an agreement for long-term cooperation?”
Many factors may influence the answer to this question:
• Rapport, sympathy, and chemistry
• Togetherness
• Shown openness of the seller’s people to the concerns and objections of the buyer’s
employees
• Business risks for the buyer that come with the seller
The question for the seller should therefore be: “How will we make the buyer’s staff want to
work with us?”
 The Difficult Way to the Contract 149

I would like to add to this contemplation that as a seller, one should ask the same question:
“Do we want to work for this buyer in a long-term cooperation, under a contract that will not
allow us to just walk away when we find the relationship more damaging than satisfying and
profitable?” The offer presentation is a moment at which both parties should decide if they want
to work with the other party, and if they decide that they do, should the do their best to also
win the sympathy of the other party.

2.17.2 Preparing the Offer Presentation

The success of offers and associated presentations are too often risked by seemingly minor
blunders that devalue all the time and effort invested. A case that I know was a group of young
professionals who wanted to present a software solution for team communications and col-
laboration in an organization that was more traditional and whose meeting room equipment
was not the very newest. The meeting room had an older but still powerful data projector that
worked only via a VGA cable, and the presenters had a tiny modern laptop PC without a VGA
connection. They had no adapter available, and the prospect did not have a suitable one either;
their corporate PCs were older, larger, and all had the VGA socket installed. The version in
which the presentation file was made was then too recent for the software installed on the PCs
of the buyer, so it could not be simply shown from a data stick. After a while, a solution was
finally found, but a lot of time was lost that could have been used for dialog about the offer,
and the impression on the buyer side was that the vendor was poorly prepared.
There are many questions that one should ask if one wants to use the buyer’s location and
equipment for presentation, including:
• Aspect ratio and screen resolution of the buyer’s presentation equipment.
• Connectors used at the location, such as RGB, HDMI, or even wireless.
• Are you expected to use a projector, an LED display, or will you do this online? You can-
not use a laser pointer on an LED screen, and it also will not work on a silver lenticular
screen used in some presentation rooms.
• Should you bring your own presentation equipment to the session?88
• If one has a video with sound as part of the presentation, what is the availability of audio
equipment, and how does the PC connect to this equipment—over a separate audio
cable or via an inbuilt channel in the video cable?
For presentations with audio, such as interviews, movie clips, or a welcome message from the
chairman”, I generally recommend having a wireless active speaker at hand that can be placed
inside the meeting room near the audience, if the customer has no audio equipment at the
location of the presentation. PC speakers are rarely loud enough, and during the presentation,
they generally point in the direction of the presenter, not the audience.
To make the presentation stand out among the other presentations that the buyer will
receive, and to make it memorable for the audience until the contract is awarded, it is necessary
88
For such opportunities, don’t save money on the quality of your equipment, but consider mobility and
noise generation of the equipment. Good projectors commonly come with good speakers too. They are
a practical solution to reduce the number of items to carry to the session and the clutter of cables.
150 Project Business Management

to almost “hijack” the presentation rooms temporarily. Here are some examples of items that
are useful for such a purpose:
• Expensive paper blocks and pens for notes that the listeners can use later use as memory
helpers.89
• Large posters or roll-up displays with the core arguments of the offer packed with infor-
mation that is of general interest.
• Door hangers, saying “Presentation, do not disturb” or similar that are placed outside
the presentation room. They are offered by many inexpensive digital printers and can
be used to protect the meeting from disruptions. Attendees often reuse them after the
session.
• Handouts with core information of the offer in packaging that conveys a sense of value
with a register that makes details easy to find. The offer, the handout, and the presenta-
tion should be aligned in structure and appearance.
• A USB stick or a similar item containing the data, which the audience can reuse later
for other data. Alternatively, a download option from a publicly accessible website serves
the same purpose.
Selecting such items must be balanced. They should communicate the worthiness of the ven-
dor and the offer, and at the same time elevate the presentation experience, but one must avoid
the perception of bribery. If the items are useful for the presentation, there should be no dis-
cussion on them.
When you have video sequences in the presentation, make sure that they are technically
professional. Loud wind noises during the greetings from the seller’s CEO make the message
hard to understand and the presentation appear unprofessional. Video professionals are expen-
sive people to hire, but they arrange light, background, sound, and many other details that
amateurs may miss and that separate a professional video from a dilettantish one.
A boilerplate of images and videos for use in such purposes can be helpful, but a membership
in a photo archive is also helpful. They have great functions such as keyword search and light
boxes that make selection easier, and the photo material is definitely of professional quality.
The selection of the speaker for the presentation is also important. The presenter must be
able to communicate to a group, balancing professional self-assurance against the perception of
uncertainty or arrogance. The person must be able to speak free from stage-fright, as a nervous
voice can damage the credibility of the seller and the offer. Depending on the will of the seller
to invest in the presentation, it may be beneficial to have a line-up of experts who can answer
other, more detailed technical, commercial, and organizational questions.
The seller’s representatives should have a good sleep before the presentation. Recent research
has shown that people who have been deprived of sleep are still able to sense raw emotions
in others, such as fear or rage, but facial expressions that signal sadness or happiness may
no longer be interpreted correctly.90 To ensure responsiveness of the presenters, this ability is
89
An alternative option is a footer section on each handout page with space for notes. These have the
benefit that the notes are written at the most useful place, directly under the text to which they relate.
90
(Killgore et al. 2017)
 The Difficult Way to the Contract 151

essential. After a long discussion, it may be also difficult to remember what was discussed and
agreed upon, even if minutes have been taken during the meeting. It may in this context also
be interesting that lack of sleep reduces the ability to memorize details.91
Most presentations take place at the buyer’s location. A better solution for the presentation
may be to have a presentation room at the seller’s facilities, which should then be well equipped
for the purpose of convincingly selling a solution. If the buyer comes visiting the seller, this will
allow the seller show the buyer their premises and has the advantage that the event takes place
on the seller’s home turf.
The presentation should generally be developed by a professional who has mastered the pre-
sentation software, not by a layman. It is often annoying to see presentations with great content
devalued by poor layout, unaligned bullets and indents in lists, a lack of images that help the
audience conceive the message, and slides cluttered with vast amounts of text in small font size.
Another common mistake is illegible text—for instance, black text on dark blue background.
One must also consider that text that is easy to read on the PC screen may change color and
luminance on the buyer’s presentation equipment, and what is easy to read at home will no
longer be that easy during the presentation.
It is advisable to limit the amount of text presented to the audience. People cannot listen
and read at the same time, so if there is too much text, the listeners will need to decide if they
want to listen to the spoken explanations or read the presented text. Spoken text and photos or
graphics are a better combination.
Before using accessory items such as laser pointers, one should make sure that the presenter
is practiced in using them, so as not to disrupt the presentation by uncertainty about how to
use the equipment.
It is generally recommended to have a separate computer at hand for presentation purposes
that does not have business data on its disc. This helps protect the data of the presenter’s organi-
zation and its business partners. It further avoids nasty situations in which, by coincidence and
neglect, such data become temporarily visible to the audience over the projector. On this PC, all
disruptive functions should be switched off, such as desktop notifications of news feeds or e-mails.
It is recommended to check the presentation at least twice for spelling and grammar errors.
Using an external copyeditor, ideally a competent professional from outside the business, is
preferable, as some errors are commonly overlooked by reviewers from the subject matter.
Among the grammar blunders commonly found in presentations are false apostrophes92 or
multiple exclamation marks.93 One should remove them from the presentation before they can
spoil an otherwise positive presentation.

91
(Kuhn et al. 2016)
92
Sometimes called the Greengrocer’s apostrophe, such as when “Granny Smith apple’s” and other
goods are offered, using a false apostrophe in “apples”, which indicates possession instead of a plural.
Someone may be in the audience who considers this unprofessional.
93
British author Terry Pratchett wrote in his novel Eric : “‘Multiple exclamation marks’, he went on,
shaking his head, ‘are a sure sign of a diseased mind’ ”. Someone in the presentation audience may
know the text passage.
152 Project Business Management

2.17.3 Preparing for Q&As

Good project management should always be a good combination of preparation and impro-
visation. An essential part of such preparation is to prepare for improvisation, which means
to have the resources in place that allow immediate adaptation to new tasks and requirements
that turn up. In a presentation, these may occur at any time, but they are most likely to come
up during a question and answer session.
A great backup is to have additional slides in the presentation that would normally not be
shown, unless a question is asked that they can help answer. They may include numbers or
graphics that help explain a difficult point. The slides may be placed following the final slide of
the presentation and would only be opened if needed, or have a setting “hidden” in the presen-
tation software and would be made visible when needed.
It may also be helpful to ask for a flip-chart, whiteboard, or similar to help visualize con-
cepts when answers need to be developed ad hoc. Certain questions are generally likely to be
raised, and one should be prepared to answer them:
1. Operational disruptions. To what degree will the seller disrupt the buyer’s operations,
and what will the seller do to reduce the impact of these disruptions?
2. Need for resources provided by the buyer. What resources will the buyer need, and
how long will these be blocked from doing their normal work?
3. Management attention. What seller-side management attention will the project have,
and how will this help the project meet the buyer’s requirements?
4. Cancellation terms. What are the various “points of no return” for the buyer that make
it expensive, difficult, or impossible to step back and terminate the project.
5. Assurance. What guarantees will the seller give that the project will be performed as
promised?
6. People. Who are the professionals that the vendor intends to use for the project? A brief
CV with experience, credentials, and a photo are what most buyers expect. A profile in
LinkedIn, Xing, Viadeo, or a similar professional network could also be beneficial.
Depending on the offer and the wishes and needs of the buyer, more questions are predictable
for the presentation team, and even if they are addressed in the prepared presentation slides,
the buyer’s employees may bring them up again and ask for more details or simply for another
confirmation. The better the team is prepared for questions, the smoother the presentation will
take place and the higher the likeliness of success will be.

2.17.4 Some More Don’ts of Offer Development

The offer may be a bid, a proposal, a pitch, or any other kind of offer; the following rules should
apply to avoid misunderstandings.
• When you are making an offer in a foreign language, don’t use translation software. The
results will probably be too erroneous to reflect the energy, time, and professionalism that
you put into offer development. The impression given to the buyer will be that of a blunder,
independent of the technical, or otherwise, quality that your offer has in your own language.
• Take care with measurement systems. In a car, 40° Fahrenheit (4.5° Celsius) means
that one needs heating; at 40°C (104° F) one would want to have the air conditioning
 The Difficult Way to the Contract 153

to cool the cabin. Misunderstandings on different measurement systems cost NASA a

$125-million mission to Mars in 1999, and can also lead to losses in offer management
and in project delivery.
• Acronyms can be dangerous. In UK, the acronym BS commonly stands for British
Standard, in the US, it has a more derogatory meaning. Never assume an acronym is
understood and that the buyer and the seller have the same understanding.

2.18 The Contract

The contract is the ultimate trophy of business development. It turns the buyer into a customer
and makes a contractor from the seller. It is the starting point of the customer project on the
contractor side, at least in theory; many projects are already active at this point of time.
Contract signature fundamentally changes the relationship between customer and contrac-
tor. The parties have stepped into a legally enforceable bond with mutual dependencies. Not
meeting obligations by either party may have significant consequences for the other, and both
are facing the possibility of the other party becoming insolvent, which means that the contrac-
tor can no longer deliver services and goods, and the customer can no longer ensure provisions
and enabling services for the contractor to use and can no longer pay the contractor.

2.18.1 Binding and Nonbinding Agreements

Agreements between a buyer and a seller may be legally binding or not and may be “complete”
to the degree that they can be considered a valid vehicle on which to base the business relation-
ship.94 Figure 2.28 shows different types of agreements between buyers and sellers.

Figure 2.28 Different forms of agreements.

Assuming that people are mostly not accurate in the use of terminology, it is helpful to
recommend distinctions among these types, generally based on the plain wording of these
descriptors:95
94
Nobel prize laureate Oliver Hart has convincingly stated that there is no such thing as a complete
contract. A contract can be accurate (and he recommends contracts to be that), but cannot be fully
complete (Hart & Moore, 1998). This will be discussed later in more detail.
95
These definitions may not be applicable in certain jurisdictions, and parties may use these terms
differently. I strongly recommend clarifying terminology at the beginning of the negotiations among
the parties and gain legal advice before applying them in agreement practice.
154 Project Business Management

• Memorandum of understanding (MOU). The term memorandum originated in the

diplomatic context, in contrast to a legal context. An MOU is a diplomatic document
that describes the status of an ongoing negotiation as a baseline to ease further discus-
sions. Jointly writing an MOU may also help identify areas of understanding or dis-
agreement that have not been clear to the parties before.
An MOU may also be used by the negotiators as a report to their mandating manag-
ers, which has the benefit over unilateral reports that the points of view of both parties
are addressed. The agreement does still not include enforceable consideration (obliga-
tions on both sides), and either party can withdraw from the negotiations without fur-
ther obligations to the other party.
• Letter of intent (LOI). “Letter” can have the meaning of a letter sent to a person as a
written message, or of a document that formally certifies and guarantees entitlements
of a party. The meaning here is definitely the second, as in other legally enforceable
documents such as letter of credit, letter of exchange (a kind of IOU), and similar legally
binding documents. In project contracting, an LOI is a small temporary contract that
eases developing the actually intended contract, which is much larger.
I had project managers in my classes of airlines and manufacturers who develop air-
craft configurations. When one configures a pizza on the website of a delivery service,
one is normally done in two or three minutes, and one can do it alone. Configuring a
new car before it can be purchased takes at least two people, the buyer and a salesperson,
and they may work on the configuration for up to 30 minutes. Developing a custom
configuration for a large passenger aircraft may be a one-year project, and it involves a
team of up to seven engineers from the manufacturer.
The three examples have something in common: One can only order the pizza, or the
car, or the aircraft after the configuration has been developed and agreed upon. In the
case of the airline and the aircraft manufacturer, both parties may enter an LOI, a con-
tract for the configuration development, which describes liabilities if any of the parties
steps back from the development project before the purchase can be finally closed. These
LOIs are still not sales contracts over the aircraft, despite the observation that some
manufacturers communicate them as if they were.
In the case of aircraft configuration, the LOI often also includes reservation of pro-
duction capacities on the manufacturer side to avoid long waiting times when the con-
figuration has been developed and the airline has finally ordered a batch. The LOI is a
contract that creates the legally protected environment that allows development of the
actually intended major contract.
• Gentlemen’s agreement.96 A gentlemen’s agreement, if it is documented at all, is a dip-
lomatic document that prescribes obligations that will not be enforced by legal action.
The parties rely on the mutual trustworthiness and long-term interests of both parties in
a mutually beneficial business partnership. It may sound illogical, but many agreements
on large project businesses are actually gentlemen’s agreements, which is great if the
96
Some people hold an opinion that a gentlemen’s agreement cannot be written down. Others allow
for written gentlemen’s agreements, as long as these are agreements that would not be taken to court.
One should further note that today it may be more appropriate to talk of “Gentlepersons’ agree-
ments”. I have met many gentlewomen in Project Business Management.
 The Difficult Way to the Contract 155

business goes as expected: Gentlemen’s agreements are quick and easy to enter and easy
to update and change if everything works out right. They can become a nightmare for
both parties if it does not.
• Letter contract (LC). The LC is in literature often considered a synonym to the LOI.
From my experience and observation, particularly with US contracting, I think they
are not the same. A letter contract does not prepare the field for the development of the
actual contract but is a temporary legal substitute for the actual contract, which has
been developed to a status that is final enough to make it valid through management
signatures. Obtaining such signatures as a final approval of the contract may be time
consuming. It may need signatures by managers who spend much time travelling; in a
public environment, parliaments and other entities may need to be involved, which may
take a lot of time. An LC is an agreement to take the full contract as if it were already
signed and valid and start working according to it. The idea is to win time for the project
and use resources that the contractor has available right now. It is commonly the buyer’s
desire to block these resources, while the contractor wishes to keep them productive and
generate income with them.
• Contract. There are actually two definitions of the word, and both can matter in Project
Business Management:
o The legal definition. Any agreement that is legally binding. There are exceptions in

some legal systems, but the validity generally comes with the characteristic that it can
be enforced at court in case of violation. Depending on the legal system, the char-
acteristics that define which agreements are legally valid and which are not can vary
substantially, but according to this definition, an oral agreement can be a full contract
if it has these characteristics.
o The commercial definition. For a business person, a contract is generally a document.

Together with applicable law, it sets out the rule book for the business partnership.
Depending on the business culture, this rule book may be considered sacred or as
a rough guideline. It is also a baseline when change requests are decided upon that
come with contractual implications and require amendments (alterations, deletions) or
addenda (additional rulings). It further provides information on applicable law, place
of court, and how to treat the document if a part of it may not be valid or enforceable.
A good contract is written in a way that provides a clearly elaborated delineation of what should
be considered in compliance with the agreed-upon terms and what is in conflict with them.
This sounds simple, but in project business reality, this delineation is often blurred owing to a
lack of time to develop the contract when deadlines are pressing, or to a lack of competence in
the project, when the budget does not allow hiring experts in contract development who are
competent in both commercial and legal matters. In a worst-case scenario, it may be up to a
judge to construe a set of criteria from the incomplete contract and the actions of the parties
to the contract, and then decide, based upon these criteria, whether an infringement of the
contract has been committed or not. Depending on the legal system and the personality of this
judge, the results can be different and are highly unpredictable.97
97
Research indicates that it my even matter whether a ruling is made before or after lunchtime (Kleiner,
2011).
156 Project Business Management

In the description above, it was assumed that the agreement was made between two parties.
Reality may be far more complex. In the aircraft business for example, it is quite normal that
one or more aircraft are bought by a leasing company, which then leases them to the airline.
The leasing firm sits like a proxy between the two parties, who do not have a contract with each
other, at least not for the sales and lending of the aircraft.
For configuration management, the direct contact between the airline and the manufacturer
will nevertheless be necessary to make sure that the manufacturer knows the airline’s require-
ments first hand and that the airline knows the options and constraints that the aircraft has in
place for configuration development. Project contracts can become complex treaties with many
parties involved, and with the growth of the number of these parties, the complexity that the
project manager and the team will grow.
Again, the terminology above is a recommendation, based on experience, observations, and
common sense, written by a business trainer, not a lawyer. It is a good idea to use this terminol-
ogy to avoid misunderstandings, but if these terms are used in the context of Project Business
Management, make sure that all people involved have the same understanding of what they
mean and that this understanding is in compliance with applicable law. The final liability
remains with you.

2.18.2 Signing the Contract

Contract signature is a very special moment in the development of the relationship between
the seller, who now becomes the contractor, and the buyer, who becomes the customer. It takes
a lot of uncertainty from the seller—particularly the uncertainty as to whether the offer made
will be accepted—but brings new uncertainties.
• Will the seller’s organization be able to meet all obligations so that the customer will not
be in a position to reasonably refuse payments?
• Will the customer meet obligations, particularly provisions, enabling services, and pay-
ments over the entire lifecycle of the project?
Uncertainties also exist on the customer side:
• Will the customer’s organization be able to meet all obligations so that the contractor
will not be in a position to reasonably claim impossibility to do what was ordered by the
customer?
• Will the contractor meet obligations, particularly functions and deadlines, over the entire
lifecycle of the project?
The moment of contract signature with one seller is ideally also the moment for the buyer to
inform other sellers that their offers have been rejected. This may be a short and otherwise
meaningless note or an elaborate explanation of the reasons. The latter would take some time
in a moment when time is particularly tight. One should consider it an investment in a future
procurement process, when this seller will be asked for another offer and may use the lesson
from this procurement to improve understanding and skills.
Figure 2.29 shows how contract signature is embedded in the typical process.
 The Difficult Way to the Contract 157

Figure 2.29 The competition for the contract with the buyer and with the award and the signa-
ture of the contract.

The description in Figure 2.29 may look idealistic to many practitioners:

• Even relatively large projects are often performed for customers without a written con-
tract. They are based on the assumption by each party that the other party is sufficiently
trustworthy and that the combination of mutual dependency and shared long-term
interest is strong enough to replace the document. If things go well in the business
relationship between the parties, this is the most efficient approach that the parties can
have. Developing and negotiating the contract costs a lot of time and energy, and dif-
ferent opinions and interests during that time can sour the negotiations before the busi-
ness relationship actually begins. Sometimes the relationship does not go well, and the
approach can then lead to massive problems and losses for at least one party.
• It is also not rare that project work is begun before the contract is finally signed. It takes at
least one of the two parties too long to finish the processes necessary for signature, or the
cause may be just a manager who is reluctant to sign or badly organized. The risk is the
same as with the business that has no contract at all. The business relationship is based on
mutual trust and interests, and the risks for the parties involved can be enormous.
• The description here assumes that the contract is made between two parties. There may
be more, and timing may then become even more difficult, when some parties have been
quick in signing and others have not.
From a legal perspective, one may consider a business relationship without a written contract
a verbal contract. Depending on the legal environment, a verbal contract may be considered
valid or not, but in all systems, it will be hard or even impossible to enforce such a contract.
One should therefore always be aware of the risks that come with the easiness and acceleration
of the business development process under a verbal contract.
158 Project Business Management

When the contract is signed, Project Business Management for both sides enters a new
phase: The buyer becomes the customer and the seller becomes the contractor. The contractor
is now in the position to consider the activities necessary to bring money home with the proj-
ect, but also enters the obligations that the contract describes, as much as the customer enters
obligations, which include payments, provisions, and enabling services. This will be the core
topic of the next chapter.

2.18.3 Startup Meetings: On-Boarding and Kick-Off

On-boarding meetings and kick-off meetings are often confused, but they are not the same.
On-boarding meetings help new team members to get a grip of the project and understand its
mission, the deliverables to be created, and particularly their role inside the project. These team
members may be internal, but a project manager can also perform on-boarding meetings with
staff from contractors.
The kick-off meeting is different. The project manager invites supervising managers to pres-
ent a plan of the project that is sufficiently mature to be shown and discussed and to get
the approval for the plan and the promise of support that the project will need. The kick-off
meeting is commonly done with members of the core team present to help answer questions
from the managers that go into more detail than the project manager has, as a preparatory
measure to allow managers to make a well-funded decision. A project can have a multitude
of on-boarding meetings, depending on the number of new people in the project and on the
need to on-board them. I also recommend off-boarding meetings for team members who have
finished their work and whose information on that work and observations on the cooperation
in the team may be valuable for the future management of the project.
There should normally be just one kick-off meeting in an internal project. In a customer
project, there is often the need to have two kick-offs: One as a meeting together with manage-
ment from the customer’s and contractor’s management, in which cooperation over the project
will be discussed, as well as how both organizations will act together to make the project
successful and the customer happy. On top of matters such as costs, workload, and key dates,
organizational disruptions may also be discussed, particularly if it is the customer whose busi-
ness will be the one that suffers, and who therefore has to agree with predictions on timing and
severity of the disruptions. A second meeting, an internal kick-off without the customer, can
then be held, in which the project manager discusses with his or her own management how the
project intends to bring money home and affirms the necessary internal support. This second
meeting will focus on all issues that are not the business of the customer.
Both kick-off meetings in the customer project may include core-team members, just like
the internal kick-off. Who constitutes the core team? I recommend the definition that the core
team includes all team members who are intended to stay with the project during the entire
lifecycle and who are supposed to regard the project’s success as a personal success, its failure as
a personal failure. A number of documents will be presented to managers in a kick-off meeting,
such as project scope statement, WBS, schedule, human resource plan, the various manage-
ment plans, and more. It may be appropriate to have some of them in two editions, one that is
shared with the customer and ideally formally accepted there, and a second that is an internal
edition and includes all the business information that is not the customer’s business—not as an
act of distrust, but to focus communications on what is relevant and appropriate.
Chapter 3
Contracting

3.1 Contracting as a Process

I have found that the term contracting is used differently within the profession:
• Contracting to refer only to the process of contract development. In this understanding,
contracting ends with the award of and signature on the contract.
• Contracting to describe the process of contract development, contract administration,
and final contract close-down. Procurement in this understanding is then the sum of
the different contracting lifecycles in a project from the buyer’s perspective, each of them
beginning with the first contact between seller and buyer and ending when all contrac-
tual obligations have been met. On the contractor side, where project business is mostly
focused on one contractual relationship, contracting includes all activities that relate to
selling, performing, and delivering.
In this book, I will use the term contracting in the second sense and assume that both buyer and
seller perform the process as described. In projects performed under contract, the contract types
and clauses agreed upon massively influence the project by assigning obligations, risks, and control
levels to the parties. Contracts connect organizations that may be located in different geographic
regions, countries, cultures, time zones, and also in different legal systems. This adds organiza-
tional and legal complexity to the common technical and interpersonal aspects of project manage-
ment, and project success may depend on how these various aspects of complexity are managed.

3.2 Introductory Questions

The following questions are written in the style of a certification test. They are intended to give
you an understanding of the contents of the following text section and the questions that will
be discussed in it. It may be interesting for you to answer these questions before you read the
section, and then again once you’ve finished it.

159
160 Project Business Management

1. What does one need to take care of in international contracts?

a) International contract law follows other rules than national contract law.
b) The contract is valid under a legal system that is probably unfamiliar to at least
one party.
c) International business works best without an international contract.
d) The contract works is a momentary snapshot of a power relation. It becomes less
important as this relation changes over time.

2. Which types of project contracts are commonly designated in codified law in civil
law jurisdictions?
a) Cost reimbursable contract with fixed fee
b) Fixed price contract, time and materials (T&M) contract
c) Product contract, service contract
d) Rental contract, purchase contract

3. What is true for contracts?

a) To be valid, a contract must be complete and without areas that are open for
interpretation.
b) Project contracts cannot be fully complete; there will always be areas that need
change and refinement later.
c) It is generally better to perform project work for a customer without a written
contract.
d) To be valid, a contract must be in writing.

4. A customer’s contractual obligation is generally to pay. What other obligations are

common in projects under contract?
a) Contractual provisions and enabling services by the customer
b) A fixed schedule by the contractor, including all work of the contractor
c) Buying a share in the contractor company by the customer
d) A scope statement written by the customer

5. A customer has a supply network of contractors working under a capped target cost
contract (TCC). What is this?
a) A T&M contract with cost/benefit sharing and effort ceiling
b) A cost reimbursable contract with cost/benefit sharing and cost ceiling
c) A fixed price contract with cost incentive
d) A cost reimbursable contract with cost/benefit sharing and price ceiling

6. A rolling award fee contract uses a monetary incentive to motivate what?

a) Meeting precisely specified contractual obligations
b) Improving the project and continuously saving costs for the customer
c) Improving the project and saving costs for the customer in a special moment
d) Getting additional functions from the contractor free of charge
 Contracting 161

3.3 Good Faith and Mutual Obligations

Descriptions of contracts between customers and contractors often assume that the parties
have rather simple obligations. In Project Business Management, these obligations can become
quite complex. Table 3.1 describes a selection from them; the system of mutual obligations can
include many more than what is described here.

Table 3.1 Some Typical Obligations Contract Parties Have Toward Each Othera

Obligation Customer Side Contractor Side

Basic obligations Payments Products and services
Deliverables Provisions Project deliverables
Services Enabling services Project services
Information As necessary for the contractor Progress data, problems,
to do the job performance, projections,
possibly work and costs
Guarantees and insurances Insurance of contractor staff Bid bonds, performance
and deposits for contractor’s bonds, insurance against
property on customer’s premises liabilities
Monetary considerations Payments Outlays
Organizational Project management Project management
Schedule Timeliness of provisions and Timeliness of deliverables
enabling services handover
Disruptions of project work Protection from disruptions Support of disruptions
a
Of course, depending on the contract and applicable law.

The term provisions in this context describes deliveries of goods by the customer that the con-
tractor needs to have in order to perform the business. Examples may be technical drawings of
items or site layouts that the contractor needs to do the work. It may also be data structures of exist-
ing database systems, interfaces, process descriptions, sample data that the contractor can use for
development, and many other items. For a project to translate and localize literature or software,
this original literature or software must be provided to allow the contractor to start translating.
Enabling services can include the addition of the contractor’s staff to the customer’s elec-
tronic communication systems by arranging internet and intranet access, accounts on the cus-
tomer’s e-mail server, corporate phone extensions, access to the customer’s internal call centers
and technical services, and possibly access to internal social network systems. Enabling services
may further include having a team site in place that the contractor can use together with the
customer for document exchange, online conferences, task assignment and tracking, and other
forms of team communications. Access to the corporate restaurant and to the coffee break
zones for contractor staff working on the customer’s premises is another common example.
There are organizations in which providing provisions and enabling services is uncomplicated
and mostly ad hoc; in others, complex and often tedious processes need to be followed.
I remember a customer for whom I had a two-years’ qualification program on-site, and
it took a full week until everything was in place so that I could start working. I could not
162 Project Business Management

complain about payment—the week was compensated by the customer—but the time that I
had left to meet some challenging deadlines was further shortened due to the delay. Provisions
and enabling services will be discussed in more detail later in this book.
Customers are often very clear and challenging when it comes to defining the obligations of
the contractor, whereas the contractors in turn are much less insistent when the customer does
not meet commitments timely and in full. This can lead to problems with costs, deadlines, and
other challenges for the contractor.
I recommend that contractors ensure that the correctness, completeness, and timeliness of
the customer in meeting obligations is documented in detail. This is of particular importance
when the customer’s performance is incorrect, incomplete, or late, and the contractor organi-
zation needs to defend itself in disputes over the correctness, completeness, and timeliness of
its services and deliveries. The defense of incorrect, incomplete, or untimely fulfilling of obli-
gations by the other party concurrent to one’s own errors and delays may be a strong argument
in negotiations on settlements, during alternative dispute resolution, or in the worst case, at
court, especially if the failures of the other party were among the causes for one’s own failures.

3.3.1 The Doctrine of “Good Faith” in International

Project Contracting
The intention of this book is to give guidance to project managers who are dealing with Project
Business Management, either on the contractor side to bring money home and make the cus-
tomer happy, or on the customer side to manage often complex and dynamic project supply
networks (PSNs). This book is not intended as legal advice, and no guarantee is given when
it is applied that the project, the project manager, the performing organizations, and other
stakeholders are protected from legal challenges. In case any kind of statements, documents, or
actions can have legal implications, I recommend seeking professional advice by legal experts
trained in the specific legal system.
The following describes the concept of good faith in the two great legal environments, com-
mon law and civil law. The legal aspect is important, but the relational aspect is even more
important in the context of this book, and I will discuss this also.
Common law has its roots in the British mediæval times, beginning in the 12th century. It
was applied later in the various British colonies, which mostly adhered to it after their indepen-
dence but then developed some differences in their application and interpretation. Its central ele-
ment is a system of precedent called case law, in which current decisions and opinions by judges
form a binding body of law for future cases with similar contents, a doctrine called stare decisis.
Civil law is based on old Roman law, but its modern expression is based on the requirement
to separate the three powers that are present in a state—legislation, executive, and judiciary—
as was postulated by the French philosopher Montesquieu.1 Because a judge is part of the judi-
ciary, he or she cannot make laws. The laws must be present in such a system before the judge
can interpret them. The strongest signal that a country has jurisdiction is therefore a universal
book of laws, a so-called civil code, which the judges then interpret and apply.

1
(Montesquieu 1748)
 Contracting 163

Originating in France, it was during the short time that Emperor Napoleon Bonaparte ruled
over major parts of Europe that the concept was taken over by European countries, further
developed, and from there exported to other countries and continents. To my knowledge, there
is only one place in common law where such a civil code exists, and this is California.
It may be interesting to see the distribution of common law and civil law worldwide, as
shown in Figure 3.1.

Figure 3.1 The global distribution of legal systems.2

Other legal systems in the figure include areas with mixed legal systems combining com-
mon law and civil law principles, with Islamic law, and with party law, where the law reports
to the ruling political party, which excludes the separation of powers.
The purpose of this book is not a fundamental discussion on legal systems with their ben-
efits and disadvantages, but in developing an understanding of the impacts that these differ-
ences can have on Project Business Management in a legal environment. Cultural differences
between parties can impact a project strongly, but legal differences can damage a project even
more, and to complicate things further, law is a major factor influencing culture: People com-
monly behave in a way that they do not get into conflict with the law, and as laws are different,
so will then be the behavior of people.
In essence, good faith means that one party does not intend to benefit from a contract by
causing damage to the other party. It is different from breach of contract, in that it includes
acts that are in contradiction not with the words of the contract but with its spirit, and with the
intentions that led to its creation. It deals with the asymmetry of knowledge and influence of
the contract parties and also of their ability to act to gain the benefits from the contract. Good
faith requires a party to consider the fair interests of the other party in statements and actions
and not gain undue benefits to the detriment of these interests.
Good faith is a requirement in human behavior in contractual situations. It is imposed by
certain jurisdictions to various degrees, but not in all of them.3 It can, for example, impact the
2
Some assignments of states are unclear and cause disputes as to which systems they actually belong.
3
(Moss 2007, Reeves and Murphy 2014)
164 Project Business Management

application of contractual terms if these are too unfair for one party, and a court may wish to
seek fairness among the parties; or when one party enforces its business interests against the
other in an aggressive way, so that the common goals of the business cannot be achieved.
The meaning of good faith in a contractual context is that one party assumes a degree of
responsibility for the success that the other party gets out of the project. It is primarily based
on the understanding that the contract parties are, first of all, not opponents but partners in a
joint endeavor.

3.3.2 Good Faith in Common Law

The Anglo-American legal system, also called common law, is rather hesitant to apply a concept
of good faith in contract law. The degree of such hesitance varies across the different common law
countries but seems visible in all of them. Common law assumption in a contract is that two
or more parties are in a partially or fully competitive situation, and the contract defines the rules
of this competition more than its outcomes. Caveat emptor—literally, the recipient of a benefit
must take care—means in essence that all parties “stand on their own feet” and have to take care
not to get deceived, at least as long as the perceived deception does not constitute criminal action.
The legal focus is on the interests of each of the parties and the degree to which the imple-
mentation of such interests can be limited by the interests of the other party. In common
law, there is mostly no obligation for a party to subordinate its own commercial interests to
the common interests shared by both parties, unless this is clearly stated in the contract. The
benefit of this approach is predictability: A judge will rather not assign responsibilities to con-
tract parties in hindsight that they did not describe in the contract.4 The disadvantage of the
approach is that a judge is not in a position to protect a contract party from unfair treatment.
Another disadvantage is that contract documents become very long in order to prescribe every
aspect of the agreement in exhaustive detail. These contracts are hard to read and generally
even harder to understand for laypersons in law—people who are involved in the execution
of the contract and should have an understanding of which actions or non-actions can be
regarded as compliant with the contract and which cannot.

3.3.3 Good Faith in Civil Law

In civil law environments such as Continental Europe, and also in major parts of Latin America,
in Japan, and in other countries, it is a basic principle that obligations must be met under the
application of good faith. In German, this is called Treu und Glauben, meaning trueness and
confidence. In France, it is called bonne foi, buena fe in Spanish, and so on. The concepts are
generally written into the civil codes that characterize these legal systems, and the precise
meaning is then found in actual court cases that required their interpretation in specific cases.
The good faith principle assumes that each party in a contract has certain basic obligations
against the other party or parties in addition to the plain wording in the contract. To varying
4
This is emphasized in a statement in the PMBOK ® Guide, 6th Edition, under Project Procurement
Management: “Anything not in the contract cannot be legally enforced” (PMI 2017, p. 461). This
statement is correct for a US standard; it is not true for an international standard.
 Contracting 165

degrees in different civil law countries, these duties particularly include that the actions (or
inactions) of a party must show an attitude of loyalty toward the other party, which includes
reliability, honesty, and thoughtfulness, and that the other party can in turn base actions on
the confidence that the first party acts in such good faith.
In a civil law system, contractual agreements are rather focusing on completing than com-
peting, and a judge will decide on a contractual disagreement based not only on the words of
the contract but also on its apparent spirit and on the principle of fairness and just expectations
of the parties. A benefit of this approach is protection of the parties in a contract from dishon-
est and disloyal behavior. Another one is that contracts are much shorter and generally easier
to read for the untrained person. A disadvantage is that the interpretations of an arbitrator or
a judge add uncertainty and unpredictability to the business relationship, because the under-
standing of what constitutes fairness may be different from person to person, and decisions of
judges may even be different before and after lunch.5

3.3.4 Good Faith and Basic Trust

A contract in a project consists of at least two parties, one as the customer and another one as
the contractor. In addition to the legal requirements, there will also be a relational connection
that develops concurrently with the contractual relationship. In essence, the quality of this
relational connection not only affects the degree of mutual trust between the parties but is
also affected by this mutual trust. A project needs both relational connection and trust to be
successful for two reasons:
1. I have already mentioned Conway’s law, which in essence says that teams working
together building systems must have well-functioning communications structures in
order to make the system function, which requires that its components are working well
together. Interfaces between teaming partners (and actually people inside their inner
teams as well) that are not fully functional will build components that add up to systems
that will not be fully functional, and each party will spend a lot of time proving that the
dysfunctionality is not its fault and that another party must be blamed.
2. A project manager who wants to know what is going on in a project needs people around
who trust each other and also trust the project manager. Distrust leads to communica-
tion failure, to prettification of issues that should be addressed urgently and vigorously,
and to people wasting energy and time with mutual blaming when it is instead neces-
sary to find solutions. Overly protective behavior disrupts any “Mission Success First”
culture—something we need to situationally manage projects in complex and dynamic
environments and finally lead them to success.
As the project manager on the contractor side, one commonly has two goals: Bringing
money home with the project and making the customer happy. The first task relates to the
survival of the contractor organization, its ability to respond to unforeseen challenges, and
its intrinsic power to grow. The second task is needed to turn the contractor into a (or even
“the”) incumbent supplier, which makes winning future business much easier. The second

5
(Levav 2011)
166 Project Business Management

task includes building a trustful relational connection with the customer, so that the customer
desires to keep the connection alive.
The first task may at first glance seem to contradict the second, because the profit will come
from the bills paid by the customer. Indeed, the first task may instead lead to destroying this
trust. To give an example, many project contractor organizations establish a position of a claim
manager, whose job it is to identify claims—constructive changes that allow for additional billing
by the contractor on top of what was agreed upon originally. Constructive changes are changes
that are understood to be covered under the contract only in hindsight. An example may be over-
time work done by employees of a contractor that was necessary to finish some contract work on
the premises of the customer, and because the customer has not sent these employees home at the
end of the regular working time, one may construe a change against the original contract and bill
the additional working time.
Intensive claim management can earn significant amounts of money for the contractor but
puts the customer’s employees under pressure. They will have to explain to their managers the
causes of the increased costs, and the reaction of these managers may not be driven by under-
standing but by anger. Customer organizations respond to this threat by employing claim
managers too, either to place counter-claims against the claims of contractors or to reduce the
bills that they have to pay to the contractor. Claim management may also be outsourced to
specialized contractors. It is highly competitive, and the desire to compete is often incompati-
ble with the need to complete.
On top of the communication failures and the incapacity to build complex systems by
parties who should work together, lack of trust and relational connectivity has many more
negative consequences:
• Communications with potential lawsuits in mind. Communications bear the risk
that the things communicated today may be used against oneself later in a conflict situa-
tion. Without intensive communications, the ability to build a working system in which
different components act toward each other gets diminished.
• Lack of perceived affirmative action. Humans need affirmation to go on with things
they do right. In an environment of distrust, praise will not be regarded as affirmation
and encouragement but as deception and flattering.
• Burnout of team members and contributors. It is existing knowledge in psychology
that burnout syndrome is commonly caused by the combination of two elements:
o A perception of effort–reward imbalance (ERI, a sensed discrepancy between what a

person or a group invests in a job and what is returned to that person or group), and
o Exhaustion. When people do not have enough confidence to talk timely about their

problem, and when the people they talk to do not have trust in them and take the
notion seriously, burnout will be a common result.
• Reduced error tolerance. It takes a lot of trust in people to assume that they will not
repeat an error they have made and will voluntarily fix the consequences. In an environ-
ment in which management behavior is not regulated by trust and by the desire to
sustain this trust, people who have made errors will feel that they should not talk freely
about these errors, which often increases the damage from such failures—solutions are
not searched for, too much time and energy is spent finding culprits, and those who are
 Contracting 167

pushed into the role will spend the same energy to defend themselves. The driver for
this behavior may be interpersonal, but it also has a business intention, when errors have
costly consequences and parties wish to shove these costs as liabilities on other parties.
• Need for micromanagement. Micromanagement apparently becomes necessary when
one believes that one cannot trust in the abilities, the sincerity, and the good will of
subordinates or contractors. Micromanagement adds a massive workload on the micro-
manager, binding time that should be used for actual management tasks by the person
and letting employees burn out.
• Misunderstandings. There are many causes of misunderstanding. Distrust is one of
them. A trusted boss who communicates the need for rework on an item to an employee
is considered a supervising person giving direction. The same communication from a
distrusted boss will rather be understood as criticism and possibly disrespect regarding
the work and the attitudes of the person.
• Sophistry. People will stick in a literalist fashion to the words of agreements and ignore
their spirit. The result will be a go-slow and work-to-rule attitude rather than one that
puts the “Mission Success First” and supports this with proactivity, quick responses, and
the preparation to go the extra mile when questions are raised and issues become visible
whose swift resolution is critical for success.
• Stress. Lack of trust and relational connectivity puts people and businesses under stress,
but, as the forensic psychiatrist Charles Morgan said, “No one becomes smarter under
stress”.6 When people’s mental resources are consumed by stress, their ability to act as a
problem-solving team diminishes, and the desire to have a fast, effective, and efficient
project remains unsatisfied.
One may argue that these eff ects of a lack of trust (and others) are also its origins, and this is
actually true. Distrust is a self-confirming vicious circle, and once the project finds itself deeply
entangled in this circle, it is hard to get out of it again. Once the project is locked in this circle,
it is hard to know what is actually going on. When the project manager asks for estimates, the
answer will be political estimates; when the project manager asks for opinions, he or she will
be given those opinions that people use in self-protection; and if they ask for facts and data,
these facts and data will either be cherrypicked and communicated selectively or completely
replaced by opinions. Without trust inside the project, a project manager does not know what
is going on in the project. Analyses of so-called “melon projects”—projects that are green on
the outside, but the deeper one drills into them, the redder they get—have repeatedly shown
that a lack of trust was the basic cause of why the project manager did not know what was
actually going on in the project.
Too much trust, and particularly too much trust in the wrong people, is also a cause for
project failure. All project managers, one may presume, have had the experience in their profes-
sional lives that someone to whom they had given the present of trust had then forsaken them.
The difficulty for project managers is to achieve a balance between the monsters of mutual
distrust on one side and gullibility and credulity on the other. In addition, project managers must
find out who deserves their trust and to what degree, and who does not. Trust has two layers:

6
(Bond 2017)
168 Project Business Management

• Basic trust. Trust in the environment and the people around one, based on one’s own
experience in life and also hardwired in people’s personality. When this trust exists,
self-protecting measures will be kept at a minimum.
• Individual trust. Trust in a specific person, based on his or her past behavior and cur-
rent living situation. When this trust exists, the person is considered trustworthy and
can be entrusted with confidential tasks and knowledge.
The principle of good faith builds on the desire of basic trust, which generally makes life
easier. In an environment in which basic trust applies and is justified, one does not need to
invest much time and money in protecting property. In such environments, one can just leave a
locked car parked on a road and trust that the car will still stand there. Where basic trust goes
very far, people even leave their cars unlocked and trust that no one will steal something out of
the car or even the entire car. In environments in which this basic trust is missing, cars are not
only locked but additionally protected with alarm systems and a steering wheel lock. Owners
will prefer to leave the car in a guarded garage for additional protection and have GPS trackers
attached secretly to the car that allow finding and reclaiming it if it gets stolen. In an environ-
ment with basic trust, life is much easier and simpler, and less money and time is invested into
protective measures. Basic trust in an environment where this is inappropriate leads to losses.
Basic trust is the basis of any true faith approach. In a business environment, basic trust
can be developed by people who are surrounded by persons and organizations with whom
they have had successful long-term business relationships, and who must be more interested
in a common long-term future than in quick gains from competitive and hostile behavior.
Functioning true faith implementation, legally but also in relational connections, in turn leads
to increased basic trust. Legal systems are a commonly ignored influencing factor of cultures.
Another factor is long-term orientation. The principle is comparable to restaurants in cities
with many tourists who casually visit them. In the center of the city, where many tourists
gather to see the famous attractions of the town, restaurants are often expensive and their qual-
ity of both food and service is below average. Restaurant owners have to pay expensive rental
costs, and they know that the unhappy tourist family does not matter that much—the next
family is already waiting for a free table. Restaurant owners at the outskirts of the city have
different business situations. Their guests are regulars, and if they stay away, they cannot be
easily replaced with casual customers.
This rule does not always hold: Sometimes restaurant owners in a city center follow their
passion to have a great restaurant as much as their desire to make profit; meanwhile, on the
outskirts, a restaurant with poor quality may open up, and while it may not survive for long,
this is just the time that one visits it. Another game-changer is restaurant reviews on popular
websites, written by normal visitors (and unfortunately sometimes polluted by friends or ene-
mies of the restaurant owner). These give a long-term quality motivation for the locations that
are more frequented by casuals as well, at least when they find that tourists read these reviews
before they decide where to go for a meal.
In general, long-term orientation is a great motivator for people to develop trustworthiness,
which in turn is the basis for sound trust. I cited Stephen Covey above, who said correctly: “If
you want to be trusted, be trustworthy”.7 Long-term–oriented people in business are generally
7
(Covey 2004, 51)
 Contracting 169

more likely to develop trustworthiness, because their interests are more in mission success than
in quick wins. In project management, and here particularly in Project Business Management,
where contractors and customers meet, as well as people and organizations in other roles, this
leads to a dilemma: We do not have much time to unhurriedly develop trust, we must function
quickly in order to deliver quick wins and meet the project’s deadlines.
In the complex PSNs in Project Business Management, people often have to deal with thus
far unknown organizations and individuals, and time for the development of rapport and trust
is scarce. Team members across the diverse organizations must get to know each other, develop
interpersonal interfaces as much as technical and organizational ones, and learn to manage the
little conflicts that turn up several times a day over marginal things in a way that allows them
to be successful together and to complete their work and, with that, finally the project.
These techniques can help build rapport rapidly with business entities for which you are
working as a contractor or that work for you in such a role:
• Identifying common interests and opinions. There are many areas of interest in sub-
jects such as hobbies, family, lifestyle, sport, pets, politics, etc. Although diverse business
interests can be disruptive for a relationship, the commonalities of interests drive bond-
ing between humans.
• Mirroring and synchronization. As with all primates, mirroring creates a perception
of togetherness. Raising glasses, drinking, and placing them back synchronously is an
example of how one person mirrors another.
• Spontaneous helpfulness. When a person drops a coin and another one stoops down
to pick it up, a positive relationship develops. This is just momentary and no big thing,
but if such situations reoccur, the bond gets a little bit stronger with every little service.
• Adjusting one’s tongue. When fast speakers slow down to make sure the other person
understands, or slow speakers speed up to match the quick thinking and impatience of
the other person, a signal is sent that the speaker desires effective communications. The
same happens when people who normally would use a strong dialect or accent turn to
standard language, or when people who normally use special terms explain issues in
layman’s terms.
• On-boarding of people with cultural congruence. In areas in which people speak
with a strong dialect, it may actually be helpful to have people on board who can speak
the same dialect. My own dialect, for instance, is Swabian, which can help build rapport
much more rapidly when I am dealing with people from companies such as Daimler,
Bosch, Porsche, among others, in which many people have grown up with this regional-
ism. This is particularly helpful given the traditional reluctance of Swabians to develop
trust with people they do not know. Cultural congruence may also mean having an
industry veteran on the team who knows the peculiarities of the specific trade.8
• Maintaining the right extent of eye contact. This is again culturally, but also indi-
vidually, different. With some people, one should apply the three-second rule and keep
eye contacts brief but frequent to avoid a perception of being intrusive or aggressive.
With others, it may be more appropriate to keep the eye contact much longer to show
8
In offer management for projects in a military environment, getting support from military veterans
may also be helpful.
170 Project Business Management

interpersonal interest. It takes some sensitivity to find the intensity of eye contact that
the other person is comfortable with.
• Questions. As with eye contact, questions can be a sign of interest and an essential ele-
ment of active listening. They can also come across as intrusive and annoying. Balancing
between too few and too many questions helps build rapport swiftly.
• Allowing others some time. This may sound counterintuitive, given that the task is
rapid rapport building, but it is much easier to build rapport with an exhausted person
once they have been given sufficient time to recover. A person that just came out of a
conflict will need time to relax and digest the experience. A person on steroids after a
great achievement may need a break to come back to normal reasoning.
• Saying “Thank you” more often than normal. There are few expressions that act more
universally as bonds than an honest, heart-felt “Thank you”. It signals attention and
interest. Consider person A telling person B that B has done a great job. B could say
“Yes, I know, and I am very proud of it. I think I can do even better, next time”; B’s
attention is obviously consumed with his or her own achievement. A simple “Thank you
very much” signals that B’s attention is directed to person A, building rapport instead
of seeking admiration.
All these techniques must be used with care. Each of them can create the impression of
flattering or of being intrusive, turning the good intentions into the opposite. The assump-
tion that rapport building is generally a well-controlled process also ignores the influence of
“chemistry” between humans—sometimes, it seems impossible that certain people will ever
develop a constructive relationship with each other. It may even be that such conflicts are very
old, going back to struggles from earlier projects in which the collaboration has not worked,
and it may then be difficult to overcome such vendettas—at least to do it timely before they
hurt the project. There are actually handbooks for rapid rapport building, mostly used by spies
and insurance salespeople, but their basic weakness is that human relations are not built by
following a handbook like a cooking recipe, but by applying the interpersonal and social skills
that most of us have as humans, by observing the people we are in interaction with, and by
applying basic common sense.
When companies in a project under contract strive for mutual rapport, trust, and a mission-
oriented relationship, another dilemma turns up. Many of the vendor selection methods dis-
cussed in the previous section are deeply competitive on price and/or attractiveness of solutions.
They are meant to be competitive, assuming that this helps the customer get the best offer for
the task. Now these vendors must finish competing and focus on completing the work in a
collaborative fashion toward the customer and other vendors that work for the project. The
qualities that made them win the contract are no longer helpful to fulfil it. To make things
worse, only now, when the vendor has become a contractor, will the company be granted access
to data and people on the customer side, and there is now a strong business case to invest time
and go into these details.
During the offer development phase, this business case was much weaker, given the com-
monly low hit rates in new-customer project business. It is not uncommon that, during the
planning of the freshly won business, it turns out that the price offered was too low, that dead-
lines agreed upon are not realistic, and that technical solutions desired are not feasible, at least
 Contracting 171

not with the resources that the project can use. A first approach would then be to find ways to
reduce costs, effort, and time that the contractor would need to invest in the customer project,
which is in essence competitive behavior. There are two limitations—one is the contract with
the customer and the requirements it specifies on the contractor’s work and results; the other
one is the rival objective of ensuring a happy customer during and after the project to ease
winning future business. Depending on the project and its legal environment, there may also
be regulatory or legal requirements that the project must meet and that restrain the freedom of
the contractor to descope or otherwise downgrade the project.
The need to transform from a player in a competitive setting to a fundamentally collabora-
tive affiliate, from a party in a rivalry-based contest to a teaming partner, can become a major
issue in a business situation with just one customer and one contractor. It gets much more diffi-
cult for the large PSNs that we find in more and more modern projects, and the complexity and
dynamics of these networks increase the potential for conflicts that can no longer be settled
among the parties and will need to be resolved in arbitration or even at court.
Another risk for the development and sustaining of inclusive PSNs are loose cannons. People
with a lack of self-control in challenging situations are common, and with the right support,
they can climb to high and influential ranks. An inconsiderate statement or action can be
enough to frustrate people and organizations involved and to disintegrate the PSN partially or
in total. Such a statement may be made in a moment of anger, and although this anger may
have cooled down after a short time, the damage created may be lasting.
The tension between divisive and competitive dynamics on one side and the need for an
enduring, inclusive relationship among teaming partners on the other will impact the project
during most of its lifecycle. The intrinsic dynamics of a business system with two or more par-
ties generally tend toward competitive behavior. It is like marriage: It takes two to keep it alive
over the years; one partner could be enough to end it. Game theory is very helpful in under-
standing the inner forces of PSNs, but for most cases, educated common sense is sufficient.
What can be done to overcome these disruptive tendencies? One needs some kind of glue.
In teams, one often finds specific persons who act as adhesives. They have a calming and inte-
grating effect on co-workers and can make a team from a loose group of people. When these
people leave the team, divisive trends will often prevail again, and the performance of the team
will suffer. New people may increase these divisive effects, and a team that worked well in one
moment will fail in the next.
Organizations often behave similarly. The presence of one organization can glue the differ-
ent organizations together, helping them collaborate even while their business interests may
diverge to some degree. When this glue organization leaves the PSN or when another organiza-
tion joins it that brings a more competitive approach with it, the PSN may lose both effective-
ness and efficiency, replacing alignment to the common mission with blaming, finger-pointing,
poor communications, and other protective behavior. Adhesive people or organizations (and
in them specific people who define the organizations’ attitudes and aspirations) should be kept
with the project, or if they must leave the team, efforts should be taken to find or on-board
other adhesive people or organizations that can effectively replace them.
This section discusses Project Business Management from the perspective of the contractor.
Contractors sometimes forget that in most situations, they have as much interest in a well-work-
ing business relationship as the customer does. Such relationships allow the contractor to
172 Project Business Management

contribute with pride to a common success story, to overcome difficult challenges much more
easily, and to finish the project with a reference story that helps win future business. In addi-
tion, it is the basis for becoming the incumbent seller for future business, making it easier to
win such business against competition.
Contractors can participate in sustaining the relational aspects of a PSN by upholding the
principle of good faith. In addition to the legal quality of good faith, which is described above,
good faith also has a behavioral and a relational quality. In civil law countries, particularly those
of the “Germanic” legal realm, including German-speaking countries, Scandinavian countries,
and even Japan,9 ignoring the principle of good faith can lead to successful damage claims by
the other party. The principle is enshrined in civil codes10 or constitutions11 and upheld at courts.
A signal that a jurisdiction values good faith is the common use of the term “contract partner”.
This reflects the concept that a business contract is first of all the foundation of a partnership
in which the parties join assets to achieve a certain goal. In most project environments, the
majority of assets provided by the customer are of a financial nature, and the assets provided by
the contractor are technical, human, and organizational. Reality will be more complex, because
customers often also provide non-financial assets (provisions and enabling services) and con-
tractors prefinance a lot of project work and goods in advance that the customer is expected to
pay later. In such a legal environment, implementing good faith principles is required by both
contract-oriented law and relation-oriented common sense.
In common law countries, the principle is rather nonexistent in jurisprudence, statutes, and
regulations. If it is present, much less emphasis it is given to it. But for the contract parties,
there is no restriction on applying the rule in the business relationship to ascertain mutual
respect and thoughtfulness and create an environment with resilience against the ever-luring
divisive forces threatening project success.
The key behavior is consistent care for the contract partner:
• Clear mission goal. To put “Mission Success First”, the mission success criteria must be
identified and agreed upon. Changes in the mission success criteria will occur; they will
also be decided upon in mutual agreement.
• Communications. The contract partner gets informed early of all incidents that may
impact the party’s success and its ability to meet obligations.
• Helpfulness. Other contract partners are offered help to increase their business success,
as long as this does not put their own business success from the contract work for the
project at risk. This may include financial help if a party is in liquidity troubles, technical
help if a task is found overwhelming, or any other action that supports the other party
and thus the common goal.
• Interfaces. Interfaces are defined in a way that all partners can contribute their best to
achieve the common mission, not in a way that benefits one party to the detriment of
another.
9
The Japanese Civil Code was modeled after the German Civil Code and enacted in 1896. With some
modifications, particularly after World War II, it is still in effect today.
10
For example, in Germany in §242 Bürgerliches Gesetzbuch (BGB), the Civil Code in Germany (Juris
GmbH 2013).
11
For example, in Switzerland in Article 9 of the Constitution (Admin.ch 2017).
 Contracting 173

• Error tolerance. It is accepted that errors will be made by contract parties. Accountability
is assumed, but solutions are searched for jointly.
• Self-restraint. Opportunities to gain an advantage over another party are dismissed.
“Loose cannons” are restrained or removed from the team. Decisions are made in the
light of their effects on the other parties and on the success of the entire mission.
• Mutuality. It is made clear that all parties adhere to the good faith principles to avoid
one party benefitting by going competitive while the others remain cooperative.
• Observation. A major risk for a “Mission Success First” culture are changes in owner-
ship and management structures of one or more parties involved. Even a bank as a cred-
itor may change an organization’s behavior by requiring a more aggressive business style
in exchange for new credits. Such new decision makers and influencers may no longer
accept the restraints that come with such a culture and make decisions for the benefit
of their own organization only. Such changes must be observed diligently and measures
taken early to avoid damages to the project.
• Continuity and consistency of purpose. I generally recommend being situational both
in the selection of practices that one applies—including approaches, behaviors, tools,
and techniques—as well as in how far one plans the future and how much independence
or interdependence one should establish for the project. The deep, underlying purpose
should be maintained consistently and continuously. If one develops a machine or a soft-
ware solution, the purpose of making it effective, efficient, easy to use, and possibly fun
to work with remains constant, and this must be communicated repeatedly.
• Owning shame. Overly competitive people do not feel any shame about their actions.
They are driven by appetites that are generally not held in high esteem, at least not among
people whose job it is to complete a project: joy of conflict, lust for power over others, desire
to hurt others, greed. Shame is the understanding that one is observed and judged based
on one’s behaviors and their results, and the desire to be judged in a positive light, not in
contempt. Shame performs a vital function in group endeavors, and people who do not
feel it strongly and therefore act shamelessly can disintegrate a PSN and the entire project.
• Praising by megaphone, criticizing by telephone. It is generally a good rule to spread
good news loudly but to communicate disapproval in private. This keeps up the team
spirit without sweeping issues under the carpet. Human nature is different. Most peo-
ple’s first reflex when they want to complain about something is to do it loudly, and there
are situations when this is justified and the best thing people can do. When the task is
to build a “Mission Success First” culture, it is rather detrimental to undercut teaming
partners in front of others involved in the project. If a teaming partner behaves unlaw-
fully, the way to deal with this should be to go to the police. In most other situations, I
recommend sticking to the rule to praise loudly but criticize in private.
• Joy from joint achievements. This may be the strongest driver of group success.
Experiencing what teaming partners can achieve together, results that one of them would
not be able to achieve alone, creates strong bonds among these partners and confidence
in a common future. Planning frequent quick wins on the way to the final result—inter-
mediate achievements that give evidence of how well the partners cooperate and show
the need for corrective action in areas in which they do not harmonize sufficiently—can
be helpful in creating strong bonds among these partners.
174 Project Business Management

• Respecting teaming partners. Disrespect toward other companies prohibits any

“Mission Success First” approach. Such disrespect damages the fine balance of techni-
cal, financial, and interpersonal commonality that is necessary to uphold the teaming
partnership. Disrespect blurs the perception that the joint achievements are truly joint.
Hurting teaming partners will create a sense of shame if it later turns out that these
partners actually deserve respect, but then, with teaming partners who do not deserve
such respect, it may cause a lot of schadenfreude. In any case, all the behaviors and atti-
tudes mentioned above will fail if there is no respect among the teaming partners, and
this respect must be mutual in feelings and actions. Completing over competing is an
attitude that must be shared by all. If this attitude is present only among some of the
project business partners, they may be able to teach the others by being a role model and
having some patience. If the other parties are not prepared to learn or if the time is too
short to be patient, it is better to apply diligence in selecting these partners and observing
the signals from a company that it is trustworthy—or not.

3.3.5 Concurrent Sourcing

There is another factor that often makes it difficult to build a cross-organizational team from
the customer and the vendors that is based more on the desire to complete than on competing.
Figure 3.2 shows a project team that is active in seller acquisition and selection for two pro-
curement items (#4 and #5) at a date n, which requires a high degree of competitive behavior.
At the same time, they are collaborating with other vendors who have already been selected and
are now under contract to complete procurement items #1 to #3. Changing social behaviors
between competitive and collaborative several times a day can be very difficult for these teams.
It can also be difficult for vendors who are in working mode for one procurement item and are
at the same time offering for another one.12

Figure 3.2 At date n the project team and the vendors have to act in a competitive way in the
procurement items that are in the acquisition phase, whereas they have to work in a collaborative
style in the items that are already worked on.

12
A customer of mine actually mentioned in a discussion that he considers this the greatest source of
problems between a customer and contractors: the inability to adjust behavior situationally.
 Contracting 175

Non-competitive behavior during source selection and contract development is considered

corruption in many jurisdictions, particularly in public projects. The borderline is thin that
separates the justifiable desire of a procuring project manager to have trustworthy partners
under contract on one side from favoritism and nepotism on the other. The borderline is also
thin between the reasonable need of a vendor to protect its own company from damaging
competition and possibly criminal bid-rigging of competitive sourcing.
The basic problem shown in Figure 3.2 may occur even in a project with just one procure-
ment item. At the moment of contract award, the project manager and the project’s procure-
ment team must change their behavior from acting more or less competitively and switch to
much more collaborative conduct. During the acquisition phase, their collaborative behavior
may have been very successful. They were able to reduce prices, rates, and fees; forced vendors
to accept challenging deadlines; and obtained guarantees for the availability of people, technol-
ogy, and other resources. The confirmation that applying pressure helped them do a good job
is then likely to encourage the team to carry on the competitive behavior into the phase when
the project work needs to be done.
Before the contract was signed, the buyer may have driven the seller into dilemmas, such as
deadlines that are impossible to meet, a price that would not cover the contractors’ own costs,
and agreement on technical specifications that the contractor is unable to meet. During this
time, the buyer did not have to care about these dilemmas too much—they were someone
else’s problems. Sellers during this time are also mostly parsimonious with the information
that they give to sellers: These sellers are not yet contract partners of the buyer, just parties in
negotiations, and the actual effectiveness of non-disclosure agreements (NDAs) is also often
questionable. After contract signature, the customer should put more consideration into them:
The impossibility of meeting a deadline will delay the project, missed technical specifications
will harm the benefit that the customer expects, and a contractor on the way into bankruptcy is
among the greatest nightmares for a project manager. The same is true on the side of the seller,
who considers the risk of giving the buyer too much information too early—information that
the customer employees may pass on to favored competitors or use to rethink their make-or-
buy decision.
The contractor may be in a similar business situation as the customer during the time of
contractual work. The relationship with the customer requires a collaborative attitude and
behavior, but the contractor may concurrently bid for other work items in the project. The con-
tractor at that time is also likely to be in bidding processes with other prospective customers,
and it may well be that the contractor has the role of a prime contractor who needs to bring
subcontractors into the project, possibly using competitive processes as well. In these scenarios,
the contractor should also situationally separate those work streams that favor a more compet-
itive approach from others for which a partnership attitude is required.
At the moment of contract signature, parties become partners—at least until the partner-
ship turns sour and the contract requires dispute resolution. Independent of legal requirements,
there will be an organizational and social requirement to develop a mutual good faith attitude
and consider the interests of contract partners when decisions are being made in order to ensure
completion of the project deliverables.
The time before the contract award is also very much characterized by mutual distrust, at
least in new business. There is no experience between the parties that tells them how far they
176 Project Business Management

can trust the other. Giving away too much information and other assets and making oneself
dependent on the other party may hit back later, but not doing that makes it impossible to
build the business relationship.
After the contract signature, except for the perception of success on both sides, the lack
of mutual experience still remains, but a credit of trust will be necessary—given the need
to work together—and there will be not much time to build mutual trust through common
experiences, because time pressure is already mounting in many projects at the beginning of
the contractual relationship.
After contract signature, when the project actually will be performed, one should also keep
Conway’s law in mind, which, as already mentioned, states that to build a working system as
a project deliverable, one needs a working system of all the teams involved. If the communica-
tion between these teams is insufficient, errors between the system components become likely
to obstruct the performance of the final system.

3.4 International Contracts

Two of the most fundamental questions in contract development between two parties in dif-
ferent countries are:
• Selection of the applicable law
• Selection of the place of court
Often, this comes during the discussions of whose terms of business will be applied, but this
may also be a separate discussion. It is common practice that, right from the start of negotia-
tions, both parties try to make their own legal system applicable and to select the place of court
near to their home location. To allow the conclusion of the project contract, it is inevitable that
one party will have to give in. The other party will then be the winner in this discussion and
have the benefit that, from the legal perspective, the project will be a kind of home match. The
“winning” party may celebrate this success. It has avoided all the risks that come with having
to act in an unknown legal system and, in a worst-case scenario, the costs and difficulties of
managing a lawsuit over a distance, and finally win the case. If the focus is just competitive
contract law, having won that argument is a clear success, and the considerations on applicable
law can be considered finished. The losing party will have to make sure that they manage their
risks that come from the agreement. This is caveat emptor on steroids.
If the reflection gets expanded to relational connectivity, includes good faith considerations,
and follows a “Mission Success First” attitude, things become more complicated. One of the two
parties must act under an unknown legal system. Actions that are acceptable and lawful in the
party’s own legal system may be rejected and illegal in the system under which it has to meet its
contractual obligations, and the organization may not even be aware of the differences. Most peo-
ple do not fully understand their own legal system—how should they understand a foreign one?
One may argue that this matters for lawyers only. It is their job to look at legal matters and
resolve them accordingly. Things are unfortunately not that simple. The language often used
in law and, even worse, in legally relevant documents such as contracts seems to be directed to
experts only, and a lot of it is incomprehensible to the normal citizen. But this law applies to the
 Contracting 177

normal citizen and is actually written for this person. In our daily actions as project managers,
on a private level as much as professionally, we create precedents that will influence the future
of the project in all aspects, and the legal aspect is one of them. Most lawyers who represent
parties in negotiations, in alternative dispute resolution, or during legal action confirm that
their success very much relies on the actions of the parties long before the actual case, and how
these actions have been documented.
Compare this with public street traffic. As participants in this traffic—that is, when people
drive cars—they have to adhere to the laws that regulate this traffic, and when the red light in
front of them turns to green, they will not ask a lawyer if they are now allowed to drive off. If
participants in traffic have a small dispute with another driver, or with police, they will gener-
ally sort this out ad hoc and in private. Only if the dispute over the legality of actions in traffic
becomes very demanding and the potential consequences, such as damages or penalties, are
high, will people call a lawyer to help them to follow formal processes. If I travel to a foreign
country and will drive there by car, my own one or a rental car, I will inform myself about the
rules of traffic that apply there with a special focus on those rules that are different from what
I know from my home country. Not knowing a law will not be an accepted excuse if I break it,
so it is my obligation to make myself familiar with it.
The same is true for project managers, whose actions or inactions will inevitably create legal
precedent. They have to understand what actions are appropriate in the home countries of their
teaming partners.
Project managers in international contexts are given valuable seminars today that help them
navigate through cultural diversity, but in my observation, no help is given to them to under-
stand and cope with legal diversity. Cultures and law interact intensively, but they are not
identical. Culture influences law, because the people who make these laws embue them with
their cultural understanding of what is right and wrong. Law influences cultures, because the
people whose collective behaviors constitute this culture behave mostly in a way that does not
bring them into conflict with the law.
On another level, cultures also interact with the behavior of those people who must enforce
the law. In the USA, where many people own guns in many states without legal restrictions,
police staff must take into account that the person they stop for speeding or running a red light
may be armed to the teeth and may be prepared to use those arms against them. In Europe,
where gun ownership is very much restricted and requires proof of reliability in character and
lawfulness, policemen and -women are allowed to be far more relaxed, just doing their job
without having to fear for their lives at every incident.
The person who gets stopped should understand the difference and behave accordingly:
In the US, one should rather show submission and avoid quick gestures that could be taken
as threats by the police person. In Europe, one is better relaxed and polite in order to avoid
making the conflict over the traffic affair a personal conflict. Most European police people are
experts in de-escalation and will show with a smile that they are thankful for self-constrained
behavior. US-American cops must rather be experts in self-defense. The mutual influences of
law and culture in a country are strongly amplified by the people whose job it is to ensure that
law is complied with in daily life.
My clear recommendation is to teach project managers who interact with customers, con-
tractors, and other business partners in foreign countries what the differences of their respective
178 Project Business Management

legal systems are. For many project managers, it may even be necessary to learn first the funda-
mentals of their own home law and how they relate to Project Business Management.
Again, one may argue that this is only a problem if one has lost the discussion on the appli-
cable legal system and has to accept working under the rules of a foreign system. All one needs
to do is to ensure that one’s home law is the applicable one, and there will be no problem. In
a competitive understanding, this is right. In a “Mission Success First” culture implementing
good faith, one would also consider the problem that, in international contracting, there is
always one teaming partner who has to work under foreign law, and both parties should discuss
and implement measures that are necessary to make understanding and complying with this
law easier for this company, particularly in consideration of the contract and the desired coop-
eration of the partners. In this approach, one does not desire to have any party involuntarily
breaching the contract or the law.
One should also consider: If all parties insist that only their own law is accepted, there will
no longer be international cooperation in project management. It is an inevitable element of
international project business that at least one party works in a legal environment that is not
its home environment.

3.5 Incomplete Contracts

I mentioned above the work of British–American Professor of Contract Theory Oliver Hart
and others on incomplete contracts. They refer to a situation which they describe as follows:
Imagine a buyer, B, who requires a good (or service) from a seller, S. Suppose that the exact
nature of the good is uncertain; more precisely, it depends on a state of nature which is yet to
be realized. In an ideal world, the parties would write a contingent contract specifying exactly
which good is to be delivered in each state. However, if the number of states is very large, such
a contract would be prohibitively expensive. So instead the parties will write an incomplete
contract. Then, when the state of nature is realized, they will renegotiate the contract, since at
this stage they know what kind of good should be traded.13
The statement was not dedicated to Project Business Management, but it applies to our field in
a compelling way for two reasons:
1. Customers and other requesting project stakeholders are often not able to describe their
needs. In my classes, I commonly ask a student if he or she sits comfortably. Because
I select someone for the question who is visibly sitting at ease, the answer is typically,
“Yes”. Then I ask this person to describe the chair they are sitting on. I then ask them
to focus on the cushion and describe the perfect softness of the cushion, between hard
and extremely soft. In most cases, the student will finally describe this as “middle soft” or
something similar.
Then I ask a second student whether, if asked to make the chair cushion, would know
what “middle soft” actually means, and how to make the cushion precisely “middle
soft”. Then, the answer is normally, “No”. We probably spend most of our time sitting.
13
(Hart and Moore 1998, p. 3, quoted with permission)
 Contracting 179

At work, in the car, aircraft, train, when we eat, and so on, we spend a lot of time in a
sitting position; however, we are usually unable to accurately describe the perfect seat
upholstery. In normal life, this is not a problem, but for someone who has the job to
make the perfect seat, it does. This limitation applies to many projects: Requesters are
typically not able to say exactly what they want until they see results. Then, they can
easily describe the attributes of the deliverables that make them unhappy.
2. Requirements on the project are subject to change. These changes have many sources—
internal as well as external—and have become an essential element of consideration
and methodological development in project management. Being open for such change
and adjusting practices accordingly was among the core topics of my first book, which
focuses on “The Dynamics of Success and Failure”.14
Figure 3.3 is a repetition from Chapter 1. It shows the result of a survey that I made in 2012,
and for which I received 140 responses from a globally dispersed group of project managers.

Figure 3.3 The dynamics of stakeholder requirements on projects.

The results show how projects with changing requirements as well as the inability of stake-
holders to describe requirements are far more common than projects with well-described and
mostly static requirements. The situations described in the survey require different planning
approaches, as Figure 3.4 shows.
Predictive approaches are good for situations in which the stakeholder requirements are
static, allowing for long-time predictions. The agile approach is appropriate for projects that
require exploration into the actual requirements and adaptation when these requirements are
changed frequently. Between the two extremes is the rolling wave approach, which combines
planning over a longer period than the typical one to four weeks in agile methods, but also
allows for changes when new information becomes available, environmental conditions of the
14
(Lehmann 2016b)
180 Project Business Management

Figure 3.4 Differences in planning approaches in project management.

project change, or stakeholders communicate new requirements. In a rolling wave approach, a

project manager asked what the planning horizon is and why it is exactly there should always
be able to give a well-considered answer.
Linked with these different planning horizons are diverse granularities in planning and
management approaches. Predictive planning is generally much more detailed, often micro-
managed, to address all aspects that can make the investment in development fail and the
plan fail. To avoid such failure, a strong top-down approach is then chosen in order to ensure
that the project will be executed as planned. Changes are a major threat to this approach: The
investment is valuable for projects with fairly predictable futures. Changes pose challenges,
because when plans need to be adjusted to them, the amount of time and effort for replanning
is also increased. Waterfall projects are mostly successful when the team is able to keep changes
and other disruptions out of the project. Waterfall approaches are not appropriate for projects
that include a high degree of discovery of requirements by exploration or creative work.
On the opposite extreme are agile approaches. They come with a much less detailed and
granular planning approach. Often, they have no plan at all. Teams are rather self-managed in
a bottom-up fashion. Scrum, for example, as the most popular agile method, has several roles
defined, but project manager is not among them. Agile methods are best for projects for which
the line applies, “Wanderer, there is no way, the way is made by walking”.15 Agile methods
have difficulties in projects that require long-term predictions—for example, in order to book
resources with a long lead time to have them available when they are needed, or to place orders
to contractors for long-term work that (1) needs to be procured early to allow for a detailed
vendor selection process, and (2) allows the contractor sufficient time to make what is needed.
From a project management rather than a legal perspective, a project contract is a type of
plan, developed to govern the joint activities of the parties involved. It is different from other
plans in that it binds not only the project: A work breakdown structure (WBS), a schedule,
a human resource plan, a communications plan, and other project plans are binding for the
project. The contract is binding for the entire organization. A contract is made of at least two
parties, possibly more, and this rule is true for all of them. The binding nature goes beyond
the limitations of the project and applies to the entire organizations. Another difference is the
15
(Machado 2012)
 Contracting 181

legal nature: In a worst case, when conflicts cannot be remedied elsewhere, the parties will seek
solution at court. Conflicts over plans are commonly managed inside the organization.
Besides this difference, similar rules apply to the contract as apply to those other plans. The
contract can have a planning horizon designating the end of the period in the project up to
which forecasts are made, resources are booked, and decisions are made. Figure 3.4 describes
different planning horizons on the continuum between agile and predictive approaches. The
planning horizon may be at the end of the work of the contractor, or it may exceed this date
when subsequent warranty and service agreements are included in the contract.
The contract may also be valid until a certain deadline or milestone, by which time it may
be renewed or replaced with a different one, or the relationship will then be terminated. The
contract may be seen as a sacrosanct document or as a loose guideline, and it may include clauses
for the processes that are used if the need for refinement or change arises. This would be simi-
lar to the schedule management plan that some project managers use to describe the processes
to update or change the schedule. Oliver Hart and his colleagues called contracts of such an
intentionally incomplete nature “agreements to agree”.16 The incompleteness is an adaptation to
the uncertainty relating to the future—and sometimes even the present—that comes naturally
with most projects.
In complex PSNs, refinements and changes become even more complex, as they can trickle
down the network, or up, and even laterally. A change at one place in the project may make
changes at other places necessary, and the more sophisticated the solutions used in the project,
the more difficult it may be to identify and manage all consequential other changes, and the
more important it gets. To make things even more difficult, many contractor organizations
have professional claim managers, as mentioned before, who try to find constructive changes
that allow for additional billing to their customer. Changes in complex PSNs open up many
opportunities to finding such implicit changes, with the effect that the “Mission Success First”
culture gets disintegrated and project costs rise massively.

3.6 Project-Related Contract Types

The following discussion will focus on contracts that relate to future work and results. If one
goes into a shop and buys an existing product off the shelf, or orders a product that will be
made as a one-off result in an existing production line, this purchase would also constitute
a contract, but this would not instigate a customer project on the side of the supplier and is
therefore not what I wish to discuss here.
The following contract types are the common types under which project contractors work
for customers. The official definition of contracts is another difference between civil law and
common law systems. In non-legal practice, the two typologies described in the following
paragraphs are often used interchangeably. I often hear project managers in Germany refer to
T&M contracts, which is in a legal sense not a contract type in the country, but a German
project manager is nevertheless free to use this typological description in the country when it
is correct for the contract.

16
(Hart and Moore 1998)
182 Project Business Management

3.6.1 Contract Types in Civil Law Systems

In civil law, project-related contracts are mostly defined based on the obligation of the seller,
which could be either delivering a product or another kind of more or less tangible set of results,
or providing a service, which means in essence to make resources available to the customer.
A significant difference between the two types of contract is that a result contract17 typically
establishes the legal obligation on the seller to provide warranty against hidden defects for a
defined period of time, which can, for example, last two years in the EU,18 one year in Japan.19
For a service contract,20 there is generally no such legal obligation, but the contract can have
such clauses, for example in a service level agreement (SLA) for software services, when the
agreed-upon service level is not achieved by the contractor.
Incentives and other kinds of bonuses are rarely used in civil law countries, but price deduc-
tions or partial returns of upfront payments in the form of contractual penalties are common,
and the word penalty is used here in its original meaning—as a punishment for not meeting
contractual obligations independent of a detrimental effect to the customer’s business, some-
thing that one would do better to avoid in common law countries.21

3.6.2 Contract Types in Common Law Systems

In common law countries, projects are rather typified by the obligation of the customer to pay.
There are two groups of contract types:
• Fixed price contracts (with/without price adjustments)
• Flexible price contracts, based on the work or the costs incurred in the project
Fixed price contracts can have different forms. The most common are:
• Firm fi xed price. A price has been agreed upon, and whatever happens, the price will
not be adjusted. This contract protects the customer from cost risks until the fi rst major
change request occurs or until a judge may find that it conflicts with the doctrine of
good faith (depending on the national law and the wording of the contract). There are
also examples in which contractors have found ways to blackmail the customer, who is
strongly dependent on the contractor.
• Fixed with economic price adjustments. These adjustments place some of the eco-
nomic risks that may impact project costs on the customer, such as changing costs of
raw materials and commercial off-the-shelf (COTS) goods, fees for preparatory work,
transportation, licenses and other intangible cost items, and more. The base price as such
remains unaltered.
• Fixed price with motivational price adjustments. These are adjustments to the price
based on the performance of the contractor in the form of liquidated damages (LDs) or
17
German: Werkvertrag; French: Contrat d’entreprise; Spanish: Contrato de obra.
18
Implemented in partially different national laws, for example in Germany, Bürgerliches Gesetzbuch
§438, §479, §634a.
19
Japanese Civil Code, Articles 566, 570.
20
German: Dienstvertrag; French: Contrat de service; Spanish: Contrato de servicio.
21
“The ban on penalties [. . .] is one of the oldest rules in Anglo-American law”. (George 2007, 52)
 Contracting 183

incentives. They are mostly linked with schedule dates, but they may also be linked with
delivering special items or functions that are not mission critical but are “nice to have".
Another application that one comes across from time to time is the linkage to operational
disruptions, which a customer wishes to be limited, and for which a monetary incentiv-
ization may be considered. Another form is award fees, which are paid for the subjective
performance of the contractor and are not subject to appeals at court. I will discuss them
in detail below. The mechanics of motivational price adjustments will be discussed later.
• Unit price contract. In this form of fixed price contract, the price is not agreed upon
for the entire project scope but for certain units that occur within it. An example is roll-
out projects that plan to implement software in a number of countries, and a price tag
is agreed per country.
Other contracts have a variable price, depending on costs incurred, resources made avail-
able for the project, or on the amount of work done for the project. They are a form of “lean
contracting”, in that changes in scope rarely require changes in the contract, saving time for
negotiations, rewriting, and re-signing.
The forms of variable contracts most commonly found are:
• Cost (reimbursable) plus percentage fee. For contracts of this type, the contractor needs
invoices from subcontractors and other vendors that can be re-invoiced to and reimbursed
by the customer, with an agreed-upon percentage as an add-on to cover the prime contrac-
tor’s general and administrative costs, account for the risks that come with the business, and
allow for a profit. The price to the customer is then the sum of original costs plus the fee.
• Cost plus fi xed fee. A disadvantage of the percentage fee contract is that it gives the
prime contractor an incentive to generate cost overruns, because these would also
increase the fee. A fixed fee avoids this; it remains static when costs for subcontractors
rise. Here, the price is also calculated as the original costs plus the fee, but the fee will
remain the same independent of the prime contractor’s costs.
• Time and materials. In these contracts, the price is calculated as an hourly or daily
rate, multiplied by the hours or days that human resources and equipment work for the
customer—or, alternatively, are available for the project—plus agreed-upon prices for
materials consumed by the project. These prices are agreed upon independent of the
original costs that incur for the prime contractor.
• Target cost contract. A cost reimbursable contract with a cost target agreed upon. Cost
overruns and underruns against the cost target are distributed in a shared ratio between
customer and contractor. Target cost contracts often have a price ceiling—a form of
mixed contract described in detail below.
• Variable contracts with motivational adjustments. These contract types can also be
combined with penalties, LDs, or incentives, as described further below.

3.6.3 Assigning Cost Risks to Contract Parties

The two definitions of contract types can be combined in four ways. Commonly, a result
contract is coupled with a fixed price for just this result—for example, a product needs to be
made and delivered, and a service contract often has a variable price to allow the customer
flexibility when more or less of the service is found to be needed during the project. This does
184 Project Business Management

not disallow selling a service at a fixed price. A common day-by-day example is a contract for
mobile phone and data services, which is based on a flat rate, a form of monthly fixed price, for
access to the provider’s mobile network.
Figure 3.5 shows how the assignment of cost risk varies between the different types of
contract.

Figure 3.5 Assignment of cost risks depending on the project type.

It is worth repeating that the protection from cost risks that a customer may seek by insist-
ing on a fixed-price result contract can vanish with the first change request.

3.6.4 Motivational Price Adjustments

When a certain delivery or completion date for a contractor is mission critical for the project,
the customer will probably impose a deadline. In addition to this critical date, there may be
dates that are desirable for the customer, but not critical. Such dates are often linked with
motivational price adjustments to incentivize or penalize the contractor to meet the date.
Motivational price adjustments may also be linked to other performance criteria, such as spe-
cial functions or features, limitation of operational disruptions during the project, and other
aspects of the project’s performance that have a value for the customer. Motivational price
adjustments can be agreed upon with every contract type described above. The handling of
such adjustment clauses is different between the legal systems and also between countries.22
Three types are commonly used, and different countries prefer different clauses. I will describe
a fourth type—award fees—further below:
• Contractual penalties. These are commonly used in civil law contracts. Independent
of an actual damage that missing a deadline or another criterion has for the aggrieved
party, a price deduction (or a partial return of payments made in advance) is agreed upon
if the damage case occurs.
The criterion is defined (mostly) by the customer to enforce that the contractor meets
the contractually agreed-upon criterion, a deadline, certain functionality or product

22
(Smith 2008)
 Contracting 185

performance, or a maximum duration that the project is allowed to disrupt the customer’s
operations.
In most civil law jurisdictions, prohibiting parties from including a penalty clause
in a contract would be regarded as an undue constraint of the parties’ freedom to enter
contracts as they desire, but the penalty will have to stand the test of good faith. A pen-
alty clause, for example, included in a contract by party A with the objective of unfair
enrichment to the disadvantage of the party B, will probably not pass this test and be
either reduced by a court to what it considers “reasonable” or not enforceable at all.
• Liquidated damages. As written above, the term penalty should be avoided in com-
mon law, where it will be considered highly suspicious when it comes to legal action. A
common-law judge considers the parties as free to enter a contract, but considers them
as generally being on eye level.
Each party has applied consideration—that is, whether the benefits that they expect
from the contract trump the disadvantages that they will have to bear, such as costs,
obligations to do or omit something, or risks that they will assume. The parties were
equally free to enter into this legally enforceable agreement or not.
Penalty signals a top and bottom situation: A country can penalize citizens, parents
can penalize children, and so on. A penalty that is in essence independent of an actual
damage and is not intended to compensate for such a damage would be a breach of
this eye-level principle. To the common-law judge, a penalty is rather a means used for
assault and battery than for an appropriate agreement between two or more parties that
at least have to respect each other’s free will.
The court will also want to make sure that the clause does not lead to unjust enrich-
ment by the aggrieved party. A solution used in most common-law jurisdictions is
therefore to talk of LDs instead, for which the aggrieved party receives compensation.
“Liquidated” in this context means that the damage has been assigned a monetary value
that is fixed in the contract, and whose amount the aggrieved party therefore does not
need to verify when the damaging situation has occurred.
Technically, LDs function identically to penalties, but their justification is different.
They are regarded as compensation of a loss that is hard to anticipate, calculate, and
verify, more than as an enforcement or deterrence.
• Incentives. The enforceability of LDs to litigate breach-of-contract situations has limita-
tions in most common law countries: If the actual monetary value of a damage suffered
by the aggrieved party is much less than the amount specified in the contract, and if this
amount is easy to forecast and to verify, a court will probably regard the claim from the
contractual LDs as inappropriate overcompensation and as a kind of hidden penalty,
which makes it unenforceable.
Contract parties may therefore seek for an alternative solution to such a malus sys-
tem by providing a bonus instead, in the form of an incentive for adhering to specified
agreed-upon criteria.
The most common criterion used for such adjustment clauses is probably linked to meeting
delivery dates. Table 3.2 shows how they work.
186 Project Business Management

Table 3.2 Motivational Price Adjustments Used to Motivate a Contractor to

Deliver by a Certain Date Under Certain Fixed-Price Contracts

Examples for Motivational Price Adjustments

1. Frequently Used in Civil Law: Contractual Penalties
Price for product xyz: €1,000,000
Penalty for delivery after 31 Dec: –€100,000
Net price in case of delivery after 31 Dec: €900,000
2. Frequently Used in Common Law: Liquidated Damages (LDs)
Fixed Price: £1,000,000
LD for delivery after 31 Dec: –£100,000
Net price in case of delivery after 31 Dec: £900,000
a
3. Frequently Used in Common Law: Incentives
Fixed Price: $900,000
Incentive for delivery until 31 Dec: $100,000
Net price in case of delivery until 31 Dec: $1,000,000
a
In my observation, most frequently used in the USA.

Incentives communicate a more positive attitude than do penalties or LDs, but they have
limitations. They do not protect a party from complete non-performance, from only partial
performance, or from other forms of breach of contract by the aggrieving party. Contracts that
involve incentives therefore often have an additional LD section in place to account for a party
missing minimum requirements that have been contractually agreed upon.

3.6.5 The Capped Target Cost Contract

This is a mixed contract type that I have found quite common in the USA, often inaccurately
named as “fixed-price plus incentive contract”. It is widely unknown in Europe and in other
countries. As we will see, it is not a fixed price contract at all, but it can turn into one when
cost overruns exceed a certain limit, called the point of total assumption (PTA). I will explain
the contract in a step-by-step approach.
It is always preferred for this model to assume that the contractor is a prime contractor, who
hires subcontractors. These subcontractors will send invoices to the contractor, who will (1)
pay them, and (2) re-invoice their amounts to the customer with the fixed fee added on top.
Often, a calculation of internal cost is used, which makes this contract type effectively a T&M
contract, in that these costs are a model rather than actual costs.
The explanation begins with a simple cost reimbursable contract with fixed fee, which the
customer is prepared to pay the contractor for general and administrative costs, cover the risks
of being the prime contractor, and allow for a reasonable profit. In the example, a cost target
has been agreed upon at $1,000,000, the fee is at $250,000. This adds up to a price target of
$1,250,000. We are looking at costs, price, and fees for three scenarios, one with a saving of
$500,000 against the target, one at target, and a third scenario in which the price exceeds the
target by $500,000. These three scenarios are shown in Table 3.3.
 Contracting 187

Table 3.3 Step 1: Cost Reimbursable Contract with Fixed Feea

Uncertainty over
500,000
scenarios (±)
Cost target 1,000,000
Fixed fee 250,000

Cost of the Price to the Margin for the

Scenario contractor Variance Fixed fee customer contractor
Low-cost 500,000 –500,000 250,000 750,000 250,000
Target 1,000,000 0 250,000 1,250,000 250,000
High-cost 1,500,000 500,000 250,000 1,750,000 250,000
Cost/price risk 1,000,000 1,000,000 0
a
It begins with a simple cost reimbursable contract with a fixed fee.

Following this model, the customer assumes the entire cost risk, $1,000,000 in the example.
The customer may complain that there is no incentive for the contractor to save these costs, and
therefore a cost/benefit sharing is introduced to the contract to give the contractor a benefit if
the costs to be paid by the customer are kept at a minimum by the contractor. The sharing ratio
of 80/20 for customer/contractor shown in Table 3.4 is quite common:
Table 3.4 Step 2: Cost Reimbursable Contract with Fixed Fee
and Cost/Benefit Sharing (Target Cost Contract) a
Uncertainty
over 500,000
scenarios (±)
Cost target 1,000,000
Fixed fee 250,000
Cost/Benefit
80/20 (Customer/Contractor)
sharing

Cost of Customer Contractor Price Margin

the share of share of Fixed to the for the
Scenario contractor Variance variance variance fee customer contractor
Low-cost 500,000 –500,000 –400,000 100,000 250,000 850,000 350,000
Target 1,000,000 0 0 0 250,000 1,250,000 250,000
High-cost 1,500,000 500,000 400,000 –100,000 250,000 1,650,000 150,000
Cost/price
1,000,000 0 800,000 200,000
risk
a
The cost risk is now shared between the customer and the contractor. The margin that the contractor makes
is the fixed fee ± the contractor’s share of the cost deviation from the cost target of $1,000,000.

The margin for the contractor can be calculated price – cost or fixed fee ± contractor’s share
of the cost variance over the scenarios. It now entails a risk of $200,000. The customer is left
with a risk of $800,000. This mirrors the 80/20 sharing ratio.
188 Project Business Management

The customer is still unhappy. It may be taxpayer’s money that is being spent, or there may
be other reasons to cap the price. The price ceiling in the example has been fixed at $1,450,000,
which means that this is the maximum price that the customer will have to pay, according to
the contract. Table 3.5 shows the numbers.

Table 3.5 Step 3: Target Cost Contract with Price Ceilinga

Uncertainty
over 500,000
scenarios (±)
Cost target 1,000,000
Fixed fee 250,000
Cost/Benefit
80/20 (Customer/contractor)
sharing
Price Ceiling 1,450,000

Customer Contractor Price Margin

Cost of the share of share of Fixed to the for the
Scenario contractor Variance variance variance fee customer contractor
Low-cost 500,000 –500,000 –400,000 100,000 250,000 850,000 350,000
Target 1,000,000 0 0 0 250,000 1,250,000 250,000
High-cost 1,500,000 1,450,000 –50,000
Cost/price
1,000,000 600,000 400,000
risk
a
The cost risk is now shared between the customer and the contractor. The margin that the contractor makes
is the fixed fee ± the contractor’s share of the cost deviation.

Compared to Step 2, the low-cost and target scenarios remain the same, but the high-cost
scenario changes very much. The invoices from subcontractors in the example are adding up to
$1,500,000, but the payment by the customer has been capped at $1,450,000. The contractor
has therefore a negative margin—a loss—of $50,000. The contractor’s risk over the three sce-
narios has increased to $400,000, but at this point, the cost risk is already fully assumed by the
contractor. The contract that was originally a cost reimbursable contract with cost/benefit shar-
ing around a cost target has turned into a fixed-price contract, and the customer has shifted the
full cost risk onto the contractor.
It is interesting to note that the cost point at which the contract changes its character must
be somewhere between $1,000,000 and $1,500,000. This so-called point of total assumption
(PTA), meaning the total assumption of the cost risk by the contractor, is calculated following
the formula:
PTA = (price ceiling – price target) / client share + cost target
For the example, this computes to:
PTA = (1,450,000 – 1,250,000) / 0.8 + 1,000,000
= 200,000 / 0.8 + 1,000,000 = 1,250,000
 Contracting 189

Table 3.6 shows what happens with the contract when the PTA is reached. It is the cost
number at which the contract becomes a fixed-price contract.

Table 3.6 Step 4: Calculating Costs at the Point of Total Assumption (PTA) a

Uncertainty
over 500,000
scenarios (±)
Cost target 1,000,000
Fixed fee 250,000
Cost/Benefit
80/20 (Customer/contractor)
sharing
Price Ceiling 1,450,000

Customer Contractor Price Margin

Cost of the share of share of Fixed to the for the
Scenario contractor Variance variance variance fee customer contractor
Low-cost 500,000 –500,000 –400,000 100,000 250,000 850,000 350,000
Target 1,000,000 0 0 0 250,000 1,250,000 250,000
At PTA 1,250,000 250,000 200,000 –50,000 250,000 1,450,000 200,000
High-cost 1,500,000 500,000 1,450,000 –50,000
a
The contract changes its type at the point of total assumption. Up to this cost number, the contract is a
target cost contract with cost/benefit sharing, but when the costs exceed the PTA, the price can no longer
go up, and the contract turns into a fixed price contract.

3.6.6 The Rolling Award Fee Contract

The previous contract type may not seem easy to understand, but another group of contracts
cause even more confusion: award fee contracts.
The award fee is an incentive that is not linked to objective data such as a delivery date or
the achievement of certain measurable performance criteria by the project’s deliverables, but
rather to more subjective criteria that culminate in the question of the degree of excitement that
the contractor could cause for the customer. If the customer is not sufficiently excited with the
contractor, this incentive will not be paid to the contractor, and the contractor cannot appeal
against this decision at court. One cannot sue someone for not being excited.
When I introduce the award fee contract to my students in project management classes, the
common reaction is amazement combined with incredulity. Can it be that customers decide on
their own discretion whether they are going to pay this kind of bonus to the contractor? And
if yes, why should they do that?
Award fee contracts can be a strong means to develop a system of relational contracts in a
complex PSN, which should combine good faith among its members with agility and intensive
communication. In order to achieve that, the award fees should be paid in a rolling fashion.
There are some prerequisites. The first one is a budget to pay the fee when the contractor deserves
it. Developing this budget is rather simple. One estimates the costs that poor communications by
190 Project Business Management

contractors, protective and competing behavior, and general distrust will cause to the project in
the form of costs for delayed benefit realization resulting from late delivery, rework, lost incen-
tives, overtime work of project staff members, and more. One then takes a part of that sum, I
recommend 20 percent, and makes this the budget for the reward fee. When the budget is cre-
ated this way, the contractors are essentially asked to support the customer in saving costs, and
a part of these cost savings are then shared with the contractors. I recommend communicating
it precisely as such a share to the contractors.
Then a simple scoring system should be installed, which both gives immediate feedback to
the contractor for the cases that the award fee is paid or not paid and helps the contractor under-
stand the causes. I recommend a monthly rhythm, but bi-weekly or bi-monthly may sometimes
be more appropriate for specific situations. Figure 3.6 gives an example of such a score sheet.

Figure 3.6 A score sheet indicates the results achieved by the contractor and how these are
computed from a rating and a weight.
 Contracting 191

The score sheet should have between five and eight, maximum ten criteria to make it swift
and easy to fill in and to understand. I recommend for the weighting column numbers between
1 and 10 for simplicity, but any other number range can do as well. For the rating, numbers
between 0 and 10 can be used, or other numbers that are preferred. I saw one case using per-
centage weights that added up to 100 percent. This has a disadvantage in additional calculation
effort needed when one wants to change the number of criteria or the weights assigned, but
otherwise, this is also OK. The scores are then calculated from multiplying the rating with the
weight for each criterion. The total score is then calculated as the sum of the individual scores,
and this number will lead to the payment of the award fee when it equals or exceeds a pre-
defined passing score, or the fee will not be paid when the score is less than the passing score.
The passing score in the example has been calculated as 396, 72 percent from the maximum
score possible, which here is 550. Because the contractor has exceeded this number in the
example for June 2015, the award fee will be paid for this month.
The rolling award fee contract based on a weighting system has some advantages for rela-
tional contracting:

• It can be combined with any other contract type—such as fixed price, cost reimbursable,
or time and materials—and also with the civil law contract types.
• The contractor knows how to contribute to the project to make the customer happy.
• The feedback to the contractor is short term, which makes it more effective.
• Every time the award fee is paid, mutual trust is increased.
• The contractor understands the value that the customer assigns to the different criteria
and knows on which criteria more emphasis should be put, because these bring higher
effect on the total score.
• The contractor gets immediate feedback on the performance of the last month and can
make adjustments in the current month to better delight the customer.
• The contractor’s project manager gets a business case to invest more money, time, and
energy in the customer; if this is done well, it will pay back.
• The contractor gets additional monetary resources that can be used to the benefit of the
project—for example, to hire better people and acquire better machinery.
• The contractor can use some of the fee paid and share it with subcontractors. In such
a way, a cascade of award fees can ensure meeting customer needs and building great
deliverables across complex PSNs.
• Award fees are a strong endorsement for the contractor’s ability to perform. Documented
in a way that protects the privacy needs of the parties involved, they can help win better
future business.
• They are an appropriate addition to contracts that include the use of agile methods, in
that they can make the successful implementation of agile practices one of the criteria.
• A score sheet is a great basis for a meeting between the parties to discuss successes, issues,
and areas in which improvements can be made.

There are some reasons that can make the rolling award fee contract fail:

• High-pressure environments. Under high pressure, people learn less the lessons of
effective collaboration, but more how to hide poor work or to blame others when this
192 Project Business Management

is no longer possible. The rolling award fee contract puts completing over competing;
high-pressure environments bring competing back.
• The intention not to pay the award fee. The rolling award fee contract works best
when the customer’s intention is to pay the fee, not to save it. The fee is a signal that the
customer has a great project that, among other benefits, saves cost, and the customer
gives some of the savings back to those who help realize these benefits. The payment of
the award fee should be considered good news on the side of the customer, not a liability.
• New areas of conflict among contractors. A contractor may find that poor collabo-
ration by another contractor leads to dissatisfying results and costs him an award fee
payment. A contractor may also find that the good work delivered led to an award fee
payment to another contractor, who took the laurels for the results. It may be a chal-
lenge in a complex PSN to always correctly assign the successes to the right parties, and
I recommend considering this question early, before work is assigned to the contractors,
to avoid new blame games.

3.7 Protective and Relational Contracting

One of the most difficult things in project management is knowing where the project actually
stands and where it is going. High-pressure environments are common in project management,
and I know many practitioners and experts who speak proudly of them. In an e-mail, I was told
some time ago, by a person I would consider a kind of bedrock in project management, that
pressure in a project “separates the men from the boys”. My response was that I would consider
a project successful when it delivers what is needed and wanted, and do not care about such a
separation. The promoters of pressure are very noisy, and their arguments seem convincing at
first glance.
This book is more focused on helping project managers to complete, but there are situations
that require our ability to adopt a protective and sometimes very confrontational attitude and
to compete. It may be a good idea to reduce the number of such situations to an unavoidable
minimum and focus most of the time on building a “Mission Success First” culture in the
project and around it, but sometimes too many stakeholders are involved, and too often others
bring up conflicts that we cannot avoid.
The rolling award fee contract is an example of a contract type that attempts to reduce
pressure on the parties involved and to build an environment based on good faith, mutual
trust, and fairness—the objectives of relational contracting. The capped target cost contract
discussed previously is rather unfair by design: Cost savings are shared in mutual partnership,
but cost overruns will be the liability of only one party—the contractor—from the moment
that the PTA has been exceeded, as Figure 3.7 shows.
The contract intends to ensure that both customer and contractor benefit from cost sav-
ings—the customer by a lower price and the contractor by a higher margin. The same happens
when costs increase, which also increases the price for the customer and reduces the margin for
the contractor, but only until the price ceiling is reached, at which point the contractor’s cost
are at the PTA. At this point, the sharing agreement gets broken, and further cost increases will
directly reduce the contractor’s margin, as the price does not grow any further.
 Contracting 193

Figure 3.7 Cost savings to the left of the target line are shared between customer and contrac-
tor. Sharing cost overruns ends at the point of total assumption, from which point on the contrac-
tor assumes the total cost risks.

The attitude of the price ceiling is obviously to protect the customer from cost increases
beyond the PTA by putting the full cost risk on the contractor from this point on. One may
argue in defense of this contract type that it is solely the contractor who is responsible for meet-
ing the cost target and for keeping the project costs under the PTA; there are of course projects
for which this statement is true.
For many projects under contract however, achievement of cost objectives relies as much on
the customer’s discipline and self-control to meet cost targets as on the contractor’s skillful-
ness. The customer can make a project less or more expensive with the quality and timeliness
that buyer-side obligations and communication needs are met. A customer can also influence
project costs with the way change requests are brought up and with the speed that upcoming
problems that need the customer’s input, responsiveness, and collaboration for resolution are
sorted out.
Protective contracting is based on confrontational behaviors: The central question is, “How
can we shield ourselves from liabilities and damage claims when things turn nasty, making
sure that these claims will be directed toward the other party?” Relational contracting rather
asks, “How can we protect all parties involved from things turning nasty?” Both approaches
may be appropriate in specific situations; the problem is to foresee what a business relationship
will look like in the future and then find the best balance between the two extremes.
194 Project Business Management

3.8 Refinements and Changes

Swallowtail, LLC.,23 is a construction company that had the order to build a major section of a
new light rail line in a US city. The work was done under a combination of cost reimbursable and
time and material (T&M) contracts, the former for work done with subcontractors, the latter for
work done with their own staff and equipment. The customer used the freedom that the selected
contracts offered to exert a lot of influence in the project, which was considered mostly beneficial
to the contractor, because it allowed them to invoice additional work to the customer and keep
resources busy and billable for a much longer time than was originally agreed upon.
Under the circumstances, the project got delayed by several months. One day, Swallowtail
received an unwelcome surprise: a threat to open a lawsuit by the customer over a significant
amount of US dollars for delays in the project. The delays added costs to the project that the
customer needed to bear and also prevented the city from gaining earnings from ticket sales.
The customer wanted the contractor to pay damages for these losses, which the contractor was
not prepared to pay.
The case was then taken to court. During the court hearings, Swallowtail’s project manager
reported the existence of 50 change requests from the customer that needed to be assessed for
impacts and risks, and that needed decisions on their acceptance or rejection. The large number
of change requests, Swallowtail claimed, was the single most important cause for the delays.
The customer rejected this statement, saying that they essentially had five change requests, a
number that one would consider normal in a project of such a magnitude and duration. The
case was finally settled in a compromise agreement, which granted the customer about 50 per-
cent of the original claim. For the contractor, the settlement removed all profit from the project
but prevented it from becoming a loss maker.
The most fundamental problem in the project was the unclear distinction between refinement
and change. The customer considered certain changes (in the eyes of the contractor) to be refine-
ments. Under the contracts selected, the city would pay the additional costs anyway, which gave it
the feeling of freedom that many great ideas could be implemented and disliked work results were
reworked. The contract also gave the contractor a feeling of certainty that the changes were only
beneficial to the business with the customer. The contractor missed the fact that the customer
might not understand how the requests would lead to delays and finally seek reimbursement for
them. The damage from the lawsuit to the business of the contractor was indeed significant; the
year in which it happened turned out to be the worst years in the history of Swallowtail.
I have repeatedly used the words refinement and change. In a contractual environment, it can
be important to have a clear understanding of their common aspects, but also, importantly,
their differences. The assumption by a customer that a new requirement or specification is a
refinement, while the contractor considers it a change, is among the most classic causes of con-
flicts in customer projects. So what is what?
Refinement is a normal and mostly predictable element of progressive elaboration. The roll-
ing wave approach used in the project uses only rough estimates and descriptions of work and
results early in the project. Later, with more knowledge, these requirements and specifications
will be made more precise and accurate.

23
Name changed.
 Contracting 195

Table 3.7 The Distinction Between Refinement and Change

Refinement Change
Generation A result of an iteration cycle Requested by a stakeholder
during progressive elaboration
Generally predictable? Yes No
First contact for request Project manager Preferably: Project sponsor
Changes requirements on Mostly: No Mostly: Yes
scope, time, etc.?
Should impacts and risks Often Always
over knowledge areas be
analyzed?
Requires a written change No Preferably: Yes
request?
Customer projects only: No Yes
Should amendments to the
contract be considered?
Should the change decision Possibly Possibly
be escalated to the project
sponsor or CCBa or an SCb?
Should the process be Yes Yes
documented?
Can it turn a project from Unlikely Yes
crisis to success and vice
versa?
Fixed price contract: Can Probably no Probably yes
the price be renegotiated?
All contracts: Can deadlines Probably no Probably yes
be renegotiated?
Will the projects benefit If done at the right time, yes If done at the right time, yes
from it?
Can it drive the project into Unlikely If poorly managed, yes
problems or even crisis?
a
Change Control Board
b
Steering Committee

Change requests come as surprises. If one would have known about them in advance, one
could have planned differently. Processes for change requests should be in place for all projects
unless agile methods are used, which are basically designed to cope with frequent changes.
These change request management processes become essential when projects are performed by
companies working together in customer–contractor relationships. Here, two or more process
worlds, one in each organization involved, must be coordinated to manage these changes.
Often, refinements and changes are hard to separate from each other. A predictable refine-
ment may be used by a party to include some changes. Now that the books that include the
196 Project Business Management

specifications, forecasts, and plans are opened to process and document refinements, there may
be some things that could be done differently. It can also work the other way: Assessing the
impacts of a change request may make it necessary to plan things in more detail; otherwise,
the understanding of the impacts gets lost in the overall ambiguity and vagueness of the plans.
This overlapping may make it difficult to clearly separate change and refinements, but a brief
glance at Table 3.83.7 reveals how important this distinction is.
The case story shows how ambiguity in the question of what constitutes a change versus a
refinement can lead to conflicts that damage the project at least for one party in the contract. I
recommend paying particular attention to clarifying the borderline between the two forms of
project management activity to avoid misunderstandings and quarrels.
The intention to replace competing with completing in the project supply network and to build
and uphold a “Mission Success First” culture jointly with our contract partners forces us to be
acutely aware of the moments when this intention gets challenged.
The management of change requests and refinements are indeed among the most vicious
challenges to this intention. These are times when it will not be sufficient for our contract part-
ners to do their work as ordered; They have to pay particular attention to business interests,
their own and those of their customers, contractors, and other partners in the project supply
network. Moments of change and refinement are the moments when projects can be improved,
but also when the foundations can be laid for future troubles—in the worst case leading to
lawsuits and other forms of crises in the PSN.
Chapter 4
Managing Complex and
Dynamic PSNs

The book so far has focused to a major degree on sellers. Some aspects, such as contract selec-
tion and the entire contracting process, would be interesting for both sellers and buyers. The
following contents are more of concern for buyers who need to manage complex and often
highly dynamic project support networks (PSNs). They should nevertheless also be of interest
for sellers. One of the major success obstacles and profit destroyers is poor project management
on the customer side. Another reason is that a project manager working for a prime contractor
is simultaneously a contractor to the customer and a customer of the subcontractors. In project
management under contract, it is often impossible to say: “This is not my business”.

4.1 Change Requests in Complex Project Supply Networks

Crane Fly Corp. is a manufacturing and service company with several large production facili-
ties distributed all over the world. In 2016, they initiated a project to expand one of their exist-
ing production plants in order to increase output and modernize production. A major element
of the project was an innovative production management system, with thousands of sensors
distributed over the plants to measure the utilization and condition of equipment and tools
and to identify areas for ongoing optimization during production. Data from these sensors
would be collected in a data processing center, which would analyze it and make decisions for
actions. As a learning system, the data processing center would be able to make these decisions
in interaction with humans first and later turn to an autonomous modus operandi. The com-
pany called that “artificial intelligence in manufacturing”.
Another major goal was reduction of setup times, when production batches needed to be
changed, and cutback of idle times of machinery and personnel, which was in some of their
productions at over 90 percent. They considered this number highly inefficient and costly and
desired to reduce it by bringing higher flexibility and adaptivity into production workflows.
The data processing center was expected to help on this task as well—it was expected to cut

197
198 Project Business Management

back maintenance, repair, and overhaul (MRO1) durations—and to also reduce the mean time
between overhauls (MTBO) by calling for services based not on equipment working schedule
but on equipment condition and on the health of the allover manufacturing process.
A further option was to use highly flexible and mobile production equipment whose idle
time during one production workflow, in which it was not involved, could be utilized to sup-
port another one. Humans can support such a task to some degree, but the complexity of a
production facility, in which a major number of production workstreams runs concurrently,
might prove too complex to achieve such flexibility without computer help. The business case
was clear and easy to achieve, assuming that the project would run smoothly (which it obvi-
ously did not, otherwise I would not tell its story here).
The principal element of the new production management system was the data processing
center, whose development and implementation were outsourced to Earwig Ltd. Earwig was the
main contractor to a number of subcontractors. The company was expected to manage these
companies, but also to cooperate with other direct contractors of the customer, which provided
services and delivered additional infrastructure for the manufacturing plant. The plant was
huge, and so was the number of contractors involved, with an even larger number of interfaces
between them that needed to be taken care of so as to not negatively affect contractual work
assignments by doing work twice, leaving work half-done, having workers and equipment stand
in the way of others, and allowing conflicts between contractors’ workforces to develop.
In the end, the project was successful, but with major delays and at about twice the costs
that were originally budgeted. Post-mortem analysis of the project showed that this was caused
by the frequent change requests by management on the customer side that needed to be imple-
mented by the complex PSN. Every change request trickled down the PSN, and even seemingly
minor changes at one point of the plant not only needed to be communicated to the contractors
but also resulted in changes to their prices, fees, and delivery dates. Management was not aware
of the major claims from contractors that would follow these changes and were not prepared to
listen when they raised the changes. Change request management in a complex PSN is difficult,
because it can change the contractual relationship as much as the interpersonal.

4.2 Introductory Questions

The following questions are written in the style of a certification test. They are intended to give
you an understanding of the contents of the following text section and the questions that will
be discussed in it. It may be interesting for you to answer these questions before you read the
section, and then again once you have finished it.

1. Which of the following observations is NOT among Lencioni’s five dysfunctions of a

team?
a) Avoidance of accountability
b) Absence of trust
c) Fear of conflict
d) Inattention to processes

1
Another commonly used explanation for the acronym is maintenance, repair, and operations.
 Managing Complex and Dynamic PSNs 199

2. A project supply network is developed, consisting of organizations that act together

to deliver the mission of the project. Each of the companies in the supply network
works under contract for a company that took over this project as a prime contrac-
tor from a customer. What is probably true for the business situation?
a) Subcontractors will do work for the project, and the customer has no contrac-
tual relationships with them.
b) Subcontractors will do work for the project, and the customer has contractual
relationships with the prime contractor and also with them.
c) The prime contractor will not be responsible for delays, quality problems, and
other issues caused by subcontractors.
d) The customer will have to accept the prime contractor’s prohibiting direct com-
munications between customer and subcontractors.

3. A customer has subcontractors nominated to the prime contractor. What does this
mean?
a) For a specific work item, a subcontractor has been named by the customer. The
prime contractor must subcontract this company for the item.
b) The customer gave the prime contractor a list with companies that are approved
as subcontractors for a certain work item, and the prime contractor selects one
of them.
c) The customer gave the prime contractor a recommendation list with potential
subcontractors, but the prime contractor is free to subcontract to someone else.
d) The prime contractor is given a blacklist with companies that are not acceptable
as subcontractors, and while the prime contractor is free to subcontract, listed
companies are excluded.

4. A customer project is approaching handover and acceptance. What is true for that?
a) Final handover and acceptance must always be done in one process, whose
completion includes proof that both are formally done.
b) Although an orderly acceptance is important to ensure the success of the proj-
ect, the value of the final handover is rather negligible.
c) Although an orderly final handover is important to ensure the success of the
project, the value of acceptance is rather negligible.
d) Final handover and acceptance can be done in one process or separately, pos-
sibly with weeks between the dates.

5. Alternative dispute resolution (ADR) includes which of the following?

a) Mediation and arbitration
b) Coaching and mentoring
c) Distributing boxing gloves
d) Smoothing and avoiding
200 Project Business Management

6. A project manager on the customer side deals with a prime contractor but does
not know who the subcontractors in the project are, and she is not interested in
knowing. She is assuming that the prime contractor has the full responsibility, and
that everything is covered in the contract with that company. However, why should
it matter to her?
a) The subcontractor organizations are potential employers that could recruit her
when the project is failing and she gets fired.
b) The customer has legal and contractual obligations against the subcontractor
and vice versa, and she must ensure that these are fully met to avoid legal action.
c) The contract regulates what happens when the subcontractors do not perform.
It does not protect the project from such malperformance.
d) The subcontractors’ employees are potential objects for recruitment. They are
experts and know the project and its products.

4.3 Teaming Agreements

Teaming here is used to describe how two or more organizations work together to achieve
results that each of them alone would not be able to achieve. As discussed above, they do that
by tapping the assets of other organizations. In the simplest teaming structure, which consists
of just one customer and one contractor, the customer taps into those assets of the contractor
that can be used as project resources, such as people, equipment, licenses, and management
attention, and the contractor taps into the customer’s financial resources by sending invoices.
Even such a simple structure may become more complex—for instance, considering provisions
and enabling services that the customer must provide to facilitate the contractor’s work.
What does teaming look like when there are more organizations involved? There are in
essence three types of teaming agreements that are used for projects, as Figure 4.1 shows. Each
model has advantages and disadvantages, which will be discussed below.

Figure 4.1 Different structures of teaming agreements. The parties in the black boxes are in charge
of managing the project. The arrows depict the general flow of money.
 Managing Complex and Dynamic PSNs 201

4.3.1 Direct Procurement

In this model, the customer manages the project and all contractors directly. The customer
hires the contractors and has independent contracts with each of them. The contractors have,
in most cases, no contracts among them, except possibly for commission when one contractor
brings another one into the business.
Often, one of the contractors is in a lead role. This contractor may have the best relationship
with the customer, may have the largest share of the work, and may have critical licenses or
any other assets that are essential to completing the project. Direct procurement comes with
benefits and disadvantages:
• Benefits
o Generally lower costs, because no prime contractor is paid for organizational work.
o The project manager considers only the interests of his or her own organization in

decision making.2
o Default of a contractor damages the project only partially.

• Disadvantages
o The customer may not have sufficient experience and knowledge to perform the project

and manage the contractors.

o The customer bears the risk of failure alone, particularly failure from poor performance

of the contractors and from a lack of coordination of their work.

I will discuss these options again later in this section.

4.3.2 Indirect Procurement

The customer contracts the organizational tasks to the prime contractor, who in turn contracts
this work partially or in full to one or more subcontractors.
The lead contractor role in this model is naturally filled by the prime contractor. The cus-
tomer may be aware of some or all subcontractors assigned or may not know at all that the
direct contractor has given work to subcontractors.
In some cases, the customer is involved in the selection of subcontractors by naming them,
which means that the customer tells the prime contractor who to work with; by nominating
them, which means that the prime contractor gets a list of accepted subcontractors from the
customer and makes a selection from this list; or by an acceptance process, in which the prime
contractor must introduce a potential subcontractor to the customer and can only close the
contract with the company when the customer has approved the subcontractor. It may also be
that the customer leaves the prime contractor the freedom to select and appoint subcontractors.
In all these cases, the prime contractor will be held accountable for errors made by the sub-
contractor(s), because the prime contractor is the only direct business partner of the customer.
Indirect procurement also has benefits and disadvantages:

2
I still recommend applying true faith considerations on the interests of the contractors, as discussed
before.
202 Project Business Management

• Benefits
o The prime contractor has the overall responsibility and is probably more knowledge-

able, experienced, and skilled in performing this type of project successfully.

o The prime contractor gives the project the management attention to a degree that the

customer may not be able to give.

• Disadvantages
o Generally higher costs, because the prime contractor must be paid for organizational

work and for the risk of managing the subcontractors, and the prime contractor will
also need to make some profit to have an interest in doing the project for the customer.
o The project manager in the organization of the prime contractor must consider at least

two groups of interests in decision making: those of their own organization and those
of the customer.
o Default of the prime contractor can kill the entire project.

4.3.3 Indirect Procurement over a Consortium

This model is similar to the previous, with the exception that the prime contractor is not an
independent organization but a temporary joint venture—a consortium—founded by two or
more companies for the project, as discussed earlier. In most cases, these venturing companies
will not only invest in the consortium but will also work for it as subcontractors. Alone, they
would not be able to offer to work for the project, but together, they think they can make it.
The customer in this model has again only one contract with the consortium, which will
then distribute the work among its venturers and may still give some more work to other
subcontractors. The venturers/subcontractors are also free to subcontract their work to other
companies, which can make the PSNs that arise out of such structures very confusing.
The term consortium is used here for joint ventures that have been founded temporarily
for a project or a major program; there are other uses of the term. The consortium may have
some more tasks on top of the project. I have already mentioned build-operate-transfer (BOT)
projects, in which a consortium has been tasked to develop some kind of infrastructure arrange-
ment, such as a railway line or a toll road, and to operate it for a limited time, after which the
arrangement is handed over to the state that tasked the consortium.
If the consortium will not have a new project or operation by that time, it is likely to be
liquidated subsequently. Consortia are a common example for coopetition, cooperation of com-
panies that are otherwise in competition. This unclear nature of the business relation is among
the ambiguities that can make teaming in projects difficult, not only in consortia. Another
challenge is the double nature of the participants, who want to make the consortium successful
as venturers, but also desire to make profitable business with it as contractors. As venturers, they
want cheap and reliable suppliers.
In the supplier role, their business interest is achieving high prices and not investing more in
the customer than what is unavoidable. Add the business needs of the customer to that, and the
multi-objective nature of consortia becomes obvious.
Working with a consortium as a prime contractor has also its specific benefits and disadvan-
tages for the customer:
 Managing Complex and Dynamic PSNs 203

• Benefits
o The consortium has the overall responsibility to perform the project for the customer.
o Although the consortium is a new organization, in most cases founded specifically for

the project—and therefore cannot be expected to have experience in the business (and
reference customers)—the venturers are expected to be experienced and skilled in per-
forming this type of project successfully and are expected to transfer this competency
to the joint venture.
o The consortium focuses on the project and therefore gives the project more manage-

ment attention than would a contractor who performs several customer projects
concurrently.
• Disadvantages
o Conflicts between the venturers can endanger the project.
o Different business interests can add further risk, when some venturers see the project

as strategic and long-term, while others strive for quick win.

o The venturers can threaten in a crisis situation to liquidate the consortium, something

they would not do with their own company.

4.3.4 Mixed Structures

In real life, one often sees mixed forms of these teaming structures. A customer may get one
work package done with a consortium, hire contractors directly for a second one, and do a third
with its own resources. One should also not underestimate the dynamics in PSNs, mostly driven
by changing requirements on the project and changing business situations of the contractors
and subcontractors involved. One can also add further tiers to the PSN with sub-subcontractors
and so on. Managing customer projects stretches from a simple customer–contractor scenario
to highly complex structures, and the more complex they become, the greater the demand on
project managers will be to manage them. The challenge to meet this demand also goes up with
the frequency of changes, and project managers will be needed with expertise in contracting and
cross-corporate relationship building as well as in purely technical matters.

4.3.5 Customer’s Involvement in Subcontracting

Customers often want to be involved in the selection of subcontractors. There are some options
that they can use:
• Naming of subcontractors. The customer tells the prime contractor who to work with.
• Nominating of subcontractors. The prime contractor receives a list of accepted subcon-
tractors (often three companies) from the customer and makes a selection from this list.
• Acceptance process. The prime contractor must introduce any potential subcontractor
to the customer and can only close the contract with the supplier when the customer has
approved it.
In many projects, customers leave the prime contractor the freedom to select and appoint
subcontractors at their own discretion. They trust in the contractor’s ability to find the best
204 Project Business Management

partners for the project, and they do not want to spend time and energy for any involvement
in the selection process.
In all these cases, the prime contractor will be held accountable for errors made by the sub-
contractor, because the prime contractor is the only direct business partner of the customer.
The doctrine of privity of contracts makes it clear that from a legal perspective, the customer
has no direct connection with subcontractors, but in a relational understanding, it will never-
theless exist.

4.4 Managing PSNs Is Managing Interfaces

4.4.1 The Sentiments of Industries
In March 2017, I had the opportunity to speak at a conference in London dedicated to the oil
and gas industry. It was an interesting event, dedicated to an industry that had lost, in just one
year between 2014 and 2015, about half of its income stream, which was necessary to keep its
operations as well as its projects alive. Figure 4.2 shows the price development of Brent Crude
Oil. There was a similar development of the oil prices, particularly when one looks at the net
price that the industry takes in, which is street price minus taxes and other fees.

Figure 4.2 Development of Oil Price 2012–2017, Brent Crude, price development per March
13, 2017.

The content of most speeches in the conference, including mine, was that the industry
should respond to this difficult situation by closing ranks, increasing professionalism, and
building on strong collaboration to avoid further losses from dysfunctionality inside operations
and projects. Although attendees officially agreed, in private they noted that the industry is
ridden with struggles for shrinking resources and a general distribution conflict.
Money was not the only resource that the industry was short of—talent was another one.
As an example, it is interesting to look at where the industry stands in employee attractiveness
rankings such as Fortune 100 Best Companies to Work For,3 which focuses on corporations
active in the USA (see Table 4.1).

3
(Fortune 2017)
 Managing Complex and Dynamic PSNs 205

Table 4.1 Fortune 100 Top Ten Companies to Work Fora

Top Ten Companies Oil & Gas Companies

1. Google 37. NuStar Energy

2. Wegmans Food Markets 41. HilCorp
3. Boston Consulting
4. Baird
5. Edward Jones
6. Genentech
7. Ultimate Software
8. Salesforce
9. Acuity
10. Quicken Loans
a
Among the 100 Best Companies to Work For, one finds only two oil and gas companies, and none of the big
players is listed there.

When I ask young people working in the oil and gas industry how their friends react, the
response is rarely that these friends see this career decision as “cool” and “awesome”. Instead,
the decision to seek a career there is questioned, and instead of admiration, they rather sense a
lot of negative sentiments. Young people are rather lured by technology companies than by oil
and gas companies.
Indispensable for such an industry is an influx of young talents with new ideas, differ-
ent lifestyles and success models, and with a different interest in matters of environment and
social development that will impact their future. This influx of talent is rather dripping than
streaming in, and the result is an aging work force. Data from 2012 for the U.S. shows that
the median age of people working in oil and gas was almost 45 years (compared to 42.3 years
across all industries), which means that 50 percent of the employees were over 45 years old.
Oil and gas is an industry that does not stand alone with the combination of reduced finan-
cial resources and talent resources. Decades ago, the industry was considered attractive and
future proof, and although it remains out of the question that human civilization will be able
to live without this industry at least for the next decades, its public image today is more that of
a dirty and backwards-oriented business than one that leads into a shining future.
The degree to which this perception is justified is open to personal opinion, of course—I
am not here to judge, but to talk about project management. Further declines are foreseeable,
as alternative sources of energy, but also of chemistry, pharmacy, and other industries, are in
ascendence, and their cost efficiency is growing at a pace that promises tough competition to
drilling and transporting oil and gas. What matters for our discussion is how difficult it is in
times of decline to keep team spirit alive across collaborating companies. Single interests often
trump common interests, and this particularly happens in industries in decline.
The same is probably true for industries in “gold-rush” commotion. The expectation of a
future supremacy in a fast-growing market as in innovator, or at least a very early adopter,
is a strong motivator for players to secure expected gains for themselves against others also
who want them. Players then hammer their stakes into the ground in the form of protected
intellectual property, domination of markets, and take-overs of pioneer companies at often
206 Project Business Management

ridiculously high prices. The small teams that dominate these phases can be very productive
and inventive and will be perceived as disrupting by others; and with not much business his-
tory in their backyard, they do not tend to be very oriented toward fairness and trustworthi-
ness, and they do not have much time to contemplate such questions anyway.
Another risk for cooperation in cross-corporate project teams are fossil conflicts, mostly in
the form of grudges and distrust from older projects. While the projects have ended some time
ago, the resentment has not.

4.4.2 The Five Dysfunctions

As discussed above, a common consequence of protective, confrontational, and competitive
attitudes in PSNs is dysfunctional teaming across the organizations involved. Patrick Lencioni
described the “The Five Dysfunctions of a Team”,4 and we commonly find these dysfunctions
when business relations deteriorate as both a cause of the deterioration and its effect:
• Dysfunction #1: Absence of trust. During the offer phase, companies had to boast
about their strengths, skills, abilities, success records, reference customers, etc. to win
the business. Building trust, however, requires accepting weaknesses, one’s own as well
as those of others. Relational contracting, open communications, and active assumption
of accountability are necessary elements of well-working teaming behaviors, but they
can also lead to vulnerabilities with possible legal and financial consequences for the
parties involved, such as liabilities, expensive damage claims, and the readiness to fi x
errors that one has made. People may be afraid of these risks, and when they work with
the wrong parties, these fears are often not unfounded. When teaming partners are not
taking these risks, they will damage the project. It is a difficult balance that needs a lot
of attention.
• Dysfunction #2: Fear of conflict. Teaming partners may find consensus on decisions
that each of them in secret does not support; it may be due to a lack of courage to ques-
tion the consensus and be then decried a nay-sayer and objectionist.5 Progress may be an
issue; the partners have already spent so much time discussing, it is time to start work-
ing, even if the contents and goals of such work may be still unclear; and it may also be
unclear who does what, and also, when things go wrong, who fixes what.
A further reason for false consensus may be business interests: In certain situations,
a contractor may benefit from erroneous decisions. When a construction project gets
delayed, the companies that provide the temporary fencing around the site will probably
benefit, so why should these companies object to decisions that slow down the project
and support their share of the business? Culture can also be an issue: Certain cultures
consider the contractor not as a project partner on eye level but as a subordinate. High
power distance between customer and contractor may then discourage the subordinate
to talk about risks and upcoming problems in the project that are visible to the contractor
but not the customer.

4
(Lencioni 2002)
5
The famous narrative in Jerry B. Harvey’s Journey to Abilene (Harvey 1974).
 Managing Complex and Dynamic PSNs 207

• Dysfunction #3: Lack of commitment. There is a tendency by many people to keep

agreements unclear and resolve problems not upfront but when they occur. A common
reason is a lack of time to develop clear rules, negotiate them, and sign off on them.
Another reason is that the parties try to avoid committing to the other parties and then
turn to wishy-washy agreements that are impossible to enforce and lead to embitterment.
A common example in project management is the assignment of resources to projects in
a percentage value as to when the resource will be available and whose job it will then be
to manage it, which gives no party any certainty.
• Dysfunction #4: Avoidance of accountability. Holding people accountable for their
achievements and for their failures is a strong bond in teams, in that it connects their indi-
vidual contributions to the team’s results. People and organizations doing a good job want
it recognized, as much as those doing a poor job should also know that it is not ignored.
Given the cost of poor performance of companies teaming in a project, the investment in
the tools that help avoid such ignorance are often easy to justify: colocation, meetings of
teaming partners, and scoreboards that visualize joint project achievements.
The rolling award fee contract presented above is also a tool to help show contractors
how pleasing—or unsatisfying—their work is. As a customer, one should then not shed
any tears over the fee paid to the contractor, as long as the benefit gained from the great
work of the contractors was higher.
• Dysfunction #5: Inattention to results. The goals that the teaming partners in the
project must achieve together often become invisible after a while. This is particularly
true in time of excessive error fixing and crisis management, when people’s minds are too
consumed with an army of problems that all require their attention and working time.
To avoid this dysfunction, the contribution of each of the organizations to achieving
common goals should be kept visible, as well as the happiness that these achievements
create for the customer and the other teaming partners. The example of the rolling award
fee contract discussed in Chapter 3 also makes it clear that the fee should not be given
as a kind of a present, but should be communicated as a fair share of the benefit that the
customer gets when the contractor helps them stride towards the common goal.

4.4.3 How Competitiveness and Cooperation Interrelate

An interesting statement by Lencioni6 highlights the complex interdependency of competing
and completing: “Teamwork remains the one sustainable competitive advantage that has
been largely untapped”. Collaboration and competition going hand in hand—is this not self-
contradictory? Probably not, once one digs a bit deeper.
There are actually two classes of competitive behaviors: outpacing and undermining.
• Competitive behavior class 1: Outpacing. The competitive party is just faster than
other parties, leaving them behind on the common playing field—in essence, a peaceful
kind of competition. Sometimes, the outpaced party may admire the faster one, as speed
can be a kind of leadership behavior, and the faster party can be a role model for the
slower one. However, being outpaced can also lead to bitterness, and the outpaced may
6
(Lencioni 2002)
208 Project Business Management

turn to bullying behavior to deflect from their defeat. This bullying behavior can destroy
any project; it is a form of undermining competition.
• Competitive behavior class 2: Undermining. The competitive party weakens the other
party. This form of competitive behavior is aggressive. An example from sport is boxing,
in which a participant has two reasons to land punches: (1) To make the points, and (2)
to weaken the punching power, speed, concentration, and balance of the opponent. The
party applying class 2 competitiveness will use any opportunity to diminish the other
party’s resources to disorganize and to gain benefits to the disadvantage of the other side.

4.5 Interfaces Among Contractors

4.5.1 Customer Projects with One Customer
When I managed my first project for a prime contractor in the manufacturing industry with a
still small number of only two subcontractors, the project manager of the customer advised me
to focus on the interfaces between my organization and the subcontractors and also among the
subcontractors. He considered me rather young and inexperienced to manage the PSN; he may
have identified my inexperience as a major risk for his project, and with the blessing of more
than a quarter of a century that has passed since, he was probably right.
Due to some major change requests from the customer side, the project grew further, and
after some months, it had turned into a project with five subcontractors. The customer-side
project manager’s advice was soon proven right. Complaints and conflicts occurred between
the organizations involved, mainly circling around the workload delineations (who must do
what?) and the accountability for deliverables (who must fix what?). A further area of concern
was security—no company likes to see its own staff exposed to hazards caused by work done
by another one.
Figure 4.3 shows the number of interfaces among three contractors—one of them the prime
contractor—and the customer. This was the original setup of the PSN. The number of inter-
faces is six. During the project, when the change request brought additional work that required
employment of three more subcontractors, the number of interfaces increased to 21.
The example shows how the number of technical, social, and interpersonal interfaces among
customers and contractors grows exponentially with the number of parties involved.
In the example, I was still lucky to have a small number of contractors and only one cus-
tomer. Some readers will say that the project was still a simple one, compared with the proj-
ects that they need to manage, with scores of customers, contractors, and subcontractors, and
they are right. Looking at the complexity that these project managers must manage, finish-
ing megaprojects successfully is a great achievement, even when this is associated with major
delays, cost overruns, and functional deficits.
Figure 4.3 shows at the top the formula used to calculate the number of interfaces from the
number of contractors, assuming that there is only one final customer organization. Using this
number, it is interesting to see how the interfaces develop for even larger PSNs. This is shown
in Figure 4.4. It is interesting to see how even small changes in the number of contractors
translate into much larger changes in the number of interfaces.
 Managing Complex and Dynamic PSNs 209

Figure 4.3 The number of interfaces in a simple PSN (left) with only three contractors is six, includ-
ing the interfaces with the customer. The PSN on the right-hand side has twice the number of con-
tractors, but the number of interfaces has grown by a factor of 3.5 to 21.

These interfaces are an aspect of PSN complexity, and their growth indicates that this com-
plexity changes non-proportionally with changes of the PSNs. This aspect is often overlooked.

4.5.2 Customer Projects with Several Customers

One can grow complexity even further by increasing the number of customers. An exam-
ple is the Joint Strike Fighter Lockheed Martin F-35 Lightning II, a fifth-generation fighter
aircraft, which was developed in different variations for nine participating states—Australia,

Figure 4.4 For a project with one customer and a larger number of contractors, managing the
interfaces among the contractors can be among the most challenging tasks.
210 Project Business Management

Canada, Denmark, Italy, the Netherlands, Norway, Turkey, the United Kingdom, and the
United States—and three non-participating customer states—Israel, Japan, and the Republic
of Korea.7 In three of these countries, the aircraft were ordered by different military branches,
raising the number of customers to a staggering 18—customers who each had different require-
ments against which the aircraft needed to be designed:

Australian Air Force Canadian Air Force

Danish Air Force Israel Air Force
Italian Air Force Italian Navy
Japanese Self-Defense Air Force Korean Air Force (South Korea)
Netherlands Air Force Norwegian Air Force
Turkish Air Force UK Air Force
UK Navy US Air Force
US Marine Corps US Navy

Complexity arose from the different desires of each of these customers. There was also an
expectation that the participating countries would get access to new technologies—a desire
that was not in the business interests of Lockheed Martin.8 Additional complexity was added
by the concurrent design of highly different types:
• Conventional take-off and landing (CTOL, named F-35A) for normal take-off and
landing
• Short take-off and vertical landing (STOVL, named F-35B) for short take-off and ver-
tical landing
• Carrier variant (CV) for carrier-based operation (F-35C)
Traditionally, such versioning would be developed in sequence, thus simplifying the process
by designing one version after the other, basing each version on the previous, but decisions
made for the F-35 were to develop them side by side.
The number of project customers and aircraft versions added to complexity in financing, par-
ticularly when the program exceeded its budget and discussions arose as to which country would
have to bear which percentage of these overruns. Further discussions arose over the distribution
of development and production work, which brings jobs to the participating country and influ-
ence over the program, but conflicts with other countries that want to have the work as well.
The program was originally considered a cost saver because of the large number of 2,953
aircraft that would be made,9 allowing the distribution of development costs over a high num-
ber of items to reduce the cost per single aircraft. This benefit seems more than consumed by
the cost of complexity that occurred during development—complexity to some degree caused
by the large number of customers and also by the number of different versions that needed to
be developed based on one platform, which finally became a salmagundi of compromises. The
7
(Lockheed-Martin 2017)
8
(PM Network 2005)
9
(supplychainbrain.com 2010)
 Managing Complex and Dynamic PSNs 211

difficulties of accomplishing the business case calculations due to the delays that arose from the
complexity massively added to the cost problems.
What can we learn from this example? When I meet project managers in projects with two
or more customers, I often hear complaints about the organizational complexity that such a
structure develops. It is hard for them to solicit decisions by these customers, who in turn often
come with change requests that are not coordinated with the other customer(s) and have the
potential to be damaging to the project. It then becomes very difficult to follow a sound change
request management process, which is necessary to protect the project and at the same time
promote those changes that are necessary, or at least beneficial, to it.
Similar complaints come from customers in such projects. The customer should be king, but
in such projects, too many “kings” want to make decisions, often in a competing manner. They
develop antagonisms and alliances, and finally the noisiest wins, not the one who is actually
right. Big egos are a problem in many projects, but in projects with multiple customers, the
clashing of such egos is often unavoidable.
Complexities in projects do not add up, they multiply. Adding organizational complexity
to technical and interpersonal complexity may make the project no longer manageable. It is a
clear recommendation to avoid such situations and develop structures that allow the project
to be performed for just one customer or to serve the customers in a sequence that allows the
focus on just one “king” at a time.
Projects with multiple customers bear another risk for each of them, particularly in projects
that are found on the tabloids’ front pages: When the project is about to be troubled or even
fail, there will be a lot of finger pointing, assigning blame to specific stakeholders, and often,
these fingers point to one or more of the customers. However, this is not necessarily the one
who should assume responsibility; too much money is involved to let the buck stop easily at
the party to whom it belongs.
I observed that having multiple customers to a project is more often found to be a cause of
troubles than a blessing for the project and recommend avoiding it. The larger the project, the
more complex it is, the higher its financial burden, the larger is the temptation to go for multi-
ple customership, and the stronger the resistance against that should be.

4.6 Risks from Outsourcing Projects Under Contract

4.6.1 Risks from Differences in Software Tools Used
Project management terminology is often used inconsistently. A common example of such a
term is milestone. There are three interpretations commonly used of what a milestone is:
• A synonym for phase gate, located between the end of one phase and the beginning of the
next. This interpretation comes with a problem: gates have durations, sometimes months,
used for different kinds of reviews and approvals; a milestone should have the duration
“zero”.
• A synonym for deadline, interpreted as a milestone with a fixed date. The problem is that
a milestone can occur earlier or later, but a deadline is hard, often impossible to move.
This interpretation leads to a loss of information.
212 Project Business Management

• A point in a schedule that marks a desired, planned, forecast, or actual achievement, such
as the finishing of a deliverable or the commencement of a work item. The achieving of
the milestone triggers some reactions, such as increased management attention, test runs,
or payments. This last interpretation is definitively the best.
Scheduling functions in modern project management software all have deadlines, but some
use the second definition, others the third. This can bring problems when the solutions or the
people working with them have to cooperate.
Modern organizations that perform projects commonly work with software solutions that
are made to support project, program, and portfolio management. Most of these solutions have
been around for a while and have grown over time from simple solutions for a limited number
of project management tasks to highly complex systems with broad functionality. Such soft-
ware can be helpful when it is mastered professionally, but it can also cause its own problems
when the user does not understand and control the program. Many functions are placed invis-
ibly “under the hood”, which means that a lack of understanding of the software can lead to
errors in the planning, implementing, and tracking processes. These errors will be hard to find
and to understand, and this in turn can make it tedious to fix them.
These risks from insufficiently understood and mastered software are made worse when
companies decide to work together, but use different software solutions. In the past, simple
data exchange protocols where used, such as Odette in the automotive industry, which com-
municated a limited amount of highly standardized data, so that different systems could easily
communicate with each other as long as they supported the protocol. But today, the expecta-
tion is that software programs must interact in a much tighter fashion—ideally, as if several
programs were just one.
The combination of different project management software programs can have unexpected
effects that can impact the cooperation as much as the interpersonal and social causes of con-
flicts described later can.
• Data silos. Not only are the companies in the PSN often silos, the same is true for their
data. Each of the companies collect the data, and as they use different systems with dif-
ferent data models and processing algorithms, data will also differ. Cooperation needs a
joint view on data and on the information that is built on it.
• Software as an element of standardization. This is often overlooked—software stan-
dardizes terminology, processes, and more. A company may have a project management
glossary, but people rarely look at it. However, they use the software frequently and are
familiar with its interpretations. I described above how software uses terms differently.
When users with different interpretations come together, they may be unaware of these
differences, which leads to misunderstandings. They may identify the difference, but
then come into conflict about whose interpretation must be used. Both are problems that
can be hard to overcome.
• Tampering with information during data export/import, synchronization, and con-
solidation. Software vendors generally promise that software products work well together,
but differences in their data models and processes are hard to ignore. When one software
imports data developed in another software, when one program must synchronize data
with another program, or when a backend solution consolidates plans that were developed
 Managing Complex and Dynamic PSNs 213

with front-end programs from other vendors, some data is often changed. The more com-
plex the project, the more likely it is that this will happen, and the harder it will be to find
the changes and reconstruct the original plan in the new environment. Complexity of such
plans grows over time. The import and consolidation functions may work well early on,
and the problems turn up much later, unexpectedly and therefore particularly damaging.
• Different mechanisms for versioning and change tracking. A tool to keep a history
of a project for documentation and to support lessons learned are versioning mechanisms,
which can also be used to develop plan scenarios to improve the change request manage-
ment process. Different software products have different mechanisms for that, and
whereas communicating current data from one program to another may be more difficult
than expected, this is particularly true for structured historical information.
• Out-of-the-box functions versus customization. Many of the problems described here
can be addressed with customization. The problem then is, whose software will be the
“leading system”, and whose software will need adaptation and customization. This cus-
tomization can become quite extensive, leading to difficulties when software updates are
needed that may require rebuilding the customization in the new version. Having the
leading system is generally the easiest.
• Different focus areas of software. Project management software is often strong in cer-
tain areas but weak in others. Project managers used to software with strengths in some
areas may expect that software used by other project managers has a similar focus, which
sets false expectations. Examples of such areas include:
o Scheduling
o Resource management
o Cost management
o Team functions and communications
o Support for rolling wave approaches and agile methods
o Document management
o Visualization of data
o Approval workflows

• Access rules and push and pull approaches. Documents may be distributed (pushed)
or held available for download (pulled), and software vendors answer the question of
push or pull of data differently. Someone who is used to getting information pushed
may not expect the need for downloading and may therefore not have important infor-
mation at hand. Someone who has had access to all data may be surprised to have access
removed. Someone unfamiliar with distribution mechanisms may find that data has by
error been sent to the wrong people, possibly with very negative consequences. Again, the
problem is that one software sets expectations that the other does not meet.
• Physical location of data. Another fundamental difference among software programs is
where the data is stored—on the user’s PC, on an enterprise server, or in the cloud, at an
unknown location on a server somewhere in the world? Any versioning mechanism has
its own storage strategy, and not being aware of the strategy may cause errors.

All these risks can be managed, once they are identified and understood. One response to
them could be to provide one software platform for the entire project supply network (PSN), but
214 Project Business Management

this would then have the negative effect that project managers must learn different software,
and they are rarely given time for a seminar and then to get familiar with the program. Another
problem is the shortage of software that addresses the specifics of supply networks by allowing
a specific company view and a cross-company view for the entire project.

4.6.2 Risks from Interpersonal and Social Conflicts

I discussed this point above in the section that is dedicated to sellers, asking: Do you present
yourself and your company as the one that the customer will desire to work with?
The question actually goes much deeper than that. The contractual relationship in a project
binds the customer and the contractor organizations and creates a mutual relationship that
may last from only days to possibly years. This duration may even be hard to predict, as small
projects tend to grow larger over time, and business encounters that were planned to be short
term may then become lasting for much longer than originally expected. There is a corollary
in the binding nature of a contract for the entire organization. Your project schedule is just the
schedule of your project. The same applies to your human resources (HR) plan of the project,
your risk register, your communications plan, your diverse management plans, and so on.
These documents are more or less binding for the project. A contract with a vendor, however,
is binding for the entire organization. The same is of course true for all other project-related
contracts, such as those with customers, business partners, insurance companies, and so on.
The binding nature of the documents10 rises to a level far beyond the project, and so do obliga-
tions and entitlements that the contract delineates.
The intended partnership with sellers brings many risks to the project—and the entire
organization. Procurement means, in essence, tapping external assets and turning them into
resources for the project—assets that the customer does not have, or that are at least not avail-
able at the time the project needs them. Sometimes, assets turn into liabilities, and the mutual
dependency of a customer–contractor relationship brings the risk that the problem of one
partner in the business becomes the problem of the other one as well. Among the risks for the
customer, the following are some truly serious ones:
a. Bringing a diversity of business interests into the project. Each contractor has its
own business interests that the company cannot simply neglect for the project. The first
one is, of course, that the project must bring money home. Another one is the desire
of the contractor to keep its employees working, ideally with billable work. A third is
the desire to avoid overworking employees and burning them out, particularly when
the contractor performs a number of customer projects in parallel. Averting liability
and damage claims is another natural business interest. All these business interests may
come into conflict with those of the project, the customer, and of other contractors.
b. Bringing fossil conflicts into the project. In certain fields experts are rare, so it can
happen that they meet repeatedly in project after project. Unresolved resentment and
bile among contractors’ employees from earlier projects can hamper the current project,
and because the project manager is unaware of the invisibly simmering conflict, no
10
I described above that from a legal perspective, a contract may be verbal or written. In a commercial
understanding, a contract is generally a document. I am using here the commercial definition.
 Managing Complex and Dynamic PSNs 215

action is taken to get over the old grudge. It is like an underground unrest that one day
may break out, surprising all others involved.
c. Bringing a diversity of cultures, legal systems, and moral compasses into the proj-
ect. This is particularly true for projects with international contracting, but even within
a country, different understandings by people involved of what is right and what is
wrong, what are acceptable attitudes and behaviors and what are not, may bring con-
flicts into the project.
d. Disruptions by incompatible egos. In a PSN driven by a “Mission Success First”
culture, managers from different contractor companies mutually respect the profession-
alism, responsibility, and independence of their colleagues from the other contractors.
Solutions are found by common sense and consensus, not by forcing. One troublesome
contractor, however, can disrupt this culture and finally jeopardize the entire project.
e. Becoming dependent on psychopaths and sociopaths. One would assume that these
“snakes in suits”, driven by antisocial personality disorder, are rather to be found as
patients of psychiatric services and in jails. Instead, their ability to switch empathy on
and off as it best serves their desires, their skills in successfully manipulating people,
and their highly competitive and predatory nature, unrestrained by implicit or explicit
codes of conduct and by compassion, can make them successful in key positions and
allow them to attain the highest positions .11 There may be rare situations in which
they can be beneficial to a project; but in most cases, they are more likely to damage it,
because they will never subordinate themselves to a “Mission Success First” approach
or confuse their personal desire to look successful with the interests of the project and
its stakeholders.
f. Breakdown in communications. When corporate counsels sense the risk of legal
action, they tell their employees to reduce correspondence and verbal communications
outside four-eyes settings to the unavoidable minimum, because all communicated
messages can be used against the company. 12 From a legal perspective, this may appear
appropriate, but from a project perspective, the partial or full breakdown of communi-
cations can be disastrous.
g. Dependency on dubious organizations. I have previously quoted the South-African
attorney Guido Penzhorn, who wrote in reference to a corruption case in a dam project
in Lesotho, Africa: “Clearly, once you involve yourself in the murky world of bribery, it
is not open to you to simply opt out whenever you like”.13 Assuming that project mana-
gers generally want to avoid any associations with corrupt practices in their projects in
order to maintain their independence and professional integrity and to protect their
project, their first step is to vet vendors before entering into an agreement with them.
11
There is an interesting elaboration on the topic by Will Black, analyzing their success secrets and
giving recommendations on how to manage them (Black 2015). Project business management is a
perfect playing field for what he calls “Psychopathic economics”, owing to the temporary nature of
the business, which makes it difficult to develop a long-term record of a person’s conduct.
12
This again is different in legal systems: In the USA and other common law countries, courts can sub-
pœna the submission of all documentation relating to a specific case. They would normally not have
this power in civil law countries.
13
(Penzhorn 2004)
216 Project Business Management

A simple but diligent web search can sometimes be an eye opener. When considering
whether to give work to a consortium that has just been founded for the project and
has no business history, one can still do some research on the venturing organizations.
It is not uncommon that murky organizations join consortia to hide behind the good
reputation of other venturers, often without the knowledge of the others.14
h. Breach of confidence. There is always a degree of uncertainty as to whether contractor
employees will maintain the same level of confidentiality that one would expect from
one’s own employees. There is also uncertainty about the degree of general trust that
they deserve on top of that, in particular when the vendors are new or are incumbent
but have just had a change in ownership. The mental and emotional distance to the
interests of the customer and the project is generally higher for contractors’ employees
than for one’s own, who are expected to give their full loyalty to their employer.
i. Default of a contractor. A defaulting contractor is among the worst experiences that
a project manager can have during procurement. The problems do not start with the
moment of insolvency but months earlier, when the contractor makes strange decisions
that its manager can easily explain; the interests of the customer, however, no longer turn
up in these explanations. The intention to avoid insolvency tops everything else in at
such a time—particularly the desire to have a happy customer. Another uneasy experi-
ence I had years ago was observing a contractor finishing a project and having its product
ready for final handover, then going into insolvency. At this point in time, the product
became part of the insolvency estate, with the effect that handing the urgently awaited
results over would have been illegal and also technically impossible, because there was
no organization left to transfer it. The customer company had to buy the results out of
the insolvency estate, which meant paying a second time for the same work.
j. Paradise syndrome. Sometimes, people feel dissatisfied with having achieved all of
their goals. Their successes in projects come as repetitious and routine, not as new
challenges, and it is such a challenge that they need to function well. Protected by spe-
cific assets such as patents or specialist knowledge, they are not easy to replace in the
project, and the feeling of strength and indispensability they have makes it difficult to
work with them. Then, customer orientation gets replaced with pomposity, and letting
others wait is considered a sign of strength, not of failure. Such a degree of saturation in
people’s minds is hard to identify and even harder to fight.
k. Extended vulnerability to digital attackers. Information technology (IT) systems are
vulnerable against malicious attackers, causing unprecedented digital and also financial
damage. Every network interface is a weak spot in the system, but even more vulnerability
comes from the people involved brought into the project by the contractors. It is difficult
to develop the discipline in one’s own people to resist clicking e-mail attachments and
other possibly malicious pieces of software and to make them take care of the digital trails
that they leave on the internet, but with external staff, this gets even more difficult—in
particular, when the customer has no disciplinary power over them, possibly does not
14
Another indicator may be the position of the seller’s home country in the Corruption Perceptions
Index of Transparency International, the global association against corruption (TI 2016b). It gives
at least an indication as to the degree of integrity culture in the homeland of the seller as an early
warning signal.
 Managing Complex and Dynamic PSNs 217

even know them. Modern malware needs access to only one vulnerable networked com-
puter, printer, or other item connected to the corporate network. It has the capability to
then self-propagate across the computer network and infect all other vulnerable comput-
ers. At the time the malware is identified, the harm can already be enormous.
l. Customer is not king. For a small contractor who serves only one or a small number
of customers, the customer is king. The customer is the indispensable source of income,
and the contractor will avoid as far as possible any activity that risks draining the source
of this stream. For a large contractor with a multitude of projects for a vast number
of customers, the individual customer is no longer the king but is rather similar to a
supermarket customer in a waiting line. In the worst case, the customer is more like the
airline passenger who was dragged along the aisle out of the aircraft to free his seat for
airline personnel who needed to be taken to another airport.15
m. Unknown subcontractors. It is difficult to manage subcontractors the customer knows.
It is generally impossible to manage those who are unknown to the customer. A direct
contractor has hired the subcontractor without making the customer aware. The sub-
contractor brings new risks into the project, and the customer has not many options to
intervene. Even if the contract with the direct contractor prohibits subcontracting with-
out the knowledge and acceptance by the customer (which I generally recommend),
it will be hard to identify infringement of such a clause and then enforce it when the
customer has become dependent on the contractor and so also on the subcontractor.
The last risk can become a problem that is difficult to manage: Many project managers are
indeed not fully aware of the size and complexity that their PSN has generated, because their
focus is mostly limited to the direct contract partners. The legal principle is called the doctrine
of privity of contracts, which says that a prime contractor has a legal relationship with the cus-
tomer, or several customers, and also with one or more subcontractors, but that there is no legal
relationship between the customer(s) and the subcontractor(s). Figure 4.5 illustrates how the
prime contractor acts as a proxy for all contractual connections between the customer side and
the subcontractor side.
Does this mean that there should be no relationship between a customer and a subcontrac-
tor at all? The prime contractor may prefer such a non-relationship, because of the risk that
direct agreements between the two may bring them disadvantages. One can compare this with
a dealer of goods, who wants to keep the source of the goods unknown to the customer, and
vice versa, in order to avoid them doing business directly, circumventing the dealer. However,
if the prime contractor wants to act as an intermediate for all communications and decisions,
a lot of time will need to be spent to transfer all the information back and forth, and energy
and management attention will be consumed satisfying the desire to ensure that no decisions
are made that would bring them a disadvantage. A customer of mine sometimes refers to this
uncomfortable situation as “ham in the sandwich”.
Dealers can alternatively name the source of a product to a customer to benefit from the
brand and the marketing power of the original supplier. They argue towards the customer that
they are the entry point to these goods and provide additional services. An example are car
dealers, who are mostly independent companies, but proudly show off the logo and the colors
15
As actually happened in April 2017 (Business Insider 2017).
218 Project Business Management

Figure 4.5 Privity of contracts: The customer has no contractual relationship with the sub-
contractor.

of the car company they represent. They have contracts with the car company (or an importer)
that protect their business, giving their contract partner the benefit of proximity to the sales
market and the customers. This behavior can also be found with prime contractors in Project
Business Management, who promote themselves to a customer as the gate to the goods and
services of other sellers. In such cases as well, the customer has a contract with the prime con-
tractor, not the subcontractor, but the organizational relationship will not be limited by that.
From the customer’s perspective, limiting the relationship with a subcontractor to an indirect
channel via the prime contractor leads to indirect communication, something often referred to
as “telephone” or “broken telephone” in children’s parties, when one child whispers a message
into another child’s ear, who does the same with the next, etc. In the children’s party, it is then
fun to compare the original message with the final one. In a project, this is commonly much
less funny—and possibly much more expensive—and the next question will be, who needs to
take the blame for the misunderstanding and the follow-up problems.
Mosquito Corp. was a fashion corporation with a large number of outlets distributed over
25 countries. They had planned to replace their outdated inventory management system with
a new solution ordered from Silverfish, Inc., who had a standard software solution that seemed
to fit the needs of Mosquito to a major degree—but not fully, so some tailoring was needed,
including the adaptation to the national business rules in the various countries in which
Mosquito operated, and in which the software would therefore be implemented. Silverfish did
not have the capacity free in-house to do the tailoring, and its business was anyway focused
on solution development and marketing. So Silverfish hired Mealworm Ltd., a small company
with a lot of competency that was just completing another project, promising free capacities for
the tailoring. Mosquito, the customer, was not aware that the subcontractor, Mealworm, had
become part of their project, and they were not interested in the details and risks that came
with this subcontracting. They considered their software update in good hands and did not ask
any further questions.
Silverfish and Mealworm worked well together right from the start, and the project pro-
ceeded quickly, very much to the confidence of the customer. About a third of the way into
 Managing Complex and Dynamic PSNs 219

the project, Mosquito requested a major change to the software. Their business made some
unexpected shifts, from almost 100 percent in-house production of their goods to greater use
of goods that they could buy cheaply from overseas suppliers. The purchasing part of the busi-
ness needed some alterations in the software so as to not lose track of goods during deep-sea
container transportation—goods that were already owned by Mosquito but not yet distributed
to countries and not yet available for placement in shops. As Silverfish had originally promised
this kind of additional functionality, it was clear to Mosquito that the additional functionality
would be delivered without price increases or delays.
Because of the amount of code modifications and expansions needed in their software,
Silverfish decided to respond to the request by tailoring, not by altering, the standard software,
which would have taken too long for the running project. The change request was there-
fore passed on to Mealworm, who made some estimates of how it would interact with their
adaptation work and the many country-related versions they were about to create. The last
point appeared to be the most difficult, and Mealworm would have to strengthen its human
resources quickly to implement the change without delays. In practice, the task proved even
more difficult than expected, because significantly different versions of this additional code
became necessary for the various countries.
It was clear to Mealworm, the subcontractor, that the additional work needed to be paid
by the prime contractor, Silverfish, who could not bill the change to its customer, Mosquito;
so Silverfish would have to accept that the additional work would eat into their margin from
the project. Considering that Silverfish also earned money from the software licenses sold to
Mosquito, the loss seemed to be something they would teeth-gnashingly accept.
But there was another issue: delays. It was impossible to do the additional work with the
staff assigned by Mealworm to the project, and the search for additional staff was very time
consuming. They needed employees who would only have a brief ramp-up phase to become
productive, but all they could find were beginners and developers from other subject areas,
people who would have to go through a lengthy learning curve to understand both the soft-
ware and the customer requirements. The project schedule had no allowance for that kind of
low productivity phase. One should add, it would have been the current development team’s
job to tutor the new people, which would slow them down as well before the additional pro-
ductivity could become effective. Voices at Mealworm insisted that further developers would
not speed up the project, but rather slow it down. Mealworm was heading toward a major proj-
ect upheaval, particularly when some of the key developers felt overworked, deprived of sleep,
and finally left the company. Silverfish had a profit problem from the project, but Mealworm
got broken by the work pressure.
In a PSN, a seemingly simple change request can trickle down the network, multiply there,
and then develop its own dynamics when a technical change translates into an organizational,
interpersonal, and even legal challenge. The example PSN from the case story above is just a
simple supply chain, with only three organizations and two contracts. In real life, many PSNs
are much larger, much more complex, and much more dynamic. Their opaque nature, as in the
example, can make managing them difficult, particularly when changes and variations need to
be managed, as was necessary here.
In the case of the project for Mosquito, it took a while for the customer to even notice
the problems in their project. A set of deliverables came in late, but as Silverfish had been
220 Project Business Management

timely with all other deliverables during business development and early in the project, this was
just considered a singular faux pas, nothing to worry. Unaware of the troubles at Mealworm,
the subcontractor who actually did the work, the customer was still feeling comfortable with
Silverfish and its competency in implementing its own software. During visits at Silverfish,
everything looked professional and well-controlled. The upheaval at Mealworm was not visible
to the customer.
Further delays raised the awareness at Mosquito that something was going fundamentally
wrong. The moment came when the roll-out should have been implemented in the first coun-
try, but no working software could be supplied by Silverfish. Two more implementation dates
passed. When the customer asked the contractor about the problem, they were told of minor
flaws in the solution that needed to be fi xed, and that Silverfish would not have a problem to
make up the time losses later in the project, so there was no reason for panic. After some inves-
tigation by Mosquito, and especially after a slip of the tongue by an employee of Silverfish, they
became aware that another company was on board, and that the picture of an easy and simple
project was only a facade. The opposite was true—like a vicious circle, the project was running
deeper and deeper into troubles, and the customer was kept utterly unaware of the growing
crisis for a long time.
An open talk among all companies involved in the project at an early date would have
helped to find a joint solution to prevent the project from running into crisis and would have
avoided the mutilation of the business relationship.
Mosquito’s software implementation was in the end six months late. Silverfish could re-
negotiate a final price that avoided a financial loss from the project but gave them no significant
margin from the combined product and project business. Mealworm had to replace some of
their best developers, who left in anger and frustration and found new jobs easily at other com-
panies. The opaqueness of the business setup led to losses for all parties involved.
One may say that the customer should have invested more management attention into the
project right from the start. Mosquito was happy to have its management attention free for
other tasks, operational as much as other projects. Management attention is often the scarcest
and most valuable resource. They considered it sufficient to rely on Silverfish’s management,
who in its “ham-in-the-sandwich” position was unable to reconcile the needs of the three com-
panies regarding schedule, costs, and people involved and who did not allow the participating
parties to fix issues together until these had grown to project disaster. One may also say that
they paid the price for their proposal manager’s promising the availability of functions off the
shelf that the product did not have, making the change requests look simple and easy to the
customer, when they were actually difficult to implement.
Mealworm, the subcontractor, tried for too long to fix the issues of their customer, Silverfish.
The case story is also an example of how in projects under contract, the problem of one com-
pany may turn into a problem for both its customers and its contractors, if one does not inter-
vene early before the misfortune grows beyond what is manageable. A joint approach of the
three companies to prevent an issue from growing into a major crisis would have helped protect
the business benefits that all three parties had expected, each of them participating with their
specific assets. Agreeing on “Mission Success First” and actually implementing it would have
been beneficial for all three companies and for the joint project.
 Managing Complex and Dynamic PSNs 221

When I talk with project managers from Project Business Management, most know similar
stories, and among the risks that come with outsourcing project work under contract, lack of
transparency and insufficient communications among the companies involved seem to be the
most common root causes of project crises.

4.7 Avoiding Crises in Project Business Management

All parties would have to contribute to the avoidance of crises in order to have an effective pre-
vention system in place. A crisis-free project is faster and cheaper, much less rework is needed,
and it is easier to assess project status. Open communications simply mean that a project
manager has the chance to know what is going on in the project and where it stands. As soon
as communications get restricted by political behavior, a project manager will no longer have
such information.
This section is mostly directed to the sellers’ side, so let us address the risks described above
one by one. With all the following advice, I recommend using them in a situational style. They
will often be helpful, but not all rules can be applied in all situations, and specific moments
can require attention beyond them. A project manager needs an open-skill form of situational
awareness, being able to read the dynamics of a situation and to respond accordingly.
a. Managing a diversity of business interests in the project. In general, openness may
be the best approach. Talking about diversity at the right moment in a respectful, empa-
thetic, and humorous tone can take the sting out of it and help develop mutual empathy.
The rolling award fee contract described above, or an individually developed contract
that gives contractors a share of the benefits from good cooperation, may unify the
business interests of the companies involved, strengthening the “Mission Success First”
culture and underpinning its practical significance for the project in financial terms.
b. Identifying fossil conflicts in the project. Projects are temporary by nature, but
grudges can be enduring. When one is tapping assets of other organizations, one may
also tap legacies with them. Fossil conflicts from earlier projects are often hard to iden-
tify; people may not be prepared to talk about them. Observing them when they first
meet in the project may give some clues, and again, talking may help. The problem
occurs most likely in small industries, where the same few specialists come to together
in various projects, and where these experts compete for acceptance and for business.
Asking contractor staff if they have met the employees of the other contractors before
may be a good starting point for an investigation into bitterness inherited from earlier
projects. Once identified, it may be possible to resolve the conflict and reconcile the
parties involved. In the worst case, it may be necessary to remove someone from the
project before it becomes impaired by the conflict. A project manager implementing a
“Mission Success First” culture cannot allow the project to be impacted by inherited
conflicts that cannot be resolved.
c. Overcoming a diversity of cultures, legal systems, and moral compasses in the
project. The best way to avoid cultural differences and different moral compasses from
222 Project Business Management

impacting the project is to address them in a tone that is driven by understanding, toler-
ance, and again humor. The ice is thin—what was a valid cultural description yesterday
may have meanwhile become a cliché. Regarding legal differences, it is important to
obtain professional advice; there are too many caveats. Many project managers, edu-
cated in rather technical or organizational disciplines, have very limited understanding
of their own legal system, so how should they understand a foreign one? One should
also take care that a legal expert familiar with the laws of their home country may con-
sider them just as valid in other countries—and fail.
d. Handling incompatible egos. If your PSN consists of ten companies, and each is
managed by one big ego at the top, this makes ten big egos in the project. Not all orga-
nizations will be driven by such a kind of person, and not in all of them will the person
be in contact with the project. However, add to them the egos that are found at lower
levels as supervisors and project team members, and incompatibilities can become a
major problem. Inside an organization, structures have been developed that more or
less successfully cope with such problems, but in the PSN, which temporarily spans
different organizations, no such structures are in place. It is recommended to commu-
nicate, right from the start, what the customer expects from the member companies of
the PSN, to observe whether the suppliers meet these requirements, and to address and
correct inappropriate behavior swiftly. The rolling award fee contract may also be help-
ful to give organizations a business case to make themselves compatible, because it gives
the contractor representatives a monetary incentive for making themselves compatible
in mutuality. The award fee is then in essence their share of the financial benefits that
come from fewer misunderstandings, errors, and rework. If big egos fully support the
mission goals, they may be among the most effective allies a project manager can have.
e. Avoiding dependency on psychopaths and sociopaths. This is a truly difficult task.
People with antisocial personality disorder (ASPD) are generally hard to identify. During
business development, they can be charming, interested, and empathetic, and their argu-
mentation can be highly plausible; but when it comes to meeting obligations, they show
their true selves. There are no early warning signals.16 The most important protection is
a contract with easy termination clauses for a case in which a contract partner turns into
a nightmare, such as “termination for convenience” or “extraordinary termination for
good cause”, listing inappropriate and damaging behavior among such causes.
f. Keeping communications alive. When contractors are afraid that everything they
say and write may be used against them one day, in the project or even at court, they
may stop saying and writing down all the things that the project manager should know.
Another reason for communication breakdown may be understaffing on the contractor
side—everyone is busy with the project work—or on the customer side, so that contrac-
tors feel their communications are not welcomed by the distressed representatives of the
client. Recommendations: Develop a communications infrastructure that invites and
supports frequent and intensive exchanges; reduce communications to what is actually
necessary while also keeping the “Mission Success First” spirit alive; and if you use

16
Thanks again to Will Black, author of Psychopathic Cultures, who gave me some great insights to the
problem field.
 Managing Complex and Dynamic PSNs 223

award fee contracts or similar agreements, make sure that communication responsive-
ness and proactiveness are among the criteria for the fee.
g. Avoid dependency on dubious organizations. Before you enter into an agreement
that makes you potentially dependent on the seller as a contractor, research the history
of the company: Have there been cases of unacceptable behavior, including bribery and
blackmailing? If it is a consortium or another group of companies, research the individ-
ual venturers. During presentations and negotiations, do they openly or secretly offer
bribes to your purchasing staff ? In international business, a solid resource for under-
standing from which national integrity culture the company comes can be found in the
already mentioned Corruption Perceptions Index (CPI) of Transparency International,
the world association against corruption, which can be accessed online.17 Two more
interesting resources are the Press Freedom Indices of Reporters sans Frontieres18 and
Freedomhouse,19 two global professional associations of journalists. Media in countries
ranking low on these ratings are likely not to communicate the full story on the com-
pany with which one wishes to enter an agreement.
h. Prepare for the possibility of breach of confidence. The basic recommendation should
be not to deal with people and organizations that are not trustworthy. This is easier said
than done, especially when the prospective business partner is new, or when owners or
management have changed and new people run the business. Trustworthiness is slow
to build and quick to destroy. It is therefore not enough to know the contractor, but
one must know the people, and they must know that they do not work in isolation but
have the attention of the team. Breach of confidence is mostly done by people who feel
left alone in their job.
i. Take the risk of default of a contractor into account. A defaulting contractor may
be a rare event, but when it happens, the damage can be enormous, and as discussed
before, the problems generally begin long before the actual insolvency is formally stated.
A good solution is to ask the vendor for the authorization to obtain liquidity informa-
tion from the company’s bank before contract closure—at least for sellers who are to be
assigned with mission-critical work. When this has been given, one may decide whether
one will actually use it; the peace of mind from the authorization may be sufficient. The
bank information is not a 100-percent guarantee. A performance bond by an insurance
company will give more certainty, but it is costly. I remember one case in which the
insolvent contractor was bought by the customer, who could then go on with the proj-
ect, but this was a decision beyond the project manager’s authority.
j. Watch out for paradise syndrome. The success of today may be the cause for tomor-
row’s failure. The seller may have shown an impressive success record during business
development, but sometimes it is this success that leads to complacency, smugness,
and a degree of arrogance among management and employees. Contractual terms that
allow easy separation from the contractor seem to be the best protection, even when the
dependency on the company may be very high at a given stage of the project, making it
technically difficult to change to another contractor.
17
(TI 2016b)
18
(RSF 2017)
19
(Freedomhouse 2017)
224 Project Business Management

k. Protect your project from the extended vulnerability to digital attackers. Con-
necting networks of a customer with a supply chain network, which is essentially a
number of temporary project business partners, brings risks for all parties involved.
It is difficult to manage malware risks in one’s own organization, but almost impos-
sible to manage them in other companies. Data protection experts have the tools and
the processes to protect the organization, but not all organizations have these experts,
and when they have them, using them in projects may not be intended. It should be.
Problems seem to happen rarely, but when they turn up, their impact can be massive.
l. Make sure the customer remains king. With a large contractor, the customer may no
longer be the center of all attention and care, but just one among many. One finds one’s
own company sharing the contractor’s assets as project resources with other customers,
and being able to use them only when they are not blocked by other customers. When
mandating tasks to other companies, particularly to large ones, this expectation should be
communicated. Key people assigned to the project must be protected from cost-cutting
measures, such as firing or giving concurrent assignments to several customer projects.
m. Ensure you know all subcontractors. Over the various tiers of the project supply net-
work, companies may become involved with the project that one would not want to
work with, and one may not even be aware of their presence. They could be impos-
tors, elements of organized crime, direct competitors, or companies whose competitive
behaviors negatively affect the supply network.

The points discussed above are contractual matters but relate also to project management
and to the way one does business. Many project managers rely for procurement activities on
the organization’s purchasers and counsels. This is often not enough. The project has specific
interests that these groups my not be sufficiently aware of. A further point of concern should
be that contracts regulate the distinction between compliance with and breach of the legally
agreed-upon scope of cooperation. For a successful project however, contract partners have to
be proactive and responsive to the formal agreements and jointly strive for “Mission Success
First”. For a project manager in a complex procurement situation, seeking the advice of these
corporate functions is advisable, but the project manager should ensure that, on top of legal
and commercial aspects, the needs of the project will be regarded.
One may summarize the points above in three basic rules:
• Know the participants in your PSN, know them all, and know them well.
• Maintain common sense when the complexity is growing in the PSN beyond the
expected.
• Keep up the “Mission Success First” attitude over the PSN.
The risk is high that the project was started with high hopes and objectives and with the
intention to care for everyone who is prepared to contribute to the success of the project.
Without a lot of watchfulness on the PSN, this noble goal will fall apart before one’s eyes, and
achieving the project goals timely and on budget and not causing more operational disruptions
than absolutely necessary (and accepted by line managers) becomes finally impossible. The
project manager’s reputation will suffer, and if this is a project presented on newspaper’s front
pages, so will the reputation of the organizations involved.
 Managing Complex and Dynamic PSNs 225

4.8 Supportive Action, Provisions, and Enabling Services

There is a common assumption that it is the contractor’s sole responsibility to ensure timeliness
and to meet other requirements, such as adherence to budgets (in cost plus and T&M con-
tracts), operational disruptions on the customer side, and delivering what is agreed upon and
needed. The assumption is often not right—the customer may be a central influential factor for
meeting the contractors’ objectives.
Contractors depend on customers in various ways. When I am talking with contractors,
they cite many reasons for how customers have caused or at least contributed to delays, budget
overruns, problems on a technical or personal level, and other missed objectives, among them:
• Confusion about what mission success actually is
• Confusing objectives and constraints
• Missing institutionalized conflict resolution mechanisms
• Missing a network-wide project management information system
• Poor delivery of enabling services and provisions
Supportive actions by the customer are an essential prerequisite for project success in many
project supply networks. These actions include discretionary or contractually mandated activ-
ities under the customer’s responsibility that enable contractors to do their job. They may be
required to support an individual contractor or a group of them inside a PSN. Sometimes, sup-
portive inaction may be required, which means to avoid actions that would disrupt contractors’
work for the project. In this context, I will also address enabling services and provisions, which
are mostly contractually stated obligations rather than discretionary. They may also be implied
in the contract without being explicitly stated, or they may be construed into the contract from
hindsight, in a worst-case scenario by a judge who has to decide in a lawsuit.

4.8.1 Understanding “Mission Success First”

The non-governmental organization (NGO) Greenpeace, dedicated to environmental activ-
ism, is an interesting example of successful project management in a complex environment .20
For all its operations and projects together, it has its mission defined by just one photograph.
It shows a beach with the sea in front and palms in the background. It stands for islands that
elevate only a few meters above sea level, and that will disappear when the sea rises, which is an
inevitable effect of climate change.
For every decision made at Greenpeace, the question is asked whether it will impact the
these islands, and how. The photo represents the societies most vulnerable to rapid climate
change and defines a mission statement based on their fate.
A project manager who wants to institutionalize a “Mission Success First” attitude in the
PSN should begin with a simple clarification: What constitutes mission success? Or to simplify
further: What is this mission?

20
Here, as in other parts of the book, it is not my intention to discuss political matters, but to use exam-
ples to highlight core aspects of Project Business Management.
226 Project Business Management

The definition may be quite simple: It may be a new piece of software, machinery, infrastruc-
ture, or any other kind of asset that the customer receives and that helps run the business. In
such a case, mission success is meeting specifications in time and at the budgeted project cost.
The definition of mission success may go much further: The project has been commenced
to meet a business case, a legal or contractual requirement, or another goal defined by manage-
ment and other stakeholders. In such a case, it is more the operational cost and benefit of the
project result, the lifecycle cost and benefit, or even the total cost of ownership (TCO) and total
benefit of ownership (TBO)21 that define mission success.
The definition of mission success may reach even further and include subjective aspects that
are hard to measure: Do users “enjoy” working with the new software? Does it give manage-
ment and workers confidence that the new safety system is in place? Does the new product
increase the perception by customers that its maker is a successful and trustworthy company?
Whatever the mission success (and failure) criteria are, they should be communicated to
the PSN early in order to ensure that contractors can understand what “Mission Success First”
actually means and what entitlements and obligations can be drawn from the statement.

4.8.2 Objectives and Constraints

Constraints are hard limitations to the decision and working domains of project teams. A proj-
ect to run an election campaign must be finished by election day. A family that has $500,000
available for a new house is on the direct path into private insolvency when costs are about to
exceed this number. A team member in Project A, who will leave the team by the end of the year
to work for Project B, must have all work for Project A done by that time so as not to bequeath
unfinished results to the current project that its team may not be able to complete. Most con-
straints have their origin in factors that are external to the project and that are hard—often
impossible—to influence. Often, they are mandated by physics or by law and are commonly
reflected in the contract or another type of agreement. Constraints may originate in national
calendars that disallow certain team members from working on festive days. The most influen-
tial type of constraints in many projects are deadlines and funding limitations, whose overdoing
spells debacle for the project. Constraints are often the red line between success and failure.
Objectives, in contrast, are arrangements that have been defined or agreed upon based on
desires or voluntary promises and therefore describe what a project team aspires to achieve, or
what achievements are expected from it by key stakeholders. Mostly, constraints are just there.
They must be identified by the team and should be documented in a way that they will not be
ignored or completely forgotten. Objectives are defined by the team, alone or in a decision pro-
cess with mutual input from those who have a vested interest in them. Separating constraints
from objectives is identical to making a distinction between want and must (or must not). A
seemingly simple thing.
It is strange, but want and must are often confused. Some examples of when must means want:
• I recently heard a manager telling a subordinate: “I cannot accept your behavior”.
• A British bus company states: “[. . .] we are unable to accept £50 notes”.22
21
See the definitions of these terms in the second chapter, beginning on page 136.
22
(Yellow Buses 2017)
 Managing Complex and Dynamic PSNs 227

• In the famous science fiction movie “2001: A Space Odyssey” from 1968, HAL, the
computer with artificial intelligence, manages the spaceship on its way to Jupiter but is
turning into a killer. When one of the astronauts returns from a brief trip with a pod,
he commands “Open the pod bay doors, HAL”, to allow him to return to the safe and
life-supporting interior of the vessel, but the computer responds: “I’m sorry, Dave. I’m
afraid I can’t do that”.
In these examples, individuals with the power to impose their will hide behind a seemingly
factual constraint outside their domain of influence. An example of the reverse—couching
a hard command within “want” language—are managers who communicate an objective,
saying “I wish you to . . .” or “I prefer that you . . .”, when they actually mean “you must . . .”.
This even has a cultural aspect: Edward T. Hall described the difference between what
he calls low-context cultures and high-context cultures.23 In low-context cultures, the expec-
tation is that a said statement simply means what it says. A “yes” means “yes”, a “no” means
“no”. Constraints in these cultures are communicated as hard borderlines, objectives as desired
results. In high-context cultures, however, such direct and unambiguous communications are
rather avoided. Speakers in such cultures will rather fear the tendency of such messages to hurt
people and to direct a spotlight on the speaker: Saying “I want something” places accountabil-
ity on me. A statement “I must” or “I cannot” takes accountability off the speaker. In high-
context cultures, indirect statements are rather expected. This does not mean that they may not
lead to misunderstandings there.
Inside one’s own organization, most people have time to learn what their managers mean
when they make statements that conceal their true meaning in such ways. Externals do not
have this experience. When managers talk with externals, it is important to have precise com-
munications, in which the said statement is identical to the meant message. The question of
whether the communication of a date, an amount of money, a time span during which certain
work can be done and resources utilized for the project, and other similar requirements should
be considered a hard must-be constraint or a much softer want-to-be objective is important so
that the contractor understands how much flexibility the requirement has and to what degree
it needs to be prioritized. As a customer, one does not want the contractor to misinterpret
requirements and to focus on soft goals and specifications while missing hard ones. Clear and
direct communication is at the heart of contractor management.
How are constraints and objectives linked? Table 4.2 shows how, along different dimensions
or knowledge areas, objectives and constraints are separated by reserves. An example is the
deadline stated in the time dimension in the table, which is a strict constraint. In industries
such as automotive, the start of production (SoP) deadline is actually one of the most pressing
deadlines that one will have. The objective to be ready for the SOP three months earlier creates
a time reserve that one can use to fi x problems or cover delays. Communicating the deadline
to the contractor should ideally be done in a different way than communicating the objective.
If the contractor has an unforeseen problem, the objective allows some time to fix it. When the
contractor schedules against the deadline, there is no such buffer time available.
A clear communication of what constitutes a constraint and what is an objective is sup-
portive action to the contractors, as it helps them make the right decisions when different
23
(Hall 1989)
228 Project Business Management

Table 4.2 Objectives and Constraints are Separated by Reservesa

Dimension Objective statement Constraint identified Reserve

Time Start of production (SoP) SoP deadline has been 
hree months
T
has been targeted for imposed for April 01, 2019. schedule reserve
January 01, 2019.
Budget A cost estimate at project There is a funding 
2,500,000
$
start has been approved: limitation of $12,500,000. monetary reserve
$10,000,000.
Scope 15 functions are planned 12 functions are specified 
hree ‘nice-to-
T
as ‘wanted’. as ‘critical’. haves’ (reserve for
de-scoping)
Quality Control limits: Dimension Specification limits: 

Quality control
x ± 1 mm Dimension x ± 1.25 mm reserve: 0.25 mmb
Resources 10 team members have 12 team members are 
wo bench
T
been planned. available if needed. resources
Resource Bill is expected to work We have booked Bill for 
ne week
O
availability four weeks on the task. five weeks resource reserve
Operational We plan to stop Management has agreed 

One reserve week
disruption production for four weeks. to a production stop of a for the project
maximum five weeks.
Procurement The contract has been A second contractor is on 

One backup
awarded to a contractor. standby for a fee. contractor
The delivery has been The delivery will be 

Eight days feeding
ordered for 1 April. needed for the project on buffer
8 April.
Risk The work package is An insurance has been 

The benefit of the
planned for $10,000,000. bought to hedge the insurancec
project from losses from
certain risks.
Safety The power plant must be The power plant has been 
.3 m safety
6
protected from a 3.7 m built on a location 10 m reserve
tsunami. above sea level.
a
(Lehmann 2016b, p. 200)
b
This means that a results corridor of the measured dimension of ±1.25 mm around Dimension x would be
tolerated, but when the results deviate by more than ±1 mm, correcting the process would be considered.
c
This reserve is generated externally to the project by the insurer, but it would serve as a monetary reserve
when the insured event occurs and the insurer pays.

requirements make a trade-off necessary. It helps contractors prioritize and eases communi-
cations inside the PSN, because all parties have the same understanding of what constitutes a
want or a wish, and what is actually a must.

4.8.3 Enabling Services and Provisions

Mayfly Ltd. is a provider of optical and digital services to hospitals, including cameras, endo-
scopes, screens, and processing systems as supportive infrastructure, but also as communication
 Managing Complex and Dynamic PSNs 229

and documentation equipment for operation rooms (ORs). These components are installed on
the customer’s premises in complex system integration projects and connected with the cus-
tomer’s other digital systems, which may be legacy systems in older hospitals or new systems
when the hospital is newly built. One of their largest customers was the Titan Beetle Clinic, a
large-scale new building to replace three outdated legacy hospitals with modern infrastructure
and several special disciplines concentrated under one roof—a greenfield project that promised
substantial improvement of the health service for the people living in the area.
The size of the new installation required a lot of preparation by Mayfly, including ordering
equipment and materials and booking their own staff and subcontractors timely. Mayfly did
all these tasks for the customer. Two weeks before the appointed day of installation, when two
truckloads with materials were already stored in by the contractor, its project manager, on
the way home from another project, drove by the construction site of the new hospital, which
should have been almost finished—the integration of the digital systems normally follow some
weeks after the end of the construction project.
He was surprised and alarmed to find there nothing but an open construction pit and some
first concrete walls inside that would later become the basement. He immediately phoned his
contacts on the client side and was told that the construction was more than a year behind
schedule, that the delay was not the responsibility of the construction company, and that this
had been communicated in local newspapers.
The project manager asked why he was not informed of the delay, but was in return asked
why he had not made himself familiar with the progress of the project. He explained that he
had several other customer projects to take care of and these had consumed his time and his
energy. But if the delay would have been communicated earlier, he would have been able to
rebook subcontractors and reschedule the delivery of the materials and equipment.
The further course of the project became difficult. The manufacturer of the digital equip-
ment launched a new product generation for the core items, which the customer desired to have
instead of the originally ordered equipment. A change request by the customer was submitted
but rejected by the contractor, as this would have devalued the outdated warehoused equipment.
Later, when the building was finished, the installation of the electronics by the contractor was
done late, adding further delay to the project. The contractor booked the installation personnel
this time rather late and, given that the subcontractors meanwhile had other orders, seller and
buyer had to accept that these were no longer easily available. The customer could not claim
damage payments from the contractor for this delay, as the contractually agreed date for the
installation was over a year ago, and the contractor had been prepared to deliver by that time.
It is a simplification to just say that a customer project is one in which the contractor pro-
vides deliverables to the customer—products, services, etc.—and the customer pays the con-
tractor for that. The business relationship is much more complex. Figure 4.6 shows how the
customer has greater obligations to a prime contractor, who in turn can have the same obliga-
tions to subcontractors, and so on.
As shown in Figure 4.6:
• Enabling services are services that the buyer has to provide to the seller as a prerequisite
for the seller to deliver what was contractually agreed timely and in the expected quantity
and quality. Simple examples are badges with the necessary access rights to customer
facilities (and the company restaurant), transportation services that the customer provides
230 Project Business Management

Figure 4.6 Commonly found obligations in a simple two-tier PSN.

to the contractor, regular updates on project information by the customer, among many
more. Freeing up space in an office or on a construction site for the resources of the con-
tractor is another common example. An enabling service that often causes difficulties is
access to knowledgeable customer employees, combined with the direction given to these
employees to actively support the contractor. A project management information system
with access for contractors that enables them to monitor project progress, as far as relates
to their work, would also be an enabling service, in that it allows early decision making by
the contractor, ideally to the benefit of the project. In rare cases, the amount of enabling
services by the customer may exceed those that the contractor has to do for the project.
• Provisions are items that the customer must deliver to the contractor as a precondition
for the contractor’s work. It could be raw materials, tools and equipment, work permits,
and many more items that the customer is obliged to supply.
As a customer, one should always assume that the contractor monitors and documents the
completeness and timeliness of provisions and enabling services. In a conflict with the poten-
tial to need remedy in court, such documentation can make the difference between winning
and losing, or when it comes to a settlement, how beneficial this is for the party. This means
in return that a customer should also document the timeliness, correctness, and completeness
of services and provisions arranged for, just to be prepared for the worst case, which might be
rare, but can then be very damaging.

4.8.4 Institutionalized Conflict Resolution Mechanisms

“Nursing contractors is not part of my job description”. I heard this statement some time
ago from an attendee in a class when we discussed what institutionalized conflict resolution
mechanisms could look like. In his business life, acting as project customer’s representative to
contractors, he often experienced conflicts, but as a well-educated engineer, he preferred not
having to deal with them. When these conflicts turned into problems for the project, he was
very capable of identifying the culprit and make everyone point the finger at that company, but
this did not lead to a more efficient or effective project.
Of course, the statement about nursing is fundamentally correct, but it is not very helpful,
when contractors’ problems one day translate into project troubles on the customer side and
 Managing Complex and Dynamic PSNs 231

Figure 4.7 A project begins with high uncertainty. Then, stakeholders follow a learning curve.

when it is too late to find simple and inexpensive solutions. It is not untypical that these prob-
lems grow over the course of the project. Replacing “nursing” with “conflict resolution” helps
find a solution for the project, protecting its productivity and the integrity of the systems it puts
into place. But one should do this early.
It may be a good idea to remember Figures 4.7 and 4.8 when the task is to deal with sellers.
They describe some general developments over the lifecycle of a project, the learning curve that
all stakeholders are passing through, the loss of options, and the increasing costs when chosen
options need to be implemented.
These developments can be particularly troublesome when, in project networks, legally
binding decisions must be made early, when the knowledge to make such decisions is not yet
available but will be developed over the course of the project.

Figure 4.8 The development of feasible decision options and the costs to implement them follow
an opposite development to the learning curve. The response should be to accelerate the learning
curve.
232 Project Business Management

It begins with the learning curve that the team will go through. The beginning of a project
is characterized by a deep a lack of knowledge. Early decisions must be made at a time charac-
terized by uncertainty, and many of these decisions will not be based on hardy knowledge but
on assumptions and in consideration of the risks that come with these decisions. This is true on
both sides, customer and contractor, and all over the PSN. The learning processes during the
project will come with lessons that are valid only for the specific project; others will become
part of the experience base that project managers collect over time, thus adding to the profi-
ciency and professionalism of the persons and the organizations involved.
Some of these risks will have been assigned to a party in the contract, but learning is essen-
tially unpredictable, and many risks will turn up long after the ink has dried on the con-
tract signatures. During this learning curve, and with it the reduction of uncertainty, two
more developments occur: The number of feasible options for decision making goes down,
and the remaining ones get more expensive.24 Figure 4.8 describes the approach to address
this dilemma, obtaining knowledge about the project, its environment, and the stakeholders
involved as early as possible.
For Project Business Management, this quickening of the learning curve includes gath-
ering knowledge about the member companies of the PSN, including answers to some basic
questions:
• What companies are members in the network?
• What are their respective business interests?
• How well are they organized and financed?
• Who are the key people involved on the contractor side?
• What motivates these people as individuals and also as a team?
• What frustrates them?
• How does the contractor assess and respond to their successes and failures?
In essence, these questions can be reduced to two: How much should we know about con-
tractors, and how much can we know? Figure 4.8 mandates gaining this knowledge early, and
one must expect high resistance—a contract party may consider such questions an infringe-
ment of their business autonomy. Why is it nevertheless important?
There is an interesting analogy: Think of the PSN as a major surface aquifer, in which
the customer is similar to people, communities, or entire countries living near the estuary,
and the contractors to those midstream and at the tributaries. Living downstream, one can
simply enjoy life near the water and ignore what is happening upstream, but the risk of being
impacted by activities there is high. Rivers and their tributaries can be polluted and diverted.
Their water can be distributed over fields where it evaporates, so that it will no longer get to
the river mouth. There may be a dam upstream, whose damage can cause a disastrous flooding
downstream.25 Water management measurements upstream, such as flood control, can also
impact the availability of water downstream, resulting in phases of water scarcity alternating
with times of unmanageable overabundance.

24
This is described in detail in my book Situational Project Management: The Dynamics of Success and
Failure (Lehmann 2016b, 50–58).
25
Example: The Johnston Flood of 1889 in the USA, which killed 2,200 people (Clarke 2007).
 Managing Complex and Dynamic PSNs 233

Those living downstream must take an interest in what happens upstream, and ideally vice
versa. One could expect wars to happen over water, in particular as large rivers cross country
borders, and the different interests of the riparian countries may fuel conflicts. Research shows,
however, that while complaints are common—some justified, some not—even vicious war
enemies generally come together and resolve issues about it.26 A major reason is that activi-
ties downstream can impact life upstream too. For example, land-locked upstream countries
depend on the downstream riparians to allow them access to the sea, and with this to inter-
national maritime logistics on which they depend for export and import. Dams built down-
stream can furthermore block fish from swimming upstream, heavily impacting ecosystems
that many humans rely on, such as fishermen and recreational businesses.27 The dependency is
mutual and existential, and it does not matter whether the countries and communities involved
are direct neighbors or separated by others in between.
The analogy to PSNs is interesting: The contract parties are also both organizationally inde-
pendent and factually interdependent at the same time, and decisions made in one part of the
PSN may influence organizations in other parts, both positively and negatively. Whereas for
contracts, the legal doctrine of privity of contracts applies, as described in Section 4.5.2 (on page
217)—the mutual influences that members of the PSN can have on each other, positive and
negative, do not respect this privity. Solutions to conflicts inside these networks can therefore
not be solely contractual but must also be managerial.
How do riparians resolve their conflicts?
As an irritant, water can make good relations bad and bad relations worse. Despite the
complexity, however, international waters can act as a unifier in basins with relatively strong
institutions.28 The historical record proves that international water disputes do get resolved,
even among enemies and even as conflicts erupt over other issues. Some of the world’s most
vociferous enemies have negotiated water agreements, or are in the process of doing so, and
the institutions they have created often prove to be resilient, even when relations are strained.
Strong institutions to resolve conflicts are obviously the key to success. These could include:
• Cross-company focus groups that help resolve technical and organizational issues. This
conflict resolution is generally the fastest.
• Project internal review boards that have the power to make decisions that are accepted as
binding by the members of the PSN.
• Project external mediation and arbitration institutions established to perform alternative
dispute resolution (ADR). Involving an independent party takes longer but helps find a
mutually acceptable solution when strong emotions are involved.
For a singular customer–contractor relationship, selecting one of these resolution levels may
be sufficient. For large and complex PSNs, it may be more appropriate to have a staged system in
place, starting at the focus-group level and including the possibility of proceeding to external help
when necessary. Such a system would then try to resolve conflicts at the most appropriate level.
The river example gives an indication of what one should further consider when one imple-
ments such an institutionalized system:
26
(Kramer, et al. 2013, 4–12)
27
(Holmlund and Hammer 1999)
28
Ibid, emphasis added by me.
234 Project Business Management

• The conflict resolution institution(s) must be strong enough to make swift and acceptable
decisions, and the value of the institution must be accepted by all members of the PSN,
ensuring a fair distribution of obligations, benefits, and risks.
• All parties must generally be addressed by the institutionalized conflict management
system. Parties ignored or excluded will feel additionally frustrated and may then act
against settlements found.
• The parties in a PSN are not monolithic business entities but societies made of people with
different opinions, attitudes, and personal objectives. Salespeople and project contributors
in a contractor company, for example, may have different views on the project, and their
conflicts can impact a project as much as conflicts between companies. The understanding
on the corporate level alone does not guarantee the full functioning of the PSN.
• Timing is an issue: Between the emergence of an issue and the resolution by the institu-
tion, a lot of time can pass, and a party may be tempted to act unilaterally during such
a time to establish faits accomplis that trigger or amplify tensions and make a mutual
solution impossible. When two parties do that, new conflicts may arise that the institu-
tionalized conflict resolution may not be able to settle.
• Corruption is another threat for the functioning of the system. Corruption is sometimes
considered a system “greasing” the wheels, but in reality, it is rather the sand in the gear
box that relocates assets dedicated to the project into private pockets.

4.8.5 Project Management Information Systems in PSNs

Another core element of managing a PSN is communications among many parties. A project
management information system with easily manageable access rights and functions, such as a
centralized document repository, team collaboration services, a cross-company team calendar,
and quick and confidential person-to-person messaging, would be helpful.29
In order to install such a system, a first question would be, who should be responsible for its
installation, operations, and management. Then, it would be necessary to identify the require-
ments that the system must meet and what solution (or combination of solutions) is available
that best meets the requirements.
Particularly in international projects, the question of where the data will be physically
located can become another point of controversy. Data on the system will to some degree relate
to the companies and persons involved, and objections by these stakeholders will have to be
taken seriously. One would in addition need to consider possible legal constraints which have
been imposed for the protection of privacy and of the companies’ confidential information.
They often reflect the differences in the understanding of people’s and corporations’ ownership
of private data, and as PSNs process such data in networks that span corporate limitations and
often country borders as well, such questions should be addressed when the network is devel-
oped. Complaints and accusations about inappropriate protection of this data will in most

29
While I am writing these lines in the summer of 2017, there seems to be no single system dedicated to
cross-corporate PSNs that integrates all these functions. The more software vendors will identify that
there is a market for such a software solution, the more likely it is that one may exist in the future.
 Managing Complex and Dynamic PSNs 235

cases be directed to the PSN’s customer, whose efforts to protect such data will be put down as
inattentive and neglectful.
Information management systems often suffer from not being used at all, or not being used
by all those who should. One reason for that can be lack of familiarity with the systems. A
formal introduction to all parties using it for collaboration will probably be necessary. Another
reason may be the transparency that such a system creates. I will address this later in more detail.
One more interesting aspect of a project management information system that spans the
PSN is the support for the previously described institutional conflict management system. With
a sound database, combined with correct interpretation of this data, such a system can also
act as an online forum for discussions in preparation for effective conflict resolution activities,
reducing the need for traveling and lengthy face-to-face meetings until they become necessary.

4.8.6 Specific Business Interests of In-Between Contractors

Prime contractors can do an incredible service to customers and subcontractors. They can
mediate conflicts between people who develop project results and those who will use them.
They can further be experts in both offer management and vendor selection, bringing together
the best buyers and sellers. They can also channel the flow of information between complex
communication networks on both sides—customer(s) and subcontractors—thus helping align
this flow with the strategic goals of the project. They can bring order into chaos.
Prime contractors can also be the most massive obstacle to a project business manager to
know all contractors involved in the project, to develop organizational and technical systems to
manage these networks, and to ensure that conflicts among parties in the PSN will be resolved
before they impact project success.
As mentioned before, prime contractors are in a business situation that reminds one of the
“ham in the sandwich”. As shown in Figure 4.6, they pass through deliverables in one direction
and payments in the opposite. They also have to ensure that provisions and enabling services
are arranged by the customer and bestowed on the subcontractor. It is possible that their job is
considered as organizationally beneficial—valuable for the project and worth the costs. It may
also be that the prime contractor is rather regarded as dispensable, and the costs for the organi-
zation are regarded as wasted. A prime contractor who is also productive for the project with its
own resources and adds contractors’ assets for those pieces of work that the company cannot do
on its own is at much less risk of being seen as superfluous and squeezed out of the project, but
the risk is high if the prime contractor is only an in-between dealer, passing all work to subcon-
tractors. Such a prime contractor, who does not tangibly contribute to the actual completion
of project deliverables, is always at risk of losing out when the customer and the subcontractor
decide to do business directly and reduce both project costs and communication channels.
A common strategy for such a prime contractor to protect its business is to conceal the
subcontractor from the customer. To achieve this goal, subcontractors are then contractually
mandated to hide their true relationship from the customer. They will appear as business units
and employees of the prime contractor, whereas they are actually independent. If the work of
the subcontractor can be done without direct customer contact, the customer may not even
know that another company has been made a part of the project.
236 Project Business Management

4.8.7 Work Flow Management Across a PSN

Scarabaeus Ltd. is a manufacturer of extruded aluminum tracks used for a variety of applica-
tions from electric light rails to construction and engineering. They hired Woodlouse S.A., a
specialist for production facility development, as a prime contractor to build a new production
line for high-precision tracks of lengths between 5 m and 10 m, which were mainly used in
application areas in which trueness to measurements was considered more important than a
cheap price. The construction would take place at their existing premises as a greenfield project
next to existing production buildings. The project included the construction of the building
and the development and installation of the manufacturing line inside that building.
In order to meet a challenging deadline, a decision was made to fast-track the production
line development and erection by overlapping the two processes. The production line consisted
of four sections, named Sections A through D, and it had been originally planned to first
fully construct the building, then develop the four sections of the production line, and then
to finally fabricate and assemble the tracks inside the building. Now the decision was made
to start the development of the production line when the building design was finished, and to
make and install each section when its design was finished. Figure 4.9 shows a comparison of

Figure 4.9 The workflow plan of the project in the case story before and after fast-tracking. The
bar lengths are not proportional with the durations of the work items.
 Managing Complex and Dynamic PSNs 237

the two workflows for the project. The expectation was to save roughly 40 percent of the time
by overlapping phases that were originally planned to be performed in a sequence.
Fast-tracking is a common approach to accelerate a project by performing project phases and
activities in parallel instead of one after the other. In projects performed by PSNs, the allure of
this approach is even stronger, because the limitation of internal resources no longer restricts
it. If more resources are needed, they can be hired, and most will cost the same whether they
work earlier for the project or later.
Fast-tracking comes with many risks, and the case story of Scarabaeus and its prime con-
tractor, Woodlouse, became a good example for that. These risks can be identified and man-
aged, but if this is not done, it will be very surprising when they occur.
The problem was that Section A was too long, not in time but in physical length. There
were options to make it 27 m or 15 m long, but as the shorter options were more expensive,
the longer were chosen. This dictated the position of Section B, which took the raw production
output from Section A and processed it further, and so on. The production was planned as a
linear sequence starting at one end of the building and ending at the other.
Relatively late during the project, it turned out that the building was 10 meters too short for
this production line. There would have been solutions to shorten the footprint of the produc-
tion plant, but the need to implement them was identified too late. An alternative would have
been to make the building longer, but this was impossible—it backed directly up to the neigh-
bor’s ground. Major changes in the design of the production line became inevitable, which
delayed the project far beyond the originally planned handover date. Both the project and the
production became costlier, and the production output was reduced by roughly 15 percent.
A root cause of the problem was that the subcontractors that had the different work pack-
ages assigned, such as designing the building, erecting it, designing the production line, etc.,
did not talk enough with each other. Partially unaware of the workflow in the project, they
just did the job for which they were paid. The prime contractor was also not too interested in
promoting too much communication; that would have meant additional work for them, and
the customer considered the project in good hands.
There is a modern tendency to ignore workflows in projects. Practices such as earned value
technique (EVT), agile methods, and others ignore how work items depend on each other in a
project. It also happens that project managers plan for such dependencies, but the teams, their
own staff as much as the contractors’, do not adhere to these plans, running a kind of cookie-
dish project management30: “Can I have the chocolate cookie today?”
Cookie-dish project management has some disadvantages:
• Work is done out of sequence, so that work that relied on information from previous
work, which was not done, has to be redone.
• Idle times occur when a team member wants to start work as scheduled, but cannot, as
predecessor work has not been done.
• Difficulties arise when trying to assess project progress, which can only be measured
when activities are done in a planned order.

30
A term I learnt some time ago from a student in a seminar, referring to a project in which team mem-
bers select for themselves the tasks that they like instead of those that are due in the schedule.
238 Project Business Management

• Leadership issues become murky when work is not done in the order that the project
manager has planned, or when there is no such plan at all.
The difficulty with work-flow planning involving different contractors is that they may not
be available for the project when they have other project customers to serve. Agreeing on avail-
ability slots can be difficult, and the work schedules that are then developed can be volatile—
for example, when one contractor is late because work on another project was not finished on
time. One may argue that this is the same problem that a project manager has in an internal
project that must share resources with other projects and with operations. Such an objection
is generally correct, but the challenge grows in the PSN, with its multitude of contractual
agreements, conflicting business interests, and often insufficient communications between the
companies. These factors make dealing with variances against a networked schedule even more
difficult and can lead to damage claims and other negative results. It nevertheless needs to be
done, and project managers managing PSNs must ensure that work flow definitions are being
adhered to so as to avoid crises and unmanageable projects.

4.9 More Control on the Project Supply Network

4.9.1 Naming, Nominating, or Approving Subcontractors?
This topic was discussed in Section 2.12.2 (on page 125) in the context of contracting as seen
from the seller side. What effect will these techniques have on management of the PSN?
When the PSN has some weak spots, their failures can trickle through the PSN and finally
damage the entire project. In order to know contractors, subcontractors, and all parties involved
in the PSN—at least all critical ones—some organizations use contractual mechanisms that
give them a degree of influence on who is part of the project and who is not.
• Naming. Naming means that the prime contractor is directed by the customer which
company is to be used as a subcontractor. The difficulty in this model is that the prime
contractor must typically guarantee the performance of the subcontractor, which may
be a company that is more or less unknown to the prime contractor before the business
relationship and with which no rapport has yet been built. Not a good precondition for
cooperation.
• Nominating. The customer gives the contractor a list with approved subcontractors,
from which the contractor can chose one for the project. The problem remains that these
are commonly unknown to the prime contractor, which makes it hard to select one and
to take responsibility for that company’s performance.
• Approval. The prime contractor selects the subcontractor of choice and presents the
company or person to the customer, who can approve the subcontractor or not.
There is also a reverse nominating that occurs from time to time. As a trainer, I have had
situations in which major customers, mainly software companies, have asked me to offer my
services as a trainer. I was then given a list of training providers, vendors whom the customer
had approved. I was to select one among them as a prime contractor, send my offer to that con-
tractor, who would then reoffer me, of course with an additional charge for their work. It was
 Managing Complex and Dynamic PSNs 239

good business for these companies; they had little work to do, seeing that I organized the entire
seminar, but they received attractive price surcharges for that. The benefit for the customer was
that no new contractor needed to be listed.
Naming and nominating can be effective means to ensure the inclusion of long-time part-
ners of the customer in the PSN. Approval helps keep unwanted companies out of the PSN.

4.9.2 Coaching, Consulting, Mentoring

Project procurement brings people and companies into the project that have not been in a
business relationship with the customer before. Some of them may have to work temporarily at
the premises of the customer; others will work over a distance. Often, they must get an under-
standing of the rules that apply when they work with this customer. Some rules will be formal,
such as a Code of Conduct, meeting policies, or other kinds of ground rules that apply for the
project. There are also informal rules, such as, “The person who took the last cup of coffee from
the coffee pot brews the next one”. Rules may also follow local or regional standards, such as
how to greet people and how to respond to greetings.
Rules may deal with matters of workspace security, data protection, restrictions on walking
around customers’ premises without attendance, and many more. Such rules may be specific to
the project or may be valid for the entire company and its suppliers.
Lack of awareness of such rules can cause tensions inside the PSN. Expectations on behav-
ior are not met, and discussions that should focus on technical or organizational matters start
focusing around interpersonal problems and misunderstandings.
In such cases, it can be a valuable proactive measure to coach or consult people on the
expected behaviors of the organization sponsoring the project. A customer may do that to pro-
tect just the project or the entire organization from disruptions. I have experienced such events
as highly effective. They were done in a physical classroom setting or over a meeting platform
and lasted between two and four hours, depending on the amount of knowledge that the
temporary staff needed to learn. In projects with a strong fluctuation of contractors and, with
them, of people, these meetings were repeated, becoming more effective with each iteration,
as the customer company learned over time where more emphasis was needed and what issues
were less problematic than originally expected.

4.9.3 The Other Stakeholders on the Customer Side

Project managers are rarely alone when they manage complex PSNs. To this job, which some
have compared to herding cats, internal stakeholders will add the dogs that frighten the cats
further and make the herding job even more difficult. There is good reason for these stake-
holders to ensure influence. As mentioned above, a schedule is binding for the project. So are
scope statement, WBS, HR plan, and many other documents that the project team generates to
organize the future of the project. Contracts, however, are binding for the entire organization.
If a major conflict arises, it will not be a conflict solely of the project but will escalate immedi-
ately. Some typical parties affected are listed below.
• There may be a purchasing department in the customer organization, whose most com-
mon focus is to achieve low prices. Most of them will not look at operational costs of the
240 Project Business Management

project results, at lifecycle costs of project and operations, or even at total cost of owner-
ship, but solely at the amounts on the contractor’s invoices.
• Often a legal department is involved, particularly to sort out contractual details with
contractors.
• Upper management will want to be involved as well, given the strategic nature of con-
tracts for many organizations and of the selection of PSN members. One should also
remain aware that, although a project schedule binds the project, as well as a human
resource plan or most other elements of a project management plan, obligations stated
in contracts are binding for the entire organization and, in the very worst cases, conflicts
over them may need to be remedied at court.
• Politicians may further influence projects—not only government projects—by enforcing
the use of contractors located inside their constituency. From a politician’s perspective,
this may be understandable; from a project management perspective, these contractors
may be the project’s weakest spots.
• The various regulatory compliance departments, particularly in large organizations,
can massively impact the management of PSNs. The management of safety, professional
integrity, equal opportunity, and others do not restrict their work to their own organi-
zation. They are aware that when the finger pointing begins, the buck will finally stop at
the customer.
The ability for sound stakeholder management is an asset in every situation in which PSNs
need to be managed. The multitude of stakeholders can make the task truly difficult.

4.9.4 Professional Integrity in the Project Supply Network

There is another reason to look at the last of these internal stakeholder groups on the customer
side. Project management is unfortunately not free from corruption. This seems to very depen-
dent on the industry—some industries have a tradition of rejecting bribery and other forms of
corruption; in others, it seems to be the norm.
Research done by Gallup International in 2010 with 770 participants from business, law,
accounting, banking, and chambers of commerce in 14 countries were asked to what degree the
respondents consider players in their industry sectors willing to pay or extort bribes.31 The “clean-
est” sector was agriculture; on the other end of the scale was public works and construction—the
industry with the highest perceived willingness. Figure 4.10 shows the results of the research.
From my experience in project management and as a trainer, I can confirm that there are dif-
ferences among industries. I was dealing with project people from electronics, IT and software,
automotive, aerospace, and others, in which bribes would never be considered or discussed. But
I also remember an advertising agency whom I had contacted asking for a proposal; they asked
me openly if they should calculate a surcharge into their offer, which I would receive. I also had
personal experience with the pressure that dubious corporations and people can apply by suing
whistleblowers and writers for defamation.
There are important reasons to take corruption seriously in project management, as was dis-
cussed above referring to corruption inside the PSN. Here, corruption is addressed that relates
31
(TI 2000)
 Managing Complex and Dynamic PSNs 241

Figure 4.10 Preparation to pay or extort bribes in industry sectors from a Gallup survey in 2010.

to procuring staff on the customer side. Such employees, asking for a bribe or accepting it when
it is offered to them, render ineffective all attempts to create a “Mission Success First” attitude
across the PSN—the attitude that builds upon, and enhances, open communications and
trustfulness. Corruption creates an environment of distrust and paralyzes communications.
The virtuous circle that creates an environment in which the PSN acts as a team turns into a
vicious circle in which the project manager has no idea of what is actually going on in the proj-
ect. While the project manager wants to create a “Mission Success First” culture, corruption
places an “un-culture” against that, which secretly sets personal enrichment first.
What can the customer-side project manager do to protect the project from corruption by
his or her own staff ? A look into history is helpful, such as when the rich city of Venice in the
Renaissance had similar problems: public agents who required palm greasing by citizens to do
their job, do it timely, and do it correctly. The city distributed a network of bocche dei leone 32
letterboxes that gave whistleblowers a safeguarded opportunity to send messages to the city
magistrate on corruption inside its ranks. Accusations had to be supported with evidence—
one does not want to invite defamation and slander, and anonymous accusations were only
followed up in cases of very serious accusations to the disadvantage of the entire municipality.
Whistleblowing has proven a strong protective mechanism when any form of corruption
occurs, but the risks for whistleblowers are also high, and they are open for abuse. A contem-
porary form of a bocca di leone could be an encrypted communication channel that protects
the whistleblower’s anonymity and ensures that allegations are followed up with enquiry—and
potential litigation, if the allegations are found to be true. Such a channel may be internal or
may use an external party, such as a lawyer who ensures a trustful but effective process. It is
also advisable to verify that measures taken to support whistleblowing are developed in accor-
dance with applicable laws, and also to make sure that all parties in the PSN are aware that
such virtual form of a bocca di leone exists, as a signal that the project manager is dedicated to
keep the project clean of corruption.33

32
Singular: bocca di leone, Lion’s mouth.
33
Associations such as Transparency International have measures to protect whistleblowers, and their
local chapters may be good contacts for advice on how to make a project corruption-proof (TI
2016c).
242 Project Business Management

4.10 Chicken Races and How to Avoid Them

“Chicken race” is a term from game theory, the discipline that deals with conflicts between
individual and common interests. There are various forms of chicken races. A common sample
is a race in which two “players” drive cars at high speed toward the edge of a cliff, and the “first
to jump [out of the car] is the chicken”34 —the coward. If no cliff is at hand, the drivers can also
run the cars toward each other, and the first one who swerves has lost. Sometimes the players
stand on a railway track awaiting a train, and the first who jumps off the track is the chicken.
In project supply networks, chicken races are also found, and they are not rare. Damselfly
Ltd. is an example of a subcontractor who has a contract with prime contractor, Grasshopper,
Inc., as part of a project to build a new production line for an automotive company in an
already existing building. The program to erect the production line consists of 100 subordinate
projects performed by different subcontractors, dealing with special machinery, infrastructure,
control software, and other items. All contractors have the same deadline, which must be met
in order to have all results handed over to enable timely start of production (SoP). To give
readers a full understanding of this kind of business situation: Ninety-nine timely handovers
by subcontractors but one being late does not constitute 99-percent success, but is 100 percent
failure to meet the deadline. Figure 4.11 visualizes how one late project contractor delays the
SoP beyond the deadline. In environments that apply this kind of scheduling, pressure on sup-
pliers is extreme, as the consequences of a single project’s delay are significant.

Figure 4.11 In a project or a program consisting of (sub)projects with a common deadline, such as
a project to enable timely start of production (SoP), one late project delays the SOP, the deadline
of the program.

A month before the deadline, the project manager of Damselfly’s project did some assess-
ments and forecasts on the project and found out that it would no longer be possible to meet
the deadline. Delays from late deliveries of standard components that were out of stock at the
company’s supplier added to absenteeism of employees during a flu epidemic, and it became
obvious that timely delivery would no longer be possible. She should have told that imme-
diately to her contacts at Grasshopper, the prime contractor, to allow them to talk with the

34
A famous example is shown in Rebel Without a Cause, a 1955 film with James Dean and Corey Allen
as Jim and Buzz, the young men driving the cars.
 Managing Complex and Dynamic PSNs 243

customer and find a solution earlier, when this would have possible at low costs and still with a
greater number of opportunities.35
The manager of Damselfly had a different opinion on that. He did not allow her to send a
notice on the delay to the customer. He speculated that Damselfly would not be the only con-
tractor to be late. In a project supply network with a hundred contractors, there must be more
with similar problems. Damselfly could inform the customer and be the culprit for the late start
of production. But, if someone else was the culprit, Damselfly would be given more time to fin-
ish work and would not have to worry. The strategy was successful; Damselfly got “off the hook”
when another contractor could no longer hide its delay, just some days before the scheduled SoP.
No one knows how many further contractors were in a similar situation and how many
champagne bottles were opened when these contractors received the message from the prime
contractor, Grasshopper, asking them to delay the delivery by a month. The managers at
Damselfly took this experience as a confirmation that not informing the customer in such a
situation may be safer, protecting the company from troubles and from damage claims.
The project managers from the prime contractor and the customer had planned to start
production immediately the day after the deadline, when all elements of the line were in place,
tested, and ready for operations. It was planned to begin with five days’ pilot production. After
that, actual production would start at a low initial production rate, which would be slowly
ramped it up over three months to allow for a capacity reserve, in case that was necessary to fix
initial flaws that are normal for new production lines.
The production plan had been developed based on the reports by the contractors that they
would be able to finish their sub-projects on time. Based on the production plan, commitments
had been entered into by the customer with clients for the first deliveries. To meet these com-
mitments in spite of the delayed start of production, the ramp-up phase was shortened to only
two months. This then led to reduced operational performance of the production for more than
half a year, because not enough time was left to find flaws early in the system and to fix them.
The all-over delay for production caused by such flaws led to overall production delays of sev-
eral months, until the intended full productivity could be achieved. In this way, the partial com-
munication breakdown caused delays in the production that added up to months. Some flaws
caused errors in the production output that were only identified when the products from the line
had already been shipped to the market, causing additional costs and a loss of client confidence.
Early communications would have limited the delay to just one month and would have
allowed Grasshopper to talk with the customer, who in turn could have talked with the clients
of the product, telling them early that their deliveries would have a short delay. The late com-
munication allowed for late response, which added further delays and costs.
A solution to protect the customer from a chicken race, in which the contractor who responds
early loses, are regular maturity checks,36 in which the progress and the ripeness of the develop-
ment on the contractor side are assessed, and in case of delays, measures are taken early to
either accelerate work at the contractor or to prepare for the late delivery on the customer side.
The difficulty in the example was that the customer and the subcontractor had no contract.
The legal doctrine of privity of contracts (introduced on page 217) was then expanded to all
35
(Lehmann 2016b, p. 52–53)
36
In Germany, falsely referred to as “quality gates” or “Q-gates”; they are actually not gates, and they
examine maturity rather than quality.
244 Project Business Management

communications in the project, which suited the business interests of the prime contractor but
disintegrated the entire project to the disadvantage of the customer. In a managed project supply
network, the customer talks with the prime contractor’s subcontractor(s), and vice versa, based
on the trust that the business relationship is built in a way that the prime contractor’s business
interests will not be damaged by this openness.

4.11 Closing Contracts and Projects

A good friend of mine was hired by the Backswimmer AG insurance company some years ago
as their new CIO. On the first day in the new company, she occupied her office and was intro-
duced to the employees, her new subordinates. She had to become familiar with the corpora-
tion, its infrastructure, its processes, culture, and attitudes, and with the people she would have
to work with from now on, including internal staff but also business partners and long-term
contractors. One of the first issues that she was confronted with was an invoice from Stonefly
GmbH, a contractor from a recently closed project, over a significant amount of money for
post-project services provided to Backswimmer. The new CIO was assured by the employ-
ees that no billable service was provided by Stonefly and that the invoice should be rejected.
Backswimmer then sent a letter to Stonefly, rejecting the invoice, but the company insisted on
its validity and on payment. Backswimmer’s CIO then accepted the invoice without further
proof and submitted the invoice to the finance department for payment.
At Backswimmer, everyone was convinced that the invoice was baseless, but the new CIO could
not devote management attention to the case. She needed to become cognizant of the new job
and of the corporation, and because the running operations of the insurer’s IT as well as a major
portfolio of running projects needed to be governed, dealing with the case would have been too
distractive for her. In other words, Backswimmer found itself unable to defend against the claim.
The case story shows the risks from having project contracts that are not formally closed, but
rather die over some period of time. When all work has been finished and all payments have
been made, either party—seller or buyer—could use, or rather abuse, them to make claims
that are unfounded but may be hard to fend off. Contractual conflicts consume time, energy,
and management attention, and closing contracts formally with a note that all contractual
obligations are met (with the possible exception of warranties and operational post-project
services) can make both parties’ minds free for new ventures. Figure 4.12 describes how formal
close-out ends the contractual relationship between seller and client, except for those obliga-
tions that survive the end of the contract.

4.11.1 Handovers and Acceptances

The term handover describes the physical or virtual process that takes place when the delivera-
bles of the project are handed over to the requestor, which in a contract project is the customer
or customers, if there is more than one. A project may have one handover or many, often
referred to as staged deliveries (see Chapter 1, Section 1.3.3, page 15).
Acceptance, in contrast, is a formal managerial decision to approve the deliverables as being
in compliance with specifications and other requirements, possibly linked with the obligation
on the contractor for some minor rework. There may also be a multitude of acceptances—for
 Managing Complex and Dynamic PSNs 245

Figure 4.12 The common process flow in project procurement ends with formal contract close-out.

instance, in system engineering, when drawings, system components, sub-systems, and in the
end the final system are accepted.
Handover(s) and acceptance(s) generally precede formal contract close-out; they may be
done either in a single process of deliverable reception against a signature or independently.
It is not uncommon that formal acceptance precedes the handover by weeks. In other cases,
however, handover may have happened long before the project deliverables are finally accepted.
Formal project close-out, furthermore, depends on the final settlement of payments. Other
obligations should also be ended by that time—for example, the return of temporary provi-
sions, such as facilities and equipment that the contractor borrowed from the customer to work
for the project. Enabling services, such as the access of contractor employees to the corporate
restaurant, should also have been ended when the contract is closed out.
This is rarely done in projects, but I strongly recommend having a specific close-out doc-
ument, signed by both parties, that the contract has been formally ended and that all obliga-
tions have been met, except long-term obligations that are listed in the document, including
post-project services and warranties. In the case story above, the insurance company would
have been protected from the late claim by a document in which the parties declared the
contract closed out, or it would have given a reference as to how new claims could arise in the
contexts of warranties and services.

4.11.2 Contract/Procurement Revisions in Project Supply Networks

In very large projects, it is not uncommon to announce a procurement revision early and per-
form it after the end of the procurement lifecycle. Figure 4.13 describes the relationship of the
procurement and the contract lifecycles from the perspective of the customer. It also shows
how each of the lifecycles can be terminated by use of a post-audit—a revision.
246 Project Business Management

Figure 4.13 The procurement lifecycle includes the various contract lifecycles plus some time
before and after the actual contracting period for preparatory work and final organization of docu-
mentation and other deliverables. Revision at the end of each lifecycle can help communicate a
culture of “cleanliness”.

The basic intention of these revisions is to ensure truthful behavior by both customer and
contractor personnel. Project management under contract is a major challenge to the profes-
sional integrity of all parties involved, particularly for employees who make direct contract
decisions and who have the capacity to make them alone. A lot of money is flowing, there are
business interests involved, and errors made can lead to costs for a party when they are uncov-
ered, which may tempt it to sweep them “under the rug” and bribe or blackmail people who
know of them. Questionable payments, kickbacks (partial paybacks of invoiced sums that are
not listed in all documents), and the involvement of dubious persons as proxies in the business
are strong signs that more scrutiny is appropriate. Auditing documentation is an important
task, but more important is early communication that such reviews will be performed, as a clear
message that the PSN will look into shady behavior and will not allow underhanded activities.

4.12 Do We Need New Approaches to Contracting

in Project Supply Networks?
History can teach interesting lessons for Project Business Management. Around the year 1900,
countries, particularly in Europe, had a complex system of mostly bilateral contracts devel-
oped, in which they ensured mutual economic cooperation, non-aggression, and support in
cases of conflicts, including wars. Many contracts were secret, and at least to my knowledge,
no one had an overview of all contracts and how they would interact.
On 28 June 1914, Bosnian Serb Gavrilo Princip assassinated Archduke Franz Ferdinand of
Austria and his wife Sophie, Duchess of Hohenberg in Sarajewo, which is today the capital of
the Republic of Bosnia and Herzegovina, but was at that time a province hub of the empire of
Austria–Hungary. The assassination was originally an internal event in the Austria–Hungarian
empire, but became soon an international affair, when Austria–Hungary delivered the so-called
“July Ultimatum” to the country of Serbia, which had actively supported the assassination.
 Managing Complex and Dynamic PSNs 247

The terms of the ultimatum included an authorization for Austria to investigate the crime
in Serbia. They were written to be unacceptable by Serbia, which then rejected its full imple-
mentation. Austria–Hungary declared war on Serbia, Serbia called its ally Russia for help,
Austria–Hungary its ally Prussia, and so on. The alliances snapped in, and the war soon spread
all over the world. In the four years until its end in 1918, 16 million people were killed, and the
political landscape of the globe was changed.
Unresolved problems left over from this war led directly to the Second World War, 1939–
1945, which was even more disastrous. And again, World War II began with a secret bilateral
contract—the Molotov–Ribbentrop Pact—in which Nazi Germany and Communist Russia bur-
ied their hostility temporarily and agreed to invade Poland and distribute its land between them.
After World War II, most countries had learned the lesson of the risks that come with bilat-
eral contracts and developed multilateral treaties, which have effectively secured peace over
decades. The most prominent of them is the United Nations, but many other treaties regulate
regional or industry-specific cooperation. Most wars that occurred in the last decades involved
countries that were not members of such multilateral treaties. There are forces today who want
to turn history back to the time of bilateral contracts, ignoring the fact that they dismantle the
most important peace mechanism that humanity has developed, while the risk of a devastating
war for all countries involved has massively increased.
Before the First World War, it was considered normal that a state contract involved two,
possibly three countries, and large treaties were a much rarer thing. One can compare this to
the situation in Project Business Management, in which we commonly see PSNs built from a
complex system of bilateral contracts, each with one organization acting as a buyer, the other
as a seller. Sometimes, sellers join forces and create a consortium, a temporary joint venture,
but then again, the customer has a bilateral contract with the consortium, which over times
develops the characteristics that are typical for a firm.
Figure 4.1 (on page 200) showed how a consortium is used for indirect contracting. Some
or all subcontractors are also investors of the consortium, which acts as a separate entity and
contract partner to the customer. It is a prime contractor and a temporary joint venture at the
same time. In such a consortium, the customer is normally not expected to also be a member
and venturer, but there is no rule which disallows that.
There are some examples of PSNs that are developed as customer-led consortia (CLC, some-
times also called a project alliance). In a CLC, the customer does not have a seller–buyer con-
tract with the consortium but is a core member. A prerequisite for a contractor to work for the
project is to join the consortium, which may include a financial investment or be limited to an
approval to join, which is then accepted by the consortium members.
The contract between the members of the consortium is a multilateral CLC treaty, and the
share of workloads and payments is agreed among the members in a cooperative fashion out-
side this treaty. Such a CLC is more similar to a club or a political union of nations than to a
classical project procurement contract. It is more complicated to develop, because it needs the
acceptance of a multitude of corporations, not just two. Its benefit is (1) that it gives the open-
ness that allows for easy re-arrangement and change of work assignments without the need to
adjust a large number of individual contracts, and (2) that it enables the situational application
of different practices, such as agile methods when work is exploratory and “the way is made
by walking”, or predictive when decisions need to be made with sufficient lead time to book
scarce resources early or place orders for work today that takes the contractor months to finish.
248 Project Business Management

Another benefit of a customer-led consortium is the acceptance of a “Mission Success First”

approach across the PSN; this approach is the glue that keeps the consortium integrated. It is
this mission for which the customer provides the financial and organizational resources to the
CLC, and access to these resources for a contractor includes the acceptance of the consortium
goal as their own goal. In other words—if a contractor wishes the membership to be successful,
it must support achieving the consortium goal.
This leads to another benefit: the increased maturity of decision processes in a PSN. Decision
maturity follows a four-stage model from data to action, and one may use the acronym DIKA
for it. The model is shown in Figure 4.14.

Figure 4.14 The DIKA maturing process of decision making, beginning with (raw) data and ending
with action, which in turn provides new data.

• Data. The project returns raw data to the project management team, such as delivery
dates, costs, efforts, and other numbers. The data of a project typically refers to its past
time, when the data has been taken, and possibly to its present.
• Information. The data is interpreted. Causes of variances from baselines (expectations
and plans) are identified, facts are separated from opinions, and positive news is sepa-
rated from uneasy ones. The project is assessed for impediments, risks, and other issues.
Forecasts are developed and analyzed based on the data at hand, which add predictions
for the future to the comprehension of the past that the data gave.
• Knowledge. The team prepares its behavior: Where are people allowed to go on with
their work without interference, where is corrective action needed? Is it necessary to
update parts of the plan, or the entire plan? Is it necessary to implement risk responses,
including contingency plans and fall-back plans? Knowledge leads from comprehending
to acting.
• Action. The decisions for actions made in the previous step are implemented. The actions
deliver new data that restarts the process.
In a PSN with its common opacity and dynamics, it can be difficult to put data into the
context that is needed to understand it and to develop information. Without such informa-
tion, it is difficult to develop the knowledge that is necessary to make well-founded deci-
sions on actions to be taken. Instead, the PSN will be influenced by misunderstandings. In
 Managing Complex and Dynamic PSNs 249

Section 2.4.3 (page 68), I discussed Conway’s law, which in essence says that the function-
ing of a system built by a number of teams will depend on the communications among these
teams. Misunderstandings between the teams will lead to malfunctions in the interplay of the
system components that the teams develop.
PSNs deliver data and require actions but can make it hard to process the data in a way that
the actions can be considered mature—that is, informed and knowledgeable. A well-designed
CLC may help overcome this maturity gap by improving the maturity steps of information
and knowledge.
A customer-led consortium based on a multilateral CLC treaty is not easy to set up and
manage, but it is a great tool to place completing over competing. It is a tool to take a project
supply network not as an inconvenient consequence of tapping resources of sellers external to
one’s own company, but instead as an opportunity to design it, replace opacity with transpar-
ency, manage the dynamics of supply networks, and jointly with the contractors seed and grow
the “Mission Success First” culture that helps the project in such a complex setting to finally
be successful.
Chapter 5
Project Business Management
and Crisis Management

5.1 The Power of Documentation

Cash flow considerations can be critical to project success. Companies can default and run into
insolvency due to a lack of profitability, but also due to insufficient liquidity. One may say that
it does not matter if a company goes bankrupt, as long as it is not their own, but in a complex
project support network (PSN), this may be too shortsighted; one contractor in dire straits may
financially damage other contractors, subcontractors, and the customer, as well as jeopardizing
the entire project.
Springtail, Inc., is a training provider in the field of management seminars, including proj-
ect management. They had an ongoing classroom business with open seminars, for which
customers could book seats, and had a second business model doing qualification projects for
companies to support their strategic objectives by training professionals, mostly from project
management and sales.
In the year 2014, Springtail ran into a financial crisis due to massive costs of online adver-
tisement. The online ads were sold by web advertisement providers in the form of auctions on
keywords: When a keyword is used by a user, the providers’ system selects those advertisers
that pay highest and then shows these companies’ ads. Springtail, in competition with other
providers, had to increase their bid to the advertisement providers; their competitors reacted
and did the same, and the costs for advertisement exploded within weeks.
Springtail then tried to reduce costs elsewhere: They put pressure on trainers—actually
freelancers as subcontractors; Springtail had no employed trainers—to reduce their daily rates,
which resulted in their best trainers ending cooperation. Springtail’s other approach to make
the classes cheaper looked at locations. Most open classes were performed in hotel rooms, and

251
252 Project Business Management

Springtail developed an obsession to place as many students in one small room as possible.
Small rooms are simply less costly than larger rooms. In many hotels, seminar rooms facing
noisy streets are cheaper than those on the side of the silent backyard. As Springtail booked
these cheaper rooms to further cut costs, the crowded classes could not even open a window
to let fresh air in. All these measures were, in sum, insufficient to cover the cost explosion on
the marketing side, but Springtail was so dependent on its online marketing that it could not
develop other sales channels, and with an office staff stripped down to the minimum, it would
no longer have the resources for that. Springtail, Inc., was on its way to bankruptcy.
At the same time, the company performed a major qualification project in project manage-
ment and proposal management as a prime contractor for Sandfly Corp., an international
manufacturing and trading company that was building a new service branch. The objective
of the qualification project was to introduce an internal business development process and a
project management methodology to all project managers of the new service branch and bring
all project managers to the same level of proficiency and mastery of the methodology.
The business with Sandfly was commercially robust and profitable; the customer, however,
noticed the growing impact on the project from Springtail’s other business with open sem-
inars. Accepted and performing trainers left the project, because they had refused to work
further with Springtail, and new trainers were brought in—some of them quickly selected
when imminent seminar dates needed instructors—who had to be available short term and
had to accept the low daily rates. Some trainers were not booked a second time as a result of
bad reviews from participants; others were not prepared to work for Springtail again after they
had experienced the working conditions in brimful seminar rooms on noisy streets. These new
and often temporary trainers also had no introduction to the strategic goals of the customer;
they just performed their seminars unaligned to the client’s overall business intentions. The
customer, Sandfly, had expected a professionally managed qualification project, but at one
point in time, the impression was that the only professional aspect of the project were the
invoices of the contractor.
Sandfly then asked Springtail for a meeting to discuss the problems and find solutions.
Appointments were made, and the chief executive officer (CEO) of Springtail was invited to
them but did not attend. The customer’s managers were waiting alone in their meeting room,
frustrated and uncertain about what to do next.
They gave Springtail a last chance for a meeting before cancelling the contract. This time,
Springtail’s CEO turned up and immediately began a long monologue, explaining the causes
for the company’s often strange behavior. His explanations sounded reasonable, but the inter-
ests of the customer no longer appeared in them. Sandfly cancelled the contract. Springtail
took Sandfly to court on damage claims for the loss of profit but lost the court case, because
Sandfly had documented the decaying business, including the two missed meetings. The judge
who presided over the case called Springtail’s claim for payments “inconcludent”, which is a
judge’s form of saying “utter nonsense”. The qualification project nevertheless failed. Roughly
one third of Sandfly’s project managers had passed the training, the others had not, and the
mission goal of unifying proficiency and mastership of the methodology was therefore not
successfully achieved.
 Project Business Management and Crisis Management 253

5.2 Introductory Questions

The following questions are written in the style of a certification test. They are intended to give
you an understanding of the contents of the following text section and the questions that will
be discussed in it. It may be interesting for you to answer these questions before you read the
section, and then again once you finished it.

1. What effect can even moderate budget overruns and delays in a small number of
projects have for the performing contractor organization?
a) They can make it impossible to implement agile methods across the organiza-
tion’s complete portfolio.
b) They can incapacitate the organization technically and organizationally.
c) They can turn a planned profit from an organization’s customer projects into a loss.
d) No effect, the other projects can effectively cover the monetary disadvantages
for the organization.

2. What is the spotlight area of benefit engineering by a contractor?

a) Generating benefits for subcontractors in the project to increase their commit-
ment to the project.
b) Generating benefits for project team members to increase their commitment to
the project.
c) Reducing project costs to avoid or mitigate losses in a customer project.
d) Increasing monetary or intangible benefits for the customer as an element of
active issue/crisis management.

3. There are several reasons why organizations that perform customer projects as well
as those that manage complex PSNs should have a person dedicated as a project
business manager. Which of the following is NOT a reason for that?
a) Projects with more than one party cooperating under contract need managers
who can oversee the entire business process from the beginning to the end,
removing fences between contributors to this process.
b) Project business engineers are particularly competent in increasing pressure
on business partners, whereas project managers rather focus on the technical
details of the project.
c) Business relationships in supply networks often extend over national borders,
and on top of the technical, social, intercultural, and interpersonal skills, manag-
ing these projects needs legal understanding.
d) Contributing partners in PSNs tend to turn to competing behavior. The project
business manager’s job is instead to promote the behavior of completing to
achieve mission success.
254 Project Business Management

4. In an internationally distributed PSN, contract partners are tied together to gener-

ate common success. What can stand in the way of achieving this success?
a) Ignoring the business interests of other contributing members of the PSN.
b) Hesitation in going to court against a poorly performing PSN member.
c) Balanced trust between the extremes of naïvety and permanent suspicion.
d) Having project business managers to manage the business relations.

5. Benefit engineering is an approach that can be utilized by all contributing partners

in a PSN. How can a customer use benefit engineering with a contractor to the
advantage of the project?
a) By using the understanding of the contractor’s needs to offer desired benefits
in return for improved performance or additional project scope.
b) By threatening scope and price reductions in return for dissatisfactory perfor-
mance and results from the contractor.
c) By approaching the contractor’s project manager directly and offering the per-
son benefits in return for additional benefits for the customer.
d) By squeezing out prime contractors from PSNs that bring no benefit to the proj-
ect but act as proxies between customers and subcontractors.

6. Benefit engineering applied by a contractor-side project business manager is based

on a proposal to the customer to increase benefits from the project for both par-
ties. It can fail for many reasons. Which of the following is NOT among them?
a) The customer may not have the freedom to accept the proposal due to external
constraints.
b) The contractor does not have the resources to implement the proposed change
and deliver the benefit.
c) The customer representatives like the proposal but are angry that it is not linked
to a payment made directly to them.
d) The contractor has insufficient knowledge of the customer, who may respond
negatively to the proposal.

5.3 The Dynamics of Success and Failure in

Project Business Management
Cicada LLC is an engineering company that performs a small portfolio of six projects for its
customers. Their business year follows the calendar year, and in November, 2012, they made
some projections and calculations for the business year 2013 in order to forecast the costs that
the company would have to bear for doing the projects and how much it could expect to earn
from them. Table 5.1 shows the calculation for the six projects, including the forecast for gen-
eral and administration costs (G&A), sometimes referred to as indirect or overhead costs. These
 Project Business Management and Crisis Management 255

Table 5.1 The Cost–Revenue Plan of Cicada for the 2013 Business
Year, Projected at the End of the Previous Year

include all the costs that cannot be assigned specifically to any particular project but occur in
order to enable the organization to be in business at all.
The prediction was a profit of $52 million from the projects. At forecasted total revenues
of $515 million, this equals 10.1 percent. The business promised to be profitable, and some
reserves were in the profits that could cover risks—lessening the company’s profit, of course,
but with 10 percent profit left, these monetary contingency reserves seemed well applied.
After six months, in the middle of the business year, Cicada revised the forecasts on the costs
and revenues based on assessments of the first six months and on modified projections for the
remaining months of the business year. Two projects, Project 2 and Project 6, were cost-wise
over plan, and these cost overruns could not be balanced out by saving costs elsewhere. Cicada
management eased its emotions by noting that these were only two out of six projects, and as
revenues were expected to remain unchanged, the additional costs seemed manageable.
Table 5.2 shows the updated numbers. The profit from the projects dropped to roughly a
quarter of the original prediction, but in order to end the project with a happy customer, this
low profit was considered to include an investment into the organization’s future.

Table 5.2 The Cost–Revenue Plan of Cicada,

Revised in July 2013 for the Entire Year
256 Project Business Management

Table 5.3 The Cost–Revenue Plan of Cicada

for the Given Business Year

At the end of the business year, some more issues turned up that affected reductions in the
revenues from some of the projects. Caused by delays, portions of the project work moved into
the next business year, and so did the payments that were linked with them, while the team was
busy with rework and sometimes idle times1 that could not be billed to the customer. Another
factor impacting revenues were damage claims by the customer and price reductions for late
and incomplete deliveries. Table 5.3 shows the updated values by the end of the business year,
which still showed positive margins for five out of the six projects.
The expectation of the organization to bring money home with the projects had turned into
an overall loss. Despite the fact that five out of six projects brought a positive margin home, the
total margin was not able to cover the organization’s G&A costs. Cicada incurred a massive
loss from its projects. This is a business situation that the company would not be able to survive
for long. They were expecting to secure the company’s future, its impact on the market, and the
jobs of its workers and employees. Instead of bringing money home with their projects, they
ravaged the entire organization, jeopardizing its jobs and depriving it of the financial assets the
organization would need to develop further and to keep pace with fast-changing technologies.
Project business management is high-risk business for all parties involved. The complex
interplay of scope, time, costs, as well as people and business interests, makes the success of one
party the success of others, but also the failure of one the failure of all. In projects performed
under contract in both simple customer–contractor settings as much as in complex PSNs,
projects may be able to develop virtuous circles, in which success at one moment leads to suc-
cesses in the next and in which the role model of one party’s being communicative, open, and
trustworthy is understood and followed by the other parties, so that a system of cooperating
partners based on mutual good faith is created, focusing more on completing the mission than
on competing with each other. The motto from Dumas’s Three Musketeers may come to mind:
“All for one, one for all”.2 It was also the motto of the Protestant party in the early days of the
Thirty Years’ War (1618–1648), and it became the motto of the Swiss cantons (states) to act
1
I discuss the widely overlooked effect of non-billable idle times in my book Situational Project Manage-
ment: The Dynamics of Success and Failure (Lehmann 2016b, 41–43).
2
(Dumas 1844)
 Project Business Management and Crisis Management 257

together to rebuild Switzerland after major flood disasters in the Alps in 1868. Today it is writ-
ten in the cupola of the Swiss Bundeshaus in Bern, the home of the parliament of the Alpine
republic, which is one of the oldest existing democracies in the world.
An interesting example of an organization that changed its fate from a long series of failed
projects to a stunning run of successes is the US National Aeronautics and Space Administration
(NASA). By the end of the 20th century, NASA had a streak of bad luck, when several missions
failed, among them the Mars missions described in the first chapter and two space shuttle
disasters (Challenger in 1986, Columbia in 2003). In the years since, NASA still had some
failures, among them the Orbiting Carbon Observatory (OCO) in 2009, which was dedicated
to bringing valuable data about the carbon load in the atmosphere, the root cause for climate
change. But the vast majority of missions was successful, and it is easy to see results from these
missions by visiting NASA’s galleries3 and having a close look at distant planets, into the uni-
verse or back to Earth from a distance.
The motto of NASA in the late 20th century had been faster-cheaper-better, and the ambi-
guity in this motto about what was priority left teams in PSNs helpless as a basis for decision
making. NASA developed its new motto—“Mission Success First”—in the year 2000.4 It may
be hard to believe that changing a motto (and with it the attitudes of individuals and organiza-
tions involved) can increase the success rate of projects, but one should not underestimate the
effect of a clear guideline for prioritization in decision making. Attitudes lead to behavior, and
behavior leads to performance and results, so effectively changing attitudes can finally lead to
better projects. The “Mission Success First” motto prioritizes, but it also gives people a sense of
hope and optimism—achieving mission goals is obviously possible, but it also raises confidence
in their ability to meet these goals and resilience against tendencies that threaten to undermine
them. Some readers may consider this discussion illusionary and more a bed of roses than fac-
tual reality, but research has shown the validity of the concept, which is today often subsumed
under the title psychological capital (PsyCap).5
Instead of such positive PsyCap, based on a “Mission Success First” attitude, as NASA has
shown to be successful, one can often observe a vicious cycle of mutual distrust and miscom-
munication that destroys the cross-company team spirit, incapacitates the project and its par-
ticipating organizations, and covers the mission goals behind a fog of opaqueness, misgivings,
and suspicion. Then, competing replaces completing. The venom of distrust sometimes attacks
the project openly; in others, it creeps in secretly, poisoning the relations among the organiza-
tions and finally becoming visible when it is almost too late to respond appropriately.
Some readers may still believe that this vicious cycle is a product of the phantasy of a book
author, but we can see troubled projects around us that were heavily burdened with personal
and cultural incompatibilities of the parties involved, and when a project can suffer from the
difficulties that a party suffers and that disable it from meeting its obligations, it is not rare
that these difficulties are not only of technical or organizational nature but lie in the contrac-
tual and relational interfaces between the organizations, the interplay of business interests and
attitudes towards one’s own company and the entire project.

3
(NASA 2016)
4
(NASA 2000)
5
(Avey et al. 2011)
258 Project Business Management

Troubled projects abound, many burdened with personal and cultural incompatibilities
among the parties involved. When one party’s difficulties in meeting its obligations threaten
the health of the project for the other parties, these difficulties can often be traced not only to
technical or organizational deficiencies, but also to the relational interfaces—the interplay of
business interests and attitudes—among all the parties.
The previous chapters of this book focused on avoiding such major conflicts, which can
finally translate into project crisis. The last discussions in this book will concentrate on tech-
niques to bring the project back on track when the crisis could not be avoided.

5.4 Causes for Conflicts in Project Supply

Networks—A Survey
Between 14 June and 4 July 2017, I made another microsurvey, asking project managers in sup-
ply networks what sources of troubles they found to be more or less frequent in their projects.
I received 302 responses from project managers globally, who classified themselves into
three groups:
• Employed: 208 68.9%
• Self-employed freelancer: 77 25.5%
• Others: 17 5.6%
Participants who answered “others” were asked to specify. They were mostly managers and
consultants/coaches. Figure 5.1 describes the distribution of the roles that the participants had.
I asked participants to state on Likert scales from 0 (= never) to 5 (= frequent) how often
they recalled causes of disruptions of work in project supply networks. Figure 5.2 lists the causes
of conflicts according to their frequency, as reported by the participants.

Figure 5.1 Many participants of the survey have collected experience in multiple roles, so that the
numbers do not add up to 100 percent.
 Project Business Management and Crisis Management 259

Figure 5.2 The most frequent cause of disruptions among the participants of the survey were
conflicting business interests.

Conflicting business interests were the most common cause, followed by diversity of cul-
tures, legal systems, etc. and by incompatible egos and antisocial behavior. Other causes were
much rarer but were also reported, and some of them can have extremely detrimental effects
on a project.
I gave participants the opportunity in a free text field to report experiences outside the strict
structure of the numbered Likert scales and received some more interesting statements. Here
is a small selection:
• “Our dependency on a large number of subcontractors for every project poses large risks
for our business success and our customer’s business success. Global internal vendor
management organization and tools are needed to vet and monitor vendor quality and
control the risks”.
• “It seems that the ego of my long-term customer is the main drawback to the entire
account. She is unpredictable, nonsensical, and narcissistic. She does not keep up with
her record keeping (on her side) no matter the updates given and frequency. Thus, when
she gets called out for not having her part together, she attacks me”.
• “Serious lack of common understanding due to ‘lack of time’”.
• “The subcontractor is not fully exposed to the contract/agreement and the agreed scope
of work of the main contractor”.
• “Arguing about material specs after signing contracts”.
• “When a contractor sells too much projects and then cannot give the correct service”.
260 Project Business Management

• “I’d add that it’s often convenient for project managers to blame contractors”.
• “Roles and responsibilities are often misaligned or crossing, causing communication
breakdown”.
• “Expectations are different”.
• “In all projects, vendor (contractor) analysis is very important. The PM must in all cases
look at the vendors and look at suitability to tasks as well as to the other vendors and/or
contractors. The overall project is always a group effort, so one bad link in this group can
sometimes cause the group to disintegrate”.
• “Very often poorly structured communication channels”.
• “Subcontractors do not have the same understanding of project goals as the [prime]
contractor”.
• “Poor understanding of risk and lack of appreciation of the benefits of risk sharing,
risk responsibility. Lack of preparation by buyer’s organisation for proper governance
and project support. Subcontractors making changes in agreed or contracted baselines
without reference to prime contractor. Subcontractors doing ‘end runs’ to get around
the prime and making unacceptable agreements with buyer. Buyers taking the view
that contract compliance is more important than a collaborative approach to mutually
rewarding outcomes, on the basis that a contract cannot write in all project eventualities
or challenges, which will take flexibility and collaboration, not rigid thinking”.
• “The recognized issue in any form of partnering or alliancing is the challenge of aligning
diverse interests and expectations to create a common set of objectives for everyone”.
• “Common cause is the unreasonable expectation of a fixed bid on unknown requirements”.
• “Having pre-selected and well investigated supply networks mitigates many of these
issues. The tight management of a supply chain is critical to success, especially for larger
and more complex initiatives”.
• “A common game is schedule low-balling,6 based on the experience that other vendors
will also not be able to meet their deadlines”.
• “Complex contractual process up to sixth level is a big issue while the rest all are culture
specific”.

5.5 Benefit Engineering

Benefit engineering rivals with cost engineering. Cost engineers focus on the costs of per-
forming the project, benefit engineers on the benefits that the project creates for their own
organization, for a customer, or for another organization involved in the project. When I talk
with managers of project managers in small engineering companies, project service units, proj-
ect management offices (PMOs), and other business entities that perform projects for paying
customers, how they are handling problems with projects, particularly when these projects are
about to make a loss, the answer is generally that the project managers must find ways to cut

6
Offering timely delivery at dates that are understood as not feasible, expecting that other vendors will
also not be able to deliver on time; see discussion on “Chicken races” above (starting on page 242).
 Project Business Management and Crisis Management 261

Figure 5.3 Repetition—for an internal project, benefits from the project are typically expected for
the future. In a customer project, the contractor expects the benefits during the project lifecycle,
beginning with the first payment and ending with the last.

costs. Unfortunately, there are limitations to this approach. Requirements from the contract,
from law and regulations, are often hard limitations, and there is also the desire to make the
customer happy, which sometimes strangely evaporates in such situations.
Another limitation is that cost engineering cannot help with problems such as overly press-
ing deadlines or unfeasible technical requirements. Just the opposite—meeting such require-
ments mostly increases project costs. Benefit engineering goes beyond these limitations, but
comes with new caveats.
By increasing the benefits for the customer and its internal stakeholders in a deliberate,
measured, and calculated fashion, benefit engineering can be a strategy to take a project out of
crisis. Figure 5.3 is a repetition from the first chapter. It shows three different benefit lifecycles:
• The first assumes a single delivery at the end of the project, which finishes the project and
at the same time allows the recipient of the deliverables to start gaining benefits.
• The second assumes staged deliveries, which lead to an overlapping of project lifecycle
and benefit generation.
• The third situation describes a customer project whose benefit generation begins with the
first payment by the customer and finishes with the last.
Benefit engineering can be among the most powerful tools that a project manager has at
hand to drag a project from upheaval into a better controlled state. It builds on a give and take
with these stakeholders, on good faith on mutuality and on an in-deepdepth knowledge of the
parties involved including their intentions, desires, fears, constraints, and all the other factors
that influence their decisions.
262 Project Business Management

5.5.1 Benefit Engineering—The Process

Figure 5.4 shows how cost engineering and benefit engineering address different time phases in
a typical project business lifecycle, which begins with the make-or-buy decision on the buyer
side, moves over business development and offer phase to contract closure—at which point the
buyer becomes the customer and the winning seller the contractor—then moves further over
the phase in which their contractual work is being done, to the handover of the deliverables
and final closeout of the customer project. At this point, the buyer and the seller may finish
their business relationship; it may also be that a period of operational business will follow,
which may include management of warranties as well as ongoing services and deliveries.

Figure 5.4 Cost engineering addresses project costs, mostly on the side of the contractor. Benefit
engineering addresses and increases the benefit.

Traditional cost engineering addresses the performance phase in this typical business life-
cycle. There, it focuses on the costs of the seller, who is now a contractor, to reduce costs and
free additional profits. It may also be linked with delaying the moment at which certain costs
occur, in order to protect the contractor’s credit line. In contract types such as time and mate-
rials (T&M) and cost reimbursable (cost plus) contracts, it may be the customer who does
cost engineering, because this is the side in which cost risks are located and which has to bear
most cost overruns. For our discussion herein, that topic of interest will be contractor-side cost
engineering.
The limitations and risks of cost engineering have been discussed above, and they can
restrain the options for cost engineering decisions to a degree that it is no longer effective. Its
benefit is that it is much simpler than benefit engineering (the topic of the following discus-
sion), which necessitates a very good understanding of the needs, wishes, and constraints on
the customer side and also of their own organization. Benefit engineering includes an intellec-
tual challenge to propose the right changes—those that meet the needs of both customer and
contractor, that bring benefit to the project, and to which the customer will respond positively.
Without deep investigation into both businesses, benefit engineering can backfire and, instead
of resolving the problems, create new conflicts or increase existing ones.
 Project Business Management and Crisis Management 263

The basic question of benefit engineering is quite simple:

“How can we propose a change to the project that is beneficial for the customer and allows
the adjustment of price, fees, deadlines, and other terms of the contract that make it impossible
for the contractor to perform a successful project”.
Benefit engineering includes a number of activities that must be performed to identify a
beneficial solution, assess its feasibility and favorability, sell it to the customer, and, once it has
been agreed upon, implement it. Figure 5.5 describes the process steps that should be taken
when benefit engineering is done for a customer project.

Figure 5.5 Benefit engineering builds on a deep understanding of the customer as well as one’s
own organization.

Step 1: Identify Own Problems

It sounds obvious that benefit engineering begins with a clear understanding on the side of
the contractor as to what their own problems are. This first step may already be a very difficult
one, because one of the hardest tasks of a project manager in any project is to know where the
project actually stands and where its weak spots are. This knowledge requires trust between the
contributing stakeholders in the project by getting to know which people and organizations are
trustworthy. As team members and subcontractors may be new to the project manager, and not
much time is available to know to what degree these people are trustworthy, knowing whom
to trust and whom not to trust can be hard. The same is true in the other direction—team
members and subcontractors need to develop trust in the project manager, and the time they
have to develop this trust is also very short. Many companies therefore replace a network of
mutual trust with a complex system of contractual agreements, internal processes, and formal
reporting systems. While there is of course merit in good documentation, one should not
overlook that contracts and similar documentation become valuable when problems between
the parties have occurred and when these parties come into conflict. They do not prevent the
problems and conflicts.
One’s own problems may also come as a surprise. The author remembers a case when half of
the project team left the contract organization to work with a competitor, and the remaining
team would not be able to meet contractual requirements. The leaving team members did not
give notice at all, so the project manager could not respond by bringing new employees into the
team timely enough to fill the sudden capacity gap.
While it may be difficult for the project manager to understand timely what their company’s
own problems actually are, it is important for the person to develop a clear understanding
264 Project Business Management

before any proposals are developed and presented to the customer. Otherwise, the benefit
engineering will not help the contractor to resolve the problems as they are, but will lead to
a WOMBAT investment—a Waste Of Money, Brain, And Time—while the actual problem
remains unaddressed and is likely to grow even further.

Step 2: Identify the Customer’s Needs

As a project manager on a customer project, one is really in a good position to identify the
areas of concern that benefit engineering can address. Managers in a modern enterprise have
a far more complex task than those in former decades and centuries. Management attention
is the scarcest resource in most organizations, not only for projects they are performing, but
also for the multitude of other tasks that these organizations must accomplish. The ability
of humans to direct attention to multiple tasks at the same time is limited, and when these
tasks are becoming more tedious and challenging, the number of tasks a person can manage
concurrently goes down further. Table 5.4 gives an impression of how the requirements on
managers have changed over time. It is also observable that many scandals have happened in
which organizations are involved whose management was simply overwhelmed with the num-
ber and complexity of issues they needed to take care of. These scandals also show that there
is not much understanding to be expected when managers who are usually able to cope with
this complexity fail to do so.
A modern organization is not a fine-tuned organism, in which all functions work together
in a collaborated fashion, creating effectiveness and efficiency and meeting all requirements
explicitly or implicitly imposed by stakeholders. Instead, it is a hodgepodge of compromises,
workarounds, makeshifts, and temporary solutions that were created to meet immediate needs
a long time ago but, although they should have meanwhile been replaced with solid solutions,
as they were working sufficiently well, their due replacement became a sacrifice to other tasks
that seemed more urgent.
As the urgent has always been the greatest enemy of the important, important tasks too often
remain disregarded. We should add that these insufficiencies may not be based on facts, but
rather on perceptions. An example: Due communications with shareholders of public compa-
nies on issues that will impact the value of shares has always been an important task for these
companies. In the wake of treacherous activities by a small number of companies at the end of
the 20th century, the USA enacted legislation to protect shareholders called the Sarbanes–Oxley
Act (SOX). Corporations invested billions to become SOX compliant, and time pressure was
high, because the law included a deadline for this compliance, threatening top managers (CEOs,
CFOs) with jail if their companies did not meet these dates. The dimension of these investments
in SOX compliance shows how the important task of shareholder protection and information
has been repressed by other management tasks that were perceived as more urgent.
Benefit engineering has become a more promising task with the management environment
changed and with the dominance of the urgent over the important in the perception of manag-
ers. Many important things are left unaddressed in organizations that add up to inefficiencies,
lack of effectiveness, and risks to the organization and its environment and that finally make it
hard for management to understand what is going on inside their own organization. Someone
in the firm, or the agency, association, etc., may benefit personally from these neglected issues,
 Project Business Management and Crisis Management 265

Table 5.4 Requirements Commonly Placed on Managers Today,

Compared with Those in the Past

Typical Focus of Management Attention

In the past Today

- Poorly informed customers - Heterogeneous, global customers with
- Employees doing mostly well-defined easy access to information
manual work - Talent gap for talented employees that
- Small number of long-term suppliers do mostly intellectual work and are able
- Few sources of raw materials to adapt quickly to changing
- Simple, static markets requirements
- Controllable competition - Complex and dynamic supply networks,
- Small number of laws often developed ad-hoc
- Integrity considered a secondary topic - Thorny competition for many raw
- Safety and security issues mostly ignored materials
- Static processes - Fast-changing global markets with
- Well-predictable future disruptive innovations, often surprising
- Decisions driven by perceived incumbent players
importance - Dynamic competition
- Unmanageable “jungle” of national and
international laws and regulations
- Professional integrity scrutinized by
various stakeholders
- Safety and security issues have become
mission critical
- Ever-changing processes with a high
degree of adaptiveness & agility
- Future driven by disturbances &
uncertainty
- Decisions driven by perceived urgency
266 Project Business Management

and they will do their best to ensure that management attention is not dedicated to them. It is
a kind of creeping sabotage against the vested interests of the organization.

Step 3: Identify the Customer’s Wishes and Wants

In the next step, the project manager who performs benefit engineering needs to develop an
understanding of the driving forces of the customer’s decision making: the needs and wants
that have the potential to give the customer’s managers sleepless nights and lengthy discussions
during the day.
Management of an organization that burns more money than what is available for it will
listen to proposals that can help reduce costs or gain additional income. A corporation that
makes a lot of money may not be open for such proposals and may be more interested in
suggestions with long-term strategic impact. Managers may respond much more quickly and
more decisively to proposals that protect them from errors, that are punishable, and for which
they will be held accountable in person, than to risks with low impact to the detriment of
someone else.
Managers have strategic goals that they consider worthy to follow up, and if the proposal
supports meeting them, it may be attractive to these managers; if it makes it difficult instead to
achieve these goals, the proposal may be rejected. Managers are often measured along abstract
metrics, so-called KPIs,7 and proposals that make it difficult or impossible to meet KPI goals
are also likely to be rejected. This will be even stronger when KPIs are linked with monetary
incentives and promotion.
Benefit engineering is susceptible to corporate politics, and in order to do it successfully, the
project manager needs to understand these politics and to navigate the project inside them.
Project managers are in a very good position to do that. They touch things that have not
been touched for long time. They open cabinets, look into books, analyze processes and deliv-
erables, and do many more such activities that no one has done for quite a while. They develop
a good understanding of the deltas between the necessities and intentions of their customers’
managers on one side, and the organizational reality on the other. They are not only in a good
position to do that, it is an essential part of their profession to identify technical, organiza-
tional, legal, and interpersonal issues in the customer’s organization and to actively transform
them. This is the skill for which their employer has hired them, and for which the customer has
awarded the contract to this employer.

Step 4: Identify the Customer’s Risks and Problems

Not all proposals that a project manager would make and that are desirable for the customer
are feasible or favorable. A project manager, for example, may try to redefine a deadline with
the customer for the project. Some deadlines are easy to move. For others, this may be impos-
sible. The project manager should therefore be aware of the constraints that make it impossible
for the customer to accept the proposal, and also of the risks and problems that implementing
the proposal would bring to the customer.
An important aspect of benefit engineering inside a “Mission Success First” culture is that
the project manager on the contractor side desires both to bring a benefit to the customer and
7
KPIs: Key performance indicators.
 Project Business Management and Crisis Management 267

to make this clearly communicated. This behavior is grounded in the deep knowledge of the
customer that the project manager gains during the project, and the same is true for the desis-
tence from proposals whose implementation would be detrimental for the customer. Benefit
engineering is not a quick and easy task, but is one that requires a lot of consideration and a
deep understanding of the consequences, both intended and unintended. This is true for any
technique that is used in project management, and the ability to develop this understanding
and act accordingly together with stakeholders is one of the distinctive factors of good project
managers in any case.

Step 5: Assess Own Strengths

The best benefit engineering proposal will lead to failure if the contractor organization lacks the
skills needed to successfully implement it. While this may sound self-evident at first glance, it
can become a major problem in a customer project. The contractor may have the resources in
house to carry out the proposal, but these resources may be booked by another project and be
unavailable at the specific moment they are needed. The same is true when subcontractors are
needed to implement the benefit engineering proposal. The resources to carry out the proposal
must have the necessary skills, they must be prepared to do the job, and they must be available
at the right time and also at the right location. They may need special infrastructure to do the
job, which must also be available, and someone may need time to introduce them to the project,
the customer, the team members who are already working on the project, subcontractors, and
so on. If new personnel have to be brought into the project to perform the additional work,
some time may be necessary to allow team building with the already assigned team members.
It is quite possible that these new team members, their tools, and their access to infrastruc-
ture must be taken away from other activities, such as operations or other projects. The manag-
ers responsible for these other activities may perceive this as disruption of their work, and the
new team members may prefer to go on with their existing work instead of being assigned to a
project in trouble, possibly in crisis.
Benefit engineering builds on understanding and engaging stakeholders not only on the
customer side, but also inside the contractor organization.

Step 6: Analyze Own Costs and Benefits

The costs of benefit engineering may be significant. Developing the proposal, presenting it to
the customer in a convincing and persuasive manner, implementing it as a change—assuming
that the contractor has standing procedures for managing changes and protecting the proj-
ect—and communicating such change to stakeholders involved is a costly set of activities. The
proposal will probably include additional work, which adds further costs.
The benefits from this change for the contractor must of course exceed these costs. They may
just be monetary benefits. Nonmonetary benefits can include aspects such as
• Avoiding breach of contract situations
• Redefining deadlines
• New agreements on operational disruptions on the customer side
• Replacing uncomfortable and unknown technologies with familiar ones
• Replacing subcontractors named by the customer with trusted ones
268 Project Business Management

In essence, analyzing the costs and benefits for the contractor are similar to the considera-
tions made at the very beginning of the business with a customer as to whether to send an offer
or not. A major difference is that, during benefit engineering, no competitor drives down the
price to the customer. In most situations, the incumbent contractor is the only organization
who knows how to create additional benefits for the customer. Although it is not advisable to
“rip off ” the customer in such a situation, pricing will be more comfortable and profitable for
the contractor. The only competitor to the proposal is the option for the customer to say “No”.

Wrap It Up: Define, Propose, and Sell the Solution

This process step in benefit engineering may have to be done twice: Inside one’s own organi-
zation and with the customer. Sometimes, convincing management at home may be the more
difficult part of this job, but the focus of the process step should generally be with the customer.
Not many project contractors have a well-developed process of business development and
writing of offers, which can be bids, proposals, pitches, or quotations. The various steps of busi-
ness development, including compelling and convincing presentations, can be a critical success
factor for a contracting organization; but as many of them are driven by engineering cultures,
this is regarded as unfamiliar and out of focus. On the other hand, the better this process has
been developed, which is then returning higher hit-rates8 and more lucrative customer busi-
ness, the easier it will be to implement benefit engineering.
Many project managers do not consider themselves sales people, and while some of them see
this rather is a personal weakness, others insist with pride that they do not sell, they perform. It is
often overlooked that to perform successful customer projects, some sales attitude is a necessary
skill of a project manager. If a project manager does not have the skills of a salesperson or dislikes
developing such an attitude, a solution may be to ask the company’s sales staff for support.
Benefit engineering should then be done using the same tools, processes, and behaviors that
have helped when the parties’ contractual and non-contractual obligations were defined, the
project’s original scope was delineated, and all the plans were developed that have guided proj-
ect management until this moment. Benefit engineering is both a project management process
and a sales activity. For the latter, the fundamental difference to the original sales activity that
won the contract is the proximity to and interconnectedness with the customer that has been
developed over time and that excludes competition from stepping into the business.

5.5.2 Negative Benefit Engineering

Sometimes the best benefit engineering proposal may be to exclude scope from the project that
was originally contractually agreed upon. The contract may include work that is not necessary
and not beneficial at all. I remember a project to replace a custom-made software solution for
a complex logistics system with a standard software. The core requirement was that the stan-
dard software must provide at least the same functionality that the older individual solution
also had. Many of these functions were necessary when the old software was developed, but
were meanwhile no longer needed. From a contractor perspective, these functions expanded
the scope beyond what was actually needed, and because the customer was prepared to rebuild
them in the standard solution, they meant extra business for the contractor.
8
Hit-rate: Percentage of offers that lead to business.
 Project Business Management and Crisis Management 269

However, as the project ran into difficulties with meeting deadlines, proposing to the cus-
tomer to drop the unnecessary development work and focus on functionality that was needed
gave the customer a financial benefit and the contractor the opportunity to meet the deadline.
This de-scoping may save time for the project, it may save costs for the customer, and it may
help the contractor avoid unfamiliar or uncomfortable project work. It may also free critical
resources for another project inside the contractor’s portfolio that is in trouble or crisis. In this
understanding, benefit engineering is a tool not only for project management, but also for
portfolio management.

5.5.3 From Cost Engineering to Benefit Engineering:

A Deep Cultural Change
At first glance, considering benefit engineering as an alternative to cost engineering to bring a
troubled customer project back on track seems like a marginal technicality. As soon as one tries
to implement it, one will notice how deep the cultural change is. This cultural transformation is a
prerequisite for the success of benefit engineering but is also a consequence of its implementation.
Instead of claim management—which means having dedicated staff combing through the proj-
ect for opportunities to invoice additional amounts of money for deviations from the contract
that may have happened, commonly leading to disappointments and frustrations on the cus-
tomer side—a joint effort is initiated to gain improvements for the customer and the contractor.
Project managers need to look beyond the limitations of the technical and functional aspects
of the project and dig deep into their own organization and even deeper into that of the cus-
tomer. There, they will discover new opportunities and threats as well as new leeway for deci-
sion making and thus-far unknown constraints. They will, in addition, identify human aspects
in these projects, including desires, fears, sympathy, rant, and many more. They will have to
navigate in the complex dynamics of power and politics; they will improve their understanding
of organizations working together under contract, the interfaces between these organizations,
and how they are able or unable to build working systems together.
Project management is a learning process as long as we are part of it. Each project has new
lessons for us; some of them are valuable for the specific project only, others will become part
of the person’s personal assets for the rest of their life. Benefit engineering is a driving force for
this learning process. In contrast to cost engineering, which tries to cut costs where it hurts
least, benefit engineering requires us to discover new opportunities, determine limitations and
risks that come with them, uncover people who are involved in the project and would other-
wise remain hidden, and develop solutions to the benefit of both customer and contractor.
Should a project manager be transparent with the customer when the proposal is made to
apply changes to the project? One should probably be very careful. If the rapport between
contractor staff and management of the customer is poor, this can backfire: The customer may
consider the proposal a rip-off, and the poor relationship can further deteriorate. If the rela-
tionship is strong and a robust “Mission Success First” culture has been developed, in which
completing trumps competing, it may be a good idea to put one’s cards on the table. In such
a relationship, proposing a solution for mutual benefit can increase trust and strengthen the
bond of business partnership, which is the most important prerequisite for successful project
business management.
Benefit engineering can be applied by different players, as the following discussion shows.
270 Project Business Management

5.5.4 Contractor-Side Benefit Engineering #1:

Application by the Direct Contractor
The basic principle is quite simple: The contractor-side project manager has to meet deadlines,
work against a tight budget,9 or has other challenging objectives or constraints that appear as
unrealistic during the course of the project. Proposing a value-adding change may be a reso-
lution, offering the customer additional benefits that the customer finds attractive enough to
rethink deadlines, price tag, and all the other things that bring troubles to the contractor.
Benefits for the final customer are mostly expected for the future. The new facilities, soft-
ware, machines, organizational structure, service enablement, or whatever the project’s deliv-
erable is, is a cost factor today but is expected to bring benefits in the future. The benefits may
be monetary, operational improvements, strategic advances, risk reductions, or any other step-
ups for the organization that its management considers worth the upfront investment. Some
projects have only one benefit: aligning the organization with applicable laws and regulations.
These projects are mandatory, not discretionary, but it may still be possible to develop a busi-
ness benefit on top of the necessity for meeting compulsory requirements.

5.5.5 Contractor-Side Benefit Engineering #2:

The Subcontractor’s View
The subcontractor works for another contractor, often a prime contractor, who is both a buyer
and a seller. Between the subcontractor and the final customer may be just one or a num-
ber of in-between contractors, and each of them is both a buyer and a seller with their own
obligations, business objectives, and risks. Benefit engineering can relate to the entire buyer
downstream; each of them may be open to listening to additional benefits that a contractor
can provide, but care must be taken that the benefit for one party may be a disadvantage to
another. Accelerating the project, for example, may benefit the final customer but may reduce
the time-related revenues generated from the project for a prime customer.

5.5.6 Customer-Side Benefit Engineering

As a customer, there are also opportunities to apply benefit engineering by looking at the con-
tractors inside the PSN and identifying ways to generate new benefits for one’s own organiza-
tion in exchange for additional benefits for vendors. The rolling award fee contract discussed
earlier (Section 3.5.6, page 189) is an example for such an exchange: Contractors are asked to
create benefits for the customer, to which a monetary value is assigned, and if these benefits are
sufficiently achieved, a part of this monetary value is given back to the vendors.

5.5.7 The Caveats of Benefit Engineering

Benefit engineering can be a powerful method to bring a project out of crisis. Asking a cus-
tomer for additional time, money, or other reductions of pressure in exchange for something
9
The budget in a customer project is commonly defined as price to the customer minus the amount or
percentage that the contractor wants to gross from the project. The remaining amount is the budget.
This works in all types of contracts.
 Project Business Management and Crisis Management 271

of value can be a powerful win-win approach, one which shows how much the contractor cares
for the customer and is prepared to invest competency and other assets. Offering a contractor
payback for additional efforts can also fail, creating conflicts and distrust. Some rules should
be followed to avoid backfiring when this method is applied:
• Understanding constraints: Asking for a delay when a deadline cannot be moved is
futile. Soft deadlines can be discussed, but hard and rigid ones cannot.
• Funding limitations: The same is true for funding limitations. Before one asks for addi-
tional budget, one should check if such money can be made available at all.
• The actual value of the benefit: Benefit engineering will only work if the benefit is valu-
able for the buyer or seller and if this value is perceived as higher than the disadvantages
that come with the recommended change.
• The relationship with the buyer or seller: In a business with poor relationships, the
recommendation of a value-adding change may be rejected without looking at the value
at all, based on the preconceptions that one party is about to rip off the other. Benefit
engineering needs an atmosphere of trust to work.
• One’s own available resources: Recommending a change for which one does not have
the resources can also backfire. One sets expectations and is then not able to satisfy them.

5.5.8 Benefit Engineering as a Form of Change Request Management

In essence, the core tool of benefit engineering is the change request. The desire is to use a
change that is adding value for all parties involved to resolve one’s own problems. Change
requests can indeed get a project out of trouble; poorly managed, however, change requests can
drive a working project into crisis. One has to understand the consequences of the change—
the wanted as well as the unwanted and the beneficial as well as the detrimental. I recommend
having a change request management process in place that consists of several elements:
1. Clear assignment of decision responsibilities. Project managers often have the prob-
lem that it is unclear who can decide upon a specific change request. Then, a common
problem is that no one is prepared to make the decision, or that two or more deciders
require the decision responsibility for themselves, and not asking one of them will lead
to frustrations and to conflict.
2. A clear protective change process. Protective means that change requests are not pro-
cessed for approval before they have been assessed for their impact.10 This practice is imple-
mented to ensure that changes do not damage the project in an unpredicted way and is
particularly important in PSNs, where a change in one work item can trickle through the
project and cause changes in many other work items that are done by different contractors.

5.5.9 Project Managers as Benefit Engineers

Project managers are actually in the best possible situation to perform benefit engineering.
Project managers see and touch things that no one has seen and touched for a long time. They

10
Please see the description of a protective change request management process in my first book,
Situational Project Management: The Dynamics of Success and Failure (Lehmann 2016b, 190–194).
272 Project Business Management

see inefficiencies and room for improvements that others will not see. They open locked doors
and look into closets that no one has looked into for a long time, and the skeletons that they
find there are often a big surprise for the people involved.
As discussed above, a modern organization is not a highly efficient business organism, opti-
mized to the maximum effectiveness at the minimum costs and friction, but is instead a com-
plex system of compromises, work-arounds, and ignored ineptitudes. The urgent is the most
vicious enemy of the important in these systems, and when managers focus on the pressing
issues of the day, their attention is taken away from the matters that also need dedicated care,
but that are not urgent enough and will one day be forgotten. I heard from a manager some
time ago that the procrastinated issues of the company often cross her mind in the middle of a
sleepless night and call for resolution, but are gone in the morning, when the normal necessities
of the daily business consume her full attentiveness, which is then weakened by the lack of sleep.
Project managers on the contractor side are often in a perfect situation to help the customer
or contractor in a win-win approach, if they can make the resources available for such help. The
original business development for the project contract was done in a competitive situation, and
vendors had, at least in theory, equal chances to win the award. During contract execution, an
expansion of the scope is unlikely to be bought using competition. The contractor in place can
resolve the identified issue quickly and easily and take a burden from the customer’s shoulders
without placing another burden of running a competitive procurement process.
If, in turn, the customer applies benefit engineering to get more performance and better
results from the contractor, the situation is similar. As a customer, one sees the contractor
working and observes strengths and weaknesses. One especially sees the weak spots that the
contractor may be unaware of and that have impact on the company’s work for the project.
Benefit engineering is mutual help under the principles of “Mission Success First” and good
faith, which allows two or more parties to be successful together and achieve a common result
that one party alone would not be able to achieve; it is driven by empathy, common sense, and
a focus on the things that bind the organizations together, not on those that separate them.

5.5.10 Does the World Need Professional Project Business Managers?

When the occupational profile named “project manager” was developed, a major goal was over-
coming old “over-the-fence” approaches, in which projects were managed along sequences of
strict phases, each of which was performed under the auspices of another business unit or a con-
tractor. In these over-the-fence projects, no one was in place on the project management level
to integrate the diverse activities and make a functioning project out of them. The integrative
capacity of the project manager has proven to be a great help to improve project successes by
removing the breaks in responsibility that the “fences” strike into the process. The responsible
person or team in charge for the entire project lifecycle has therefore become indispensable.11
When it comes to customer projects, however, there are still two fences left that have not
been addressed so far:
1. The fence between the business development period and the actual project lifecycle,
which is also a fence between the teams involved.
11
This development is described in Harold Kerzner’s Project Management: A Systems Approach to Planning,
Scheduling, and Controlling (Kerzner 2013, 48).
 Project Business Management and Crisis Management 273

2. The fence at the moment when deliverables have been handed over to the customer for
usage and also to contractor-side service departments that deal with warranty, mainte-
nance, and repairs.
The fence between business development and project management is critical, because the
executives involved in winning the business have different objectives to follow and different
success metrics. Foremost, it is their job to get contracts signed by customers that will allow a
temporary revenue stream for the contractor. When the business has been won, some remain
in contact with the project, but the majority will consider their job done and focus on the next
sales lead. Their job is not performing the project for the customer but making it exist. In order
to achieve that, these people are often in a dilemma as to whether to give in to customers’
demands either for lower prices or for deliverables and functionalities that the organization
is actually unable to bring about. The professionals in business development commonly have
high business acumen but low project delivery competency.
Project managers, in contrast, are trained for project management process knowledge. They
know how to develop the deliverables according to the contract and to additional require-
ments. They manage schedules, human resources, and risks; they take care of documentation
and prepare handovers and approvals. Only a small number of project managers have true
business acumen coming from natural talent or as a result of dedicated training. The ideal
project business manager combines these two competencies: business acumen to (1) identify
opportunities for benefit engineering and other value adding measures, (2) present them to the
customer in a convincing manner, and (3) project management to ensure that work is com-
pleted to meet agreed-upon requirements.
Figure 5.6 illustrates how a project business manager combines the competencies of busi-
ness developers and project managers. They help the seller meet the two great objectives in the
customer project—making the customer happy and bringing money home—and to the degree
possible make sure that the profit center that the customer project constitutes for the contractor
is actually profitable.

Figure 5.6 A project business manager combines business acumen, which helps win attractive
customer projects and expand existing ones, with project management competency to realize the
potential from the business.
274 Project Business Management

Figure 5.7 In old-style over-the-fence project management, a number of business units or inde-
pendent contractors drove the project along a sequence of phases, with another unit responsible for
another phase. Project managers integrated the project phases. Project business managers remove
the fences and integrate the remaining phases at project beginning and end.

The ability to combine business acumen and project management competency may be a
natural talent or a skill obtained through training and experience. The person may have origi-
nally been trained in project management and later added the business understanding, or vice
versa. It enables the project business manager to overcome the two remaining fences in the
customer project that can both be detrimental to meeting the two great goals for the contractor
organization: bringing money home and making the customer happy. These fences too often
incapacitate communications between stakeholders from the different task areas, and when
projects run into troubles, the fences stand in the middle of mutual finger-pointing as to whose
fault it was that things went wrong. The project business manager’s job is also to make sure that
the profit center that the project constitutes for the seller is actual profitable.
The process responsibility of the project business manager is shown in Figure 5.7. It stretches
along the entire business process from the first project-related contact with the customer to the
post-project service period, ensuring that the process is not interrupted by changes of respon-
sibility and owners of knowledge on the project.
There are also requirements on the other side—the side of the buyer of the project under
contract—that extend traditional project management capabilities when complex project sup-
ply networks need to be managed, something project managers do not learn today. Addressed
 Project Business Management and Crisis Management 275

Figure 5.8 Project business managers oversee the entire process from the first contact relating to
the project between buyer and seller to the final closeout and into utilization and servicing of the
final deliverables.

is simple procurement management, assuming a business between one buyer and one seller,
limited by the legal doctrine of privity of contracts, which in essence says that the contractor’s
contractor is not the customer’s business. The complex, dynamic, and often opaque networks
of contractors, subcontractors, etc. is rarely addressed in literature and education, and it is
not well understood. The abundance of these networks, however, is increasing, and so is their
complexity. Contracting work out to contractors on various tiers means tapping other organi-
zations’ assets and turning them into project resources; but with these assets come new risks
that need to be identified, understood, addressed, and responded to.
As much as the buyer-side project business manager needs the ability to dig deep into the
project supply network, the person also has the task to oversee the entire procurement process
from the make-or-buy decision to the final close-out of the contract and the post-project service
relationship. This is shown in Figure 5.8.
The long-term orientation of project business managers on both sides make them into natu-
ral partners in the business relationship, and it can indeed be helpful to ensure that all compa-
nies in the project have such a function. Buyer-side project business managers are interested not
only in their own organization but also in helping contractors maintain effectiveness, and as
this interest meets the interest on the seller side to make the customer happy, minds can meet
at the point at which the project produces the most benefits to all parties.
Where does one find professional project business managers? Sometimes talented people
either from business development or from project management take this wider responsibility.
Business development people have the benefit that they know the project from the first contact
276 Project Business Management

on. There is, on the other hand, the restriction that it is their job to win new business. In small
companies, the CEO may even fill this role, as this person has the interest in profitability as
much as in the happy customer and the effective contractor.
What is the focal qualification of project business managers? They ensure that the project
is driven by the “Mission-Success-First” attitude that better ensures a successful project, as
long as all parties involved submit to it and live it in the day-to-day work of the project. They
understand how to deal in business situations, when the centrifugal and disintegrating forces of
contract law compete with the need of the project for intensive and open communications, reli-
ability of the partners involved, and good faith of the parties, who rather seek to help each other
to ensure a successful project that will benefit all its constituents, not just one. They understand
what it takes to manage contractual relationships across country borders, in different cultures,
and in diverse legal systems. Their strongest assets are probably the capacity to ask the right
questions at the right moment, never assuming that their own experience and knowledge is suf-
ficient; and the network they have built, so that they always have a person whom they can ask.

5.6 Turning a Customer Project Out of Crisis

Some time ago, I observed a particularly deep crisis in a project performed by a project sup-
ply network for my training customer Booklouse, Inc.,12 a provider of large-scale hardware
and software infrastructure projects for corporations from financial industries. Booklouse
was the prime contractor and had 14 subcontractors as well as an unknown number of sub-
subcontractors on lower tiers in a project for a multinational insurance company to install an
online insurance booking system. Most of the project work was contracted on a T&M basis.
The project was one among a greater number, and there was a lot of business communication
going back and forth with the subcontractors to ensure that their work results got integrated
to turn into the effectively working system that the customer had ordered and for which the
customer was prepared to pay.
Major elements of these communications were the invoices sent by subcontractors to
Booklouse, which needed to be booked, examined by a person familiar with the work invoiced,
and then approved for payment before it would finally be paid. The process would then proceed
with re-invoicing the work to the customer. The invoice validation process then also included
monitoring incoming payments against invoices. Parts of the process were automated, but
there was still an amount of manual work needed to review the invoices, compare them with
the timesheets of subcontractor personnel, and ensure swift payment as well as billing to the
customer. Figure 5.9 illustrates the flow of invoices and payments. It shows how any disruption
in invoice validation—one of the core processes of a prime contractor—could lead to problems
with Booklouse’s customer, subcontractors, or the company’s bank. About halfway into the
project, this is what happened.
Booklouse had at that time an internal project to reduce non-billable overhead costs by
offering staff early retirement with subsidized pensions. Management originally wanted to
send off only specific staff members who were considered unneeded, but they were told by
12
Names in this case story are of course also altered to protect my customer and my seminar attendees.
 Project Business Management and Crisis Management 277

Figure 5.9 The flow of invoices and payments between subcontractors and the customer. Invoice
validation is the core process at the heart of the business.

trade unions and also by their lawyers that in order to avoid discrimination lawsuits, they had
to make the offer equally to all employees or none. That’s what Booklouse did. Among the
employees who accepted the offer were two operatives involved in the process of payments and
re-invoicing. This immediately roiled the process and led to delays in the payment and billing
process. Subcontractors complained about late payments, and the customer about late invoices,
which impacted transparency in the cost management of their project procurement and caused
lagging of information on cost overruns in the project. It also increased the work and stress
level on the remaining employees in the department, who responded with higher absenteeism,
which further increased the problems.
Contractors threatened to delay work if Booklouse went on paying late. As an immediate
solution to the growing problem, the department reduced the manual part of the validation of
the sub-contractor invoices to a minimum. Many invoices were just approved without being
validated against time sheets at all, or the time sheets were accepted without verification of their
correctness. Booklouse employees assumed that the subcontractors were sufficiently trustworthy
to skip the process step for the majority of invoices, and given its shortage of staff, they had no
alternative. The implosion of a core process can create a gap in an organization that impacts
the functioning of all other processes, and without external help may lead to complete failure.
Booklouse still wanted to validate the time sheets before they sent their invoices to the cus-
tomer, which led to a backlog of unchecked work documents and intensified the complaints
from the customer. As a second problem, Booklouse’s bank asked why the company’s accounts
ran deeply into the red and threatened to cut their credit line. It turned out that the savings
from the two employees sent into early retirement caused costs and organizational upheaval of
a much higher order of magnitude.
Problems with the customer escalated when a major invoice from Booklouse was mistakenly
underpaid by the customer. Caused by the lack of validation, Booklouse found the error only
late and could therefore send a note on the issue to the customer only weeks after the payment.
Things became even worse: One of the subcontractors noticed that Booklouse no longer val-
idated incoming invoices against time sheets. This became visible when the subcontractor sent
them an invoice, which due to an error was too high, but the customer immediately paid it with-
out any delays and discussions. They tried that again, this time on purpose, and they could not
believe their eyes when they saw the customer paying it in full and without debates or deferments.
278 Project Business Management

Under normal circumstances, the invoice would have been sent back to correct it and resend
it. The news soon spread across the company and, as subcontractor staff often talk with each
other, was also shared with other companies. Some of them tested Booklouse’s payment behav-
ior too and found the rumor confirmed. Soon, several contractors began to over-bill their work
by small amounts, which soon grew larger. After a while, it turned into some kind of sport to
test how much could be fleeced from the prime contractor on top of justified amounts. It was
like looting a burning house.
A project that was commenced with high ambitions and supposed to be completed in a joint
effort of a project supply network, with a prime contractor and subcontractors working hand
in hand to deliver what the customer needed and to the commercial benefit of all, became a
plundering race, in which many suppliers were afraid that if they did not participate in the
unethical behavior, others would have money that should have been theirs.
It did not take long for Booklouse to find out how much it had opened itself to supplier
fraud. The tip-offs came from outside the company. Subcontractors who did not participate in
the fraudulent behavior told them about the looting, and the customer, who also became aware
that subcontractor management had become chaotic, signaled strong dissatisfaction.
It took Booklouse several weeks and a lot of external help to get the project, and with it
the company, out of the crisis and back on track. The retired workers were offered a major
payment if they would return and help rebuild the internal processes. The fraudulent sub-
contractors were allowed to finish their work as contracted, but got temporarily blacklisted
for future projects. The customer was given a significant price reduction to not lose future
business. Booklouse had been just about managing for several years, but this year, it made a
substantial minus.
The way out of this crisis was a painful and strenuous effort, which took roughly two years.
During this time, some people were trained in the essentials of business management, with a
focus on projects. Some employees and managers needed to be replaced. Implementing profes-
sional Project Business Management finally helped the company to get back into the profitabil-
ity zone and have happy customers who trust the company and are happy to enquire for new
business. It also gave the organization the architectural strength to better deal with challenging
business situations that would otherwise shatter the company.
Crisis management is a combination of issue management and risk management, both on
steroids:
• Issue management is generally reactive. Problems have surfaced and need to be coped
with. In a crisis situation, the problems have grown to a dimension that is almost no
longer manageable, at least with the company’s own resources.
• Risk management is by definition proactive, looking at the identifiable uncertainties in
projects that may influence the future of the project. Managing the risk of crisis looks at
the largest risks—those that impact not only activities but the entire project, and with it
the performing organization, maybe several organizations—in the worst case, the cus-
tomer together with the entire project supply network.
Philosopher Friedrich Nietzsche once said: “Was mich nicht umbringt, macht mich stärker”.13
Unfortunately, what does not make us stronger may instead kill us.
13
“That which does not kill me makes me stronger” (Nietzsche 1888).
 Project Business Management and Crisis Management 279

In the case story, the crisis made Bookworm stronger, but it could also have destroyed the
company. This is an example of an organization that came out of a crisis strengthened and bet-
ter organized. In a Project Business Management environment, this could be mostly seen from
the improved profit they made and from the smiles they put on their customers’ faces. Other
companies terminally failed in such situations.
Professional crisis management needs people with strong backbones. A wishbone will not
suffice. Crisis management deals with uncertainties—at any time a fundamental ingredient
in project management, and particularly Project Business Management. Crisis management
begins in a situation that needs reactive issue management, when business structures have
ceased to function and have become uncontrollable. When this control has been gained again,
crisis management changes its approach and its means to become proactive again. It is like
dealing with a horse that has escaped a barn. It must be captured and brought back first,
and then measures must be taken to avoid repetition. Defining these measures has two parts:
finding the weakness in the barn that allowed the horse to escape, and then looking for other
weaknesses that could cause the problem to reoccur.
Crisis management in a project does the same: identifying and removing the drivers of the
crisis and bringing the project back to normal progress, and then ensuring that the crisis does
not reoccur. In project supply networks, this task comes with a number of additional challenges
and impediments:
• One of the hardest jobs for a project manager is to know where the project actually
stands. This becomes even more difficult when the project is using a complex, dynamic,
and often obscure project supply network, with member companies that the project man-
ager does not know and can neither monitor nor control.
• Knowing where the project stands is also impacted by the different business interests,
leadership approaches, communications cultures and systems, and—if the network crosses
national boundaries—different legal systems, and all the other factors that impede or
support the openness and trueness of communications. Data may be easy to get, but
verifying and understanding such data and deriving actionable knowledge from it can
become very challenging.
• Another hard task is to identify the degree of trustworthiness of players and separate the
trustworthy parties from those who are not. One may be too dependent on the second
group to reject them immediately from the project; but one will observe them with far
more diligence and attentiveness than the others and will try to become independent of
and replace them as soon as possible.
• The most difficult task is to develop leadership, rebuild a “Mission Success First” approach
among the members of the PSN, and make them share ownership both for the solutions
developed to bring the project out of crisis and for the results that they are intended to
bring about. There is no guarantee that the companies involved and their managers will
be prepared to follow this new leader, and it is the followers who will decide the leader,
not the person that wants to lead.
• Once the project is taken out of the immediate crisis zone, the causes for the crisis must
be identified, assessed, and transferred to risk management, where they are responded
to with strategies such as avoiding, mitigating/reducing, or creating of reserves for active
acceptance.
280 Project Business Management

It may be helpful to bring in a third party to support crisis management. A third party
has not been involved when the crisis broke out and is not entangled in emotions and quar-
rels among the parties. For the same reason, it is sometimes necessary to replace the project
manager in such a situation, to take the person out of the line of fire and allow rebuilding of
trust and rapport. The insider knowledge of the old project manager may nevertheless still be
necessary to help the new person become productive in a short time.

5.7 Project Business Management—Is It an Open

or Closed Skill Discipline?
In the previous chapters, I have repeatedly noted the high-risk nature of project business for
all parties involved. This includes buyers, sellers, and also the “in-betweeners”, such as prime
contractors and other forms of intermediate contractors, who are sellers in a downstream per-
spective, but also buyers when looking upstream. This last group shares all the risks of buyers
and sellers, and their awareness of these risks and processes developed to manage them should
be particularly well developed.
Risks have their origin in uncertainties that stand at the beginning of any project, when
definitive knowledge about the future is not yet sufficiently available to make decisions based
on them, and when people involved must instead make decisions relying on assumptions.
Assumptions may be wrong.
Over time, uncertainties are replaced one after the other with definitive knowledge about
facts. At these times, often a “wait-and-see” approach with high attention is necessary to
respond when an assumption has been verified or falsified by facts, and when a risk has either
occurred or can be retired because it can no longer occur. Many uncertainties originate in
the environment of the project, which is undergoing change while the project is under way.
Uncertainties may further derive from the people involved and their changing availability, but
also their interests, opinions, and of course their health. Uncertainties lie in organizational
matters. It is often observable in team sports how a day’s form of the player can influence suc-
cess and failure; the same is true for project teams.
Although these uncertainties occur in all projects, the projects performed by PSNs add extra
layers of opacity and unpredictability, because more than one organization is involved.
In order to finish this chapter and the book, I would like to look back at the beginning of
my book Situational Project Management: The Dynamics of Success and Failure to discuss a basic
question of project management and apply it to the specifics of projects done in a contractual
environment.14
A common approach generally follows three steps: standardization, methodology, and tai-
loring. The standard’s focus is on professionalism. One can take cooking as an example. The
standard focuses on professionalism and on the availability of kitchen equipment for the cook-
ing tasks that are expected. Often, methodologies are derived from such a standard. Their com-
mon promise is to deliver “best practices”, comparable to a collection of recipes in a cookbook.
In a next step, methodologies need tailoring to adapt them to specific project situations. In the
14
(Lehmann 2016, p. 9)
 Project Business Management and Crisis Management 281

kitchen metaphor, a cook may vary a recipe to adapt it to the preferences of the customer or to
the momentary availability of ingredients. Table 5.5 shows the three steps.
Predictive methodologies are often developed from descriptive standards and need tailoring
to become appropriate for the specific project (see Table 5.5).

Table 5.5 A Common Approach Generally Follows Three Steps

As a trainer in project management for over two decades, I have worked for a variety of com-
panies and have had the opportunity to see them address project uncertainty by implementing
the three-step process. Among them were implementations that worked very well, some worked
somewhat, and others did not work at all.
The last group was, unfortunately, the most common one, when processes that were put
in place to avoid or address specific issues congealed and were done for the report to manage-
ment—“yes, we have done that”—instead for the purpose of managing uncertainty. All
approaches to the management of risks, issues, problems, and crises should be chosen and
implemented with a situational focus. They should help us have a better project, not simply to
follow the rulebook—not an easy task for a project manager.
The critical step was the second one, developing and implementing the methodology.
Although the first and last steps are commonly situational enough to address the dynamics of
success and failure in a project, the methodology, in its justified determination to standardize
and align, often limits the freedom of project managers and creates a tendency towards “pro-
cess blindness”. In a PSN, with its additional causes of uncertainty and with its strong presence
of commercial and legal aspects, this danger gets accelerated.
Can one then assume that there are “best practices” in Project Business Management? This
question can be best answered by having a look over the boundaries surrounding the field of
project management into sports psychology.
In sports, a distinction is sometimes made between open-skill and closed-skill disciplines.
An example of a closed-skill discipline is figure skating, which is an introspective art. The
skater learns a program to the utmost perfection, and during the performance isolates himself
or herself from the audience and the environment, concentrating on their own presentation.
The environment of the presentation is prepared in a way to keep it free from disruptions and
282 Project Business Management

perfectly static, so that the skater does not have to respond to situational changes from outside
the presentation. If a disruption from outside the performance would interfere with the pre-
sentation, the presentation would be stopped, and the skater would get a new chance to do the
program. Sometimes, stuffed animals are thrown by spectators into the skating arena, but only
after the performance.
An example of an open-skill discipline is hockey. The players must respond to changes in a
fraction of a second, including the movements of their own team, the competing team, the refer-
ees, the puck, and sometimes even the goal. Hockey is extraspective—the players must keep their
minds open to the ever-changing environment, and the playfield is not unobstructed for them; it
has instead many obstacles just in the form of the many people with whom they share the arena.
Players in hockey need situational awareness. They are under high stress, which can be
sometimes seen, especially when they start brawling. One never sees figure skaters brawl.
Project management in this understanding is more similar to hockey than to figure skating.
Most of the time, project management incorporates the need to swiftly adapt to changing sit-
uations, players, obstacles, and impediments, as well as to dynamically shifting organizational
conditions, requirements, and resources. Resources are scarce, and whereas most methods in
project management assume that they are generally available, in practice, they are not.
These difficulties become amplified in Project Business Management. The organizational
conditions do not relate to one organization but to more, possibly hundreds. Changing require-
ments pose not only technical and often personal challenges, but also commercial and contrac-
tual ones. The scarcity of resources is even more difficult to manage, because a project manager
rarely has the opportunity to look deep enough into another organization to know where
resources are sufficiently available and where they are not.

5.8 Limitations of Tools for Project Business Management

In Section 3.5.6 (page 189), I described the Rolling award fee contract and in 4.12 (page
246) the Customer-led consortium (CLC) as tools to ensure that mission success is not con-
sidered in conflict by contractors with their particular business interests. When a project has
developed into crisis, can these tools also be used to get the project on track again? Possibly,
but the following case story will show the limitations of such means when they are being used
reactively to respond to crises and not proactively to avoid them:
Papilio Ulysses is not only a beautiful butterfly from Australia and some islands in South-
East Asia, it is also the alias I am using here for a company that ran into troubles as a customer in
a software development project that was completely outsourced to Monarch LLC. The purpose
of the software was to bring GPS-based telemetry to deep-sea containers that would allow trans-
portation companies to track the transport and to better predict arrival times of goods not only
at customers, but also at harbors and other locations, where the trucks’ cargo would be unloaded
for transshipping to ship or train or vice versa. It further allowed the early announcement of the
arrival of trucks at ports, which reduced waiting times for the trucks and saved costs.
Papilio Ulysses contracted Monarch to develop the software for them, something the ven-
dor seemed capable of doing. The contract was fixed price, and Papilio Ulysses considered the
 Project Business Management and Crisis Management 283

development in good hands. A deadline for delivery had been agreed upon, and it was only
when Monarch missed the deadline that the customer learned how the vendor had run into
massive problems with the project.
There were several causes for the missed deadline:
• The complexity of the project was underestimated by the vendor.
• The vendor added complexity by assigning a distributed team to the development task.
• To save costs, the team members were not given opportunities to meet face to face;
instead, all communications needed to be done via video conferencing and e-mail.
• The team members were all assigned part-time to the project. They had to work for other
projects as well; these projects were in similar crises, and as their project managers were
crying louder, more time was dedicated to them—to the disadvantage of the project of
Papilio Ulysses, of course.
• The contractor’s budget derived from the fixed price was already used up. All further
costs directly ate into its profit margin, and as this was also practically consumed, the
vendor was about to incur a loss, which would grow larger with every piece of additional
work for the project.
Four months after the contractor’s missed delivery date, I had a long talk about the project
with the customer-side project manager, at a time when it was clear that the software was still
far from being finished and in a condition that the telemetry service could be launched. This
delayed time to market had massive consequences for the business case of the customer:
• The investment decision had originally been made based on the presumption that the
software would already provide income and pay back the investment.
• Papilio Ulysses was not the only company that had identified the market and tried to
exploit it. Market window theory became an issue.

5.8.1 Market Window Theory

This second point may need some explanation:
Market window theory says that different market entrants over time perceive the market very
differently. Figure 5.10 shows six groups:
• Prematures. Come to too early, the market is for various reasons not yet prepared to
accept the innovation, such as missing infrastructure to support the novelty or rejection by
customers and users. Their investment is failing because it is not yet time for it to succeed.
• Innovators. They have in common with prematures that their investment is high. They
have no role model that shows them what the new product or service should look like.
They cannot hire experts in the innovation or hire contractors for that. The benefit, on
the other hand, will be large after market launch, as the company enters the market in
a time of zero competition.
• Early adopters. The investment gets cheaper, as the innovator serves as a role model on
what to do and what to avoid, and the first experts are available to support the develop-
ment project. As a disadvantage, one can commonly observe that the earning options
after market launch also go down due to growing competition.
284 Project Business Management

Figure 5.10 Market window theory with six groups of participants. Note the development of initial
outflow and consequential inflow over time.

• Early and late majority. The outflow for the initial investment to launch the product
is getting smaller over time, but when a degree of saturation has been reached and all
potentials for optimization have been used, the investment will not go down further; but
competition is growing, putting even more pressure on the price that can be achieved
on the market.
• Laggards. They launch the product when the market window is no longer open. It may
have taken them too much time to bring the product into a market, which is by that
time no longer receptive to a new player. It may well be that the closing of the market
window only becomes apparent to the company when the product has been launched
and has been found to be a failure.
I made Papilio Ulysses aware that they were not alone in intending to move into this busi-
ness, and that the delays would change the competitive situation and reduce the prices they can
achieve at the time, when the market entry would be finally achieved.

5.8.2 A Method Cannot be Applied

I recommended that the project manager consider adding a Rolling award fee to the existing
fixed price contract. The costs from expectable further delays would be massive, and it could be
a solution to incentivize Monarch, the contractor, for saving this money to the customer. I also
added a caveat: The disappointment with the contractor was very high, as were the emotions
 Project Business Management and Crisis Management 285

of Papilio Ulysses’s management. While the project manager could save his project with a high
degree of empathy and by developing a business case for the seller-side project manager to
invest more in the customer and bring the project to a swift and successful end, his managers
might not be able to develop this empathy.
It turned out that my warning was correct. Business reason would have recommended the
customer to help the vendor out of the crisis by adding the award fee, thus finally also saving
money for the customer and allowing market entry at a more profitable time. However, the
emotional condition on the side of the customer was that one could not reward the poor per-
formance of the contractor with additional payments.
Some months later, the customer terminated the project. It was found that there was already
significant competition with similar services on the market that made it unattractive to step
into the business. Papilio Ulysses did not want to be a laggard—a decision not only made for
economic reasons, but, as one of its managers was quoted as saying, because they “did not want
to be the laughing stock of the marketplace”.
The investment in the software was written off, and, following the advice of the corporate
counsel, who doubted their chance for success, no attempt was made to recover money at
court. However, Monarch, the vendor, was blacklisted in the company for seven years.
The case story shows that methods that, used proactively, could prevent a project from run-
ning into crisis, employed late to steer a project out of a dilemma and to respond to a crisis may
be futile or ineffective. Not because they would no longer have positive impact, but because the
emotions of disappointment and rage become unsurmountable and make it impossible to apply
these methods that build on empathy, good will, and good faith.

5.9 Conclusion
Looking at all these difficulties and complexities, one may ask why organizations do not do
their projects alone, to simplify team structures and make the projects more predictable.
All the difficulties that performing projects under contract bring with them are obviously out-
weighed by a great benefit: the opportunity to tap other organizations’ resources. To say it more
clearly: Not many organizations are in a position to do all projects internally. They lack people,
know-how, certificates, agility, and the key resource of all: management attention. Customer
projects are indeed a business for contractors, who make their living from them, determined to
make a profit and win the happiness of the customer. Often it is their core business.
For the customers, it is necessary to work with contractors to win agility and new capabilities.
A problem that I observe is that project business so far has not been sufficiently described. I
am happy in this book to do some exploration into this omnipresent but mostly uncharted field
of project management, but far more work needs to be done to truly understand it.
Successful project management is often based on the ability of project managers to do proj-
ects and manage people without formal authority. In Project Business Management, this abil-
ity is even more relevant. When managing a project for a customer, or on the customer side
outsourcing work to a project supply network, one is rarely in a position to direct people, at least
not those working in other organizations. And there can be many:
286 Project Business Management

• Customer
• One’s own contractors and their subcontractors
• Other contractors with their own contractual relationships
• Self-employed freelancers
• Temporary people from staffing agencies
• Government agencies
• Approving bodies
Particularly when it comes to resolving crises, it can be difficult not only to unify their
particular business interests to form a joint team following a “Mission Success First” approach,
but also to ensure that the behavior of these players is not driven by fear and competition but
by the common desire to get the project out of the crisis and back on the route to completion.
In a workshop with a group of project managers from companies doing customer projects,
the participants developed a list of sources of non-formal authority and named:
• Escalation
o Inside their own organization
o To management in other organizations

• Attention to people
o Distinguishing good work from mismanaged bungle
o Showing interest in people and their activities
o Cross-company team spirit
o Building interpersonal relationships
o Creating a positive team atmosphere
o Show and require trustworthiness

• Soft authority
o Expertise
o Speed in making and implementing decisions
o Understanding of the dynamics of power and of the organizational nexus

• Prioritization
o Creating a sense of urgency

This last point is often the critical one. Urgency is among the most powerful drivers of goal
achievement. When people have to make a choice between what they consider important and
what is urgent to them, most will prioritize the urgent. Developing a sense of exigency among
the people and organizations we work with avoids procrastination and helps get things done.
Good crisis managers are generally good communicators of urgency.
For the challenge to do business projects that are commercially and organizationally suc-
cessful, we need to develop an as yet undescribed set of tools, skills, and possibly a new ethi-
cal system, which should help us define proficiency and professionalism and separate it from
incompetence and ineptitude. We must reconcile the different business interests of contractors,
the next payments, and the long-term interests of the customer to gain sustainable benefits. We
must also see how the dependencies between customers and contractors lead to situations in
which the problems of a customer can become the problem of the contractor, and vice versa,
and we must also see the risk that a local issue of a company in a project supply network can
spiral out of control and become the problem of all companies participating in the project.
 Project Business Management and Crisis Management 287

The task of managing project business is a difficult one. The challenges are high, and so are
the risks, and people are needed who are trained like hockey players to work as a team, to stand
together against opponents, and to swiftly change their roles and be able to get an understand-
ing of a situation in a fraction of a second and adapt their behavior appropriately.
For this book, we have reached the end of a discovery tour into a business field that for many
readers has been their day-to-day job for years. We do it, but we are far from fully understand-
ing it. I wish to close with the notion that the complex dynamics of success and failure that we
have seen cannot be handled by a single person alone.
The book has described a large number of details, among them opportunities, risks, and
challenges—particularly on the social, legal, organizational, and interpersonal level—that come
with tapping external resources of other organizations. These details entail increased significance
with the development of complex project supply networks (PSNs), which often span country bor-
ders, time zones, cultures, legal systems, and other differences that can make working together
difficult. Raising awareness of and attention to these details can prevent many problems.
We then saw solutions that can help address the risks in PSNs, in particular benefit engi-
neering, rolling award fee contracts, and customer-led consortia.
While these tools are helpful, we need more to fill our toolbox, and for that, we need to place
the discipline that I call Project Business Management on a more professional foundation,
comparable to that which project management has developed for internal projects. We need
more exchange among professionals, but also research and a delineation of what we should
regard as professionalism in the field and what should be considered improper and amateurish
behavior. We also need to give companies help, when they are hiring people to perform cus-
tomer projects or to engineer and manage project supply networks, what a qualification looks
like that meets the needs of the project management aspect as well as those of the business side.
We further have to gain a better understanding of the situational aspects of Project Business
Management, which are even more important than for internal projects. The changing busi-
ness relationships add a further level of dynamic complexity to project management, and this
layer is not a thin one.
In the end, on top of methodologies, processes, tools, and techniques, Project Business
Management is built on humans: Project Business Management is teamwork. As much as
organizations team to achieve results that one organization would not be able to achieve alone,
is it necessary for the people involved to stand together, following the joint motto:

“Mission Success First!”

Answers to the Introductory
Questions

Chapter 1:

Q1. c) The problems that arise from the deadline should be communicated early to appro-
priate stakeholders to allow for timely resolution. Early resolution still leaves room
for more decision options for resolution, and the costs of these options are lower.a
Q2. b) You make yourself familiar with agile methods in order to understand if these could
be helpful for your specific project situation or are detrimental. Then you report
your findings to management. Agile methods are generally helpful when “the way is
made by walking”.b They can be detrimental when long-term predictions, forecasts,
and estimations need to be made and the project must be based on them.
Q3. a) You assess whether these “best practices” are rather favorable or detrimental in the
given situation. If they are not favorable or are detrimental, you reject using them. It
is your responsibility to perform the project successfully. It may be helpful, when the
practices are rejected, to explain the reasons why to the appropriate stakeholders.
Q4. d) The typical intention of creating a consortium is to build a temporary joint venture
to perform a project together that a company alone would not be able or willing to
do.
Q5. c) An internal project is a profit center; a customer project is a cost center.
Q6. a) Omissions and errors on the customer side can impact the contractor’s success. You
should recommend that the customer also build a project structure, and if this fails,
find ways to protect the project

a
(Lehmann 2016b, pp. 52–53)
b
(Machado 2012)

289
290 Project Business Management

Chapter 2:

Q1. a) Tapping the assets of another company. These assets may be persons, abilities,
licenses, infrastructure, knowledge, agility, and many more.
Q2. b) The market is robustly growing.a
Q3. d) It is hard to build interpersonal relationships between buyers and sellers over virtual
B2B marketplaces.
Q4. c) The RFP describes the objective of the items or services to be procured; the IfB
specifies them in detail.
Q5. d) An MOU is a diplomatic document. The seller cannot claim any damages.b
Q6. b) The cost and difficulty to fix an error grows with the local, temporal, and organiza-
tional distance from its origin.

Chapter 3:

Q1. b) The contract is valid under a legal system that is probably unfamiliar to at least one
party.
Q2. c) Product contract, service contract. The other contract types can be used but are not
specifically described in Civil Law codes.
Q3. b) Project contracts cannot be fully complete; there will always be areas that need
change and refinement later. Projects include learning processes, and some of them
will need to be reflected in contract refinements and changes.
Q4. a) Contractual provisions and enabling services by the customer are common further
obligations that customers have toward their contractors on top of payments.
Q5. d) A capped TCC contract is a cost reimbursable contract with cost–benefit sharing
and price ceiling.
Q6. c) Improving the project and saving costs for the customer in a special moment.

Chapter 4:

Q1. d) Inattention to processes. The five dysfunctions of a team are:

1. Absence of trust

a
(Lehmann 2017)
b
The term memorandum is a strong signal; it means don’t forget and was originally used in diplomatic contexts.
 Answers to Introductory Questions 291

2. Fear of conflict
3. Lack of commitment
4. Avoidance of accountability
5. Inattention to results
Q2. a) Subcontractors will do work for the project, and the customer has no contractual
relationship with them due to the doctrine of “privity of contracts”.a
Q3. b) The customer gives the prime contractor a list with companies that are approved
as subcontractors for a certain work item, and the prime contractor selects one of
them.
Q4. d) Handover and acceptance can be done in one process or separately, possibly with
weeks between the dates. Each in itself is important for project success.
Q5. a) Mediation and arbitration are methods of alternative dispute resolution to avoid a
lawsuit when negotiation alone is not enough to resolve the conflict.
Q6. c) The contract regulates what happens when the prime contractor’s subcontractor does
not perform. It does not protect the project from malperformance.

Chapter 5:

Q1. c) Even moderate budget overruns in some projects can turn a planned profit from an
organization’s customer projects into a loss.
Q2. d) Benefit engineering on the contractor side intends to increase monetary or intangi-
ble benefits for the customer as an element of active issue/crisis management.
Q3. b) Project business engineers may be competent in increasing pressure on business
partners, but their purpose is to overlook the entire procurement process and
develop the appropriate degree of empathy for the partners involved.
Q4. a) PSNs can fail due to ignored business interests of other contributing members.
Q5. a) A customer can apply benefit engineering by using the understanding of the con-
tractor’s needs to offer desired benefits in return for improved performance or addi-
tional project scope.
Q6. c) One cannot fully exclude that customer representatives like the proposal but are
angry that it is not linked to a payment made directly to them; in such case, their
corruption should be addressed first, and the proposal be made as a second step.

a
In common law jurisdictions. Civil law has similar legal provisions.
Glossary

Agile approach An approach to managing a project lifecycle (or certain situations

during a project lifecycle) with a very short planning horizon of less
than one month, using agile methods to ease frequent change. Also
called “adaptive” approach. Many requirements are identified and
described during the course of the project and “the way is made by
walking”. Contrasts with Waterfall and Rolling wave approaches.

Agile excuse The defense of a lack of discipline and planning with the excuse “we
are doing things the agile way”. Contrasts with the Waterfall excuse.

Agile methods Developed originally for software development but expanded

and transferred into other application areas: Several disciplined
approaches characterized by very short planning horizons, rather
low planning depth, and leaderless organization. A typical aspect of
agile methods is the rejection of having a project manager and the
reliance on self-organizing teams. Contrast with Predictive methods.

Agilism An ideological approach to project management that considers agile

methods generally superior to other approaches, independent of the
project situation. Contrasts with Predictivism.

Award fee An incentive that is paid for meeting subjective criteria. An unpaid
award fee is not open for appeal at court.

Balanced matrix An overlay of one or more project team structure(s) over a functional
organization structure with the project manager(s) and the functional
managers on eye level. Contrasts with Strong matrix and Weak matrix.

Benefit engineering Methods to measure and positively influence the benefits from proj-
ect deliverables. May include the attempt to make a budget overrun,
an increased price in a customer project, re-definition of deadlines,
and other changes of fundamental parameters acceptable to stake-
holders by increasing the tangible or intangible benefits for these
stakeholders. Contrasts with cost engineering.

Bid 1. An offer in a solely price-driven competition done by a buyer to

select the cheapest seller. See Invitation for Bid (IfB).
2. A generic term for any kind of offer (may lead to confusion).

293
294 Project Business Management

Brownfield project A project that is performed in an already developed environment.

Brownfield may literally refer to a piece of developed land, but the
term may also be used metaphorically for similar situations in other
industries. Contrasts with Greenfield project.

Build-Operate- A business model often used in a Public-Private Partnership setting:

Transfer (BOT) project A private company is licensed to develop an infrastructure deliver-
able (e.g., a motorway); operate this solution for an agreed-upon
time (often 30 years), earning money during this time (e.g., through
collection of tolls); after which the deliverable is given back to the
public.

Business development The activity by a seller to win a buyer as a customer under contract
for a project and vice-versa.

Buyer The organization that wants to buy from another party. Becomes the
customer after contract award.

Change request Any requested change to the project’s scope, schedule, human
resources, and other key data such as objectives and constraints. A
change request in a customer project often leads to a contract change.

Change request A set of processes that describe how change requests will be man-
management aged in the project.

Chicken race A game theoretical dilemma situation in which players wait for others
to “jump first”—for instance, when they should tell a program or
project manager that they are late, but hope that someone else
admits to being late first.

CLC See Customer-led consortium.

Closed-skill disciplne A discipline whose participants develop proficiency mostly by intro-

spective focus on their own performance.

Consortium A temporary joint venture of companies founded for the purpose

of managing and/or performing small, limited numbers of projects,
often just one project. Some consortia have an additional purpose
of running the deliverables from the project for a limited time under
build-operate-transfer (BOT) projects and similar public-private part-
nership (PPP) schemes.

Contract change Change that is reflected in contractual language.

Contractor A seller, which may be a person or an organization, who has been

taken under contract by a buyer for partial or complete work in a
project, who then becomes the customer for subcontractors (if any).

Conway’s law “Organizations which design systems are constrained to produce

designs which are copies of the communication structures of these
organizations.”a Or, in short: Systems reflect the relationships among
those who make them.
a
(Conway 1968)
 Glossary 295

Core team Team members in a project who are expected and planned to be
active in the project over most of its time, and who will perceive proj-
ect success as personal success, project failure as personal failure.

Cost engineering Methods to measure and positively influence the costs of a project.
May include attempts to identify budget overruns early and avoid
and mitigate them. Contrasts with Benefit engineering.

Cost reimbursable Agreement for the delivery of goods and services with a predeter-
contract mined price for the complete delivery.

Critical incident An interview technique that uses moments of special relevance for
technique the interviewed person as an entry point to dig deeper into the per-
son’s memory. Can also be used in workshops.

Customer A buyer in a project under contract from the moment when the
contract has been concluded to the moment when it is closed down.
Contrasts with Contractor. See also Prime contractor.

Customer-led A consortium which has the customer among its venturers, mostly as
consortium (CLC) the lead venturer.

Customer project A project executed by a performing organization for a (mostly)

paying customer organization. Most customer projects are profit
centers. Contrasts with Internal project.

Field change Ad hoc change decision that becomes necessary during an imple-
mentation phase, often with an urgency that makes it necessary to
circumvent a Change request process.

Fixed-price contract Agreement for the delivery of goods and services with a predeter-
(FPC) mined price for the complete delivery.

Freelancer A contractor who works mostly alone as a self-employed individual.

Gate A review process in a strictly sequential phase gate process, which

is performed after a finished phase to review its correctness and in a
second step if the project can enter the next phase. This review pro-
cess can take significant time and should therefore not be confused
with a Milestone, whose duration is zero.

Good faith Legal principle predominantly in civil law jurisdictions that a contract
must be understood not only following its words, but also by an
underlying agreement not to unfairly harm the other party.

Greenfield project Project that is performed in an undeveloped environment. Greenfield

may be literally a green field, but may also be used metaphorically in
other industries. Contrasts with Brownfield project.

Hard assets Tangible assets that can be utilized by a project team as resources,
such as money, personnel, equipment, facilities, etc. These assets
and the effectiveness and efficiency of their use are commonly easy
to measure. Contrast with Soft assets.
296 Project Business Management

Hope creep A situation in which a project is late or otherwise non-performant,

because team members and contractors report that they are on
schedule, hoping that they can make up the lost time with overtime
work, or that someone else may delay the project. See Chicken race.

Incentives Contractually agreed-upon additional payment by a contract partner,

usually the customer, for meeting contractual requirements such
as deadlines. Predominantly used in Common law countries. See
Penalties and Liquidated damages.

Internal project A project run by a performing organization for its own purposes.
Most internal projects are cost centers. Contrasts with Customer
project.

Invitation for bid (IfB) A request to sellers in a competitive procurement to offer a price for
a fixed set of deliverables that may include services and products.
Allows selection of the cheapest seller. Often confused with other
forms of competitive and non-competitive procurement.

Invitation to bargain Non-binding offer by a seller to a buyer. Allows for withdrawal from
the offer when the customer would accept it.

Invitation to pitch A request to sellers in a competitive procurement to offer a solution

(ITP) for a fixed price. Allows selection of the seller with the best offer
against a given budget. Often confused with other forms of competi-
tive and non-competitive procurement.

Key stakeholders The subset of the project stakeholders who have direct and legiti-
mated influence on the project.

Leadership The authorization by followers given to an individual to lead them.

Liquidated damages Contractually agreed-upon damage claim against a party for missing
contractual requirement or constraints, most commonly deadlines.
Predominantly used in common law jurisdictions. See Penalties and
Incentives.

Make-or-buy decision The decision made by an organization to use its own resources to
perform a project or to procure the performance from outside the
organization.

Mark 1 project A first of its kind project for the project team, with a high degree of
novelty. Contrasts with Mark n project.

Mark n project A project with similar predecessor projects, which give the team
members confidence in their capabilities and routine. Contrasts with
Mark 1 project.

Melon project A project run inside an organization, where traffic lights are used to
indicate the status of a project: The melon project’s status is “green”
based on superficial perception, but, similar to a watermelon, the
deeper one drills, the redder it gets.

Mission success first The project success attitude cultivated by NASA in the early 21st
century, softly ending a decade of failures.
 Glossary 297

Nash Equilibrium A dilemma situation in game theory, wherein parties act to serve
their particular interests that conflict with a common interest, and
where a party must fear disadvantages when it would act to serve
the common interest while others follow their own interests.

Offer/no-offer The decision made by a seller to respond to a request to offer goods

decision and services to an enquiring seller.

One-shot project A project that gets only one chance to successfully deliver its prod-
ucts, services, or other kind of results.

Open-skill discipline A discipline whose participants develop proficiency mostly by extra-

spective situational awareness and adaptation to a fast-changing
environment.

PBM See Project business management, project business manager.

PBMO See Project business management office.

Penalties Contractual deductions to “punish” a contract partner (mostly the

seller) for late delivery or other forms of failure to adhere with con-
tractual requirements or constraints. Predominantly used in civil law
jurisdictions. See Liquidated damages and Incentives.

Phantom resource A human or non-human resource that is planned to be used in a proj-

ect, but (1) does not exist, (2) exists but is not available, (3) may be
available but has not been formally booked, or (4) is over-allocated
to more work items concurrently than the resource can handle.

Phase A project phase is a discrete time period in a strictly sequential

(“phase-gate”) or overlapping (“fast-tracked”) phase model.
Different phases in a project may have specific teams, work contents,
locations, cost centers, or other characterizing differences.

Pitch 1. An offer in a solely solution-driven competition done by a buyer to

select the seller who delivers the best solution for a fixed budget.
See Invitation to Pitch (ItP).
2. A generic term for any kind of offer (may lead to confusion).

Planning horizon The point in the future up to which a project manager intends to
plan the project. The time to the planning horizon may span anything
between some days or the entire remaining duration of the project. A
planning horizon may also relate to the level of detail and other aspects
of a plan and is among others influenced by the time horizon, for which
forecasts can be made and for which plans should be developed.

PMBOK ® Guide The Guide to the Project Management Body of Knowledge®, a

globally accepted descriptive standard for project management
published by the Project Management Institute (PMI).

PMI The Project Management Institute, a global professional association

with over 465,000 members.b Mostly known for standardization and
certification.
b
By August 2015. Source: Internal communications.
298 Project Business Management

PMO See Project management office.

PMP® Project Management Professional ®, a professional certification by

PMI, actively held by over 750,000 individuals.c

Portfolio In multi-project management, a portfolio is a collection of

programs, projects, and operational work under a common
management domain that share and compete for common
resources. They may have different contents and may not share
common goals.

Power achieving style Behavior of leaders who prefer to deploy their own resources for
tasks and bring order into chaos.

Practice Application of specific approaches, tools, techniques, behaviors,

and procedures with the intention to guide action and bring about
desired results.

Predictive methods Developed originally for engineering development but expanded

and transferred into other application areas: Several disciplined
approaches are characterized by long planning horizons, rather high
planning depth, and organization with strong leaders. Contrast with
Agile methods.

Predictivism An ideological approach to project management that considers

predictive methods generally superior to other approaches, indepen-
dent of the project situation. Contrasts with Agilism.

Prime contractor A contractor to the project customer who mandates major parts of
or all of the work of a project to subcontractors. For the business
with the subcontractors, the prime contractor is the customer.

Privity of contracts The legal doctrine that a customer has no direct contractual relation
with a subcontractor.

Process assets A combination of process know-how that an organization owns and

the availability of specific resources to implement this know-how.
Process assets commonly include documented procedures, forms,
templates, tools, databases, and documented lessons learned.
Process assets in an organization (or a portfolio of projects under
one management domain) are often administered by a PMO (Project
management office).

Program In multi-project management, a program is a collection of projects

(and other work) that are performed to achieve common goals and
benefits beyond their specific goals and benefits. The projects may
be run under different management domains and may take their
resources from different sources.

Project An investment that consists of a temporary and unique set of actions

performed to develop required or necessary products, services, or
other kinds of results.

c
By June 2017. Source: Internal communications.
 Glossary 299

Project business The discipline of managing a customer project in a fashion to bring

management money home and make the customer happy. Is also used to manage
complex Project supply networks (PSNs) on the Customer side.

Project Business Type of project management office (PMO) that adds a focus on busi-
Management Office ness matters in customer projects to the focus on project manage-
(PBMO) ment methodology.

Project business The person qualified for project business management and actually
manager practicing it.

Project governance A management function above the program or project manager

level, mostly applied to ensure common terminology among the
projects, compliance with corporate rules and processes and legal
requirements. Another goal is alignment with corporate strategy and
using lessons from the projects to improve this strategy.

Project management An operational unit that manages standardized processes, proce-

office (PMO) dures, templates, software, and other process assets in an organiza-
tion, put in place to unify methodology and terminology. This office
often organizes training for the implementation of methodologies
across the organization.

Project management The team that supports the project manager in the tasks necessary
team to manage the project. It may share responsibility for project success
and failure with the Project manager.

Project manager The administrator of an investment that meets the definition of a

project and has sufficient complexity to require active management
under formal or informal mandate.

Project supply A complex and often highly dynamic system of contracts with cus-
network (PSN) tomers and contractors that spans over three or more tiers.

Proposal An offer in a solution- and price-driven competition done by a buyer

to select the seller. See Request for Proposal (RfP).

Quotation 1. An offer in a non-competitive procurement done by a buyer to

select the seller who delivers an acceptable solution at an accept-
able price. See Request for quotation (RfQ).
2. A generic term for any kind of offer (may lead to confusion).

Ramp-up phase A period after deliverable handover from a project to an operational

production or service environment, during which the operations are
performed at a low rate and slowly increased to avoid being flooded
by a big number of bad results and to have resources free if initial
problems need to be managed. During this time, the project shares
responsibility for the deliverables with operations.

Request for proposal A request to sellers in a competitive procurement to offer and pro-
(RfP) pose a solution as set of deliverables, which may include services and
products, when the buyer does not know details on that beforehand.
Allows selection of the “best” seller. Often confused with other
forms of competitive and non-competitive procurement.
300 Project Business Management

Request for quotation A request to sellers in a non-competitive procurement to offer a

(RfQ) solution as set of deliverables, which may include services and prod-
ucts, and that is too small in value to justify the effort of a competi-
tion. Allows selection of an acceptable seller. Often confused with
other forms of competitive and non-competitive procurement.

Rework Laying hands again on a deliverable that was already considered

finished, to repair or alter it. Hours of rework in a project are a great
metric to assess efficiency and quality in a project.

Rolling award fee An award fee that is paid in regular installments, often monthly. See
Award fee.

Rolling wave approach An approach to managing projects with a limited prediction and
planning horizon and progressive elaboration of plans. The plans are
based on early descriptions of requirements, which are expected to
be refined and changed during the course of the project and which
will then lead to refinement and change of the plans. Contrasts with
Agile approach and Waterfall approach.

Scrum The most popular Agile method.

Situational awareness A project manager’s mindfulness of changes inside the project or in

its environment that necessitate swift adaptations in the approaches
and tools being used.

Situational The combination of (1) the understanding that the same practice that
intelligence was successful in a given situation in the past may fail in a different
situation, or vice versa; (2) the ability to adjust practices to the spe-
cific needs of the project and the current situation; and (3) the care
that this adaptiveness is not perceived by others as signals of lack of
authenticity or reliability.

Situational project An approach based on the understanding that the same practice
management (SitPM) that was successful in one situation may fail in another one and vice
versa; applies situational intelligence to project situations.

SitPM See Situational project management.

Soft assets Intangible assets that can be utilized by a project team as resources,
such as defined processes, motivation, reputation. These assets and
the effectiveness and efficiency of their use are commonly difficult to
measure. Contrasts with Hard assets.

Speed blindness The inability to fully perceive the project environment and the dynamics,
obstacles, and hazards it incorporates when a project runs at full speed.

Staged deliveries The project does not have a single deliverable handover, which fin-
ishes the project and commences the use of the deliverables. Instead
deliverables are handed over in stages, and while the team expands
the scope of the product or service in steps, the team can implement
feedback from the recipients (e.g., users) and incorporate it in its
further development.
 Glossary 301

Stakeholder Any person, group of people, or organization that project managers

should consider during their decision processes.

Strong matrix An overlay of one or more project team structure(s) over a func-
tional organization structure with the project manager(s) in the more
power ful position. Very common in customer projects. Contrasts
with Balanced matrix and Weak matrix.

Subcontractor A contractor who works for a client who is also a contractor to another
customer, for instance a prime contractor. Subcontractors can exist
on various tiers and then build complex project supply networks.

Target cost contract Agreement for the delivery of goods and services based on
(TCC) a cost-reimbursable arrangement with a target cost defined.
Deviations from these costs are shared by the contract partners.
Often includes a price cap.

Teaming Cooperation of sellers to supply goods and services together that

one alone would not be able to supply. Example: Consortia.

Time and materials Agreement for the delivery of goods and services with fixed prices
(T&M) contract for the former and fixed rates per hour, day, or similar for the latter.

TRAC A multi-objective assessment of the commercial rationale of a cus-

tomer enquiry to prepare for an offer/no-offer decision. Stands for
Time-Resources-Attractiveness-Chances.

Vendor Seller; a company that offers its services and products for the proj-
ect. Becomes the contractor after contract award.

Waterfall approach An approach to planning and performing a project in a predictive

manner with a long-term planning horizon, ideally over the entire
project lifecycle. Assumes static definitions of requirements and
long-term predictability and plannability. Contrasts with Agile and
Rolling wave approaches.

Waterfall excuse The rejection of an important change because it is “not in the plan”.
Contrasts with the Agile excuse.

Weak matrix An overlay of one or more project team structure(s) over a functional
organization structure with the managers of the functional structure
in the more powerful position. Very common in internal projects.
Contrasts with Strong matrix and Balanced matrix.

Work breakdown (1) In a decomposed project, hierarchical decomposition of the

structure (WBS) entire project, commonly in graphical representation or in the form
of indented lists. (2) In a composed project, a structuring system
which captures the contributions of teams and consolidates them
up to project level. (3) In traditional application, the WBS consists of
planning packages, among them control accounts and work pack-
ages, which are its lowest-level elements. (4) In software, all WBS
components are called tasks, and the lowest level may be individual
activities.
302 Project Business Management

Zombie project A project that is bound for failure right from the beginning, because
no consideration was given to the match of project type and
approach to the project, imbalance of obligations on the project with
authorization and resources provided, or an environment in which
other things were more important than project results.
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Index

# AIDA, 102, 104

3PL, 33 alchemy, 4, 5
alternative dispute resolution (ADR), 162,
A 177, 199, 233
absenteeism, 110, 242, 277 Amadeus, 55
acceptance testing, 1 Anglo-American legal system, 164
accountability, 24, 48, 81, 173, 198, 206– antisocial personality disorder (ASPD), 75,
208, 227 215, 222
ACP, See Autoridad del Canal de Panama APMP, See Association for Proposal
action caption, 141 Management Professionals
activity, 4, 6, 10, 17, 22, 23, 31, 50, 66, 71, APMP Body of Knowledge, 95
73, 81, 99, 103, 108, 122, 135, 158, 159, Apple, 48–50, 81, 151
167, 180, 196, 217, 224, 225, 232–237, aqua alta, 78
246, 263–268, 272, 278, 286 arbitrator, 165
ADR, See alternative dispute resolution architecture of a project, 22, 23
advertisement, 88, 89, 251 Asia, 64, 70, 282
Affinity diagramming, 8 ASPD, See antisocial personality disorder
affirmative action, 166 Association for Proposal Management
Africa, 64, 77, 215 Professionals (APMP), 95
agile, 3, 6, 12, 13, 17, 51, 179–181, 191, 195, assumption, 104, 110, 122, 131, 135, 137,
213, 237, 247, 253 141, 144, 157, 164, 170, 186–189, 193,
agile method, 3, 6, 12, 13, 17, 179, 180, 191, 194, 206, 225, 232, 280
195, 213, 237, 247, 253 assurance, 20, 150, 152
aging, 3, 13, 16, 20–22, 25, 30, 43, 55, 65, attention dilemma, 48, 49
73, 98, 100, 106, 108, 120, 134, 135, Australia, 60, 64, 67, 72, 209, 210, 282
149, 150, 175, 176, 185, 197, 200–205, automotive development, 52
209–213, 219–222, 230, 234, 238, 253, automotive supplier, 34
267, 278, 281, 285, 287 Autoridad del Canal de Panama (ACP), 79

311
312 Borderless Leadership

award, 36, 37, 87, 94, 96, 100, 138, 140, 149, burnout syndrome, 110, 166
157–160, 175, 183, 184, 189–192, 207, Boeing 787 Dreamliner, 28
221–223, 228, 266, 270, 272, 282–287 business acumen, 65, 273, 274
business benefit, 123, 220, 270
B business case, 11, 14, 33, 47, 76, 104, 170,
B2B marketplace, 86–89, 106 191, 198, 211, 222, 226, 283, 285
bankruptcy, 76, 84, 175, 252 business coach, 87
basic trust, 131, 165, 168 business development, 11, 29, 32, 87, 104,
behavior, 6, 8, 29, 43, 55, 66, 75, 78, 84, 105, 113, 130, 140, 153, 157, 220–223,
85, 88, 103, 105, 110, 112, 131, 132, 252, 262, 268, 272–275
139–145, 163–168, 171–177, 190, 193, business endeavor, 33
206–208, 215, 218, 221–226, 239, 246, business environment, 39, 41, 98, 119, 168
248, 252, 253, 257, 259, 267, 268, 278, business goal, 18, 23, 57, 106, 132
286, 287 business interest, 10, 29, 31, 53, 65, 68, 69,
benefit, 11–15, 19, 22, 24, 38, 47, 53, 54, 57, 72, 77, 111, 123, 125, 128, 164, 169,
58, 69, 70, 77, 83, 86, 94, 96, 102, 103, 171, 196, 202, 203, 206, 210, 214, 221,
107, 109, 121–125, 128–131, 134–140, 232, 235, 238, 244, 246, 254–259, 279,
150, 154, 160, 163–165, 172–176, 185– 282, 286
192, 195, 201–203, 206–210, 217–222, business lifecycle, 262
226–230, 234, 239, 247, 248, 253, 254, business literature, 58
260–278, 283–287 business model, 20, 33, 35, 86, 88, 251
benefit engineering, 94, 107, 130, 135, 253, business risk, 148
254, 260–273, 287 business-to-business, 44, 86
benefit generation, 58, 261 business transformation, 67
benefit realization, 58, 190 buyer, 4, 11, 24, 34–38, 44–47, 56, 57, 66,
Berlin Hauptbahnhof, 7 67, 85–108, 112–122, 130–159, 175,
best practices, 3–7, 42, 280, 281 178, 193, 197, 229, 235, 244, 247, 260,
bid, 29, 42–44, 82, 87–95, 98, 104–119, 262, 270, 271, 274, 275, 280
126, 130, 139, 140, 152, 161, 175, 233, buy option, 44, 45, 54–58, 64–72, 75, 76,
251, 260, 268 85, 94
bid bonds, 118, 119, 161
bidders’ conference, 89, 90 C
bid manager, 113 cancellation terms, 152
binding offer, 115–118, 138 capacity gap, 263
black box, 75, 200 captive outsourcing, 19
blurred project, 11 capture ratio, 42, 43, 104, 108
BMW, 52 case law, 162
booked resources, 121 catalogue management, 86
bottleneck, 16 caveat emptor, 67, 164, 176
breach of contract, 26, 93, 97, 163, 186, 267 Central & South America, 64
breakthrough, 8 CEO, 20, 48, 49, 70, 71, 150, 252, 264, 276
bribe, 77, 107, 150, 215, 223, 240, 241, 246 certification, 2, 8, 32, 44, 95, 159, 198, 253
brownfield project, 9, 10 CFO, 264
BS, See burnout syndrome challenge, 2, 13, 17, 22, 24, 29, 38, 65, 69,
Bürgerforum 21, 10 71, 81, 99, 101, 104, 109, 162, 165, 172,
 Index 313

180, 192, 196, 202, 203, 216, 219, 238, 233, 264, 275, 283, 287
246, 257, 260, 262, 279, 282, 286, 287 complexity trap, 84
change request, 17, 34, 38, 76, 87, 94, 107, complex proposal, 113, 121, 140–142
120, 124, 155, 182, 184, 193–198, 208, compliance officer, 32
211, 213, 219, 220, 229, 271 component manufacturer, 33
checklist, 32 composed Project, 13
CIO, 3, 75, 80, 98, 148, 167, 182, 185, 196, composite structures, 35
198, 206, 207, 215, 216, 220, 222, 233, concurrent work, 24
241, 244, 254, 257, 272 configuration management, 156
civil code, 162–164, 172, 182 confusion, 28, 90, 189, 225
civil engineering, 30 congress, 12, 41, 70, 90
civil law, 85, 97, 118, 160–165, 172, 181– consortia, 3, 28–31, 78, 79, 126–129, 202,
186, 191, 215 203, 216, 223, 247–249, 282, 287
claim management, 166, 269 Consorzio Venezia Nuova (CVN), 78
claim manager, 166, 181 constraint, 6, 103, 140, 156, 185, 225–228,
claims, 31, 71, 81, 107, 147, 166, 172, 193, 234, 254, 261, 262, 266, 269–271
198, 206, 214, 238, 243–245, 252, 256 construction, 7, 9, 17, 24, 28–31, 39, 53,
CLC, See customer-led consortium 76–79, 82, 118, 120, 126–128, 194, 206,
client, 19, 31, 33, 38, 109, 188, 222, 229, 229, 230, 236, 240
243, 244, 252 constructive change, 166, 181
closed typology, 17 Constructora Urbana, 31, 128
coffee break zone, 161 consultancy, 30
common law, 85, 97, 162–164, 172, 181, consumption materials, 33
182, 185, 186, 215 continuous delivery, 15
company, 3, 4, 18–21, 24–26, 32–35, 38, contract, 1–4, 11, 13, 18–47, 50–58, 62,
41–45, 48, 50, 55, 56, 66, 69–71, 65, 68–90, 93–121, 124–133, 138–140,
74–86, 91, 96, 101, 105, 109–111, 116, 145–149, 153–211, 214–287
118, 123, 127, 129, 136, 139, 144–148, contract development, 90, 155, 159, 175, 176
156, 160, 170, 174, 175, 178, 194, 197– contracting, 22, 25, 29, 38, 70, 71, 85, 98,
203, 208, 212–220, 223–226, 229, 230, 138, 140, 154, 155, 159, 162, 178, 183,
233–235, 238, 239, 242–245, 249–257, 191–193, 197, 203, 206, 215–218, 238,
263, 268, 272, 276–279, 282–286 246, 247, 268, 275
competition, 18, 19, 32, 36, 48, 76, 83, contract-intensive project, 29
89–94, 105, 111–114, 120, 126, 130, contract management, 38, 87
134, 139, 140, 157, 164, 172, 175, 202, contract negotiation, 87
205–208, 251, 268, 272, 283–286 contractor, 1–4, 11, 13, 18, 19, 22–28,
competitive behavior, 29, 112, 139, 140, 171, 31–39, 43–46, 50–58, 62, 65, 68–75,
174, 175, 207, 208, 224 78–88, 93, 94, 99–103, 108–112, 116,
competitor, 20, 39, 49, 53, 83, 85, 89, 95, 119, 120, 124–129, 132, 145–148,
100, 103–105, 119, 129, 131, 134, 137, 153–162, 165–177, 180–209, 214–256,
143–146, 175, 224, 251, 263, 268 259–286
complaint, 31, 39, 97, 130, 133, 148, 208, contract partner, 172, 175, 196, 217, 218,
211, 233, 234, 277 222, 224, 247, 254
complexity, 28, 38, 65, 84, 85, 129, 130, contract party, 18, 29, 40, 69, 79, 86, 140,
156, 159, 171, 198, 208–213, 217, 224, 161–164, 172, 173, 183, 185, 232, 233
314 Borderless Leadership

Contract SOW, 93 credit line, 3, 262, 277

contract types, 38, 89, 159, 181–183, 191, creditor protection, 20
262 credulity, 167, 189
contractual conditions, 50 crisis management, 207, 251, 253, 278–280
contractual disagreement, 165 critical misunderstandings, 90
contractual payment scheme, 58 culture, 10, 28, 29, 53, 65, 70, 72, 76, 77, 81,
contribution, 13, 39, 125–129, 207 104, 110, 120, 123, 155, 159, 163, 165, 168,
control limit, 132, 133, 228 173, 177, 178, 181, 192, 196, 206, 215, 216,
Conway, Melvin, 28 221–223, 227, 240, 241, 244, 246, 249,
Conway’s law, 28, 68, 165, 176, 249 259, 260, 266–269, 276, 279, 287
Cook, Tim, 48, 49 customer, 1–4, 11–15, 18–61, 64–75, 80–87,
cooperation, 29, 31, 57, 74–76, 104, 123, 90, 93–149, 153, 156–162, 165–178,
139, 148, 149, 158, 178, 202, 206, 207, 181–211, 214–256, 259–287
212, 221, 224, 238, 246, 247, 251 customer interface, 32
copyright, 33 customer-led consortium (CLC), 282
corporate income, 32 customer project, 3, 4, 11, 18–36, 39–44,
corporate restaurant, 161, 245 57, 58, 61, 65, 74, 90, 94, 95, 100, 102,
corporate strategy, 304 109, 111, 116, 121, 131, 153, 158, 170,
corporation, 3, 17, 26, 30–32, 49, 54, 55, 70, 171, 181, 194, 195, 199, 203, 208, 209,
80–86, 116, 126, 136, 145, 204, 218, 214, 224, 229, 253, 261–264, 267–276,
234, 240, 244, 247, 264, 266, 276 285–287
corruption, 77, 78, 82, 123, 175, 215, 216, customer project management, 57, 58, 61
223, 234, 240, 241 customers’ mission, 38
Corruption Perception Index (CPI), 216, 223 CVN, See Consorzio Venezia Nuova
cost, 1–3, 6, 11, 14, 18, 24, 32–35, 38–57,
68–71, 74, 78, 79, 83, 88, 89, 98, 99, D
102, 103, 107–112, 118–121, 125–140, data leak, 83
145, 153, 157–162, 166–168, 171, 175, deadline, 2, 14, 16, 34, 39, 42, 74, 82, 84,
176, 181–194, 197, 198, 201, 202, 205– 96–99, 103, 104, 112, 116, 119–122,
213, 220, 223–228, 231, 235–240, 243, 126, 129, 138, 155, 156, 162, 169, 170,
246, 248, 251–256, 260–262, 266–272, 175, 181, 184, 195, 211, 212, 226–228,
276, 277, 282–284 236, 242, 243, 260–271, 283
cost benefit, 54, 69, 70 decomposed project, 13
cost center, 3, 11, 18, 24 defaulting contractor, 216, 223
cost engineering, 260–262, 269 Defoe, Danial, 13, 22
costing, 2, 18, 43, 135–138 delegation, 48
cost reimbursable contract, 160, 183, deliverable, 1, 10–15, 18, 24, 30, 39, 42, 53,
186–188 71, 74, 84, 125, 126, 134–136, 158, 161,
counsel, 215, 224, 285 175, 176, 179, 189, 191, 208, 212, 219,
court, 18, 19, 26, 29, 83, 88, 111, 118, 119, 220, 229, 235, 244–246, 261, 262, 266,
145, 147, 154, 155, 162, 164, 171, 172, 270, 273, 275
176, 181–185, 189, 194, 215, 222, 230, delivery date, 185, 189, 198, 248, 283
240, 252, 254, 285 demolition, 54
Covey, Stephen R., 69 department, 3, 17, 32, 42, 55, 71, 77, 87, 93,
CPI, See Corruption Perception Index 104, 112, 116, 121, 239, 240, 244, 273, 277
 Index 315

dependencies, 2, 19, 24, 33, 61, 84, 138, 153, employee, 3, 20, 24, 30, 38, 44, 45, 48,
157, 207, 214, 215, 222, 223, 233, 237, 52, 55, 56, 67, 80, 83–85, 94, 98, 110,
259, 286 111, 116, 126, 136, 141, 146–148, 152,
design work, 30 166, 167, 175, 200, 204, 205, 214–216,
diligence, 90, 174, 279 219–223, 230, 235, 241–246, 256, 263,
direct contractor, 198, 201, 217, 270 277, 278
disaster, 73–76, 99, 135, 220, 257 enabling services, 24, 36, 87, 153, 156–162,
discretionary project, 14, 47 172, 200, 225, 228–230, 235, 245
discrimination, 89, 118–120, 277 end date, 10
disposal, 53, 54 engineering, 2, 8, 10, 13, 30, 39, 52, 94,
disruption, 24, 38, 47, 56, 68, 74, 87, 107, 107–111, 130, 135, 236, 245, 253, 254,
150, 152, 158, 161, 180, 183, 184, 215, 260–273, 287
224, 225, 228, 239, 258, 259, 267, 276, engineers’ project, 13
281, 282 enquiry, 97, 104, 241
distributed team, 283 enterprise project management, 32, 42
distribution, 21, 29, 33, 57, 61–64, 75, 83, enterprise resource planning (ERP), 67, 86, 87
163, 204, 210, 213, 234, 258 environmental conditions, 6, 119, 179
distrust, 31, 56, 69, 90, 131, 158, 165– environmental standards, 54
167, 175, 190, 206, 241, 257, 271 equipment, 6, 11, 17, 31, 35, 38, 47, 54–57,
diversity, 4, 51, 177, 214, 215, 221, 259 70, 99, 149, 151, 183, 194, 197–200,
diversity of skills, 51 229, 230, 245, 280
documentary, 82, 89 ERI, See effort-reward imbalance
Drucker, Peter F., 18 ERP, See enterprise resource planning
Dvir, Dov, 9 error, 4, 17, 28, 45, 71, 72, 84, 125, 151, 162,
dynamics, 4, 7, 12, 21, 22, 28, 38, 43, 54, 166, 167, 173, 176, 201, 204–207, 212,
58, 65, 90, 122, 132, 171, 179, 203, 219, 213, 222, 243, 246, 266, 277
221, 232, 248, 249, 254, 256, 269, 271, error fixing, 45, 71, 72, 207
280, 281, 286, 287 error tolerance, 166, 173
dysfunctional question, 8 escalation, 177, 286
ESPN, 82
E Europe, 45, 52, 64, 85, 127, 163, 164, 177,
early adopter, 66, 205, 283 186, 246
economic benefit, 109 Europrop International, 127
economics, 57, 215 evolutionary deliveries, 15
education, 29, 30, 33, 57, 65, 75, 275 exhaustion, 110, 166
educators, 65 exploratory project, 12
effectiveness, 32, 43, 136, 171, 175, 264, external assets, 56, 57, 70, 214
272, 275 external resources, 43, 56, 287
efficiency, 32, 42, 55, 171, 205, 264
effort-reward imbalance (ERI), 110, 166 F
Eigen, Peter, 77 failure, 4–9, 12, 19, 21, 24, 25, 28, 29, 38,
e-invoicing, 87, 276, 277 43, 44, 50, 54, 68, 69, 75, 79, 84, 90,
empathy, 15, 22, 28, 29, 69, 120, 140, 215, 104, 122, 128, 132, 158, 162, 165–167,
221, 272, 285 179, 180, 201, 207, 216, 223, 226, 232,
empirical research, 57 238, 242, 254–257, 267, 271, 277, 280,
continued on next page
316 Borderless Leadership

Failure, continued
281, 284, 287 globalizing world economy, 65
Fédération Internationale de Football gobbledygook, 141
Association, 82 golden handshake, 71, 83
fees, 20, 24, 26, 33, 47, 50, 52, 55, 72, 73, golden rule, 146, 147
87, 88, 110, 124–128, 136–139, 143, goLive, 15
145, 151, 160, 161, 164, 166, 173–175, good faith, 161–165, 168, 172–178, 182, 185,
182–194, 198, 204, 207, 216, 220–223, 189, 192, 256, 261, 272, 276, 285
228, 234, 239, 263, 270, 282–287 governance, 6, 8, 32, 42, 56, 120, 260
field change, 36 government agencies, 39, 54, 286
fields of business, 32 Green, Andy, 73
FIFA, See Fédération Internationale de greenfield project, 9, 10, 229, 236
Football Association greengrocer’s apostrophe, 151
final payment, 1 growth potential, 52, 71
financial value, 41 Grupo Unidos por el Canal (GUPC), 31, 79,
fire protection system, 76 128
fitness tracker, 51 GS Yuasa, 28
Five whys, 8 gullibility, 167
fixed price contract, 160, 182, 183, 186, 189, GUPC, See Grupo Unidos por el Canal
195, 284
flexibility, 33, 38, 89, 126, 183, 197, 198, H
227, 260 Hart, Oliver, 153, 178, 181
focused project, 10 helpfulness, 144, 169, 172
focus group, 233 high-impact project, 11
force-field analysis, 100–102 high-level management, 19
Ford, Henry, 52 hit rate, 42, 98, 102–109, 170
forecasting, 32 horse title, 141
forming, 2, 6, 11–14, 18, 21, 22, 25, 26, human resources, 99, 183, 214, 219, 273
29–31, 47, 54, 57, 58, 64, 75, 108, 110,
123, 133, 139, 159, 162, 202, 203, 237, I
243, 252–254, 260, 264, 273, 278, 285 IfB, See invitation to bid
Forschungs- und Innovationszentrum, 52 IKEA, 81
fragmentation, 26–29, 65, 68–70, 90 impact, 4, 9, 11, 26, 55, 71, 76, 80, 94,
fragmenting forces, 29, 30 95, 99, 136, 152, 163, 171, 172, 182,
framework agreement, 109–111 194–196, 205, 212, 221–225, 232–235,
freebie project, 33–35 240, 252, 256, 264, 266, 271, 272,
Freedomhouse, 223 277–279, 285
freelancer, 38, 39, 65, 87, 88, 251, 258, 286 Impregilo, 31, 78, 128
friendly dog effect, 143 incentives, 97, 136, 182–186, 190, 266
functional organization, 14, 31, 32, 38 incumbent parties, 36
functional question, 8 India, 60, 82
funding, 2, 11, 17, 67, 127, 226, 228, 271 individual trust, 168
Industria de Turbo Propulsores, 127
G Industry 4.0, 80
gardeners’ project, 13, 14 informal relationships, 124
gentlemen’s agreement, 154, 155 infrastructure, 7–10, 20, 30, 39, 50, 51, 55,
 Index 317

72, 76, 79, 82, 88, 89, 96, 115, 118–121, invitation to tender, 92, 114
126, 127, 198, 202, 222, 226–229, 242, invitation to treat (ItT), 2, 13, 18, 44, 48,
244, 267, 276, 283 56, 68, 70, 81–96, 101, 108–122, 131,
innovator, 205, 283 139, 140, 143–147, 150, 154–160, 164,
insolvency, 20, 21, 79, 84, 109, 125, 216, 168, 169, 173, 177–179, 185, 195, 198,
223, 226, 251 207, 214, 221, 229, 239, 244, 247, 253,
insurance, 3, 53, 118, 161, 170, 214, 223, 257, 285
228, 244, 245, 276 invoice, 36, 38, 120, 183, 186, 188, 194,
integrating forces, 276 200, 240, 244, 246, 252, 269, 276–278
integration management, 22 iOS, 43, 49, 83, 87, 116, 141, 175, 186–189, 213
intellectual property, 19, 33, 49, 84, 205 IoT, See Internet of Things
intention, 3, 7, 10, 15, 29, 35, 46, 73, 83, 89, iPad, 81
93, 122, 127, 128, 134, 138, 142, 162, IP address, 64
163, 167, 170, 181, 192, 196, 216, 224, iPhone, 49, 50, 81
225, 246, 252, 261, 266 IPMA, See International Project
interdependency, 207 Management Association
interface, 11, 32, 48, 65, 83, 84, 123, 161, iPod, 81
165, 169, 172, 198, 204, 208, 209, 216, IRR, See internal rate of return
257, 258, 269 ISO, See International Organization for
internal customers, 11, 18, 19 Standardization
internal logistics systems, 33 iterative incremental, 12
internal projects, 3, 4, 11, 14, 18, 21–26, 42, ItP, See invitation to pitch
56–58, 93, 158, 238, 261, 276, 287 IT services, 32
internal rate of return (IRR), 14, 53 ItT, See invitation to treat
internal requestor, 11
internal resources, 237 J
internal SOW, 93 JAM, See just about managing
internal structures, 48, 52, 68 joint venture, 3, 30, 31, 126, 127, 202, 203, 247
internal vendor, 18, 19, 259 just about managing (JAM), 20, 98, 108,
international contract, 85, 160, 176, 178, 215 134, 278
International Organization for
Standardization (ISO), 6 K
International Project Management Kafala, 82
Association (IPMA), 8, 22 key performance indicator (KPI), 266
internet booking, 55 kick-off meeting, 158
Internet of Things (IoT), 71, 80 KPI, See key performance indicator
interview, 8, 56, 147, 149
intranet, 161 L
investment, 20, 22, 25, 33–35, 48, 49, 53, laggard, 284, 285
67, 89, 104, 105, 109, 118, 123, 126, late majority, 284
127, 136, 137, 145, 156, 180, 207, 247, lawsuit, 18, 26, 49, 85, 88, 118, 166, 176,
255, 264, 270, 283–285 194, 196, 225, 277
invitation to bid (IfB), 44, 87, 91–94, lawyer, 10, 26, 29, 77, 115, 138, 145, 156,
114–116 176, 177, 241, 277
invitation to pitch (ItP), 4, 6, 11, 17, 93, 114 layperson, 164
318 Borderless Leadership

LDs, See liquidated damages maintenance, 13, 198, 273

leading venturer, 31, 128 make option, 58, 64, 66, 70, 130
learning process, 6, 54, 70, 99, 232, 269 make-or-buy decision, 34, 44, 46, 58–66,
legacy, 9, 35, 68, 135, 221, 229 84, 85, 91, 103, 175, 262, 275
legacy systems, 35, 68, 135, 229 makeshift, 70, 264
legal action, 19, 26, 85, 88, 118, 154, 177, malware, 80, 217, 224
185, 200, 215 management, 1–28, 32–34, 38–50, 53–61,
legal advice, 115, 153, 162 65–71, 74, 75, 81–87, 90, 95–100, 103–
legal entities, 18 116, 119–122, 128, 131, 132, 138, 147,
legal perspective, 28, 157, 176, 180, 204, 214, 152–173, 178–181, 189, 192, 195–207,
215 211–240, 244–248, 251–256, 259–282,
legal remedy of conflicts, 26 285–287
legal system, 10, 29, 65, 70, 84, 85, 115, 138, management attention, 11, 26, 32, 47–50,
145, 146, 155, 159–164, 168, 176, 178, 53, 56, 57, 70, 71, 152, 200–203, 212,
184, 215, 221, 222, 259, 276, 279, 287 217, 220, 244, 264, 266, 285
legislation, 20, 99, 118, 125, 162, 264 mandatory project, 14, 22
Lesotho, 77, 215 Mark 1 project, 8, 9, 54
Lesseps, Ferdinand de, 79 market conditions, 53, 65
lessons-learned database, 2 market research, 29
letter contract, 155 market window theory, 283, 284
letter of intent (LOI), 100, 154, 155 Mark n project, 8, 9, 54
liability, 20, 42, 74, 111, 128, 156, 165, 177, Mars Climate Orbiter, 28
192, 214, 276 Mars Polar Lander, 28
license, 33, 56, 57, 107, 124, 127, 129, 182, matrix organization, 50
200, 201, 219 media, 2–4, 35, 39, 41, 50, 54, 59, 73, 78,
lifecycle, 6, 14, 17, 53, 57, 58, 69, 103, 126, 93, 109–111, 118, 135, 146, 147, 152,
127, 135–138, 156–159, 171, 226, 231, 173, 190, 191, 199, 205, 217, 223, 229,
240, 245, 246, 261, 262, 272 233, 235, 239, 242, 243, 252, 264,
lifecycle cost, 103, 135–138, 226, 240 277–280
LinkedIn, 21, 60, 87, 152 mediation, 199, 233
Linnaean taxonomy, 4 meetings, 1, 56, 89, 90, 158, 207, 235, 239,
liquidated damages (LDs), 97, 182–186 252
LOI, See letter of intent melon project, 167
long-term orientation, 168, 275 memorandum of understanding (MOU), 45,
long-term planning, 17, 43 47, 50, 52, 71, 79, 135, 141, 145, 151,
long-term strategies, 146 154, 157, 166, 168, 176, 180, 183–186,
Lotus Elise, 66 194, 197, 206, 212, 217, 219, 223, 227,
low-balling, 107, 138, 260 230, 232, 239–244, 269, 270, 276, 278,
low-impact projects, 11 285
low margins, 32 Mendeleev, Dmitri Ivanovich, 4
loyalty, 20, 24, 165, 216 mental resources, 47, 167
methodology, 3, 32, 148, 252, 280, 281
M MG, 52
Macintosh, 81 micromanagement, 167
Mail Online, 81 micro-survey, 57–61
 Index 319

Middle East, 64 Nepal, 82

miscommunications, 28 net present value (NVP), 14, 53
mishap, 29 net total benefits of ownership, 136
“Mission Success First”, 29, 72, 123, 140, new prospects, 29
165, 167, 172–178, 181, 192, 196, 215, Newsweek, 78
220–226, 241, 248, 249, 257, 266, 269, NGO, See non-governmental organization
272, 279, 286 no-deadline project, 16
misunderstandings, 25, 29, 74, 90, 123, 143, nominating, 201, 203, 238, 239
152, 153, 156, 167, 196, 212, 222, 227, non-binding offer, 115–118
239, 248, 249 non-compete clause, 145
MOdulo Sperimentale Elettromeccanico non-disclosure agreement (NDA), 145–147,
(MOSE), 78 175
modus vivendi, 31 non-governmental organization (NGO), 81,
money, 2, 11, 18–24, 29, 33, 37–39, 42, 47, 225
50, 53, 54, 57, 58, 64–67, 71, 77, 83, 90, norming, 123
95, 104, 107, 111, 112, 115, 116, 121, North America, 64
124, 129, 132, 135, 138, 140, 145, 149, novelty, 8, 9, 283
158, 162, 165–168, 188, 191, 200, 204, NPV, See net present value
211, 214, 219, 227, 244, 246, 256, 264, Nul, Jan de, 31, 128
266, 269–274, 278, 284, 285
Montesquieu, Baron de, 162 O
Morgan, Charles, 167 objective, 6, 22, 31, 35, 40, 44, 55, 59, 70,
MOSE, See MOdulo Sperimentale 88, 129, 142, 148, 171, 185, 189, 192,
Elettromeccanico 193, 202, 224–228, 234, 251, 252, 260,
Motorola Mobility, 49 270, 273
MOU, See memorandum of understanding obsolescence management, 53
MTU Aero Engines, 127 OFFA, See offer force-field analysis
multiple-deadline project, 16 offer, 13, 33, 37, 39, 42, 57, 70, 86–122,
multiple exclamation marks, 151 128–153, 156, 169–174, 194, 202, 206,
multiple-handover project, 15 223, 235, 238–241, 254, 260, 262,
multi-shot project, 16 268–271, 276–278
multi-tier PSNs, 22, 35 offer development process, 96
Münchener Verkehrsverbund GmbH offer force-field analysis (OFFA), 101
(MVV), 142 Ogilvy, David, 70
mutual distrust, 167, 175, 257 on-boarding meeting, 158
mutual obligations, 138, 146, 161 one-shot project, 16
mutual success cultures, 29 online collaboration, 32
MVV, See Münchener Verkehrsverbund open typologies, 17
GmbH operational business, 33, 34, 86, 262
operational disruption, 38, 47, 56, 74, 107,
N 152, 183, 184, 224, 225, 228, 267
naming, 34, 125, 201, 203, 238, 239 operationalization, 32, 42
NASA, 28, 153, 257 operations, 14, 17, 18, 28, 31–35, 53–56, 67,
NDA, See non-disclosure agreement 68, 109, 111, 124, 134, 152, 185, 198,
negative press, 67 204, 225, 234, 238, 240, 243, 244, 267
320 Borderless Leadership

organizational process assets, 3, 32 performing organization, 2, 11–14, 18, 21,

outdating, 13 22, 54, 58, 162, 278
outlays, 53, 95, 161 periodic table, 4
outsourced project, 24 peripheral costs, 135
outsourced work package, 24, 25 Philippines, 82
outsourcing, 19, 50, 53, 54, 60–65, 70, 71, philosopher’s stone, 4
84, 211, 221, 285 Piquette Avenue Plant, 52
pitch, 93, 114, 152, 268
P plan, 2, 7, 12–17, 22, 29, 34, 43, 47, 52–54,
panacea, 4 67, 68, 73–76, 79, 84, 111, 112, 119–
Panama Canal expansion, 30, 79 121, 124–128, 135, 136, 146, 151, 156,
paradigm change, 51 158, 170, 173, 179–183, 186, 195–198,
paradise syndrome, 216, 223 212–218, 228, 236–240, 243, 248,
partners, 2, 10, 26, 37, 38, 52, 88, 90, 120, 252–257, 268, 272, 283
123, 126, 140, 146, 151, 154, 155, 164, PMBOK® Guide, 164
165, 171–178, 192, 196, 204–207, 214, PMI, See Project Management Institute
217, 224, 239, 244, 253–256, 269, 275, PMO, See project management office
276 PMP®, See Project Management Professional®
party, 1, 2, 13, 18, 19, 26, 29, 33–40, 54, point of total assumption (PTA), 1, 7, 13, 22,
65, 68–74, 78, 79, 83–88, 94, 95, 111, 29, 43, 74, 77, 98, 115–117, 123, 125,
115–118, 121, 127–132, 140, 146–149, 131–134, 142, 143, 152, 176, 179, 181,
153–167, 171–186, 191–196, 200, 186–189, 192–194, 199–203, 211–223,
206–208, 211, 218–221, 224, 228–235, 233, 234, 244–248, 260, 279
238–241, 244–246, 253–258, 261, 263, political estimates, 167
268–272, 275, 276, 279, 280 portfolio, 13, 21, 22, 29, 32, 41, 50, 111,
patent, 49, 56, 83, 216 212, 244, 253, 254, 269
payment, 1, 20, 56–58, 71, 72, 81, 87, 88, portfolio management, 21, 111, 212, 269
95, 111, 115–118, 130–134, 148, 156, post-contract services, 29
158, 161, 162, 182, 184, 188, 191, 192, post-project operations, 31
212, 229, 235, 244–247, 252–256, 261, PQQ, See pre-qualification questionnaire
276–278, 285, 286 practitioner, 4, 5, 8, 17, 97, 106, 157, 192
PBM, See Project Business Management predictability, 16, 48, 139, 164, 165, 280
penalty, 14, 97, 146, 177, 182–186 predictable project, 12
Penzhorn, Guido, 77, 215 predictive approach, 12, 179, 181
perfect price, 130, 133, 134 premature, 283
performance, 1, 18, 19, 24, 48, 56, 67, 70, pre-qualification questionnaire (PQQ),
73, 90, 110, 115–119, 133, 161, 162, 171, 91–93, 113, 122
176, 182–186, 189, 191, 200, 201, 207, presentation, 12, 73, 114, 115, 122, 144–152,
223, 238, 243, 254, 257, 262, 266, 272, 223, 268, 281, 282
281, 282, 285 Press Freedom Index, 223
performance bonds, 118, 119, 161 prettification, 165
performing, 2, 11–14, 18, 21, 22, 25, 26, price, 2, 26, 33, 52, 66–68, 71, 74–77, 81,
29–31, 47, 54, 57, 58, 64, 75, 108, 110, 87–94, 103, 106–108, 111, 114, 118, 119,
123, 133, 139, 159, 162, 202, 203, 237, 125, 126, 129–142, 148, 160, 170, 175,
252–254, 260, 264, 273, 278, 285 182–195, 198, 202–206, 219, 220, 236,
 Index 321

239, 254, 256, 263, 268, 270, 273, 278, 138, 152, 159, 161, 169, 178–180, 189,
282–284 192, 196, 197, 205, 207, 211–213, 224,
price ceiling, 160, 183, 188, 189, 192, 193 225, 230–237, 240, 246, 248, 251, 252,
pricing, 130–138, 147, 268 256, 260, 267–275, 279–282, 285, 287
prime contractor, 1, 37, 38, 79, 124–129, project management business office (PMBO),
175, 183, 186, 197–204, 208, 217–219, 90, 164
229, 235–238, 242–244, 247, 252, 254, project management experience, 8
260, 270, 276–280 project management expert, 7
prioritization, 15, 257, 286 Project Management Handbook, 32
privacy, 84, 191, 234 Project Management Institute (PMI), 6, 8,
process description, 161 22, 78, 90, 126, 164
procrastination, 286 project management methodology, 32, 252
procurement, 11, 22, 25, 37, 42, 44, 57, Project Management Office (PMO), 3, 32,
66, 77, 85–99, 103, 106, 111–115, 118, 42, 260
119, 129–132, 138, 156, 159, 164, 174, project management team, 248
175, 201, 202, 214, 216, 224, 228, 239, project manager, 1–17, 21, 22, 25, 26, 29, 32,
245–247, 272, 275, 277 38, 42–47, 56, 59, 63, 65, 69, 70, 74–77,
procurement SOW, 93 80, 87, 96, 97, 104, 107, 119, 123, 145,
product business, 35, 37 148, 154–158, 162, 165, 167, 175–181,
product development, 20, 52, 74 191–197, 200–203, 208, 211–217,
production lines, 34, 243 221–225, 229, 232, 237–243, 252–254,
profile page, 86, 87 258–274, 279–286
profit, 1, 3, 11, 18–22, 29–35, 38, 41–44, project portfolio management, 21
48, 53, 58, 65, 69, 71, 85, 95, 98, 99, project procurement management, 90, 164
104–112, 119, 125–128, 132–136, 149, project provider, 31
166, 168, 183, 186, 194, 197, 202, 219, project sponsor, 4, 47, 195
251–255, 262, 268, 273–279, 283, 285 project success, 29, 57, 104, 158, 159, 172,
profit center, 3, 11, 18, 29, 31, 35, 65, 273, 192, 202, 203, 225, 235, 251, 272
274 project supply network (PSN), 10, 11, 21,
program, 21, 22, 25, 50, 52, 68, 80, 83, 136, 22, 28–30, 35, 38, 65, 69, 72, 74, 81,
161, 202, 210–214, 242, 281, 282 87, 129, 162, 169–173, 181, 189–192,
program management, 21 196–199, 202–209, 212–219, 222–258,
progressive elaboration, 12, 194, 195 270, 271, 274–281, 285–287
project, 1–90, 93–185, 189–287 project team, 4, 10, 15, 35, 39, 56, 65, 70,
Project Business Management (PBM), 1–4, 74–76, 79, 83–86, 93, 174, 206, 222,
11, 18, 40, 44, 57, 65, 85, 97, 108, 109, 226, 239, 253, 263, 280
112, 119, 154–158, 161–163, 169, 171, property, 19, 33, 49, 84, 125, 161, 168, 205
178, 215, 218, 221, 225, 232, 246, 247, proposal, 29, 32, 42, 44, 90, 92, 95–98,
251, 254, 256, 269, 278–282, 285, 287 104–109, 112–114, 117, 120–122, 130,
project environment, 50, 52, 61, 62, 172 139–143, 147, 148, 152, 220, 240, 252,
project goal, 224, 260 254, 264–269
project location, 63 proposal management, 42, 90, 95, 98, 108,
project management, 1–17, 20–22, 32, 42, 120, 252
43, 46, 54, 57–61, 65, 68, 69, 81, 87, proposal manager, 113, 220
90, 96, 99, 106, 115, 120, 122, 131, 132, prospective contractor, 46
322 Borderless Leadership

prospective customer, 46, 66, 93, 94, 103, repetition, 97, 107, 179, 261, 279
107, 141, 144, 175 Reporters sans Frontieres, 223
protective behavior, 165, 171 reputation, 25, 32, 39, 72, 80–82, 99, 107,
protest-proof process, 89 136, 142, 216, 224
prototype, 66, 74, 75 request, 11, 15, 17, 25, 34, 38, 44, 59, 74,
provisions, 24, 36, 87, 153, 156–162, 172, 76, 85–97, 100, 105–114, 118–124, 133,
200, 225, 228, 230, 235, 245 134, 155, 178, 179, 182, 184, 193–198,
proximity, 34, 107, 126, 135, 218, 268 208, 211, 213, 219, 220, 229, 244, 271
PSN, See project supply network request for information (RfI), 87, 91–93, 113
psychopath, 75, 215, 222 request for proposal (RFP), 44, 87, 92–94,
PTA, See point of total assumption 114, 122
publication, 4, 12 request for quotation (RfQ), 87, 91, 94, 113
public procurement, 44, 92, 94, 118 requirement, 1, 6, 12, 17, 24, 25, 43, 44, 47,
public tendering, 88 48, 65–68, 86, 93, 94, 98–101, 104,
purchasing department, 239 105, 111, 121, 126–129, 138, 145, 152,
156, 162–165, 171, 175, 179, 180, 186,
Q 194, 195, 203, 210, 219, 222, 225–228,
Q&A session, 89 234, 244, 260–265, 268, 270, 273, 274,
Qatar, 82 282
qualification program, 161 requirements, 1, 6, 12, 17, 24, 25, 43, 44,
quotation, 91, 109–113, 130, 268 48, 65–68, 86, 93, 94, 98–101, 104,
105, 111, 121, 126–129, 138, 152, 156,
R 165, 171, 175, 179, 180, 186, 194, 195,
rapport, 56, 69, 148, 169, 170, 238, 269, 280 203, 210, 219, 222, 225–228, 234, 244,
rating, 13, 22, 28–30, 49, 50, 53–55, 68, 73, 260–265, 270, 273, 274, 282
87, 98–101, 107, 112, 123, 127, 135, 171, requirements management, 68
174, 190, 191, 205, 223, 226, 253, 256, research, 5–9, 13, 29, 31, 49, 57–65, 71, 77,
270, 276, 281 78, 82, 104, 119, 142, 150, 155, 216,
rationale, 57 223, 233, 240, 257, 287
razor-and-blade project, 33 research project, 7, 13, 142
realism, 139 resistance, 7, 55, 56, 211, 232
recruiter, 38 resource, 2, 6, 11, 14, 17–21, 25, 26, 30–32,
reference customer, 69, 106, 107, 128, 203, 38, 42–50, 53, 56, 57, 67, 70–73, 80,
206 82, 86, 88, 96–106, 112, 116–122, 125,
reference list, 86, 146 128, 129, 137, 138, 147, 152, 155, 158,
relation, 4, 20, 26–29, 35–37, 43–46, 49, 55, 167, 171, 175, 180–183, 191, 194, 200,
56, 69–72, 75, 82–86, 100, 104, 105, 203–208, 213, 214, 219, 220, 223, 224,
108–112, 123–125, 129, 131, 138–140, 227–230, 235–240, 247–249, 252, 254,
146–149, 153, 156–162, 165–172, 175, 264, 267–275, 278, 282, 285, 287
176, 181, 189–195, 198–206, 214, response, 5, 12–16, 21, 55, 59–66, 81, 85,
217–220, 229, 233, 235, 238, 239, 244, 87, 90–95, 100, 103–107, 113–118, 122,
245, 253, 254, 257, 258, 262, 269, 271, 133, 137, 142, 148, 167, 179, 192, 205,
275, 276, 286, 287 213, 231, 243, 248, 258
relational perspective, 28 responsibility, 4, 10, 24, 25, 39, 48, 54,
remoteness, 71 65, 72, 80, 81, 94, 96, 106, 136, 164,
 Index 323

200–203, 211, 215, 225, 229, 238, 260, 130–153, 156–159, 172–175, 178, 182,
271–275 197, 214–218, 221, 223, 229, 231, 235,
responsiveness, 20, 43, 103, 110, 150, 193, 238, 244, 247, 249, 262, 270–275, 280,
223 285
return on investment, 53 seller response, 87, 90, 93–95, 105, 113
review board, 32, 233 SEO, See search engine optimization
RfI, See request for information service department, 273
RFP, See request for proposal settlement, 26, 83, 162, 194, 230, 234, 245
RfQ, See request for quotation Shakespeare, William, 10
risk, 2, 9, 18, 26, 29, 33–35, 38, 39, 44, 48, shareholder, 1, 25, 48, 264
50, 53–57, 66, 69, 71, 75, 76, 80–85, Shenhar, Aaron, 9
94–96, 100, 103, 104, 108, 111, 112, Shinkansen, 28
116–129, 133, 138, 139, 145–149, 157, Shipley Proposal Guide, 95
159, 166, 171–176, 182–188, 193–195, shortlist, 91, 113, 122
201–203, 206, 208, 211–218, 221–224, Siemens–Alsthom, 28
228, 232–237, 241, 244, 247, 248, 255, siloed project, 10
256, 259–266, 269, 270, 273, 275, siloing, 10, 28, 29, 65
278–281, 286, 287 single-deadline project, 16
ROI, See return on investment single-handover project, 15
role model, 43, 82, 86, 87, 174, 207, 256, single point of contact, 25
283 SitPM, See Situational Project Management
rolling award fee, 160, 189–192, 207, 221, situational awareness, 221, 282
222, 270, 282, 284, 287 Situational Project Management (SitPM), 4,
rolling wave, 13, 179, 180, 194, 213 6, 11, 17, 21, 43, 90, 122, 132, 232, 256,
Rolls-Royce, 127 271, 280
skill, 13, 28, 43, 48, 51, 54–57, 72, 76, 95,
S 99, 104, 119, 129, 156, 170, 193, 202,
Sabre, 55 203, 206, 215, 221, 253, 266–268, 274,
Sacyr Vallehermoso, 31, 128 280–282, 286
safety manager, 32 slavery, 19
SAIC, See stakeholder attitudes influence smart watch, 51
chart Snecma, 127
Salini Impregilo, 31, 128 social network, 21, 50, 60, 87, 147, 161
Samsung, 49 sociopath, 75, 215, 222
Sarbanes-Oxley Act (SOX), 264 software development, 1, 15, 49, 83, 282
satellite project, 12 solid project, 10, 28
scalability, 33, 55 SoP, See standard operating procedure
science communities, 55 sophistry, 167
scope, 37, 43, 61, 67, 68, 126, 129, 138, 158, source code, 83
160, 171, 183, 195, 224, 228, 239, 254, SOW, 92–94, 99, 104, 122
256, 259, 268, 272 SOX, See Sarbanes-Oxley Act
search engine optimization (SEO), 41, 262, special magazine, 88
275 specification, 11, 34, 68, 116, 132, 175, 194,
seller, 11, 19, 24, 36–38, 44–46, 56–58, 196, 226–228, 244
66, 67, 81, 85–100, 103–107, 112–122, specification limit, 132, 228
324 Borderless Leadership

speed blindness, 72–75 supportive project, 33, 35

sphere, 24, 28, 141, 257, 271, 286 survey weariness, 59
sponsoring organization, 36, 53, 54 survival, 6, 65, 73, 165
staged deliveries, 15, 17, 244, 261 Sword of Damocles, 88
stakeholder, 2, 9, 10, 17, 25, 39, 40, 47, 48,
74, 94, 101, 104, 119, 162, 178–180, T
192, 195, 211, 215, 226, 231–234, 239, Taiwan High Speed Railway Consortium, 28
240, 261–264, 267, 274 tangible benefit, 14, 253
stakeholder attitudes influence chart (SAIC), target cost contract, 160, 183, 186–189, 192
40, 105 TBO, See total benefit of ownership
stakeholder register, 40 TCO, See total cost of ownership
standalone project, 12 team, 3, 4, 8–17, 25–40, 52, 56, 65–71,
standardized cost reporting, 32 74–76, 79–90, 93, 96–99, 104, 108,
standard operating procedure (SoP), 4, 15, 109, 116, 121–126, 129, 130, 140, 147,
53, 162, 167, 181, 227, 228, 242, 243, 149, 152–158, 161, 165–180, 198–207,
246, 278 213, 219, 222, 223, 226, 228, 232, 234,
stare decisis, 162 237–241, 248, 249, 253, 256, 257, 263,
start date, 10 267, 272, 280–287
start of production, 15, 34, 227, 228, 242, team communications, 149, 161
243 teaming, 31, 33, 37, 38, 122–124, 129, 140,
statement of work, 92, 93, 104, 119, 122, 141 165, 171–174, 177, 178, 200–203, 206,
step-by-step approach, 17, 186 207
storming, 31, 123 teaming agreement, 31, 38, 122–124, 129,
strategic interest, 30 200
strategic option, 70 teaming networks, 33
stress, 41, 66, 71, 102, 111, 123, 140, 167, teaming partner, 37, 123, 129, 165, 171–174,
222, 277, 282 177, 178, 206, 207
strong matrix, 14, 31 team spirit, 29, 173, 205, 257, 286
Stuttgart, 21, 7, 10 teamware, 32
subcontractor, 2, 22, 26, 37–39, 43, 75, 79, technical requirements, 1, 261
80, 84, 125–129, 175, 183, 186, 188, technology, 17, 45, 52, 70, 74, 87, 109, 115,
191, 194, 197–204, 208, 217–220, 224, 142, 143, 175, 205, 216
229, 235–238, 242–244, 247, 251–254, Technology Acceptance Model, 142
259, 260, 263, 267, 270, 275–278, 286 telefax, 55
submission deadline, 98, 120, 121 template, 3, 19, 32, 42, 90, 97, 98, 206
subsidiary company, 19, 20 temporary endeavor, 6
sub-team, 10, 28, 68 tender, 88, 92, 114, 121, 139, 140
success, 1–12, 16–21, 24, 28–31, 34, 35, terms of service (TOS), 73, 81, 93, 151
38–43, 50, 54–57, 65, 69, 72–76, 81, Tesla, 66, 67
86, 90, 94, 96, 101–112, 118, 122, 123, Tesla Roadster, 66
128–132, 137, 140, 143, 145, 149, 152, TfNSW, See transport for NSW
158, 159, 164–169, 172–181, 191, 192, Thales Group, 28
195–199, 202–208, 215, 216, 220–226, The Guardian, 82
232–235, 241–243, 248–260, 263, third-party logistics provider, 33
266–273, 276, 279–282, 285–287 third-party vendor, 19, 68
 Index 325

threshold, 48, 94, 123 value stream, 13

time zones, 65, 70, 159, 287 venturer, 31, 126–129, 202, 203, 216, 223,
Titanic, 73 247
T&M contract, 160, 181, 186, 225 verbal contract, 115, 157
tools and techniques, 55 Viadeo, 87, 152
TOS, See terms of service VIP position, 31
total benefit of ownership (TBO), 226 Volkswagen, 28
total cost of ownership (TCO), 136, 226
total net benefit of ownership, 103 W
TRAC, 1–4, 7, 11–14, 18–47, 50–58, 62, 65, walk-away limit, 132–134
68–121, 124–133, 138–140, 143–149, wall of silence, 77
153–287 warning limit, 132
trainer, 33, 65, 88, 111, 120, 145, 146, 156, warranty, 31, 115, 125, 148, 181, 182, 244,
238, 240, 251, 252, 281 245, 262, 273
translation software, 152 Waste Of Money, Brain, And Time
Transparency International, 77, 216, 223, (WOMBAT), 264
241 waterfall, 12, 180
transport for NSW (TfNSW), 67 WBS, See work breakdown structure
travel agencies, 55 weak matrix, 14
trend, 58–64, 86, 171 wear and tear, 13
trust, 15, 25, 31, 56, 69, 75–78, 83, 84, 90, Wills, Harold C., 52
124, 128, 131, 132, 139, 146, 154, 157, winning bids and proposals, 95
158, 165–170, 174–176, 190–192, 198, winning the contract, 100–102,
203, 206, 216, 223, 226, 241, 244, 116
254–257, 263, 267–271, 277–280, 286 winning the project, 100, 101
trustworthiness, 69, 75, 131, 154, 168, 169, WOMBAT, See Waste Of Money, Brain,
206, 223, 279, 286 And Time
Tuckman, Bruce, 123 word cloud, 45, 46
Tuckman Team Development Phases, 123 workaround, 264
turnover, 41 work breakdown structure (WBS), 13, 22,
typological dimension, 9, 11, 17 180
typology, 4–9, 17, 57 workload, 39, 42, 48, 60, 62, 71, 84, 103,
typology of projects, 4, 8, 57 120, 158, 167, 208, 247
workload Assignment, 62
U work package, 13, 22–25, 129, 203, 228, 237
unambiguity of language, 90 World Bank, 77
uniqueness, 5, 6, 25 World Championship, 82
urgency, 47, 100, 286
X
V Xing, 28, 45, 60, 71, 72, 84, 87, 152, 199,
value perception, 39, 130, 131 207, 208