OceanofPDF.

com
 Copyright

Association for Project Management

Ibis House, Regent Park
Summerleys Road, Princes Risborough
Buckinghamshire
HP27 9LE

© Association for Project Management 2017

All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any
means, without the express permission in writing of the Association
for Project Management. Within the UK exceptions are allowed in
respect of any fair dealing for the purposes of research or private
study, or criticism or review, as permitted under the Copyright,
Designs and Patents Act, 1988, or in the case of reprographic
reproduction in accordance with the terms of the licences issued by
the Copyright Licensing Agency. Enquiries concerning reproduction
outside these terms and in other countries should be sent to the
Rights Department, Association for Project Management at the
address above.

British Library Cataloguing in Publication Data is available.

Paperback ISBN: 978-1-903494-66-0
eISBN: 978-1-903494-67-7

Cover design by Fountainhead Creative Consultants

Typeset by RefineCatch Limited, Bungay, Suffolk
in 10/14pt Foundry Sans
OceanofPDF.com
 Contents

List of figures and tables

Preface
Acknowledgements
1 Introduction
1.0 Who is this guide written for?
1.1 Background to this guide
1.2 How to use this guide
1.3 Key term definitions used in this guide
2 Concept and feasibility
2.0 Overview
2.1 Background
2.2 Inputs
2.3 Activities
2.4 Outputs
3 Project procurement strategy
3.0 Overview
3.1 Background
3.2 Inputs
3.3 Activities
3.4 Outputs
4 Package contracting strategy
4.0 Overview
4.1 Background
4.2 Risk management
4.3 Inputs
4.4 Activities
4.5 Outputs
5 Prepare the contract terms and requirements
 5.0 Overview
5.1 Background
5.2 Inputs
5.3 Activities
5.4 Outputs
6 Select provider and award the contract
6.0 Overview
6.1 Background
6.2 Risk management
6.3 Inputs
6.4 Activities
6.5 Outputs
7 Manage and deliver the contract
7.0 Overview
7.1 Background
7.2 Inputs
7.3 Activities
7.4 Outputs
8 Contract closure, handover, operation and support
8.0 Overview
8.1 Background
8.2 Inputs
8.3 Activities
8.4 Activity 1: Assign resources
8.5 Activity 2: Contract closure
8.6 Activity 3: Handover
8.7 Activity 4: Ongoing operation, maintenance and support
activities
8.8 Outputs
Acronyms and abbreviations
Bibliography
Appendix A
Appendix B
Appendix C
Index
OceanofPDF.com
 Figures and tables

Figures
1.1 The procurement guide life cycle stages
1.2 The requirements hierarchy expressed in a works contract
1.3 Expansion of the project life cycle (from APM Body of
Knowledge 6th edition)
1.4 Cost influence curve (after Rocque)
1.5 The ‘agile’ values
2.1 Process diagram for the concept and feasibility stage
2.2 SWOT matrix
3.1 The requirements hierarchy expressed in a works contract
3.2 Process diagram for the project procurement strategy stage
3.3 Example package breakdown structure (PaBS)
3.4 PaBS development for a wind-farm project
3.5 The ‘hard’ and ‘soft’ boundaries for goods and services
3.6 Kraljic matrix (Kraljic 1983)
3.7 Buyer–supplier relationships (after Bensaou)
3.8 Correlating the nature of relationship with the project complexity
and duration
4.1 Process diagram for the package contract strategy stage
4.2 Most appropriate collaboration strategy against contract
complexity/timescale
4.3 A target cost contract with approximately 50:50 share of any
over and under run compared with the target prices
4.4 Illustrating that the employer’s share of any overrun is capped at
approximately 10 per cent overrun on the target prices
4.5 Example contractual structure of a PFI arrangement
5.1 Process diagram for the prepare contract terms and
requirements stage
6.1 Process diagram for the provider selection stage
6.2 Example value tree for a housing association appointment
7.1 Solution delivery phases
7.2 Manage and deliver the contract process
7.3 Initiation stages
7.4 Deming circle
7.5 The change control process
7.6 Contract closure decision
8.1 Contract closure, handover, operation and support process

Tables
3.1 Example high-level package terms for a solar power station
3.2 Example ‘make’ or ‘buy’ criteria
6.1 Characteristics of differing procurement methodologies
6.2 Example scoring criteria
6.3 Example provider selection scoring table
A1 Typical risks associated with external contracting
C1 Red flags
OceanofPDF.com
 Preface

Procurement and contract management is an increasingly important

aspect to delivering successful projects, programmes and portfolios
(P3), therefore an effective P3 manager must have a good
understanding of procurement and contracting in order to manage
these aspects. The APM’s Contract and Procurement SIG offers this
guide as a ‘place to go’ for P3 managers at all levels, so that they
understand ‘how to’ procure works and manage delivery through the
phases of the procurement life cycle.
OceanofPDF.com
 Acknowledgements

Because of the length of time that it has taken to write this guide,
many people have reviewed and made constructive suggestions
over the years to the various drafts of this guide as it evolved. All of
them receive our – the APM Contracts and Procurement SIG’s –
thanks.
As the original author of the early chapters of this guide and
‘executive’ editor, I would like to thank the following people who have
co-authored chapters:

■ Helen Barrow
■ Anne Dwyer
■ Steve Emerton
■ Alastair Greenan
■ John Lake
■ Philip Reese
■ Rob Soames

In addition, I give John Lake a special mention as, in consultation

with others, he did the hard work in editing the later chapters into a
common format. He then did most of the final editing of the whole
guide as we approached publication. Without his efforts – and that of
the others – it would still be 75 per cent complete. As such, John is
very definitely the co-editor.
Dr Jon Broome BEng PhD MAPM
Co-editor and chair of the APM Contracts and Procurement SIG
OceanofPDF.com
 1

Introduction

1.0 Who is this guide written for?

The intended audience for this guide is:

1. Project, programme and portfolio (P3) managers and project

procurement professionals who require an easy to use ‘how to’
guide for procuring externally sourced ‘works’.1
2. Stakeholders within organisations who wish to increase their
awareness of how works can be procured e.g. financial officers,
operational professionals, engineers, etc.

This guide is not aimed at those procuring standard off-the-shelf

manufactured goods or standard consultancy services. There is
already a wealth of good information available from other sources
covering this type of procurement.2
The guide is applicable for those involved in both public and
private sectors including those projects that are subject to European
Union (EU) procurement rules.3

1.1 Background to this guide

1.1.1 Managing procurement in a project context

Procurement covers a wide breadth of activities which may range
from buying paper clips to contracting a new IT system, or the
building of a new shopping centre. It is a common perception,
however, that procurement should be handled by a specific
purchasing resource or department rather than being a central
competency within P3 management.4 In complex projects this can –
and we find frequently does – lead to unforeseen issues developing,
leading to time cost and quality overruns due to the project manager
being unaware of the pitfalls that can arise when contracting to third
parties.
In this guide, we focus on the procurement of works in the form of
‘packages’. These will typically have a higher level of uncertainty
associated with them compared with the procurement of basic goods
and services (commodities) and may form a substantial part of the
main project. Indeed, the cost of such contracted-out packages may
outweigh all other project spend. For example, each of the following
packages may account for over 90 per cent of the total project
spend:

■ A contract for construction of physical asset.

■ A contract to develop, install and manage an information
technology capability.
■ A contract for the supply of complex machinery designed and
manufactured specifically for an employer.

The guide is based on the procurement life cycle stages as

illustrated in Figure 1.1.
Chapter 1 of this guide provides an introduction, with follow-on
chapters (2–8) addressing each life cycle stage. Chapters 2–8 are
structured to enable the reader to quickly gain the necessary
guidance relevant to each stage in the procurement life cycle to
include:

■ Overview: Defining the chapter content to enable the reader to

understand whether the chapter addresses their immediate
concerns
■ Background: Providing further background for optional reading.
■ Inputs: Listing what is needed at the stage start.
■ Activities: Tasks to be performed based on the stage process
diagram included.
■ Outputs: What the stage provides when completed.

Where applicable, an additional section summarises the risk aspects

that should be considered during the stage.
It should be noted that we define some specific terms which relate
directly to contracts and procurement (e.g. the provider, the
employer). Summary definitions of these terms are given in section
1.3 below. The guide also includes the generic definitions from the
APM’s Body of Knowledge series 6th edition and other prior learnt
material, where applicable, in text boxes to assist the reader and
provide a route to further research.
In this guide, we describe a generic process which can be followed
regardless of the size of the project or programme. For a small
procurement, it may mainly be a thought process. However, the
larger the project or programme, the more thought should be applied
with more formality in terms of recording the decisions made and
reasons why. Indeed, for a major procurement exercise, this guide
could be used as the starting point for the process of developing the
required contracts and an aid to seeking further detailed advice or
guidance if required.
We believe that you will find the following chapters a useful
introduction to each of these activities and it will spur you on to
further develop your understanding and skills in these areas.

Figure 1.1 The procurement guide life cycle stages

 We stress that this is a guide to procurement within projects and is
not ‘the gospel’. In all likelihood, it will not be an absolute fit with how
your organisation procures a project or for your particular project, so
think of it as a starting point and for adaptation to fit.5
Additionally, below in this section we provide further background to
support the development of the requirement and give some insight
into the recent trends in outsourced package procurement, which is
in constant development.

1.1.2 Developing the requirement

One approach might be, for example, when procuring a new
building, to try to define or specify all the individual component parts
of it. However, the sheer technical complexity of many unique
project-based purchases means that it is almost impossible to
specify every ‘nut and bolt’. Nor is it usually appropriate, as the
technical expertise to do so does not reside within the employer
organisation. As a result, requirements are now commonly
expressed in a contract as ‘performance’ or ‘functional’
specifications. For example, a performance specification might be for
the data throughput and content that an IT system has to be able to
handle, expressed in measurable units, leaving the selection of the
specific individual goods and services to deliver these requirements
to the provider. The provider may in-turn rely on the expertise of the
specialist parties they subcontract with in their own supply chain.
The performance or functional requirements lead to contracts
expressing the end capabilities or outputs that the employer wants
from the project rather than the individual elements that make up the
works.6 For instance, combining an IT system with a help desk
service provides a customer service capability. This capability may
be expressed in measurable units of response time and customer
satisfaction metrics, etc.
The supplied new or enhanced capabilities should lead to new or
improved outcomes or benefits which align with the sponsoring
employer organisation’s mission and business objectives. In order
for them to be meaningful, the outcomes or benefits need to be
expressed in objective and measurable terms, i.e. success criteria,
which can be incorporated into a contract as deliverables against
which the provider may be paid. Indeed, it may be the best
contractual arrangement to make it conditional that the provider is
paid on the basis of business outcomes or benefits delivered if they
can be isolated to be sufficiently in the provider’s control.

Figure 1.2 The requirements hierarchy expressed in a works

contract

Figure 1.2 illustrates a hierarchy of detail reflecting how

requirements can be expressed in a works contract.

1.1.3 Procurement trends

Trends in procurement over recent times have included:

■ The expansion of the project life cycle to include all activities ‘from
cradle to grave’ including operation and termination/disposal (see
Figure 1.3). Rather than simply thinking of benefits in the
operation phase, organisations are increasingly thinking and
specifying requirements in terms of whole life benefits and costs,
which is to say the inclusion of how the asset will be used and
impact the core business.
■ A contracting strategy where the provider is paid on the basis of
 capabilities or even benefits delivered in the operation phase is
the ‘design, build, finance, operate’ concept; more commonly
known as the private finance initiative (PFI) or public private
partnership (PPP).

Figure 1.3 Expansion of the project life cycle (from APM Body of
Knowledge 6th edition)

■ An increasing need for collaboration in order to deliver projects,

as no longer can a single organisation do it all due to the
increasing complexity of both technology and society, in some
sectors.
■ Selection of providers, in some cases almost wholly, on the basis
of their cultural and technical capabilities. This is increasing due
to the ‘end product’ being not fully defined or being a moving
target. What is being bought is therefore the capability to develop
a solution rather than delivery to fixed start and end points. The
procurement cycle is therefore increasingly used to leverage the
know-how of the supply chain to deliver competitive advantage.
■ Conditions of contract are being designed to align motivations
and be more relationship based, i.e. define how parties work
 together, as opposed to trying and often failing to define illusory
fixed end states. An example of this trend is the growing use of
the New Engineering Contract version 3 (NEC3) family of
contracts in the engineering and construction industries and
elsewhere.
■ The emergence of programme management; defined as:

Programme management: The coordinated management of projects and change

management to achieve beneficial change. APM Body of Knowledge 6th edition

■ A related development is the inclusion of portfolio management to

create the ‘P3’ (Project, programme and portfolio) coverage in
related texts.

Portfolio management: The selection, prioritisation and control of an organisation’s

projects and programmes in line with its strategic objectives and capacity to deliver.
APM Body of Knowledge 6th edition

For the rest of this guide we generally use the term ‘project’, unless
the context dictates otherwise.
All of the above developments apply to work package procurement
that supports projects and programmes of work, more so than to the
purchase of manufactured goods and standard services. The
general definition of procurement is given in the APM Body of
Knowledge 6th edition (see below).

Procurement: Procurement is the process by which products

and services are acquired from an external provider for
incorporation into the project, programme or portfolio. APM
Body of Knowledge 6th edition

When we consider the way that procurement is developing today,

its growing importance and its increasing complexity, this definition
may need to evolve to cover the wider scope; where significant and
pivotal packages are contracted to providers.7 We have provided our
updated definition for the purposes of this guide in section 1.3 below.
For significant ‘packages’,8 the employer needs to contract with
providers that can be relied upon to deliver to the time, cost and
performance parameters set out in the contract. Projects, being
subject to risk and change, rarely run completely as planned at the
outset. It is therefore imperative that both employer and provider
organisations anticipate risk and change (and that the contract
between them allows for it). Consequently, the competencies the
employer’s P3 manager9 and the selected provider’s project
manager, as well as the quality of contract put in place between
these organisations, will largely determine the success of the
procured package and hence of the overall project.
Of course, poor contract management and administration can
undermine good work done earlier in the procurement process.
Conversely, it is also the case that the decisions made and actions
taken at early points in the procurement process may substantially
affect overall success or failure. Yet we find that it is often the case
that an employer organisation may underestimate the required rigour
needed at the early stages in the procurement cycle; for example,
causing the selection of an inappropriate provider. This can lead to
defensive positions being taken by either or both the employer and
the provider should the delivery of the solution be subject to fall-offs
in the expected time, cost and quality. This may ultimately become
an unrecoverable situation with resulting impacts on time, cost and
quality for either or both parties.
The key activities in the procurement process which we consider
essential are described in this guide including:

■ determining the procurement and contracting strategies for the

project;
■ preparing the contract terms;
■ selection of the provider(s); and
■ managing and delivering the contract and ultimately its closure.

The guide also covers the major influences and risks that can affect
the outcome during delivery, including interaction with companion
packages, as well as by the prevailing environment external to the
project, e.g. changes in legislation, business context, politics, etc.
The conditions of contract put in place for packages should not only
accommodate change, but should also allow the employer the
flexibility to influence package outcomes (e.g. to reduce the ultimate
cost by the application of good project management).

The cost influence curve: Prior study10 has pointed out that it
is early in the project that the ability to influence the outcome in
terms of cost is the greatest. Typically, during the initial
weeks/months of the project, the project’s critical elements are
shaped, including the involvement patterns of the project
sponsor.

Figure 1.4 Cost influence curve (after Rocque)

Conversely the investment in the project (its cost) rises

throughout the project thus the risk of there being wasted
investment also increases (for example if a provider needs to be
changed due to performance or other issues developing).

Simply having a good provider in place with conditions of contract

which enable the management of change is unlikely to be enough to
achieve optimum success. It also takes competent people,
supported by good operational systems and a supportive
organisational environment to optimally manage a contracted-out
package. In addition to having generic project management
competencies, the effective project manager managing outsourced
packages needs to:

■ Have background knowledge of the applicable contract law.

■ Have specific knowledge of the applicable conditions of contract.
■ Have an understanding of the range of potential consequences of
their decisions and actions more so than for a non-contractual
environment.
■ Be able to communicate with precision in order to give the
provider clear direction and to avoid some common pitfalls that
can lead to delays, additional costs and poor quality of the final
deliverables.

This guide has been developed based on the real-world experience

of the members of the APM’s Contracts and Procurement SIG and is
intended to provide an easy to use reference source for project
managers who are involved in more complex projects that have a
significant outsourced content.

1.1.4 The ‘agile’ perspective

A relatively recent development is the advent of ‘agile’ project
delivery methods.
The Agile Manifesto was written in February 2001 at Utah at a
summit of practitioners of software methodologies. The manifesto
promotes a number of key values (see Figure 1.5).
Figure 1.5 The ‘agile’ values

Much has been written already about the agile approach, which is
a method mainly used for software development in the IT sector. It is
also being migrated to be used in other sectors (e.g. electronic
product development). The main reason for the emergence of agile
is the fast pace of innovation and development in the related
industries, where technology does not remain static for more than a
few months.
Research has been conducted11 into the contracting of work that
utilises agile methodologies and this area is still in development.
From a procurement perspective, a capped or rolling input-based
contracting basis under a framework or main body contract (see
Chapter 4 for further description) is commonly used to account for a
defined number of agile ‘iterations’ planned. The contract main body
may define the background terms such as; parties to the contract, IP
ownership, security, jurisdiction, materials mark-up and labour rates;
an annexed statement of work (SoW) may thoroughly detail the ways
of working for the form of agile methodology selected.
‘Agile contracting’ being an area subject to further development, is
not covered in depth in this guide. The APM Contracts and
Procurement SIG is planning to provide a specific publication to
cover this aspect in the future.

1.2 How to use this guide

The reader may be at the beginning of the procurement life cycle; in
which case, we recommend that he/she should read through the full
guide. We strongly recommend that the early stages of the life cycle
(e.g. concept and feasibility stage and project procurement strategy
stage) are extremely valuable; as decisions made during these early
stages have a large impact on the follow-on stages. Too often, a lack
of thought here effectively sinks a project.
Alternatively, the reader may be taking over a contract at an
intermediate stage in which case he/she may jump to the specific
stages necessary to quickly understand the key points for urgent
consideration. The stage overviews are provided at the beginning of
each of Chapters 2–8 to enable the reader to quickly decide which
stage in the cycle he/she is at and which chapters should be the
priority.
The depth of the process required will vary significantly depending
on the size and complexity of the overall project and the potential
impact of what is being procured on the success of the project or
programme.

1.3 Key term definitions used in this guide

The key terms that are used throughout this guide are defined below.
Procurement: Procurement is the process by which the benefits,
enhanced capability, functions/performance or resources (goods and
services) required from or by a project or programme are acquired.12
It includes deciding the package breakdown structure (PaBS)13
and, for each package, the development and implementation of:

■ a contracting strategy;
■ contract documents, including the specific scope/requirement;
and
■ process and evaluation criteria for selection and award.

These lead to the effective management and administration of the

contracts once entered into.
Employer: The party that instigates the contract and that will pay the
consideration, usually monetary, to the provider on delivery of the
requirement which meets the defined acceptance criteria.

Provider: Any of:

■ A manufacturer supplying standard goods.

■ A manufacturer designing and/or manufacturing goods to an
employer’s unique requirement, whether it is a one-off deliverable
or thousands of units.
■ A consultancy organisation providing professional services,
whether these are ‘business-as-usual’ services (e.g.
accountancy), or project specific services.
■ An outsourcing organisation providing ongoing services tailored to
the employer’s specific needs.
■ A party delivering a works contract, whether the requirement is
expressed contractually as a fully specified design, performance
or functional specification, a new or enhanced capability or a
business benefit.

Contract: A legally enforceable agreement between two or more

parties defining the obligations of each party. It specifies:

■ The deliverables (which may be in the form of levels of

performance), called the requirement in this guide, that it is
necessary for the provider to deliver to meet its obligations.
■ The corresponding consideration, normally monetary, that the
employer will pay to the provider in return for the requirements
once delivered.

In a project environment, in which there is a defined life cycle, as

opposed to a simple transactional contract for pre-manufactured
goods, the procurement process should yield, as a minimum, for
inclusion in this contract:

■ The constraints under which the requirement is to be delivered.

■ How the contract is to be administered (e.g. project management
 requirements, points of contact, payment terms, change control,
etc.).
■ The consideration to be paid to the provider against the
deliverables.
■ The acceptance criteria for the deliverables.
■ Remedies for non-performance.

Requirement: The technical definition of the level of performance to

be achieved by the delivered solution and the constraints under
which it is to be delivered and must operate.

Package: Part of a project that can be packaged as a single

component part of the overall project and may be outsourced.

Goods: The standard manufactured items, which have little or no

uniqueness about them. They can be bought ‘off the shelf’.

Services: The standard services which are incidental to the delivery

of a project. They can be for year on year services like accounting,
legal services etc.

Works: The combination of goods and services within a project or

part of a project. This can be both for services to deliver a unique
output e.g. a building design; a tailored ongoing service e.g. an
outsourcing arrangement; or a physical output (goods) e.g. a
building.

Package breakdown structure (PaBS): The PaBS is a structure

formed to break down the overall project into elements that can be
considered as deliverables (the structure being analogous to a work
breakdown structure (WBS) – see definition below). The PaBS
divides the works, to whatever level defined, into packages which
can be individually sourced, being either allocated to internal parts of
the employer organisation or let under contract to external providers.
The elements of the PaBS may contain some of those of a WBS;
grouped together where they can be provided by a single provider,
forming a ‘package’ to be contracted to provide the associated
benefits. Note that, while the whole project is not being contracted
out, the overall outcomes and benefits may be pivotal on some
contracted packages being (1) correctly/completely specified and (2)
successfully delivered.

Work breakdown structure (WBS): A way in which a project

may be divided by level into discrete groups for programming,
cost planning and control purposes. The WBS is a tool for
defining the hierarchical breakdown of work required to deliver
the products of a project. Major categories are broken down into
smaller components. These are sub-divided until the lowest
level of detail is established. The WBS defines the total work to
be undertaken on the project and provides a structure for all
project control systems.

The PaBS, therefore, goes beyond a WBS in defining the reasons

for the existence of the deliverables including, for each element
identified:

1: The higher-level elements of outcomes and benefits;14

2: The success criteria, which may define the project’s outputs;
3: The new or enhanced capabilities, which in engineering terms
may be expressed as a requirement specification; and
4: The goods and services needed.

Notes
1 The word ‘Works’ is the term used in EU Procurement for a procurement of a project or
programme, as opposed to the purchase of goods and services (European Union, 1993). At
the time of publication of this guide, the United Kingdom had voted to exit the European
Union (‘Brexit’). Despite this event, it is important to note that the prevailing EU
Procurement Directives remain enshrined in law in the UK through Acts of Parliament.
Consequently, even after Brexit the relevant EU legislation will still apply unless and until
changed by an Act of Parliament.
2 For free material and some you have to pay for go to the Chartered Institute of
Procurement and Supply’s (CIPS) website at www.cips.org (Chartered Institute of
Procurement and Supply, n.d.) and click on resources. Alternatively, a book especially for
project managers on this topic is by Ward, G. (2008) The Project Manager’s Guide to
Purchasing – Contracting for Goods and Services.
3 We, however, point out that this guide should not be taken as definitive from a legal
perspective and legal advice should always be taken on the respective legal matters. See
also note 1 above.
4 P3: Project, programme and portfolio. We use the term ‘project manager’ in this guide to
cover any P3 (project, programme and portfolio) management role.
5 Some example publications that can provide further background to contract management
are: IACCM (2013) Fundamentals of Contract and Commercial Management; IACCM
(2011) The Operational Guide – Contract and Commercial Management; and Nijssen, J.
(2015) When Contract Management Meets PRINCE2.
6 Note that in our experience, there is a grey line between what is a performance or
functional specification and what is a capability or output specification.
7 Indeed, as the Greeks were carrying out procurements for projects and using contracts
with many of the features associated with those used today, then there is a good argument
for saying the APM definition is some 2400+ years out of date. See Soames, B. (2011),
Buying Just Like The Ancient Greeks: What Ancient Greek Purchasing Can Teach Us About
Procurement Now, Buy Research Publications.
8 We use the term ‘package’ to reflect that an individual contract can be for a substantial
part of a project and could be regarded as a project in itself, e.g. 90 per cent of the spend
on a construction project could be on the contract to design and construct the asset.
9 We use the term ‘project manager’ in this guide to cover any P3 (project, programme and
portfolio) management role.
10 Bernice L. Roque, B. L. (n.d.) PMP, Enabling Effective Project Sponsorship: A Coaching
Framework for Starting Projects Well.
11 Ganes and Naevdal (2008) NTNU Thesis.
12 Of course, the benefits and enhanced capabilities accruing from the completed project
cannot be acquired directly from the providers but it is such benefits and capabilities that
are the essence of why the project is being undertaken. Hence, we emphasise the benefits
and capabilities here and elsewhere in this guide.
13 We define below the PaBS and why it is defined as different from the WBS. Note that we
are not wishing to invent a new acronym for the sake of it. There is a distinct difference in
the context of project procurement.
14 We emphasise that when contracting significant parts of a project to providers the overall
outcomes and benefits of the endeavour need to be considered. Ask the question: ‘Does
this contract support the overall outcomes and benefits of the project or programme and is
there anything to add to maintain/support them?’

OceanofPDF.com
 2

Concept and feasibility

2.0 Overview
This chapter describes the concept and feasibility stage, being a
precursor to all the follow-on stages of the procurement life cycle. It
determines whether the proposed project is viable and in what form.
Rushing into the procurement process (e.g. due to imposed time-
pressures) and then finding that contracts need to be significantly
modified or even aborted can have major cost, time and quality
impacts. The concept and feasibility stage asks the question:
‘Do I fully understand why this project needs to go ahead and
what the expected benefits will be?’
It therefore goes beyond the scope of procurement and examines:

■ Is it a worthwhile undertaking? Will it contribute benefits in line

with the sponsoring organisation’s mission and strategy for an
adequate period of time to make it worthwhile? The benefits and
 the applicable success criteria must be defined in order to assess
this.
■ Is it feasible and practicable? Is it feasible to undertake and
deliver within the assigned budget, timescale and other
constraints identified? Can a supply chain deliver what is required
(is the required capability available)? It must be feasible and
practicable for the defined benefits to be delivered within the
budget, time and quality constraints applied. As part of this
assessment, a number of different delivery options may be
identified, explored and, in many cases, discarded. The option(s)
found to be sufficiently feasible and practicable will be put
forward as the optimum way(s) of satisfying the identified need.

Activities during the concept and feasibility stage are towards

developing a ‘full’ business case as a key output along with the
decision to proceed with the project or not. Business case
development commences with the generation of an outline version,
which we term the ‘strategic’ business case (SBC), which is
developed to become the ‘full’ business case (FBC) at the end of the
stage.15
Beyond the decision to proceed with the project or not, the primary
output of the concept and feasibility stage will be the ‘full’ business
case (FBC) document.

2.1 Background
The concept and feasibility stage examines the whole reasoning for
going ahead with a particular project and includes considering
whether contracting with external providers is part of the delivery
strategy. The key outputs from the stage are therefore answers to:

1. Should we proceed with the project at all?

2. Should we consider using contracted providers?
3. Can a supply chain deliver?
Proceeding with the next stage of a procurement life cycle is
dependent on the answers being ‘yes’ to questions 1 and 2. When
the answers are ‘yes’, the findings of this stage will be captured in
the FBC as a key output.
The work undertaken during this stage is subject to development
and refinement in the follow-on stages. Where large elements of a
project are to be contracted-out, the generation of options and the
assessment of each option’s feasibility is best assessed with
involvement of the project delivery resources, including project
management, procurement, technical subject matter experts and
even potential providers (if it does not undermine future competition).
Indeed, ‘early contractor involvement’ (ECI) clauses have been
added to the industry-standard NEC3 standard form of contract16
due to the perceived benefits this provides to contract delivery. The
desirability of having these people involved is partly why we have
included ‘concept and feasibility’ phase in this guide. The two other
main reasons are:

■ A trend towards contracts where the provider is paid against

improved performance at business level i.e. for
benefits/outcomes which are defined in the outputs from this
stage; and
■ Starting with a poor business case will cause change later which
will be especially expensive once in contract. A changing or
knowingly ill-defined business case needs to be reflected in the
project procurement strategy to avoid unnecessary expense and
delay.

2.2 Inputs
The primary inputs at this stage are:

■ An identified need or opportunity.

■ A defined corporate strategy or plan.
Projects are undertaken to fulfil a business need or opportunity
which will ultimately provide benefit to an organisation. The role of
project management is to undertake projects that deliver agreed
benefits to an organisation. Hence, in defining the business need or
opportunity, a link with the defined corporate strategy is imperative. It
would be wasteful to instigate a project that is irrelevant or which
does not contribute to corporate strategy and clearly it would be
counter-productive to instigate one that is at odds with it.

2.3 Activities
The activities undertaken during the concept and feasibility stage, as
illustrated in Figure 2.1, are as follows:

1. Develop the ‘strategic’ business case (SBC).

2. Gain support of a business case sponsor.
3. Identify and analyse stakeholders.
4. Decide which stakeholders to engage with and when.
5. Assess stakeholder views in order to:
a. Develop the project brief.
b. Identify and develop the high-level options and produce the
options paper.
c. Estimate the overall project cost in the context of the overall
endeavour.
6. Assess and Select the best option(s), involving key stakeholders
in the process.
7. Develop a project scope statement for the preferred option(s)
including an initial budget and an overall programme plan with
contingencies.
8. Refine/update the SBC, including budget, programme plan and
contingencies.
9. Conduct a gateway review in order to obtain a decision on
whether to proceed with the project or not, and if it is a medium or
major project for organisation; (9a) involve the future project
board/steering group.
Figure 2.1 Process diagram for the concept and feasibility stage

10. Determine the governance arrangements: If the size of the

project warrants it then appoint a project sponsor and project
board/steering group (if not already in place) and re-visit activity
9.

To do this, resources are needed to undertake the stage, including

ensuring early involvement of the expected delivery team (e.g.
project manager and procurement resources).

2.3.1 Activity 1: Develop the ‘strategic’ business case (SBC)

Once a need or opportunity is identified, an SBC should be
developed, the purpose of which is to demonstrate that the
opportunity is both viable and in line with the corporate business
strategy. By viable, we mean that once the project is delivered, it will
continue to deliver benefit to the sponsoring organisation and other
stakeholders for a period of time that makes it a worthwhile
undertaking.
 Business case: The business case provides justification for
undertaking a project or programme. It evaluates the benefit,
cost and risk of alternative options and the rationale for the
preferred solution. APM Body of Knowledge 6th edition

The APM Body of Knowledge (6th edition) provides an overview of

what is generally contained in a business case.17 At a high level, this
SBC needs to show:

■ What the need or opportunity is.

■ The strategic fit – how it fits within the corporate business strategy
and/or within a programme or portfolio of projects.
■ The main business benefits to be achieved.
■ The sensitivities of any forecasts or estimates, e.g. will the
business case figures stand up in 12/24 months’ time? Are they
based on certain assumptions? What intelligence can
procurement/specialists provide around things like material
indices, exchange rates, oil prices, etc., which may affect the
future viability of the business case?

Benefit: The quantifiable and measurable improvement

resulting from completion of deliverables that is perceived as
positive by a stakeholder. It will normally have a tangible value,
expressed in monetary terms that will justify the investment.
APM Body of Knowledge 6th edition

It is desirable for the business benefits to be quantified, although

in some cases it may not be possible to quantify these fully at this
early stage. It is, however, essential to identify the following in the
SBC:

■ The affordability criteria: usually determined by a cost/benefit

analysis. This needs to take a ‘whole-life’ view of the expenditure
and the benefits over the life of the facility/service including its
 disposal and through-life upgrades as appropriate.
■ The principal stakeholders: those who will benefit from the project
and those who may be against it.
■ The degree of uncertainty associated with the project, particularly
in relation to the employer organisation’s appetite for risk,
experience, ability, knowledge of projects and its current portfolio
of projects; the external environment and the delivery of the
identified benefits once the project has been delivered. This
implies both:
□ an application of risk management methods; and
□ a statement of the assumptions being made, which are in
themselves a source of risk.

The required benefits should be documented as part of the required

outputs from this stage. This will form an important baseline for the
performance of the provider and the ongoing support and operations
team to evaluate whether the packages or follow-on operations
should be terminated (see section 8.7).
A specific benefits realisation plan18 document may be necessary
for larger or more complex projects or programmes.

2.3.2 Activity 2: Gain support of a business case sponsor

If the SBC has merit, then it should gain the support of an
authoritative sponsor for its further development. The sponsor must
be someone who can make the decision, or significantly influence
the decision, over whether the project will ultimately go ahead. The
sponsor must also have the authority to allocate resources to the
further development of the SBC. We use the term ‘business case
sponsor’ as at this stage, the role of project sponsor will not be
allocated as no project yet exists; however, when and if the project is
sanctioned, it is likely that, in Activity 10, the identified business case
sponsor would become the project sponsor.

2.3.3 Activity 3: Identify all stakeholders and analyse

 Stakeholder: The organisations or people who have an interest
or role in the project, programme or portfolio or are impacted by
it. APM Body of Knowledge 6th edition

Once the SBC is approved, the wider group of stakeholders

should be identified beyond those detailed in the SBC.

Stakeholder management: The systematic identification,

analysis, planning and implementation of actions to engage with
stakeholders. APM Body of Knowledge 6th edition

The analysis should include the likely attitude of stakeholders

towards the project, i.e. are they likely to be positive, neutral or
negative to it?
Also consider their actual level of influence? Who leads the others’
opinions on matters, and who just follows everyone else?
Consider the knowledge and relevant experience within the
employer at this stage, because this will determine a number of the
following stages and decisions.

2.3.4 Activity 4: Decide which stakeholders to engage with

and when
At the concept and feasibility stage, it may simply be impossible to
engage with all stakeholders to obtain detailed feedback. Where it is
identified that a significant proportion of the work is to be outsourced,
potential providers need to be included in the research (see section
2.1 – ECI). It needs to be understood that engaging with external
stakeholders may give away some competitive advantage or attract
unwarranted attention and publicity (consider using non-disclosure
agreements). The stakeholder group may therefore include:

■ the ultimate owner of the project deliverables;

■ finance, tax, capital allowances experts;
■ potential providers where known (ECI);
■ end users, including marketing, operations human resources
(HR), etc.;
■ maintainers; (hard and soft facilities, i.e. soft costs are often far
higher than hard costs in the long term, so consider the impact of
the project on these as well);
■ other personnel with relevant experience; and
■ outsourcing for advice if not available within the organisation.

The objectives for the further stakeholder engagement are:

■ to develop the project brief; and

■ to develop the range of delivery options for the project, which are
encapsulated in the options paper.

Project brief (brief): The output of the concept phase of a

project or programme. APM Body of Knowledge 6th edition

If the appropriate experienced stakeholders are not available

within the organisation then external input will be required, for
example, subject matter experts on certain trades, designers or cost
consultants. As noted above, this external engagement may need to
be carefully managed to avoid giving away competitive advantage.

2.3.5 Activity 5: Assess stakeholder views

Activity 5 ‘Assess stakeholder views’ is discussed in two sections to
cover the development of the project brief and an options paper, if
required.

2.3.5.1 Activity 5a: Assess stakeholder views to develop the

project brief
This will include the possible benefits flowing from the completed
project being developed to give clear, concise and precise objectives
for a completed project, which in turn can be expressed as
measurable success criteria.
 Success criteria: The qualitative or quantitative measures by
which the success of P3 management is judged. APM Body of
Knowledge 6th edition

Success criteria that are expressed qualitatively can often be

arranged on a scale or ladder to judge relative success. In some
cases, the employer may be able to contract with a provider who is
wholly or partly rewarded on the achievement of these success
criteria.
The necessary stakeholder consultation needed to develop the
project brief can be as follows:

■ Internal stakeholders can be consulted directly.

■ External stakeholders may be consulted in a number of ways,
which could include:
□ face-to-face conversations;
□ questionnaires;
□ RFIs (requests for information) to potential providers; and
□ discussion groups.

In addition, at this stage, the most likely views of the more influential
external stakeholders should be taken into account, even if they are
not consulted, as they could significantly affect the project in a
detrimental way. For instance, on a new-build road project,
environmentalists may raise significant objections to the proposed
project, which may, if not overcome, add significant cost and cause
time delay to the project.
Some other factors to consider include ‘buildability’ and resource
availability.

2.3.5.2 Activity 5b: Assess stakeholder views to develop the

options paper
Much of what could be said here would repeat what is said for
Activity 5a. The key difference is that having now established a high
level specification of the end customers’ needs and wants, the focus
switches to identifying and evaluating, at a high level, the different
options to deliver these objectives, which may require early provider
involvement. For instance, if, for a manufacturing company with
constrained capacity, the objective is ‘to sell new product X at a profit
before the competition launches a similar product’, then the options
could be:

■ build a new factory unit either adding to existing premises or at

another location;
■ stop manufacturing an older product and use the capacity to build
new product X; or
■ subcontract the manufacture of product X to an external
organisation, either wholly or partly and if partly, taking account of
how it is to be integrated or assembled, etc.

All of these approaches will have strengths and weaknesses as well

as opportunities and threats, which need to be identified and
evaluated. A SWOT matrix19 can be a useful tool to assess these
factors (see the example of Figure 2.2).
Some of these options will naturally drop away as not feasible,
unrealistic, too risky or unaffordable; leaving those that are the most
suitable for consideration.
Figure 2.2 SWOT matrix

Tools such as internal rate of return (IRR)20 can assist this

judgement by providing quantified return on investment (ROI).21
To assess the remaining options objectively, it is often useful to
consult people who have some experience of delivering similar
options and, in some cases, it may be worthwhile to commission
these personnel to do specialist assessments. For example, to use a
cost consultant to develop approximate costs for each option in the
form of a market appraisal report, showing expected supply and
demand characteristics for the planned project and any impact this
may have.
One of the options that should always be considered is the ‘do
nothing’ or ‘not proceed with this project’ option. This may be
because the costs or timescales for the identified delivery options
may not make it worthwhile for it to proceed. Alternatively, it may not
be chosen to proceed because, whilst shown to be worthwhile, there
may be other more beneficial projects in which the organisation can
invest. In short, if you are to kill a project, kill it early to avoid
unnecessary costs being spent on it.
For each of the feasible outline options, their high level
advantages and disadvantages, including any threats or
opportunities leading to additional benefits and the likely whole life
costs, should be identified and assessed.
At this stage when considering using provider(s) we recommend
reviewing of the kind of employer–provider power balance
relationship that could result and understanding the pitfalls (see
section 3.3.6).
Industry-specific process guidance on how to evaluate and
determine the potential options may be available. Some examples
for various industry sectors are:

■ In the construction industry RICS has produced the New Rules of

Measurement (NRM) series,22 the Royal Institute of British
Architects (RIBA) has produced the Plan of Work 201323 and
Office of Government Commerce (OGC) has produced Gateway
Process publications24 as industry-recognised frameworks.
■ In the IT industry the British Computer Society (BCS) has
produced A Practitioner’s Guide to Selection and Procurement.25
■ In the defence industry the UK Ministry of Defence (MOD) has
produced Better Defence Acquisition.26

The findings are incorporated into the options paper including those
options that have been considered and discarded and the reasons
why. Being able to share this information with providers later can
come in useful in improving how we procure and support defence
equipment.

2.3.6 Activity 6: Assess and select the best outline option(s)

The delivery options identified in the options paper should be
assessed against the benefits, objectives and success criteria
defined in the project brief. This assessment can be effected as part
of a down-selection meeting, which brings together the key
stakeholders to debate the merits of the tabled options. Note that
there should be no surprises at this meeting due to the involved
stakeholders being consulted during the development of the project
brief and the options paper. There may be a clear ‘winning’ option, or
it may be difficult to choose from several, in which case the
procurement resource should be further engaged to do further
research, which needs to be resourced accordingly.
The output from the down-selection meeting and the preceding
activities are summarised in the down-selection meeting minutes,
confirming the decision to proceed. Formal sign-off should be by the
‘acting’ business case sponsor (whether formally appointed or not).
For a medium to major project within an organisation, it is likely
that some of the key stakeholders will go on to form the project
board or steering group; assuming the project is fully sanctioned to
go ahead.

2.3.7 Activity 7: Develop project scope statement for the

preferred option(s)
The project scope statement(s) are developed based on the
preferred delivery option(s) identified.

Scope: The totality of the outputs, outcomes and benefits and

the work required to produce them. APM Body of Knowledge
6th edition

A scope statement document would typically include:

■ What is within the scope of the project, what is outside of the

scope and what has yet to be decided as either inside or outside
of scope; and who wants or needs to have control over the
design/specification? NB: These factors will affect the choice of
contract and the choice of procurement route in subsequent
stages.
■ Other high level boundaries or constraints acting on the project:
practically all projects have a time deadline; however there may
 be additional constraints. For example, for a road upgrade
project, there may be environmental constraints particular to that
project and the requirement to keep traffic flowing on an existing
road during construction. For an IT project, it could be the need
for compatibility with other systems.
■ A high-level work breakdown structure sufficient to provide an
initial estimate of costs. At this stage, approximate estimates may
be used but should also specify the estimation accuracy. In the
construction industry, this is now generally referred to as an
‘order of cost estimate’ by RICS; since the 2014 New Rules of
Measurement were introduced.
■ A suitably detailed risk assessment, identifying risks and
opportunities and listing outline containment actions for risks and
the enabling activities for opportunities.

Based on all of the above, an initial budget and schedule with

contingencies should be developed for incorporation into the FBC.

2.3.8 Activity 8: Refine the strategic business case

In the light of all the above activities, the case for – or against – the
project should have become clearer as more stakeholders are
consulted and the project’s definition has evolved. In particular, the
benefits will have been refined and confirmed; initial assumptions
clarified and confirmed; risks and opportunities quantified. In
addition, some time will have passed, which may have caused
changes in the needs or opportunities that the project addresses. As
a result, it makes sense to refine and update the initial SBC prior to
the project’s first formal gate review.

2.3.9 Activity 9: Gate review

Gate review (gate): The point between phases, gates and/or

tranches where a go/no go decision can be made about the
remainder of the work. APM Body of Knowledge 6th edition
 Within project execution, periodic gate reviews provide a health
check on the project. A gate review will have defined pass and fail
criteria, which will be dependent upon the project stage in which the
gate review occurs. Usually each gate review will determine whether
approval to proceed is given and the necessary release of funding
and other resources to proceed to the next stage.
The business case owner and project board/steering group, if
applicable, should have been briefed and provided feedback in the
main activities leading up to the gate review, including having taken
part in Activity 6 (section 2.3.6), where the best delivery option(s)
were chosen. Indeed, if two or more competing options were taken
forward from Activity 6, this may be where – after further refinement
and development – the single best one is formally selected.
Gate reviews are formal points in a project where its overall
expected worth, the progress made, cost incurred, and the forward
execution plan are reviewed and a decision made whether to
continue with the next phase or stage of the project. Consequently,
at the conclusion of each gate review the project sponsor should
sign-off whether the project is to continue in its current form, be
modified or culled. Mature project-based organisation will have
defined what these are for all projects, although the number and
rigour of each review may vary depending on the value, risk etc. of
the project.

2.3.10 Activity 10: Determine governance arrangements

Governance: The set of policies, regulations, functions,

processes, procedures and responsibilities that define the
establishment, management and control of projects,
programmes or portfolios. APM Body of Knowledge 6th edition

Governance of project management is about the high-level

monitoring of the progress of a project or programme towards the
delivery of its defined benefits. Note that benefits are considered, as
part of the governance role, to ensure that any changes to the
operational environment are considered. This potentially means
adjusting the project objectives to fit the external world – a change
which should not be taken lightly at the whim of the project manager
or the project sponsor. Any such change should be subject to the
change control process and due governance.
Whatever the project’s objectives are, the progress towards them
made by the project team needs to be monitored. There are three
primary tiers of governance.
The first tier of governance is that provided by the project sponsor.

Project sponsor (sponsorship): An important senior

management role. The sponsor is accountable for ensuring that
the work is governed effectively and delivers the objectives that
meet identified needs. APM Body of Knowledge 6th edition

The project sponsor must be someone with the appropriate

authority to make things happen and with a personal commitment to
the project’s success, being a conduit between the project team and
the wider organisation. The project sponsor steers the project team
based on feedback from the wider organisation and acts as
champion for the project. In later stages, this could include
‘defending’ it against unnecessary change from stakeholders. The
project sponsor will also periodically monitor performance of the
project; sanctioning, if appropriate, significant corrective actions.
As such, the project sponsor should have regular periodic contact
with the project team (for example, on a monthly basis), but does not
– and should not – need to be involved in its day-to-day
management, this being the role of the project manager.
The second tier of governance is the project board or steering
group.

Project board (board): A body that provides sponsorship to a

project, programme or portfolio. The board will represent
financial, provider and user interests. APM Body of Knowledge
 6th edition

The project board will also have the performance of the project
reported to them, will sanction any significant decisions, would
typically formally meet on a regular basis (e.g. monthly or three-
monthly), and would also be party to the gate reviews. The regular
meeting schedule should not preclude more frequent informal
communications with one or more of the board members as
required.
For small projects, relative to the size of the organisation, it may
not be worthwhile having a project board in which case the project
manager would report directly to the project sponsor.
The last tier of governance operates at corporate level, being
primarily concerned with portfolios, major programmes and projects,
including those currently under way and those being considered as
opportunities. At this level there may be numerous worthwhile
projects, some of which cannot be funded, so the governance will
largely concern prioritisation.

2.4 Outputs
The outputs from the concept and feasibility stage will consist of:

■ A decision to proceed with the project or not.

■ A full business case, as defined in section 2.4.1 below.
■ The lessons learnt from this stage, particularly including the
reasons for rejection of the delivery options considered and
rejected.
■ Market appraisal report, if created, showing expected supply and
demand characteristics for the planned project and any impact
this may have.

2.4.1 The ‘full’ business case

The ‘full’ business case (FBC) is the documented justification for
undertaking the project, in terms of evaluating benefits (translated
into objectives and success criteria for the completed project), the
costs and risks of alternative options and the rationale for the
preferred solution. Its purpose is to obtain management commitment
and approval for investment in the project. The FBC will be owned by
the project sponsor and will be known simply as the ‘business case’
when the project starts. Its specific contents will include:

■ an archived project brief (Activity 5a);

■ a project options paper (if options have been considered, Activity
5b) together with outcome of any down-selection meeting
(Activity 6);
■ a project scope statement (Activity 7) including an initial budget
and initial schedule;
■ an archived SBC (Activity 8); expanded as necessary to include
the views of the stakeholders in terms of benefits, success
criteria, risks, etc.;
■ the determined governance arrangements for the project (Activity
10); and
■ the market appraisal report, if developed.

Note that the archived documents should be retained as appendices

(marked as ‘superseded’) to enable later review, as may be
necessary, to understand how the FBC was developed.

Notes
15 In this chapter, we have used the terms SBC and FBC to differentiate the content at the
start and the end of the business case development process. The FBC is generally termed
simply as the ‘business case’ for the purposes of the ongoing project.
16 NEC (2015) Early Contractor Involvement (ECI).
17 APM (n.d.) APM Body of Knowledge 6th edition, section 3.1.1.
18 A benefits realisation plan describes the process to be undertaken following completion
to evaluate whether the requisite benefits have been achieved.
19 SWOT: strengths, weaknesses, opportunities and threats analysis: Origin obscure.
20 IRR source: Internal Rate of Return: The rate of return that makes the net present value
of all cash flows (positive and negative) from a particular investment equal zero.
21 ROI: Return on Investment: The benefit to an investor resulting from an investment of
resources. It has been argued that this should be used as the benchmark against which all
projects should be ultimately evaluated – see: http://www.jonbroome.com/blog/february-
2016/roce-what’s-that-got-to-do-with-project,-programme.
22 RICS (2013) New Rules of Measurement.
23 RIBA (2013) Plan of Work 2013.
24 OGC (n.d.) Gateway Process publications.
25 Tate, M. (2015) BCS A Practitioner’s Guide to Selection and Procurement.
26 UK Ministry of Defence (2013) Better Defence Acquisitions.

OceanofPDF.com
 3

Project procurement strategy

3.0 Overview
This chapter describes how to determine the project procurement
strategy to be defined in the procurement management plan, which
will specify:

■ how the overall project is to be broken down into packages;

■ which, if any, of these packages may be procured externally; and
■ the high-level approach to be taken to procuring each package or
category of packages.

To do this, a package breakdown structure (PaBS) is developed to

cover the overall project scope, which is then divided into packages
that can be considered for procurement.27 The PaBS is produced via
an iterative process that starts with a high-level version which is then
refined to produce a final version that is used as input to the next
phase to develop the individual package contracting strategies
(Chapter 4) and selection processes (Chapter 6).
During this stage the provider possibilities for the PaBS are
considered to determine the scope for outsourcing of the packages,
via consultation where necessary, and to understand the ‘make or
buy’ criteria, i.e. whether they are to be sourced internally (via new
development or manufacturing) or whether sourced externally.
For each package that will be sourced externally, the stage
determines:

■ The nature of the relationship to be sought with the potential

provider, e.g. where along the collaborative–transactional
spectrum each package needs to sit.
■ The most appropriate high-level contracting strategy, e.g. cost
plus, fixed price, etc.
■ The provider selection strategy to be employed, e.g. quality or
cost driven.

Once these decisions have been made a detailed procurement

schedule, which informs and is informed by the overall project
schedule, is developed.
The output of the stage is a procurement management plan
document forming a summary of the decisions made and the
underlying reasoning to feed into the next phase.

3.1 Background
During the project procurement strategy stage, the project definition
is developed to enable decisions to be made regarding what parts of
the project (the packages) to develop or make internally and what
parts to source externally, i.e. ‘make or buy’. This work needs to be
driven by the employer’s team but outside parties may also be
consulted (e.g. prospective providers) or utilised, e.g. consultants. At
the end of this stage, the scope of each package should have been
largely defined. For the packages that are to be sourced externally,
the nature of the relationship must be decided, including who needs
to have responsibility and control over the detail of the requirement.
An indication needs to be given of the likely contracting strategy, e.g.
cost plus or fixed price and the selection process and selection
criteria to be adopted made up of cost and qualitative factors.
Consider also at this point the drivers for potential providers wanting
to deliver a package, i.e. why is it attractive to them to be part of the
project? Don’t assume every potential provider wants to bid.
Consequently, in this stage for a project of any complexity, there
should be input from personnel that:

1. Understand procurement issues, e.g. contracting strategies, and

particularly if subject to EU procurement legislation, selection
processes. Consider whether your organisation has enough
internal knowledge and expertise to progress the procurement. If
not, you need to hire external experts to advise and/or external
specialists to do the work.
2. Have knowledge of the industry sectors and technologies relevant
to the project. This is an opportunity for early provider
involvement and requests for information (RFIs).

A factor to consider at this stage is the outline budget for the provider
selection process. The criticality of the package may well outweigh
its expected cost, therefore the outline budget should reflect the
views of the team involved in setting the project procurement
strategy. The outline selection budget will form an output from this
stage and be further refined in the follow-on package contracting
strategy stage (see Chapter 4).
Before we proceed, it is worth revisiting the hierarchy of the
requirements that illustrates how the project can be broken down; as
illustrated in Figure 3.1 (a repeat of Figure 1.2 in section 1.1.2).
A consideration during this stage is how deeply to specify the
PaBS. This is because some latitude needs to be allowed for the
detailed requirements to be specified during the later stages as
further provider dialogue occurs.
Works, at the lowest level of delivery (a combination of goods and
services as defined in section 1.3) are often let under contract as a
package to produce something unique. For instance, by combining
steel, concrete and labour to a defined plan, a distinct structure in a
unique location can be produced, e.g. a bridge. Similarly, by
combining software and a help desk service, a ‘customer relationship
management’ function may be created.
However, this does not mean, necessarily, that these items have
to be specified to this level in the contract. It is often the case that
the supply chain has more specialised knowledge and experience
than the employer in providing things of the type required: after all,
this is perhaps the biggest reason for outsourcing. It may well be
more appropriate to specify at the capability level and allow the
provider to break the package down to the goods and services level
in order to deliver the specified capabilities. These new or enhanced
capabilities may be defined as performance specifications, if
measurable, or alternatively as functional specifications if functional
in nature.

Figure 3.1 The requirements hierarchy expressed in a works

contract

Going up a level, the provider may contract on the basis of

measures closely related to business outcomes, including the
required benefits which are within their control or significant
influence, e.g. measurable success criteria. For instance, for a
marketing campaign for a product or service the provider may be
paid on the basis of increased enquiries to the employer; or for a
private finance initiative road project, payment may be linked to the
number of journeys along it, average vehicle speed and lane
availability. Notice that these are measurable outcomes.
At the project procurement strategy stage, we consider how the
project is divided into packages; be they specified in terms of
outcomes, satisfied success criteria, new or enhanced capabilities,
unique physical works or delivered standard goods and services.
The developed procurement strategy will define, for each package:
the scope, including how that will be contractually defined, the
significant interfaces and interdependencies, and the nature of the
relationship being sought. By ‘nature of the relationship being
sought’ we mean direction, at high level, on how the contracted
package(s) will be procured in terms of contracting strategy,
selection criteria and selection method.
Once defined for all packages or categories of packages, the
outputs can be combined or summarised to form a procurement
management plan.

3.2 Inputs
In order to decide on the procurement strategy, the outputs from the
concept and feasibility stage (see Chapter 2), as included in the
FBC, are required.

■ The scope statement is critical in order to develop the package

breakdown structure (PaBS) to an appropriate level of detail to
define individual packages.
■ The archived SBC and project brief may also give insight into the
sourcing and delivery options considered for the project and the
individual work packages within it. It is the starting point for
developing criteria by which contracting strategies are developed
 and providers are selected.

3.3 Activities
The key activities of this phase are illustrated in Figure 3.2 and
described in the following sections.

Figure 3.2 Process diagram for the project procurement strategy

stage

3.3.1 Internal and external market consultation (ongoing

activity)
The extent and formality of consultation with the market will depend
on the nature of the project in terms of size, uniqueness, risk, etc.
and the existing knowledge of the marketplace within the employer
organisation (as well as the constraints under which the employer
operates). For instance, if subject to European Union procurement
legislation, there is a danger of prejudicing the fair competition
requirements if the market is not consulted in an equitable way. Even
if EU procurement legislation is not mandated, it is wise to
demonstrate fairness in provider selection to avoid reputational
damage.

3.3.2 Activity 1: Determine the high-level PaBS

The PaBS is developed via an iterative process, usually starting as
relatively high-level and then being refined via consultation. The
initial PaBS may be formed by breaking the overall project down into
an initial hierarchy by considering the terms as shown in Table 3.1,
which uses a solar power station as an example.

Table 3.1 Example high-level package terms for a solar power

station
Example for a solar power station
Business benefits, resulting from the Quantified increase in revenue and earnings from the completed project.

completed project Desired ROCE

Success criteria, by which the project can be CAPEX (capital expenditure) within budget; completion on or before

judged at the time of its completion planned date; initial OPEX (operational expenditure) within budget

Enhanced capabilities that are delivered to Total power able to be generated, efficiency in terms of converting

the customer organisation(s) lumens to power

Deliverables that provide this capability The design; main construction works including foundations, operator

facilities, access roads, solar panels; converters; high-voltage wires

connecting to grid, etc.

Work breakdown structure (WBS) of the e.g. For the foundations; holes to be dug, concrete, reinforcing bar, etc.

goods and Services that make up each

deliverable.

It may well not be necessary to define the project to the lowest

level in the table, but it is necessary to define it to the level at which
you will contract for the different packages. And for each level that
you go down to, it is critical to identify all the aspects which make up
the project, i.e. ensure that the full coverage or breadth of the project
is captured. Taking a whole-life view of the project, the requirements
for project closure, for support and for ongoing maintenance also
need to be included.
 Summary: Determining the package breakdown structure
(PaBS) so far:
The PaBS, progressively as it is developed, will incorporate:

1: The higher-level elements of outcomes, specifically

considering delivery of the benefits;
2: The success criteria, which may define the project’s ‘hard’
objectives;
3: The new or enhanced capabilities, which in engineering terms,
may be expressed as a performance or functional
requirements; and
4: The goods and services needed.

It is only when developed to the lowest level of granularity that

the hierarchy takes on the form of or indeed becomes like a
work breakdown structure (WBS), i.e. where physical or
tangible deliverables are defined.

3.3.3 Activity 2: Understanding of provider possibilities for the

project
An understanding of the provider possibilities is necessary as it
informs the ‘make or buy’ criteria. It also forms the starting point for
intelligent conversations should more detailed market consultation
be necessary. This understanding comes from combining knowledge
of the internal capacity of the employer organisation with the
‘external potential to provide’ of the market, as well as its willingness
to supply. When making this assessment, it is necessary to
understand and take account of any lengthy or critical lead-time
requirements which will be inputs to the overall schedule. For
example, although a package may be needed at the tail-end of the
project, it may have a very long lead-time, and hence might need to
be considered early. Alternatively, a long lead item may jeopardise
the success of a project (e.g. if the outcome benefits are time-
dependent, such as opening a school for the new term or releasing a
new piece of IT hardware before Christmas).
The assigned project manager and the assigned procurement
professional may already have this knowledge or may need to
investigate the internal and external supply base. Whilst this may
initially be based on experience and a desktop study, for complex
and technologically advanced projects it may be necessary to have
wider consultation with the market. A useful exercise here is to issue
requests for information (RFIs) or to solicit the expertise of subject
matter experts/consultants.
Government procurers need to take care in undertaking market
consultation to ensure that it is fair and does not lead to giving any
provider(s) a competitive advantage. The whole point of this exercise
is to learn from the providers and not to dismiss them at this stage –
make sure it is not used to pre-qualify some over others on the basis
of limited understanding of what is possible – at this stage it should
be all about learning as much as possible. It needs to be driven by
an RFI at this stage, not a pre-qualification questionnaire (PQQ; see
section 6.4.2).

3.3.4 Activity 3: Identify the ‘make or buy’ criteria

Analysis of the FBC and the project brief, as well as gaining an
understanding of the supply possibilities help identify the criteria by
which the ‘make or buy’28 decision can be made. A list of the criteria
that might be used is set out in Table 3.2. There may be other criteria
dependent on the nature of the project, the industry in which the
project is being conducted and the employer organisation’s own
circumstances.
A key factor in the employer organisation’s internal capacity is in
terms of skills, functions and capabilities. For instance, if there is an
under-utilised internal capability, it may well be in the best interests
of the employer organisation to utilise these resources to deliver
parts of the project. Those parts that cannot be delivered from within
will be sourced from the marketplace requiring the providers that
could source them to be assessed. In order to assess what can be
delivered externally from providers under contract, the ‘external
potential to provide’ must be explored. It is critical to know what the
market is capable of delivering and how external providers could
contribute to the project, before the project is divided up into
contractual packages (see section 3.3.5), which external providers
may be able to supply.

Table 3.2 Example ‘make’ or ‘buy’ criteria

CRITERIA TEST EXAMPLE/COMMENT
Criteria 1: Business circumstances

Financial circumstances Does buying organisation have to It may be more cost effective to hire in piece of earth

invest in capital to create the product moving equipment rather than buy a new capital item.

or service? Note that capital allowances or enhanced capital

allowances may be available.

Legislative Are there complex standards, Exacting health and safety procedures may carry risk

circumstances practices and procedures that have to that cannot be managed.

be adhered to?

Criteria 2: Develop and sustain knowledge of the business operation and environment

Knowledge of the wider Do we need specialist internal Understanding the organisation in depth and knowing

organisation knowledge to be successful? how it is structured may be a critical factor in

providing services.

Culture Will understanding the culture of the It may be necessary for the provision of products and

organisation be a critical factor in services to exhibit particular cultural characteristics

delivering the products and service? e.g. speaking the local language. Are they ready for

the change that is coming? Are they used to change?

Criteria 3: Service improvement

New services Has our organisation done this before Projects often involve delivering something new. If

or will we have to invest in building a the solution is something the organisation has no

capability? experience in, then it would be difficult to

Do they want to do it? demonstrate capability, e.g. the use of a new

software package or language.

Services difficult to Are we experts or are others better at Requiring an existing capability to deliver service to

manage or out of control delivering what we require? an exacting service level when there is a track record

of not being able to deliver or monitor performance

may put a project at risk.

Service level Can we deliver to the standards An internal capability may only be able to deliver 25
management expected? widgets a day in one delivery while the project

requires 38 delivered just-in-time.

Criteria 4: Effectiveness of delivery

Availability and Are there internal resources to deliver Internal capacity may not be being utilised yet may

effectiveness of internal this effectively? have the required track record (reputation for

resources/capability excellence).

Availability and Do others have the capability? Maybe other suppliers can deliver the service more

effectiveness of external effectively or are geographically advantaged.

capacity/capability

Synergy between Can a more cost effective solution be It might be possible to bring together two or more

product and service delivered if we extend an already services or products into one contract or internal

existing capability? service level agreement thereby creating economies

of scale.

Criteria 5: Application of expertise

(Note that prior work by Porter – the Five Forces Model29 explores business strategy against competition and may be

helpful in answering the questions below.)

Strategic value of Does the business depend upon a If the business undertaking the review provides a

technical expertise to core capability that must be retained unique service or production capability or uses its

the organisation or undertaken internally? intellectual property to generate revenue, it is

probably better to retain the capability in-house

Technology futures Is there a technology in the market Maybe an organisation is looking to access new

place that is not available internally? technology or to deploy another’s capability to its

business advantage where there is no internal

expertise.

Criteria 6: Ability to manage risk and contracting

Contracting risk Does contracting the package out Contacting a work package always adds the risks

increase or reduce risk? If the risk is associated with contracting (e.g. provider solvency,

increased, is it justified? legal dispute etc.) but these may be outweighed by

the provider’s technical experience and competency.

Risk identification Have the risks associated with the When contracting for technical reasons, expert

package been identified? Does this advice may be needed to understand the contracted

need expert input? technical risks.

Contractual risk Has the management ownership of all Once risks are identified the contractual ownership

ownership individual risks been defined? Will needs to be explicitly defined and acknowledged.

organisations that are best placed to This may affect the risk budget allocated (beware of
 manage the risk accept contractual risk double-counting and ‘assumed’ ownership).

liability for the risk as well i.e. will they

be the risk holder?

3.3.5 Activity 4: Packaging to give the package breakdown

structure (PaBS)30
You now divide the PaBS into packages, which can be individually
sourced, either internally to parts of the employer organisation or let
under contract to external providers.
Having identified what is required, the items need to be packaged
into complimentary elements. In doing this, it is possible to identify
which packages might be sourced internally, department by
department, or externally, e.g. through the new procurement
arrangements or using existing framework agreements.
Packaging can be optimised by:

■ Bringing similar elements together to gain economies of scale

and/or make the package sufficiently attractive to the market. For
example, putting supply of all standard electrical components into
one package; bringing together all fabrication requirements into
one package; or by combining project management and
accounting services.
■ Combining goods and services into packages, thus giving single
point responsibility to a potential provider (or for internal employer
organisation’s resources if used). The delivery of the packaged
goods and services can then be specified as a required
performance, functionality or capability.
■ Considering and managing the interfaces between packages.

For instance, in construction, the traditional route has been that the
functions of design and construction are carried out by separate
organisations. This can leave the employer organisation exposed to
interfacing problems, e.g. the chosen construction provider may not
be able to construct the designed structure. Over the last two
decades, there has been a trend for these goods and services to be
combined into a single ‘design and build’ contract package enabling
single-point responsibility. For the construction industry, RICS
provides a guidance note identifying the different procurement routes
that can be followed.31
To take the solar power station in Table 3.1 as an example, let us
say you have determined from Activity 2 that the solar panel industry,
as a sector, is used to performance specifications and has the best
organisations to, in competition, determine the number and
performance requirements of the solar panels and the supporting
electricals, and design and build the concrete bases for the panels to
sit on. Consequently, the high-level decision at this stage is that the
employer will define, in the contract, the performance/capability
requirements and the provider will ‘design and build’ the rest.
However, from your research, you know that the solar panel sector
has no interest or capability in providing, for instance, the access
roads on a project of this size and that the small to medium sized
construction companies who do this do not normally have design
capability. Consequently – although you would not fully define it at
this stage – you would have to design the road for them, which is
another package. And if you, as an employer, do not have this
capability internally, then you will need to develop a contract and
selection process for all three packages mentioned: solar panels and
ancillaries; road construction and road design. If, on the other hand,
you have some design capability for designing roads, then a decision
needs to be made against the ‘make or buy’ criteria.
The concept of packaging is illustrated in Figure 3.3, showing
entities that could be sourced separately, but are grouped together
into single packages.
An example of a PaBS, being developed based on a project to
supply a wind-farm, is illustrated in Figure 3.4.
For more complex projects, which are likely to consist of larger
numbers of packages, it is suggested that for each potential
package, an initial list should be used to identify for each package:

■ what almost certainly will be in it;

■ what might be in it; and
■ what is not in it.

Figure 3.3 Example package breakdown structure (PaBS)

Having gone through a number of iterations with all of the potential

packages, the end result should be that every item in the project
works hierarchy is in one of the packages, but in one package only,
e.g. in terms of goods and services, there is a ‘hard’ boundary with
no duplication or overlap between packages. This should be
documented in a scope/responsibility matrix that identifies allocation
of ownership for all package components.
Figure 3.4 PaBS development for a wind-farm project

Bear in mind that projects are undertaken over a period of time.

Consequently, in packaging elements of a project together, the
interactions and interdependencies that occur during the
implementation phase need to also be considered. As a result, you
may decide to package two otherwise separate, but interdependent
elements together, so that the chosen provider becomes more
motivated to manage the interface successfully. This strategy may
reduce the risk of conflict between providers thus reducing the
potential for extra management costs for the employer and for the
overall project. Taking the ‘design and build’ example from
construction again, another benefit it provides is time-saving; as
design and build can more easily overlap if they are in the same
package. This is in contrast to the traditional route where design
should be finished before the build package is tendered and let.
If it is the employer organisation that will manage these
boundaries, then for each package, these interdependencies and
interactions must be identified, along with the necessary
management steps to ensure smooth delivery. It is worth considering
what the provider’s tactics may be at these scope boundaries, in
order to devise control measures and strategies to prevent such
risks occurring. Where less is known, then the provider may charge
a premium to manage these risks. Don’t think that all risks can be
passed to a provider – many are not necessarily better placed to
manage the risks than the employer – but you end up paying them
for it.
Figure 3.5 illustrates the ‘hard’ and ‘soft’ boundaries for goods and
services that require definition and management.

Figure 3.5 The ‘hard’ and ‘soft’ boundaries for goods and services

Following putting together an initial PaBS, there may well be a

need to consult in greater depth with the market to gain further
thoughts on the packaging of the project. It is also possible that the
PaBS, as formed, may not be in alignment with what providers may
be able and willing to supply. At this stage the project management
team may well gain new ideas and perspectives, further understand
potential providers’ capabilities and have a greater appreciation of
the products and services available (i.e. via an RFI). This
consultation may result in some activities being revisited and a better
or more realistic approach being taken.

3.3.6 Activity 5: Recommendations on the ‘nature of

relationship’ for each contract package
Activity 5 is where the nature of the package is analysed and
recommendations made regarding the nature of the employer-
supplier relationship. Some factors to be considered are:

1. The type of package with respect to the profit impact and supplier
risk. The Kraljic matrix (see Figure 3.6) is a classic procurement
model in this respect.

As an example, if the employer is managing the construction of a

new building, they might identify that certain components are critical
to its operation. For example, for the supply of a lift. As there may not
be many lift manufacturers in the world, the employer identifies that
in the current market there are long lead-times; with the
manufacturers almost being free to name their terms and prices.
Consequently, the procurement of the lift is considered a ‘strategic’
item which needs to be well project managed.

2. The levels of relative investment required by the employer versus

the provider which can determine the power balance between
them (see Figure 3.7).

Prior study by Bensaou32 suggests that there is a risk that the

provider may have the upper hand once selected based on the
relative levels of investment (see inset box below). This factor needs
to be understood when deciding on the use of specific providers.
Porter, with his ‘Five Forces Analysis’33 considers the factors that
can determine the level of competition within an industry that can
influence the respective bargaining power of employer and provider.

Kraljic’s Comprehensive Portfolio Approach: Prior study

(Kraljic34) classifies supplier types into four different categories
and identifies the necessary strategies to minimise risk for the
buyer. Contracts to deliver something unique will tend to be in
the upper half of the diagram, if not the ‘strategic’ box.
Figure 3.6 Kraljic matrix (Kraljic 1983)

Strategic items (high profit impact, high supply risk): These

items deserve the most attention from purchasing managers.
Options include developing long-term supply relationships,
analysing and managing risks regularly, planning for
contingencies, and considering whether to make the item in-
house rather than buying it.
Bottleneck items (low profit impact, high supply risk):
Useful approaches here include over-ordering when the item is
available (lack of reliable availability is one of the most common
reasons that supply is unreliable), and looking for ways to
control vendors.
Leverage (high profit impact, low supply risk): Purchasing
approaches to consider here include using your full purchasing
power, substituting products or suppliers, and placing high-
volume orders.
Non-critical (low profit impact, low supply risk): Purchasing
approaches for these items include using standardised
products, monitoring and/or optimising order volume, and
optimising inventory levels.
 Consequently, before proceeding to subsequent stages, for the
more significant packages, it makes sense for the project manager to
have some indication from the sponsor and other key stakeholders
regarding:

■ the acceptability of different contracting strategies in terms of, for

example: special purpose vehicles (SPVs), joint ventures,
consortia, public private partnerships, design, build, operate
contracts, types of alliance, capital or leased services, etc.;
■ their appetite for different approaches, and why. Do they actually
understand why they want a certain approach? – often they do
not; and
■ how the provider for each package will be selected in terms of
selection process and selection criteria.

Putting the Kraljic and Bensaou models together, we might identify a

conflict. For instance, the employer might decide, using Kraljic’s
model, that they want a balanced strategic arrangement. However,
using Bensaou’s model, they realise that the typical provider is much
larger than them so the package would be, relatively, a much smaller
investment for the provider. Consequently, from the provider’s
perspective, it will not necessarily be a strategic relationship and the
commercial power, once a contract is entered into, would reside with
the provider. As a result, the employer may decide to court smaller
potential provider organisations to encourage them to bid, etc.

3. The complexity and the risk level of the work forming the package
versus the expected lifetime of the relationship. Figure 3.8
illustrates how the correlation of the nature of the employer–
provider relationship should be adapted depending on project
complexity and duration.

■ If at one extreme, you are buying a one-off commodity, for which

there are multiple suppliers, then your procurement strategy for
that package might well be to select on the basis of technical
compliance and cheapest price using a ‘transactional’ contract.
■ If it is a commodity in limited supply or is a standard service and
for which there is a repeat demand, then you may wish to have a
‘call-off’ contract with some specific conditions to ensure
constancy of supply. An appropriate contract with that provider
may already be in place for your organisation.

Buyer–supplier relationships: Prior study has pointed out that

the level of investment required to be made by the buyer and
supplier can be a major factor in understanding the likely buyer–
supplier relationship.

Figure 3.7 Buyer–supplier relationships (after Bensaou)

Based on buyer and supplier specific investments Bensaou

identifies four types of buyer–supplier relationships:
Captive buyer: High buyer specific investments and low
supplier specific investments. In this asymmetric relationship;
the buyer is held hostage by a supplier that is free to switch to
another customer.
Captive supplier: Low buyer specific investments and high
supplier specific investments. This relationship is characterised
 by a supplier that enters the trap of unilaterally making
idiosyncratic investments to win and keep the business with the
customer.
Market exchange: Low buyer specific investments and low
supplier specific investments. In this relationship neither of the
parties has developed specialised assets to work with each
other. Both parties can work together by using general-purpose
assets. Both the buyer and the supplier can go to the market
and shift to another partner at low cost and minimal damage.
Strategic partnership: High buyer specific investments and
high supplier specific investments. In this partnership both
parties put unusually high value assets into the relationship.

Figure 3.8 Correlating the nature of relationship with the project

complexity and duration

■ If you are letting a one-off works package, then you may require a
‘project-based’ relationship. The exact nature of the selection
criteria and the contract will vary upon the complexity and risk
and relative power of providers in that sector.
■ It may be that your project is part of a programme of projects
which have similar characteristics and key elements. In order to
avoid repeating procurement costs, to encourage continuous
 improvement from project to project, or just to secure a scarce
resource, you may decide that a strategic partnership needs to
be put in place, using an appropriate form of agreement (e.g.
teaming agreement, framework agreement). Note that a strategic
partnership may also be considered for one-off endeavours if
advantageous.

Although the employer will be the ultimate arbiter and risk holder for
the overall endeavour, the more complex and risky a project is the
more important it is to gain input from potential providers to fully
understand the risks and complexity. The employer will define the
preferred contracting strategy and hence the extent that the first
order effects of risks are to be borne by each party. Providers have
the choice of whether to accept the risk and complexity level or no-
bid. In the case of strategic partnerships, which can often be longer
term, the consultation between the parties may be more intensive;
none-the-less the employer will still need to clearly define the
ownership of delivery and risk clearly.
Consequently, before proceeding to subsequent stages, for the
more significant packages, it makes sense for the project manager
and team to have some indication from the sponsor and other key
stakeholders regarding:

■ the acceptability of each of the available contracting strategies as

described in Chapter 4; taking into account the necessary
commitment from the employer. For example the sponsor may
prefer a fixed-price solution rather than an effort based one.
■ how the provider for each package will be selected in terms of the
selection process and the selection criteria used.

We recommend that the above factors are considered early on to

avoid choosing a path which turns out to be unacceptable to the
stakeholders and hence results in abortive detailed work and wasted
time.
3.4 Outputs
For each significant package, there should be a procurement
management plan outlining the overall approach taken and
summarising:

■ The package scope in terms of what is currently intended to be in

that package. If there are any unusual, but deliberate, inclusions
or omissions from the scope, they should be stated, together with
the reasons for being included or omitted.
■ A set of statements defining how the package interfaces with
other packages or parallel work being done and any related
dependencies. These statements should propose how these ‘soft’
boundaries will be managed.
■ For packages that will be let externally under contract, a summary
statement indicating what sort of contracting strategy and
selection arrangements are acceptable (or unacceptable) to the
project sponsor or steering group/project board. This can be
directly derived from an analysis of the nature of the relationship
sought.
■ An outline budget for the provider selection process.
■ For significant and/or complex endeavours a further output should
be in the form of a benefits realisation plan document.

The less significant packages need to be categorised by type and by

defining which procurement management method will apply. For
instance, all goods may be managed in a similar way under similar
selection and contracting strategies.
The procurement management plan should be signed-off by the
project sponsor and, if appointed, the project board or steering group
before proceeding to the next stage.

Notes
27 See the PaBS definition in section 1.3.
28 An alternative term often used in IT is ‘buy or build’.
29 Porter, M. E. (2008) ‘The Five Competitive Forces that Shape Strategy’.
30 Note: We have not referred to this as the contract breakdown structure as some of the
packages may well be procured internally, i.e. there is no contract.
31 RICS (2014) RICS guidance note, UK Appropriate contract selection 1st edition.
32 Bensaou M. (1999) ‘Portfolios of Buyer–Supplier Relationships’.
33 Porter, M. E. (2008) ‘The Five Competitive Forces that Shape Strategy’.
34 Kraljic, P. (1983) ‘Purchasing Must Become Supply Management’ Harvard Business
Review.

OceanofPDF.com
 4

Package contracting strategy

4.0 Overview
This stage develops the contracting strategy for each individual
package to be procured. During the stage, decisions are made on
the main elements of the strategy for the providers of each of the
packages. The strategy should include:

■ The basis for how the provider is paid.

■ The payment schedule (defining the cash flow).
■ To whom risk is allocated and hence how it will be managed
(allocated, contained and mitigated).
■ How the parties are motivated, whether positively through
bonuses and use of remedies in case of default.
■ Choice of the contract terms, which may be based on a ‘best fit’
standard form of contract, or whether an in-house or custom form
should be used.
The output from the stage will be a briefing document that will be
used to instruct the drafting team for the contract terms and
requirement (see Chapter 5).

4.1 Background
This stage is important because research within the construction
industry35, 36 has shown that contracting strategy has as large an
effect on a contract’s success as any technical decision. For
instance, it is not unusual for contract strategy to demonstrably save
10 per cent on total costs to the employer on a single contract.37
Some extreme examples have achieved up to 30 per cent cost
savings.38
As discussed in section 1.1, the ability to influence the outcome of
a project is highest during the early stages (see the Cost influence
curve of Figure 1.4). This is also true for the process of developing
the contract and choosing providers. If the drafting team is
incorrectly briefed then there could be cost, time, and quality impacts
due to the shortcomings of the final contract terms.

4.2 Risk management

At a high level, the contract strategy determines how the main risks
associated with each contract package are allocated to the parties
and the management practises to be used. The contract itself will
allocate the risk, therefore the high level decisions should be made
prior to the selection of any standard conditions of contract and
before any subsequent drafting is done.

Risk event: An uncertain event or set of circumstances that

should it or they occur would have an effect on the achievement
of one or more of the project objectives. APM Body of
Knowledge 6th edition
A risk event can be categorised in two ways:

■ as a threat, which is a negative risk, which, if it occurs will have a

detrimental effect on the project and/or risk holder; or
■ as an opportunity, which is a positive risk, which, if it occurs will
have a beneficial effect on the project and/or risk holder.

The Kraljic matrix (see section 3.3.6) may be used to consider how
much of an effect a risk due to a particular employer–provider
relationship would have on the overall project, and some of the
strategies which might come out of this to manage it.

Risk owner: The person who has responsibility for dealing with
a particular risk on a project and for identifying and managing
responses. APM Body of Knowledge 6th edition

The risk owner should not be confused with the entity having
contractual liability. Although the entity having contractual liability will
be an interested party, they may not be best placed to manage the
risk itself. To avoid confusion, we define the risk holder as ‘the
organisation or organisations that are liable for the immediate
consequences of the risk occurring, whether that liability leads to a
positive or negative impact’. Notice that the term ‘organisations’
(plural) is used, as in collaborative relationships there may be a
degree of risk sharing, which will need to be defined clearly in the
final contract.
The term ‘immediate consequence’ is used, as there may be
significant ramifications to the risk holder following a risk occurring.
To take an extreme example: if liability for a risk event is allocated to
a provider which is of such a magnitude that, if it occurs, it causes
the provider organisation to go out of business, then ultimately that
risk, together with all other risks allocated to that provider, will revert
to the employer.
Risk is also an exposure of the project outcome itself, i.e. the
ability of the package to be delivered. Some project risks may be
secondary to the overall business/commercial risks faced due to an
event. There is a danger that the project manager may be blinkered
in considering the project itself, but will miss the overall business
aims or miss an opportunity.

Project risk (risk): The potential of an action or event to impact

on the achievement of objectives. APM Body of Knowledge 6th
edition

The overall ‘variation in outcome’ will be the sum of the impacts of

the various risk events occurring, i.e. the risk events are the sources
of variation, while the project impact is the consequence. We
develop this to define contract risk as ‘the contractual exposure of a
party to the consequences (positive or negative) of variation in
outcome resulting from the risk event and other uncertainties which
they are allocated under the contract’.
The mechanism for risk allocation and sharing needs to be
defined. For example, in a bi-party contract:

■ A specific risk event may be shared subject to a threshold. For

example, in civil engineering contracts, the provider typically
takes the risk of adverse weather up to a defined threshold and
should therefore allow some contingency in their contract prices.
Beyond that threshold, the employer takes the additional risk.
■ Contract risk may be shared by, for example, an overall pain/gain
share mechanism. If costs come in above or below a contractual
stated target figure the over or under run is shared to a pre-
agreed formula.

It is worthwhile considering some principles of risk allocation and

sharing, as they affect virtually all aspects of this chapter.
When allocating or sharing risk the following should be
considered, in order:

1. If the risk occurs, what will be the effect on the

 organisation’s business? If a threat is completely allocated to
the provider, it will bear all the pain of any impact. In practice,
however, some risk contingency would have been added to the
contract price.
The level of contingency may depend on the market: in a
buoyant market, the provider might add in a large risk
contingency to their contract price risk, which may not represent
good value for money to the employer. However, in a depressed
market where the provider is more desperate for work, the cost of
risk transfer may well represent good value.
In addition, if the potential cost of the risk’s impact is high
relative to the size of the contracted organisation, then a higher
premium may need to be added, compared with a larger
organisation, as the impact could be more significant to the
individual business. This is why we use insurance: high impact,
but unlikely risks are transferred to an organisation that can bear
them.
Also, if the contingency does not cover the impact cost then the
contracted party may respond by being defensive, devoting
energy trying to transfer contractual liability back to the employer
at the expense of delivery.
In extreme cases, bankruptcy could follow and impacts will
revert up the contractual chain to the employer. On the other
hand, if none of the risk events allocated to the provider occur,
then any reserved contingency becomes profit.
Example of the effect: In the construction industry, main
contractors typically make 2 per cent profit on turnover. So a 1 per
cent increase in their costs halves their profit. Consequently, with
price-based contracts, they may fight tooth and nail to
demonstrate that the employer in some way caused this increase
through a related breach(es) of contract and is therefore liable. To
the employer, they are arguing over peanuts – less than 1 per
cent of the total contract costs – but for the provider it is 50 per
cent of what matters to them i.e. their profit.
2. Who can best influence the risk outcome? Prevention is
always better than cure. This should be a key working principle,
 but it also applies to who can best manage opportunity. Good
management practice should maximise the potential for
opportunities that reduce cost or time and maximise value; and
minimise the opposites. All other things being equal – which in
practice they rarely are – allocation of liability for a risk event
should be to the party that can best proactively manage it.
3. For a threat, which party is best placed to minimise any
negative consequences (impacts)? Allocating a risk to the party
best able to minimise the consequences will motivate them to do
so, and it avoids the temptation to make the most of the other
parties’ misfortune.
4. Which party is best placed to own the minor risks? For minor
risks, all other things being equal, the parties may be relatively
indifferent over responsibility. However, if a minor risk is likely to
occur frequently and it is allocated to the employer, the
consequence may be frequent arguments over minor adjustments
to the contract prices and associated inefficiency. To avoid this, it
is normally best to allocate such risks to the provider.

The above guidance points (1–4) are principles; in the real world,
there may well be contradictions. For example:

■ A small specialist software services company may be best

placed to manage the risk associated with a critical part of a
large organisation’s IT system (due to their specialist
knowledge), but may be unable to take the consequences of
failure (impact costs and potential liquidated damages). In
these circumstances, it is best to hold an open discussion;
leading to an appropriate allocation of risk and hence
adjustments to pricings, while still maintaining the provider’s
commercial motivation to succeed.
■ A medium sized contractor working in a large live chemical
facility – say doing some welding – is best placed to manage
the risk of damage to the chemical works, but would very
quickly become bankrupt if they caused a fire to the facility due
to the costs of replacing the facility and the loss of revenue. A
 discussion around insurance cover, excesses, caps on liability,
as well as appropriate oversite, will mean that the contractor is
willing to take on the work without (a) adding an excessive risk
premium and (b) going bankrupt.

4.3 Inputs
The inputs to this stage are the outputs from the previous stage (the
project procurement strategy stage), which are used as the starting
point for the development of the contracting strategy for each
contract package or grouping of packages by type.
To recap, the outputs from the previous stage will be provided in
the procurement management plan, which, as well as giving the
overall procurement philosophy and approach for the whole project,
includes for each package:

■ The package scope.

■ The package interfaces and dependencies with other packages
and proposed guidance for their management.
■ The nature of relationship sought with the provider.
■ An outline budget for the provider selection process.

The latter nature of relationship is primarily what is developed in the

package contracting strategy stage.

4.4 Activities
There are six key activities or sub-process steps within the package
contracting strategy stage as illustrated in Figure 4.1 and which are
described in this section.
Figure 4.1 Process diagram for the package contract strategy stage

4.4.1 Activity 1: Information gathering

This stage is predominantly about gathering more detailed
information regarding the package and the likely participants within
it. This information is equally valuable for consideration in Stage 5
when selecting the provider. Information can be gathered under
three inter-related main headings as below:

1. The participants’ drivers and constraints: The employer needs

to be clear about its drivers for the contract, as opposed to the
project. For instance, the overall project may be time-driven, but
the individual package may not be on the critical path of the
overall project.
Additionally, the employer’s attitude to risk needs to be a
consideration. For example, there may be an overarching desire
for certainty (for example when completion dates are widely
publicised). In this case the impact is unrelated to the employer’s
ability to absorb the direct consequences in terms of cost and
time. The public sector, for example, may often have a mentality
to be very risk averse (due to publicity), yet very few
organisations have a greater ability to bear financial risk than a
national government.
The driving factors for the likely provider participants also need
to be considered. It is all too easy to say that the commercial
sector is only driven by money, or more precisely, profit only.
Whilst this is partly true, it is often a simplification as other factors
may also apply, for example how essential is it for them to:

■ Be cash flow positive.

■ Have continuity of work to preserve workforce and gain a
consistent return on capital.
■ Increase market share.
■ Be willing to sacrifice some short-term profit from the contract
in order to have a long-term profit stream from an employer.
■ Have the certainty of profit versus the opportunity to maximise
profit if the contract goes well; the opposite of which is making
a loss if it does not. This can be reflected in the willingness to
take contractual ownership of risk. In boom times, this may
result in the cost for an employer to transfer a risk to a provider
being inflated and vice versa in recessionary times.
■ Just be able to get on with doing work that they are good at.
This is true for many smaller specialist organisations.
Consequently, they only do work for or give good prices to
clients who they have a good working relationship with. In
practice, this means a lack of administrative ‘hassle’ and being
paid promptly and fairly for both original and additional work.
Complex and time absorbing selection processes and
sophisticated contracts do not play to their strengths.

Constraints also need to be identified. For instance, in

government contracts, the need to be accountable and auditable
strongly constrains how they can act, not just in documented
written rules and procedures, but culturally as well. An
overarching requirement to be cash flow neutral – in terms of
funding and expenditure – is another common constraint.
Both Drivers and Constraints can take several forms. A useful
 high-level aide memoire is the acronym ‘PESTLE’, which stands
for:

■ Political: e.g. the political imperative to use a UK provider.

■ Economic: e.g. the need for an even spend in successive
financial years.
■ Sociological: e.g. the need to ensure local sub-suppliers or
labour is used.
■ Technological: e.g. on a large project, there may be a need for
common IT platforms amongst all providers for maintenance
and management reasons.
■ Legal: e.g. in the construction industry, construction contracts
may have to comply with Acts of Parliament regarding payment
and dispute resolution procedures.
■ Environmental: e.g. the need to comply with environmental
constraints in a planning application.

2. Strengths and weaknesses of the likely parties: Principally

applying to:

■ The parties’ commercial ability to bear financial risk. For

instance, a £250,000 risk might be a relatively minor risk to a
£1bn turnover company, yet would potentially bankrupt a £1m
turnover company. The former company might price the risk
competitively and as a ‘statistic’ (like an insurance company);
whereas the latter would need to price it higher in absolute
terms as, relative to their size, it is a large risk and would be
likely to cost more if insured against. Some entrepreneurial
smaller organisations may be willing to take on a high level of
risk, however this would increase the employer’s risk due to the
higher potential for provider bankruptcy.
■ The parties’ commercial and technical ability to manage
different types of risk. See section 4.2 ‘Risk management
aspects’.

3. Contract specific factors: A set of opportunities, threats,

 strengths and weaknesses may also apply due to the nature of
the contract to be let.
These may have already been identified as high-level generic
risks but need to be developed down to more tangible contract
level risks. For instance, in a construction project, unforeseen
ground conditions may have been identified as a generic project
level risk. To gain greater certainty, however, further investigation
(e.g. a geotechnical survey) might reveal more detail about the
location and type of ground risk and consequences of occurrence,
which in practice should lead to a smaller premium being placed
on the risk, to everyone’s real benefit.
Alternatively, there may be specific risks related to type of
contract and/or its interaction with other parallel contracts. The
PESTLE acronym (see above) may be used to identify sources of
risk against which formal risk management techniques can be
applied prior to entering into the contract.

4.4.2 Activity 2: Prioritising and getting specific

From the potentially large mass of information generated in Activity
1, it is necessary to pick out the key drivers and constraints,
pertinent strengths, weaknesses and main risks in order to prioritise
them, in terms of importance and address them in the form of
contract. The question to be answered is: Of all the drivers
determined via the various stakeholders, which are the key ones for
a particular contract and how can they be expressed precisely in a
contract?
The objectives of the package need to be identified as well as the
points of leverage on the providers in negotiation and during delivery.
Where constraints are identified, they can be challenged and
potentially made broader by asking two simple questions:

■ ‘Where does this constraint originate and what is the authority

that governs the constraint requirement?’ This identifies the
cause; and
■ ‘What would happen if we did not have this constraint?’ This
 identifies the consequences.

Generally, the fewer the constraints or restrictions on how the

provider may deliver the contract, the more leeway there is for
innovation. As a result of this, the important and real constraints
should be left in, while the less important ones can be relaxed, re-
expressed or removed.
Taking all the risks identified, it is essential to identify which are the
main risks, to whom they are allocated both in terms of management
and liability, as described in section 4.2 above, and how precisely
they are to be expressed and allocated in the contract.
It may be argued that precisely defining objectives, constraints and
risks at this stage is unnecessarily detailed or overbearing. However,
without this precision, there are the risks that:

(a) Stakeholders and the project team may think they agree, while
the reality is that they do not as they do not understand properly
what they are alleged to agree, and
(b) Lawyers and technical people who will ultimately draft the
contract and detail the requirements may define them incorrectly.

4.4.3 Activity 3: Choose ‘best-fit’ contracting strategy

Choosing the ‘best fit’ contracting strategy is about selecting the
most appropriate ‘big picture’ risk allocation given the scope of the
works in the future contract, the contract objectives, constraints, risks
and the strengths and weaknesses of the likely parties to the
contract.
The choice of contracting strategy may well have a significant
bearing on the budget for the provider selection process, i.e. it may
point to adjustment of the outline budget indicated as an input to this
stage. Should the selection budget need adjustment then this should
be subject to due governance and be agreed with the project
sponsor. The outline budget (whether adjusted or not) will form an
output from this stage.
The most commonly used contractual arrangements are listed
below and individually described in the following paragraphs. We
have attempted to identify the key features of each, how terminology
might vary from industry or sector to sector and when to use them. It
should be noted that those listed are ‘archetypes’ in that the
contractual relationship will look ‘something like’ what is described,
but may not necessarily conform precisely:

■ Schedule of rates.
■ Bill of quantities.
■ Fixed price contract.
■ Input-based arrangements: fee-based arrangements,
management contracts and cost reimbursable contracts.
■ Partnering/collaborative contracts: target cost contracts and
project alliances.
■ Strategic alliances: framework, strategic outsourcing and some
joint ventures (JVs).
■ Build, own, operate, transfer (BOOT)/design, build, finance and
operate (DBFO) arrangements, including private finance
initiatives (PFI)/public private partnerships (PPP).

Figure 4.2 correlates the most likely ‘best fit’ collaboration strategy
against the complexity and/or timescale expected for the contract.

Schedule of rates
A schedule of rates is an arrangement in which the employer puts
together a list of pre-identified goods or services, possibly with
quantities against each item, and asks potential providers to tender
against these rates. During contract execution, quantities of goods or
labour hours are called off and the successful provider is paid
against the quantities multiplied by the agreed rates.
A schedule of rates is typically used where the employer can
define what they want, but not necessarily the quantity wanted or
when they want it. Often, this arrangement is used for ‘commodity-
type’ goods or services where there are multiple providers available.
Consequently, the employer achieves value for money due to open
competition, with a provider being chosen predominantly on the
lowest total price for a combination of goods or services.

Figure 4.2 Most appropriate collaboration strategy against contract

complexity/timescale

A schedule of rates can also be used in a longer term call-off

contract, perhaps with multiple providers, whereby for any given
order the employer evaluates which provider will give the best deal
and places the order accordingly. Inflation and other factors affecting
costs over time may need to be factored into the rates over the
contract term.
A common misuse of a schedule of rates is where goods and
services are required for the delivery of a series of individually
unique projects, albeit in a similar market domain, with the intention
that standard rates are used to build up the price for each project. In
this context, the project may be delivered as an instructed task under
a term contract or an individual contract under a framework
agreement. The misuse arises due to trying to use standard ‘model’
rates which were tendered for circumstances which do not match
those under which a package is delivered. Consequently, either prior
to the contract or during the contract, the provider argues that the
rates do not apply to the work being done.

Bill of quantities
A bill of quantities is very like a schedule of rates with the key
difference being that, while the end requirement is defined, the
quantity of work required to deliver the requirements is difficult to
forecast accurately. The bill of quantities therefore ‘provides project
specific measured quantities of the items of work identified by the
drawings and specifications in the tender documentation’ but is
subject to re-measure. The provider is therefore paid for the quantity
of work they do as the contract progresses as opposed to that
called-off by the employer. For instance, in civil engineering, the bill
of quantities, upon which the provider tenders, is an estimate of, for
instance, the volumes of earth, by type, that needs to be moved. The
volume moved is measured once the work has been done, with the
provider being paid a tendered rate multiplied by the quantity of work
done.
A problem with this approach is that the costs to the provider of
doing the work are not solely related to the quantities involved. Other
factors may have a significant effect. In the earthworks example, the
ground type found and the prevailing weather conditions can have
major effects on the provider’s programme and hence time-related
costs. If the bill of quantity rates do not sufficiently cover these
indirect costs, then argument may result during package delivery.
Consequently, the tendered rate per unit is often subject to change.

Fixed price contracts

Fixed price contracts are a generic category of contracts based on
the establishment of firm legal commitments to complete the
required work. A performing provider is legally obligated to finish the
job, no matter how much it costs to complete, for the amount that
they have tendered. Selecting a technically competent and
financially secure provider should give the employer a high degree of
certainty of outcome. Consequently, these arrangements should be
used only where the employer can clearly describe:

■ What it is they want. This need not necessarily be fully detailed as

the provider is usually best able to do this, but sufficiently and
unambiguously defined so that the employer will get the outputs,
and hence outcomes, they want.
■ The constraints under which it is delivered.
■ Where the risks, from the provider’s perspective, are relatively
small and quantifiable, i.e. a ‘strength’ of theirs is doing work of
this sort, so it is low risk because of their expertise and
experience. These arrangements are normally used where the
contract is to deliver a full package.

If fixed price contracts are used when a significant degree of change

is likely, there will be added risks to contend with, as:

■ Providers may inflate the costs attributed to changes to reclaim

any lost profit that they may have incurred (or to increase overall
profit). It is almost always costlier to change provider mid-stream
than to put up with inflated costs against changes.
■ Providers may argue that because they were so keenly priced at
the bid stage with all activities planned in detail any changes will
cause delay and disruption costs. And they may well be telling
the truth.

Thus, where the requirement is uncertain and subject to change or

the employer does not meet their side of the contractual bargain, a
fixed price contract can end up as anything but a fixed price.
Similarly, the allocation of ownership of risk is an important
consideration for fixed price contracts. If the employer retains a large
proportion of the risk in the form of dependencies, then significant
cost may be incurred should the risk become a reality. However, if
significant risk is transferred to the provider, then the employer may
well pay an inflated risk premium in the initial contract price.
Consequently, where fixed price contracts are used for complex
projects, the provider needs to be vetted to ensure that it can cost-
effectively manage the risks allocated. The choice of a suitably
skilled provider is therefore paramount.
There are several variants on fixed price contracts in terms of how
the provider is paid:

■ Milestone payments when typically the employer has described

deliverables in a milestone payment plan. For less complex
contracts this can be quite straightforward and a useful system to
focus both parties on the progress to be made under the contract.
However, there are circumstances where the effect is not benign.
For instance:
□ The provider may front-load the milestone payments to gain
positive cash flow and minimise his ongoing risk, to the
detriment of the employer.
□ There may be little transparency of costs associated with
changes, especially if the payment milestones are defined at a
high level and do not correlate directly with the programme
tasks. The provider then takes advantage of this lack of
transparency when change occurs.
■ Lump sums where the provider breaks the works down into
discrete operations and is paid at regular intervals according to
percentage completion of each task or operation. This can
provide more transparency of cost than milestone payments as
the lump sum payments can more closely match the programme
progress. It is important to describe each operation at an
appropriate level, as if each operation is described at too high a
level there may be arguments over the percentage of work
completed. Earned value analysis can be a useful tool in
assessment with this method. However, the related tasks will still
need to be described at an appropriate level of detail.
■ Activity schedules (which may be referred to as ‘milestones’ in the
IT sector, causing some confusion in definition) are like lump
 sums except that the provider is only paid against completed
‘activities’. Consequently, in this system the providers are
required to break their activity schedule down to a more granular
level than is normally the case with lump sums. This can be
advantageous in providing greater transparency and easier
monitoring. The disadvantage is, however, usually the need for
more work at the tendering stage for the providers.

As fixed price contracts are often tendered against functional or

performance specifications, the potential providers are likely to have
to do some design or developmental work at the pre-contract stage
to derive a price to tender. Employers will need to check the output
of this work to ensure that it meets with their requirement. The
resulting design must then be incorporated into the contract. One of
the key things to ensure is that the provider’s design must satisfy the
employer’s requirement rather than, in the case of ambiguity or
inconsistency, over-write it. Consequently, the contract must state,
either directly or indirectly, that the employer’s requirement has
‘precedence’ over the provider’s design.
Depending on the type of project, doing the design or
developmental work to a level where a meaningful price can be
tendered can be quite onerous on the tendering providers.
Consequently, some employers may initially ask for outline designs
and indicative prices. They then select the best submission via a
down-select process and work with the preferred provider to de-risk
the contract package and develop the design to give the employer
sufficient certainty of what will physically be delivered. As a result,
the provider can price more accurately and the employer should
have a more sharply priced contract to enter into. This is called a
‘preferred provider’ route.
Unfortunately, once a preferred provider is chosen, even though
the employer has the option of going to another provider, as time
progresses the employer becomes increasingly tied into using this
provider and this can open up the relationship to exploitation by the
provider. Consequently, this approach is usually used by repeat
order employers holding a controlled group of favoured providers,
where there is the incentive of a longer term overarching commercial
relationship.
Turnkey contracts: A turnkey contract is usually let as a fixed price
contract and is a comprehensive contract in which the provider is
responsible for the supply of a completed facility, usually with
responsibility for fitness for purpose, training operators, pre-
commissioning and commissioning. It usually has a fixed completion
date, a fixed price and guaranteed performance levels. Once
complete, the employer ‘turns the key’ to make it work.

Input-based arrangements
Input-based arrangements are where the provider’s costs are
reimbursed plus an allowance for overheads and profit. They
therefore rely on trust between the parties to operate effectively.
There are three main input-based arrangements:

1) Fee based arrangements: whereby the provider provides gives

their fee per unit of time at the start of the arrangement. Within
some agreed constraints, such as demonstrating that time
charged was spent on the employer’s project, payment is based
on the quantity of time used multiplied by the rates. This
arrangement is often used at the start of a project where any poor
decisions made or work done up-front can have a large effect
later on. Consequently, it is seldom worthwhile skimping on this
early stage. Having said this, many professional appointments are
also made on this basis for the management of projects, e.g. in
construction management a provider is appointed as a
professional to manage the construction works with all the works
contracts being made directly with the employer often on a fixed
price or bill of quantities basis. This does, however, call for strong
project leadership from the employer. In the IT sector this role is
sometimes referred to as that of the ‘integrator’.
2) Cost reimbursable contracts: whereby the provider does the work
at cost, which could include management costs and, provided it
can be evidenced that these costs were incurred in providing the
 asset or service, payment is made of cost plus a tendered uplift
fee. To be reimbursed the provider has to be able to provide
evidence of his costs (via receipts, timesheets, accounts etc.)
thus supplying a level of cost transparency. The uplift may be a
fixed fee, or a percentage fee applied to the costs incurred. This
arrangement tends to be used where there is an existing
commercial relationship and time-driven or quality-driven work
emerges, often carrying significant risk. For instance, in
emergency work, it avoids the need for the requirement to be fully
developed and then priced by the provider, including allowances
for unknown or unquantifiable risk. Instead, the appointment can
be made quickly and work started almost immediately.
3) Management based contracts: whereby the main provider only
manages the work, as in the case of a construction manager or
an integrator. However, the management contractor (provider)
does not carry out any physical work, but manages the project for
a fee, which is paid on top of the construction costs incurred by
the management contractor. The management contractor then
employs and pays works contractors to carry out the actual
works. In effect, management contracting consists of 100 per cent
subcontracting. This gives a ‘harder’ contract as the
management-based provider has a ‘fitness for purpose’ liability to
deliver, as opposed to a ‘reasonable skill and care’ liability and
liquidated damages may be levied for late delivery. The downside
is that the requirement must be more extensively developed to
define the ‘fit for purpose’ liability and a ‘hard’ delivery date must
be established. As the provider takes on commercial liabilities, it
potentially has a position to defend, which may undermine the
professional incentive to work in the best interests of the
employer. For instance, if the project is running late, there is an
incentive to spend the employer’s money to avoid late delivery
damages. Equally, if the employer introduces a change, there is a
potential motivation to exaggerate the amount of additional time
needed to cover up for other delays for which the provider would
pay damages.
The main drawback of such arrangements is the lack of a direct
contractual incentive to reduce costs. It was mainly for this reason
that partnering/collaborative arrangements evolved.

Partnering/collaborative arrangements
Partnering is defined as an arrangement between two or more
organisations to manage a contract between them cooperatively (as
distinct from a legally established ‘partnership’). At the time of
writing, ‘partnering’ has fallen out of fashion and
‘collaboration/collaborative working’ is in. The difference seems to be
a realisation that delivering to the contract, both in what is physically
delivered and the rigour with which good contract and project
management is applied, is important. Consequently, contracts are
written to be more user friendly so that people can follow, as
opposed to ignore, what the contracts say.
While partnering and collaborative working can be done under any
of the previously mentioned contracting strategies, certain strategies
lend themselves to this approach due to the way in which they
provide cost transparency and align commercial objectives.
Under partnering arrangements, the primary means of reimbursing
the provider is through direct payment of their costs, plus an uplift
fee to cover overheads and profit as per cost reimbursable contracts
above. The parties can then work on taking out cost towards a
contractually meaningful savings target (see target cost contracts
below). Adjustments to this target can be agreed when employer-
held risk events occur.
The commercial alignment comes from a meaningful target being
established; around which savings and overruns of cost-plus-fee are
shared. This is often referred to as a pain/gain share mechanism and
creates the incentive for both parties to work together to minimise
costs. Essentially this means that there needs to be sufficient scope
within the technical requirement to take out cost, either through
managing out threat or managing in opportunity via collaborative
working. There is little point in using this type of contract for a fully
defined and detailed requirement in which the employer is not going
to contribute.
There are several types of contracting arrangements which reflect
the scope for cooperation, innovation and joint risk management as
described in the following paragraphs.
Target cost contracts: Are formed between two parties, where a
contract target price is tendered, negotiated or built up on an open
book basis. This target essentially comprises the provider’s costs, an
allowance for the risks included within the target and the necessary
uplift fee. The pain/gain share operates around this target.
During the contract, the target is adjusted for pre-defined reasons,
normally to do with the employer changing something, not doing
something which they are contractually obligated to do (which would
otherwise be a breach of contract) or a limited number of third party
events over which the provider has no control.

Figure 4.3 A target cost contract with approximately 50:50 share of

any over and under run compared with the target prices

A specific type of target cost contract is the guaranteed maximum

price (GMP) contract. The essential difference is that at some point,
often the target, the employer’s share of any overrun is capped, so
that the provider takes all the pain beyond this point. In addition, the
allowable reasons for adjusting the agreed target may often be
specified according to the legal minimum.
Figure 4.4 Illustrating that the employer’s share of any overrun is
capped at approximately 10 per cent overrun on the target prices

Project alliances
Project alliances typically have the following characteristics
compared with target cost contracts:

■ There are more than two parties tied into the alliance incentive
mechanism, i.e. the employer and several key providers.
■ There is usually a ‘courting’ phase where the parties work
together on a fee basis to develop a sufficiently robust
requirement and the alliance contact price target, which is
agreeable between the parties. This has parallels with the
preferred provider route discussed above. Note, however, that if
the requirement is over-developed it can defeat the objective of
entering an alliance.
■ The alliance target price is normally quite extensive in its
coverage, including budget for almost all risks normally borne by
the employer, as well as other project related costs, e.g.
management costs and (in construction) land-take, etc. Note that
the costs of external audit are usually excluded from the alliance
costs.
■ Because of the previous two points, the reasons for any
adjustment to the alliance target price are far fewer than under a
 target cost contract.

Alliances are used where there are significant interdependencies,

not just between the employer and each provider, but also between
the providers. Such interdependencies can be a cause of significant
negative risk/threat, but also may present significant opportunity.
Rather than trying to manage interdependencies in a top-down way,
due to the alignment of motivations to the success of the project, the
parties work together in a more egalitarian way to solve issues and
risks for mutual benefit.
Early provider involvement – called Early Contractor Involvement
(ECI) in construction – is a half-way house between the target cost
contract approach and a full project alliance. Here the provider works
at cost with the employer to develop the requirement to a point
where it can be priced. At this point a target cost contract is entered
into; but with the provider typically taking responsibility for the
developed design. In other words, under a target cost contract, if
there is an error in the requirement, the employer corrects it and the
target cost is adjusted. Under ECI, the cost of any error is included
within the target cost, thus creating greater commercial alignment.
Prime contracting is similar to the Early Provider Involvement route
with two further developments:

■ A greater emphasis on collaborative working for the parties

involved down the supply chain, with them being incentivised
accordingly.
■ A fitness-for-purpose liability for design as well as materials and
workmanship, such that whilst the provider is paid on an open
book basis with pain/gain share, its liabilities for the resulting
solution are closer to those of the turnkey contract model.

Strategic alliances
Strategic alliances generally take two main forms:

1) Project based frameworks; whereby an employer enters a

 framework agreement or contract to use a provider, or group of
providers, for projects of a certain type over a period of time. In
practice, almost all such agreements will have a non-exclusivity
clause whereby the employer is not obliged to use the provider.
Indeed, most employers keep their options open by having
several providers in any framework agreement. This is to both
promote some competition and to avoid becoming dependent on
just one provider. While the early projects under such an
arrangement may be defined enough to price easily, later ones
may need more extensive development before a meaningful price
can be agreed. As each package requirement matures, an
associated contract is let. Often, the contract is in the form of one
of the previous partnering-style arrangements, i.e. target cost or
alliance.
Project based frameworks have the following advantages: they
avoid the need to continually go out to the market; they reduce
the need for a provider to do full tenders on a speculative basis,
thus reducing overhead; they allow the provider to make longer-
term investments as there is a greater likelihood of future work;
and, if planned intelligently, they can allow for continuity of use of
resources as opposed to de-mobilising and re-mobilising.
Additionally, they can allow for continuous improvements to be
made, as lessons learnt from one project can be taken account of
in subsequent ones and this continuous improvement also
includes team working. Such continuous improvement can result
in progressive and sustained improvements in project delivery in
terms of time, cost and quality.
A potential downside is the danger of complacency creeping
into a relationship, especially where a single provider is used for
all the work. Consequently, most employers select several
framework providers for a specific type of work and benchmark
performance, rewarding the better performing ones with a greater
share of the work.
2) Term service or strategic outsourcing arrangements; whereby a
level of service is stated as a requirement, for example the
maintenance of an asset, e.g. a road or building or for an IT-
 based service. The project could be delivered under a schedule of
rates or fixed price contract, with performance falling below an
agreed level being a reason for termination. What makes this a
strategic alliance is:

□ Whatever the service is, it is normally described in terms of a

performance and/or functional requirement; in order to allow for
continuous improvement, with both parties being able to
contribute to improvements.
□ The nature of the service operated tends to be strategic or
business-critical to the employer organisation.
□ The improvements can be in terms of cost-savings, which are
shared by a pain/gain formula and/or in measures around the
quality of service against which incentive payments are paid.

Joint venture
A joint venture (JV) is a contractual arrangement in which resources
are combined, be they equipment, expertise or finance, by two or
more participants with a view to carrying out a common purpose.
This typically takes one of the following forms:

■ A consortium agreement.
■ A limited liability company.
■ A partnership.
■ A limited liability partnership (whereby the partners’ liability is
limited).

A subtlety can be whether it is:

■ A vertical joint venture; for instance, a Local Authority and term

services provider would normally be in a more traditional
employer/provider arrangement. Instead, they could form a joint
venture to both carry out this work and seek out extra work within
that region for other clients. The profits could then be split per
their respective ownership of shares.
■ A horizontal joint venture; whereby two or more parties come
 together to jointly pursue and realise an opportunity which neither
could pursue on their own.

More specific reasons for forming a joint venture could include a

combination of:

■ Limitation of risk; whereby neither party could bear, or wish to

bear, the entire consequences of the downside risk on their own.
■ Pooling of resources, either because the opportunity is too big for
only one party or because they have complementary expertise
and neither party could deliver the opportunity without the other.
■ Access to a market, particularly for work in overseas jurisdictions,
where a foreign provider may have to form a joint venture with a
local provider to qualify for access to the respective market.
■ The advantage of a more integrated/efficient approach due to the
elimination of contractual interfaces.

The main disadvantage of a joint venture approach is the significant

cost and risk of setting one up, meaning that the size of the
opportunity must be worth this cost. The setting-up costs not only
include legal costs, but also those of defining the commercial
reasons and scope of the arrangement, the strategic direction and
management of it once established and the day-to-day integration of
systems and cultures once it is place. There is therefore a significant
risk that a joint venture may fail.
Often horizontal joint ventures are formed to enable the
contractual approaches outlined below.
Build, operate, transfer (BOT) contracts where the employer has a
requirement for something to be supplied to them and this requires a
specialist facility to be built. For instance, the employer may require
energy to be provided to a remote production facility close to the
base resource. They therefore want a specialist energy company to
take full responsibility for the building and operating of the asset but,
after a set period, operation of the asset is transferred to the
employer. Typically, this is paid for as a combination of a lump sum
for setting up the facility and as a schedule of rates/bill of quantities
for delivery of each unit of, in this instance, power.
Build, own, operate, transfer (BOOT) contracts are like BOT
contracts except that the provider owns the facility for a set period,
so the transfer is both of operations and ownership. The emphasis of
payment shifts much more onto the delivery of the output as
opposed to the build, i.e. the provider finances the build much more
in return for larger payments per unit of output.
Design, build, finance and operate (DBFO) contracts (when the
employer is the Public Sector, known as private finance initiative
(PFI) or public private partnerships (PPP)): Such arrangements are
similar to the BOOT arrangement above except, due to the size of
the project and the duration of the operate phase, a financing
organisation, such as a bank, needs to be part of the joint venture.
Thus, often a special purpose vehicle – a new joint venture company
– is created for the opportunity.
These contracts are usually associated with the design and
implementation of a new or improved asset, service, or system. The
‘build’ part is derived from the original use for heavy engineering
projects. Once the delivered asset is in operation, the employer pays
the provider organisation(s) on its operation, often with a large part
of this payment based on operational performance. For example, for
a (non-toll) road, it may be based on the percentage of time that all
lanes can be used and/or average traffic speed. These payments
against operational performance both service and progressively pay
off the providers’ debt with an allowance for profit. The arrangement
often includes a clause whereby, if performance slips below an
agreed threshold for a given duration, the employer can take over
ownership of the asset. Often, built into the contract is a requirement
to upgrade the asset towards the end of the ‘operate’ phase before
ownership reverts to the employer.
The typical contractual structure of such a PFI is shown in Figure
4.5.
The advantage of this approach is the focus of the contract on the
ultimate performance achieved, the capability it gives the employer,
and the benefits it delivers and within this broad frame, the allocation
of risk to the party best able to manage it.
Figure 4.5 Example contractual structure of a PFI arrangement

There are essentially three types of PFI contract:

1) Pure PFI; which are normally commercially viable without

financial support, sometimes identified and promoted by a
concession company provider, e.g. the Channel Tunnel Rail Link.
2) Part PFI; which are not commercially viable on their own, thus
‘sweeteners’, such as ownership of existing assets are included in
the contract. For instance, in the Second Severn Crossing, the
first bridge was handed over to the concessionaire for them to
derive income from, both during construction and afterwards.
3) Public private partnerships; where a government holds a
competition, and selects a concession company provider to run a
service on its behalf and pays the provider for doing it. These are
not widely different from PFI projects, however they often function
as outsourced services, where the quality of the outputs from the
concession company provider are partially dependent on the
inputs coming in from the government employer (i.e. there is
greater interdependency between the two parties).

The main drawbacks of the DBFO, PFI and PPP approaches

include:
■ The cost of setting up such an arrangement, e.g. for a whole life
cost of less than £25m it is unlikely for it to be worthwhile.
■ The performance required, capability required or benefits wanted
must be identified as tangible enough to be specified as a
contractual requirement which can be measured and paid
against.
■ Howsoever the above criteria are expressed, they must be
sufficiently long-lasting to be valid for the duration of the ‘operate’
term. For instance, the purpose of a road may well stay the same
for a 25-year concession, but for a hospital, the purpose, range of
functions and demand for them for that duration might vary
enormously. Consequently, unforeseeable change can occur for
which (a) the provider will want payment and (b) may mean the
original criteria against which they are paid becomes invalid
and/or untenable due to these changes.

4.4.4 Activity 4: Second order risk allocation

Having selected the primary risk allocation by choosing the ‘best fit’
contracting strategy, the next step is to fine tune the contracting
strategy by deciding on:

■ What risk events are excluded from the contract prices and would
cause an adjustment to it. In some instances, this means defining
thresholds for the risks above which they may invoke a contract
change. For instance, in construction contracts, this could be the
level of rainfall in a particular month.
■ The degree to which the provider will be incentivised to meet the
contractual level of performance and potentially exceed it.

4.4.4.1 Activity 4a: Additional risks and thresholds

Which risk events will cause an adjustment to the contractual sum
should be precisely identified (to be precisely expressed in the
subsequent contract) and allocated or shared in accordance with the
principles identified in section 4.2 of this chapter.
 Issues during contract delivery commonly arise due to the deletion
(from standard forms) or non-inclusion of clauses that provide for
adjustments due to breaches of contract by the employer or his
representatives. Removing such clauses is generally pointless and
should be very carefully considered before making any such
amendment to the contract. The removal of such a mechanism
potentially leads to the provider claiming ‘breach of contract’ and
suing the employer for compensation, whether monetary or for offset
against the penalties for delays incurred. It can lead to an extended
delay to contractual completion sign-off and indeed the success of
the overall project may become at risk. In addition to the resulting
uncertainty, it may, in practice, become more expensive and time
consuming than would be managing and agreeing contractual
changes under the conditions of contract as the contract progresses.
It is far better to have the reasons for adjustment and the
mechanism defined in the contract.
Linked to this, is the importance of having clauses which allow for
changes in circumstances whilst the contract is being delivered, e.g.
changes to the requirement whether in its scope or to upgrade its
performance. Failure to have these provisions in the contract will
either result in the provider refusing to do the work – and the asset
potentially not being fit for purpose – or the provider being able to
‘hold the employer to ransom’ by re-negotiating the contract on their
terms. During the contractual negotiations, therefore, discipline
needs to be exercised to ensure that only essential changes are
made to standard forms.
Lastly, third-party, or uncontrollable risk events for which the
employer will take some or all of the risk need to be identified and
defined. These fall into two camps:

1. Unlikely, but high impact risks: These should be allocated on the

basis of whom can best bear the consequences, which will
typically be the financially stronger party. An example is the risk of
a third party’s employees taking strike action, which eventually
could have an impact on the time/cost/quality of the works being
conducted.
2. Frequently occurring, but minor impact risks where the cumulative
impact of them occurring can become significant. For instance, if
a provider is working on a live asset such as a railway, where staff
have to stop frequently for trains to pass with undefined
frequency.

For the former, the risk transfer threshold may be set, for example,
whereby the provider takes liability for the first week of any delay
caused by the strike. For the latter, it may be decided that the
provider takes the liability of ‘X’ stoppages of up to ‘Y’ minutes per
month which is set a little above the normal amount to be expected.
Above this point, the additional impact is allocated to the employer.

4.4.4.2 Activity 4b. Use of incentives

Incentives can be either set negatively in the form of liquidated
damages or positively in the form of bonus or gain share. More often,
only liquidated damages are specified. A prerequisite for the use of
incentives is that the level of performance; be it in time-saving,
efficiency improvements, service level improvement, cost-saving,
etc., needs to be measurable and specified unambiguously. Another
prerequisite is the use of common sense: achieving the desired level
of performance has to be within the control of the party targeted by
the incentive (i.e. benefitting or not according to the results). This is
allied to the principles of risk allocation and sharing described in the
overview of this chapter (section 4.2).
The most common trigger for liquidated damages is late delivery
(delay damages). Liquidated damages may also be applied due to
performance being below the level stated in the contract. For
performance damages to apply, the performance requirement(s)
have to be stated in a ‘performance specification’. If the quantum of
damages per unit time or unit of performance are not stated in the
contract, then the employer may claim for the true cost, both direct
and consequential, of this lack of attainment. This can lead to an
expensive legal process and therefore some providers refuse to
tender for work unless the performance requirement(s) and quantum
of damages per unit of underperformance are stated. For this
reason, it is normal practice to specify the maximum level of time
related damages in the contract. For the majority of the world, with
the notable exception of the USA and the Arab world, the maximum
level of damages may not exceed a genuine pre-estimate of likely
loss at the time that the contract comes into existence,39 otherwise
they can be legally challenged as a penalty.
The upshot of stating the maximum level of damages is to state
the maximum liabilities which can fall on the contracting party, which
reflects the parties’ ability to bear risk and the premium the employer
is willing to pay for risk transfer. Typical limitations on liabilities may
include: maximum time related damages payable; maximum
performance related damages payable; maximum liability for indirect
or consequential loss; maximum liability for damage to an employer’s
property; maximum liability for design defects (if the provider is
responsible for design); and maximum total liability.
A negative incentive also applies to those contracts where there is
a ‘pain share/gain share’ mechanism for cost (pain), i.e. the provider
may bear a share of the pain under a partnering style contract. While
some employers choose to cap their own liability for any overrun
through use of a guaranteed maximum price (GMP) contract, others
choose to go the other way; whereby they cap or more often
considerably reduce a provider’s share of any large overrun. This
typically happens on big contracts with a financially strong employer
(relative to the provider), where the provider cannot bear the
financial consequences of a contract that has gone significantly
wrong.
The other side of the coin to damages are bonuses, which are
generally paid for performance above the acceptable level stated in
the contract or, less often, for meeting it, e.g. meeting the opening
date of a venue which cannot slip. Obviously, it is only worthwhile
specifying bonuses if the increase in performance is of benefit to the
employer. Equally obvious, the employer does not give all the benefit
to the provider as then none is left for themselves. However,
incentives need to be set at a level that makes it worthwhile for the
provider to pursue.
Bonuses are currently not used as much as are liquidated
damages in the United Kingdom. Research40 has found that a well
thought out incentive plan stimulates superior contractual
performance; whereas use of liquidated damages alone has
negligible or even detrimental effect on project performance. The
psychology behind this is:

■ It is always in both parties’ interests to strive for bonus payments.

Consequently, even when difficulties are encountered, people
continue working together to try and achieve them.
■ Whereas, when it becomes evident that the contractually defined
level of performance is unlikely to be met, the provider may
naturally try to put blame on the employer in order to avoid
paying the damages (defensive behaviour). The employer, for
similar reasons, then will try to put the blame back on the
provider. This process can escalate instead of the parties working
together to resolve the underlying cause of the lack of
performance.

Our view is that it would be beneficial if incentives were used more

widely to stimulate superior contractual performance. Furthermore, in
complex situations with interdependent contractual obligations
(when, for instance, there is a contract to deliver business-level
benefits) it can be hard to show that the employer has no
responsibility for the under-performance of the provider and
consequently difficult to enforce liquidated damages.
Partnering style contracts may also be used to enable the sharing
of gain. A note of caution though, as if these gains are made entirely
through the efforts of the provider parties, without the collaboration of
the employer – for instance under a target cost arrangement – then
this mechanism may be viewed by the provider as a mechanism for
reducing the provider’s profit level solely for the benefit of the
employer. Consequently, the provider may set the initial target cost
at a higher level to adjust for this potential loss of profit.
4.4.5 Activity 5: Remedies
This section covers retentions, guaranties, warranties; as applicable
for contracts in the United Kingdom including the need to allow for
The Contracts (Rights of Third Parties) Act 1999. Essentially
retentions, guaranties, warranties are remedies for under-
performance of the provider against the performance requirement(s)
where stated in the contract. Damages, as discussed in the previous
Activity 4, can also be considered a remedy. Such means of redress
may also be flowed-down to the subcontract level.
Retention is where payment is retained as the contract progresses
(whether a proportion of each due stage payment or as a retention to
be paid following completion of a warranty period) in order to ensure
satisfactory performance or completion of contract terms. Typical
levels may be 3 to 5 per cent of contract value (or stage payment
values) although higher levels may also be specified. An
arrangement may be that once the provider has completed the
works, then a proportion – usually half – of any accumulated
retention is paid back with the remainder following after a period in
which the provider has a contractual obligation to correct defective
works. Typically, this period is 12 months, though this depends upon
the industry. The retention payment is paid minus any costs
attributable to the provider for non-performance, e.g. where the
employer has to correct any outstanding defects, which the provider
should have corrected.
The purpose of retention payments therefore is to ensure that the
provider completes the works; that it has minimal defects; that if
there are any defects, the provider will correct them; and if not, the
employer has some money to correct the defects themselves.
The downside of applying payment retention is that it detracts from
the cash flow of the provider, causing it finance costs. Consequently,
providers may include the financing cost in their contract price. As a
result, particularly where there is an overarching repeat order
commercial arrangement, some employers have stopped this
practice and demand instead a form of bond. Bonds are often
cheaper to finance and can take several forms, e.g. bid bond,
advanced payment bond, performance bond and warranty bond. All,
however, require the involvement of an extra party – a financial
institution – which will charge for guaranteeing the corresponding
payment covered by the bond.
Some employers (and providers flowing down retentions to
subcontractors) have abused the retention system, by holding on to
cash when not entitled to, which has caused the providers to price
on the basis that they will not get retention back at all.
An additional drawback is that the sum retained after the works
have been completed may not be enough to cover major defects in
the work, leading to legal proceedings, which the implementation of
the retention was intended to avoid.
Guarantees are legally enforceable assurances of the
performance of a contract by a provider. Typically, a third party
guarantees the performance of the provider under the contract.
Should the provider not perform to the assigned level, or refuse to
rectify their lack of performance, then the third party guarantees to
pay for the associated costs up to a limit specified under the
contract. An independent party is normally required to witness the
signing of a guarantee for it be legally effective and (another)
independent party is normally required to confirm any compliance or
non-compliance and whether non-compliance is due to the provider.
The two most common forms of guarantee are:

■ Provider parent company guarantee: The advantage of this to the

provider is that the cost to take out this guarantee is likely to be
minimal or non-existent compared with taking out a bond (see
below). However, it is unlikely that the provider’s parent company
is independent either in mind-set or finances. Consequently, in a
dispute over who is liable for the lack of performance, the
guarantor is likely to listen to and take the side of the provider
and be hesitant to pay out. Financially, if the provider defaults
due to financial pressures from their parent company, e.g. it goes
into administration, then the parent company is unlikely to be able
to fulfil the guarantee.
■ A guarantee bond from a bank or other financial institution: The
 advantage of this over the parent company guarantee is that a
financial institution is assumed to be more independent and
supposedly financially stronger (although following the banking
crises of recent years, this was not the case). The disadvantage
is that the provider has to pay for this bond and the cost is added
onto the contract price which the employer will pay. More
recently, financial institutions have limited the number of bonds
they are prepared to issue to any organisation, in order to limit
their exposure should that company cease to be in business.

A warranty, in this context, is a promise given by a provider to an

employer regarding the nature, usefulness or condition of the
supplies or services delivered under the contract, usually at a level
set above that required under statutory law, with the remedy being
liquidated damages payable. Two common forms are:

■ A warrant for fitness for purpose: a provider of a service, under

UK statutory law, has to exercise reasonable skill and care
according to the specified professional standards. Providing this
can be demonstrated there should be no liability for liquidated
damages, for example if what is designed does fulfil its purpose
due to the design. If the employer insists on and the provider
signs a contract warranting ‘fitness for purpose’, then the provider
will be liable.
■ Collateral warranties: historically, the doctrine of ‘privity of
contract’ generally means that a contract cannot confer rights or
impose obligations on any person who is not party to that
contract (except by tort of contract, whereby a duty of care has to
be shown to exist and negligence then proved). Collateral
warranties create a relationship between parties who are not in
contract with each other and normally last for 12 years from date
of completion of the contract. An example may be where an
employer has a new asset built, with various parts designed,
supplied and installed by specialist subcontractors to the main
provider, e.g. heating, cooling and ventilation. Should the parts
not work, then with a collateral warranty, the employer can revert
 directly to the subcontractor, who if they do not remedy the
situation, will be liable for liquidated damages, as opposed to the
main provider.

The downside to warranties is that for a large project with many

subcontractors, a myriad of additional contract terms are created, all
of which add complexity and potentially cost (should lawyers be
required to draft them). For this last reason, in the UK, the ‘Contracts
(Rights of Third Parties) Act 1999’ was enacted. This allows a third
party who is not under contract, but derives a benefit from that
contract, to be able to enforce a term of the contract or gain financial
compensation. For example, for a property developer, who has the
intention to sell on a completed building to a new owner, the Act
allows the new owner to enforce the contractual obligations of the
provider to the property developer in, for instance, correcting
defective work.
However, it was pointed out that there was an unintended
consequence of the draft Act. For example, if a provider enters a
contract with a government organisation as the employer, but where
the beneficiaries are the general public, the effect of the Act could be
that members of the public, who are only very remotely affected, can
demand their rights. This could be very costly and therefore the
provider would want a large premium to cover this risk. As a result,
the final Act allows the parties a contract to opt out of compliance
with the Act, either by expressly stating which terms are not subject
to the Act or by stating a blanket opt out. If it is the latter, specific
terms can be put back in by expressly stating which terms are
subject to the Act and who can enforce them. Given this opt-out, a
well drafted schedule of rights for third parties becomes much
simpler and cheaper to put in place as an alternative to a myriad of
interconnecting collateral warranties.

4.4.6 Activity 6: Issue/dispute resolution processes

There will almost always be issues that arise on contracts, most of
which can be resolved by the active participants in a timely manner.
However, some may not be able to be resolved and you do not want
them to linger over the project, undermining relationships and
distracting people from the management of current and future work.
Consequently, employers may wish to specify a series of issue or
dispute resolution procedures to be used before resorting to
arbitration or litigation. It is perhaps better to label any early
interventions as ‘issue’ resolution, because our collective experience
is that people are hesitant to refer something if it is a ‘dispute’. This
is known as an issue or dispute ladder and starts with amicable
settlements and extends up to the courts. While it is unlikely that all
the stages below would be used, we have arranged them in
ascending expense and hence seriousness.

■ The issue is progressively escalated up the management chain of

each party until agreement is hopefully reached. This happens
within fixed timescales, i.e. at each level of management, the
issue has to be resolved within a set timescale, otherwise it is
referred upwards to the next level. Ultimately, it may get to chief
executive level.
■ Where the parties are still getting on, but have an issue that they
just cannot agree on, non-binding expert opinion is an option.
This is where an independent third party, with expertise relevant
to the issue, gives a view with justification based on a short
review of documents and a few discussions with the relevant
people. The parties can either accept the view or use it as a basis
for agreement.
■ Conciliation or an executive tribunal, where an independent chair
and an executive from each of the parties, who has not been
directly involved in the contract, put aside a day or so to hear the
facts of each party’s case. They then make a decision which is
acceptable to both sides bearing in mind the circumstances. If
that decision proves unacceptable to one of the parties, they then
proceed to the next ladder of the dispute process.
■ Mediation is a process where an independent person, normally
with a mediation qualification, mediates between the two parties.
Often initially, they talk to one party and then the other and scuttle
 between the two. They isolate and take out of the equation the
matters on which the parties actually agree; enable each party to
see the other’s perspective; and generally build consensus and
agreement until the parties are sufficiently close to reach a face-
to-face agreement. At this meeting, the mediator chairs.
The advantage of this approach is that the parties have
ownership of the solution provided a solution is found i.e. an
external expert is not ‘telling’ them how to sort out their differences
or who was right and who was wrong. However, as the mediator
cannot impose a solution, both parties need to enter into the
arrangement willingly and without intransigence. It can also be
quite time consuming and therefore expensive to do, both in terms
of the cost of the mediator and senior management’s time in
meeting him or her.
■ Use of dispute avoidance/resolution boards. This comes from
America where they are far more prevalent on larger projects.
They have also been used on the London 2012 Olympics and
other major projects. Essentially, a number of experienced
professionals with a range of relevant expertise are appointed
and proactively keep in touch with the contract by, for instance,
reading monthly reports and periodic visits. They take a proactive
role in identifying emerging issues/disputes and nipping them in
the bud prior to them – and ideally avoiding them – being formally
referred. If they are referred, they are much more up to speed
with the circumstances leading to the dispute. The danger is that
they can be perceived as already biased.

The advantage of the above five less legalistic mechanisms is that

issues, and especially disputes, are rarely ‘black and white’, so
agreements can be reached which reflect this. Further, providing the
relationship between the parties is still cordial, root causes can be
identified and addressed to prevent re-occurrence.
The more legal processes, which are definitely in the ‘dispute’
resolution arena, are:

■ Adjudication:41 This is where an experienced and usually qualified

 (to be an adjudicator) person is brought in to resolve an issue
within a set timescale. From the initiation of the proceedings, it is
usually 4 to 6 weeks before the adjudicator reports his or her
decision. They consider documents submitted to them by both
parties, which are always copied to the other party, and have the
power to ask further questions and see further documents.
Because the decision is made within a comparatively short
timescale compared with arbitration or litigation, it is considered
by some as ‘rough and ready’ justice. If your contract is
considered a construction contract under the UK Housing Grants,
Construction and Regeneration Act (1996) then you have to have
adjudication provisions in your contract which comply with the Act
(as updated by a subsequent Act), otherwise the government
written Scheme for Construction Contracts applies. People in
construction should note that under these Acts:
□ you have to be able to go to adjudication at any time, i.e. you
could jump straight to it avoiding any of the issue resolution
procedures above;
□ you have to do adjudication before going to arbitration or
litigation; and
□ any decision of the adjudicator is enforceable unless and until
over-turned by a subsequent arbitration or litigation.
■ Litigation: Where the parties – ignoring adjudication above – start
the legal process which may ultimately end up in court with full
legal representation. This can cost a lot of money and be very
disruptive to the organisations involved. Further, the parties
should note that if the court decides that one party has not tried
to resolve the dispute in a constructive way, then they can award
the other party’s costs against that party even if they win the
actual case.
■ Arbitration: Started as a cheaper, simpler, faster and less
procedural form of dispute resolution compared with litigation.
Here an independent and qualified arbitrator, who is
knowledgeable in the type of dispute, acts like a judge. Unlike
where a dispute ends up in the public courts under litigation, the
arbitration is held in private (which is a big advantage) and the
 decision is enforceable, with appeal to the courts only being
allowed in exceptional circumstances, e.g. on a point of law
which is of public interest. Unfortunately, while it need not be the
case, arbitration has grown to be almost as time consuming and
expensive as litigation.

It is normal in a contract of any size to specify whether the final

dispute resolution process is arbitration or litigation and, if the former,
under what institutions procedure it will be held and where.

4.4.7 Activity 7: Choose ‘best fit’ standard conditions of

contract if applicable
In the engineering and construction sectors there are standard forms
of contract already published, often by an industry body,42 which can
cover many of the main contracting strategies and other aspects
discussed in this chapter. The advantages of using a standard form
of contract include:

■ They have already been written. Consequently, an employer does

not need to spend time and money having them drafted from
scratch.
■ They have, in theory, evolved and been fine-tuned over time to
take out ambiguities and inconsistencies which cause dispute.
Where this is not the case, case law may exist to confirm their
legal interpretation.
■ There is familiarity amongst practitioners with both their
interpretation and the procedures needed to operate them. In
some cases, this may mean a ‘better the devil you know’ state of
mind overrides the need for a good contract.
■ The ‘contra preferentum’ or ‘constructor against the grantor’ rule
will not apply to the standard terms. This rule means that when
there is an ambiguity or inconsistency in the contract, e.g. where
there are two ways in which a term could reasonably be
interpreted, then the interpretation most favourable to the party
who did not draft it is taken. In standard conditions, neither party
 wrote them so this does not apply. This is a significant advantage
to the employer compared with drafting their own.

Consequently, where practicable, it is advisable to use a standard

form of contract. However, when this is so, it is likely that some fine-
tuning will be required and this is where the drafting team described
in the next chapter of this guide needs to be briefed and managed
properly.

4.5 Outputs
The output from this stage should be, for each package or grouping
of packages by type, a briefing document for the contract drafting
team and those who will detail the requirements which should inform:

■ The ‘best fit’ contracting strategy together with any nuances or

alterations not detailed below, e.g. what and how exactly the
provider is to be paid, the performance testing regime, etc.
■ Which standard form of contract to use (if applicable).
■ The remedies to be used for each default and an indication of
quantum against each.
■ What risks are allocated to the employer and which are retained
by the provider and if already derived, the precise wording to be
used.
■ The extent of any pain/gain share (if applicable).
■ The type and level of incentives, whether expressed as bonuses
or damages, to be used and what measures they are payable
against.
■ An updated outline budget for the provider selection process.

Against all of these, a note should be supplied of why the decisions

were arrived at.
The briefing document should also be written in sufficiently plain
English for all those who will draft the contract to understand. This
includes the technically-orientated people who will write the
requirement. They will also need to know:

■ Any key terminology to be used. For instance, in more traditional

construction contracts the employer’s key overseer was the
‘engineer’ or ‘architect’. However, when the New Engineering
Contract series (NEC)43 came out, these terms were replaced
with the ‘project manager’ and ‘supervisor’. Yet many early NEC
contracts documents still referred to the ‘engineer’ or ‘architect’,
who do not exist in the NEC.
■ The scope of the requirement and how it is to be expressed, e.g.
is it in the form of a performance/functional specification or a fully
detailed design to be implemented? The scope document should
include how the delivered entity will fit in with any existing
infrastructure. The scope document should detail what the
provider can expect to find in terms of existing facilities, e.g. how
a processing plant may link in with existing processing
capabilities; what outputs from other (e.g. IT) processes are to be
interfaced to, etc.
■ The constraints or boundaries on how the provider can fulfil the
requirement, e.g. in construction; hours of working, maximum
noise levels, permissible access points, etc.

Notes
35 Yates, A. (1991) ‘Procurement and construction management’ in P. Venmore-Rowland, P.
Brandon and T. Mole (eds), Investment, Procurement and Performance in Construction,
London: E. & F. N. Spon.
36 Dhanushkodi, U. (2012) Contract Strategy for Construction Projects.
37 Broom J. C. (2002) Procurement Routes for Partnering: A Practical Guide.
38 For example, the Andrews Oilfield alliance in the North Sea. Source: Bakshi, A. (1995)
‘Alliances Change Economics of Andrew Field Development’, Offshore Engineer, 50(1).
39 Note however, that in 2016, the English Supreme Court expanded the definition of what
‘cost’ is to include reputational and other hard to quantify impacts. In addition, the
judgement downgraded the importance of this principle, especially in B2B contracts, relative
to the parties’ ‘freedom to contract’ on agreed terms. Consequently, the courts are even
more reluctant to dismiss pre-stated damages as a penalty, unless they are judged
‘extravagant, exorbitant or unconscionable’.
40 CIPS (2014) Supplier Incentivisation.
41 The APM part sponsored and the Contracts and Procurement SIG contributed to A
User’s Guide to Adjudication to be published by the Construction Industry Council (CIC) in
2017. See: http://cic.org.uk/news/article.php?s=2017-02-20-cic-publishes-new-users-guide-
to-adjudication
42 For instance, in the chemical industry, there is the IChemE family of forms; in the heavy
engineering industry, the MF series; in building the JCT family and in civil engineering, the
ICS contracts; with the NEC3 family being sufficiently flexible to apply to all the previously
mentioned sectors, as well as starting to be used in the IT sector.
43 New Engineering Contract (NEC) series, see www.neccontract.com.

OceanofPDF.com
 5

Prepare the contract terms

and requirements

5.0 Overview
This chapter brings together the outputs from the previous stages to
create a contract document that will become legally binding. The
contract will include those elements described in the definition of a
‘contract’ given in section 1.3 previously.
During this stage the form, language and detail of the contract
terms, the pricing document and the requirements are developed
and finalised. These documents must be consistent; as opposed to
them being entirely separate documents embodying disparate
language. For instance, if the previous package contracting strategy
stage (see Chapter 4) has determined that both the design and the
construction of an asset should be embodied into one contract, then
both the conditions of contract and requirements should reflect this.
The stage describes:
 The examining of the full range of input information that may affect
the contract.

■ Briefing of the contract drafters.

■ Determining the legal context and specific law that will govern the
contract and disputes.
■ Defining the contract terms (whether a standard form of contract
or a custom form is to be used).
■ Development of the requirements document.
■ Ensuring that adequate review has taken place.

5.1 Background

Research from Canada44 and UMIST, UK45 in the construction and

heavy engineering industries indicated that change introduced after
a contract is entered into typically costs an employer three times as
much as in the original contract. This highlights two factors:

1. The importance of the preceding stages in getting the ‘big picture’

right in terms of the business case and the deliverable required of
the provider. Failure to understand this can result in large scope
changes or may lead to a project which does not deliver what was
required.
2. A poorly written contract and requirements document can
undermine the previous stages, however well they have been
done. Potentially this could cause an ongoing stream of minor
changes and hence claims, which cumulatively could result in
serious disruption (the ‘death by a thousand cuts’ syndrome) and
consequential delays and additional costs. This makes it all the
more important to correctly express the detail within the contract
and to take care to include the appropriate level of detail to avoid
ambiguity. Beware of attempting to use standard forms which do
not fit the situation.

The language and detailing of both the pricing document and the
requirements should follow on from the words in the conditions of
contract, as opposed to them being entirely separate documents
embodying disparate language. For instance, if the contract strategy
has determined that both the design and the construction of an asset
should be embodied into one contract, then both the conditions of
contract and requirements should reflect this.
Before developing the detail, it is worthwhile considering:

■ The importance of properly briefing those who will do the drafting

of the contract terms and requirements (as well as those who
may manage and administer them) on the contents. This briefing
should cover both the drafting process and the required level of
technical detail in line with the procurement management plan. It
is also worthwhile reviewing any available lessons learnt from
previous contracts. There is often a divide between the
procurement, technical and legal departments within an
organisation and any recurring issues should be reviewed and
care taken to avoid the same issues and errors recurring.
■ Periodic reviews as the drafting is progressing are beneficial, as it
is far better to correct a recurring mistake or systemic
misunderstanding at an early stage (e.g. when only 10 per cent of
a document has been completed), as opposed to correcting
errors propagated through a nominally complete document at a
late stage with a deadline approaching.
■ There is a difference between transaction-based contracts and
relationship-based contracts (see Figures 3.8). For the former,
effectively one party is usually delivering already manufactured
goods or low-risk defined goods or services and the other party is
paying for them. In this situation, it is a relatively simple contract
and therefore, apart from delivery date, price, when to pay and a
description of the deliverable, there is little else to describe. For
the latter, there is often a developmental component and/or
significant risk which implies a need for the contracting parties to
work together to manage it. Consequently, it makes sense that
‘how’ it is to be delivered is also covered to an appropriate level
of detail and clarity, whilst not being over-prescriptive.
■ For relationship based contracts, we believe the emphasis should
be on the parties solving problems as they occur including the
commercial consequences. A contract can be drafted with the
emphasis being that the contract is relied-upon only when things
go wrong or it can be used as a proactive working document to
guide the parties’ actions. If the contract is for a significant
package, then things almost certainly will go wrong in some way
and to some degree. Consequently, during contract execution the
parties may focus their attention on recording the other party’s
failure to meet their contractual obligations and the resulting
effects. Once the requirement has been delivered, they may then
spend considerable energy constructing a claim against the other
party or defending themselves (often by counter-claiming) using
the records as data to support their arguments. This is a
defensive and inefficient way of behaving, although it is true that
proper records should be kept.46
A preferable emphasis is to describe how the parties are going
to work together to deliver the requirement successfully, resolving
the inevitable problems that arise as it progresses. This may cover
both the technical problems and any resulting commercial issues in
terms of contractual ownership and any additional time and monies
that the provider is entitled to. For example, it is often worth
ensuring that there is a suitable section in the contract for
explaining how disputes will be resolved, without resorting to
litigation. As this is a guide sponsored by the Association for
Project Management, we suggest that good project management
principles should be embedded into the contract itself,47 rather
than being an add-on outside of (or even despite) the contract.
Note that it is acceptable for the expected project management
requirements to be detailed in a statement of work, being an annex
forming part of the contract (with due regard to the avoidance of
any contention).
■ Lastly, it is worthwhile pointing out that lawyers are consultants
who are experts in law. They are not necessarily experts in
understanding the employer’s business, the project or the related
 technology. Consequently, they should be briefed on this and
their advice taken with due regard to the context. Lawyers are still
consultants – and usually expensive ones at that – so their
performance should be managed. Any deference given to the
legal profession needs to be tempered by the desire to
successfully deliver the requirement using good project
management principles including those of managing risk and
stakeholders.

5.2 Inputs
The Inputs to this stage are nominally the outputs from the previous
stages plus taking due account of the requirements of the law
relating to the country where the contract is to be made. These
inputs are used as the starting point for preparing the contract terms
and conditions and the requirement for each contract package, or
grouping of packages by type. The outputs of the previous stages
described above will have been captured in the documents created;
to include:

■ A signed-off business case: An output from the concept and

feasibility stage (the ‘full’ business case – see Chapter 2).
■ A procurement management plan: The output from the project
procurement strategy stage (see Chapter 3) including the
package scope, the package interdependencies and the nature of
relationship(s) to be sought with providers.
■ A briefing document: An output from the package contracting
strategy stage (see Chapter 4) used as a brief to the contract
drafting team including the best-fit contracting strategy, the
advised standard form of contract (if applicable), the remedies in
case of default by a party, the risk allocation of any pain/gain
share arrangement, the type and level of incentives if to be
offered and the issue/dispute resolution process to be specified.
In addition, any key terminology should be explained together
with the scope of requirement and any constraints and
 boundaries.
■ The governing law for the contract (see below).
■ If used, a copy of the standard conditions of contract.

A specific country should be defined for the purpose of determining

the governing law; in order that the further inputs described in
section 5.2.1 below can be determined.

5.2.1 Law relevant to the country

Important disclaimer and caution: Legislation and case law

is a continuously developing and highly complex subject
and we stress that we can by no means cover the subject
in any depth in this guide. The paragraphs below are meant
to provide an outline only and we strongly advise that the
legal aspects of any contract are determined in
consultation with a suitably qualified and experienced
lawyer.

Governing law and jurisdiction: If choosing different countries for

jurisdiction and governing law, the courts in a given jurisdiction may
choose to ignore the other countries governing or possibly give
eccentric interpretations of it. This should be taken into account in
selecting jurisdictions.
If negotiating a contract with an unfamiliar governing law, you will
almost certainly need local legal support; even if only to carry out
periodic risk assessments and health-checks of the contract.
Even within the UK, you should specify whether it is the law of
England and Wales, Scotland, or Northern Ireland that applies.
Regardless of which country’s law is chosen, it should always be
stated in the contract. Legal advice should be taken to decide on the
appropriate country of jurisdiction.

5.2.1.1 UK case law and legislation

All of the following impose specific legal requirements on the
procurement of a project; whereas the rest of the guide is ‘guidance’,
the following are all legal ‘requirements’. In many cases the duties to
comply cannot be contracted out by the employer to the provider and
the employer, in many cases, remains the duty holder with specific
actions upon them.
Contract law is based on court judgments over the centuries. In
more recent years statutes and other legislation have also impacted
on contract law. The effect of this impact is usually felt in one of two
ways:

■ Legislation implying terms into the contract, or limiting or affecting

what is allowed in the contract.
■ Legislation which is relevant to the deal and which needs to be
catered for in the contract.

UK legislation affecting contract terms includes:

■ Unfair Contract Terms Act 1977: This sets out various statutory
provisions; of which the most relevant are those imposing
limitations on the extent to which one can limit one’s liability in
different types of contract.
■ Sale of Goods Act 1979, Supply of Goods and Services Act 1982,
Sale and Supply of Goods Act 1994, Unfair Terms in Consumer
Contract Regulations 1999 and Unfair Terms in Consumer
Contracts (Amendment) Regulations 2000: All set out various
implied warranties (some of which cannot be excluded) as to title
(in plain English this means ownership and when it is transferred)
of standard of goods sold or supplied and services provided.
Drafters need to be aware of the extent to which, legally, certain
statutory provisions can give way to the express terms of the
contract (e.g. warranty periods). If buyers are not familiar with
this, experienced sellers certainly are.
■ Competition Act 1998: This, among other things, embodies
relevant provisions of the EU Treaty seeking to prevent anti-
competitive arrangements and agreements. An important aspect
 of the Enterprise Act 2002 is that professional services (e.g.
those provided by architects, lawyers and accountants) are now
subject to the same competition requirements as manufacturing
and other service companies.
■ Contracts (Rights of Third Parties) Act 1999: Since the
introduction of this Act, it is now possible to confer positive rights
(not obligations) on parties who are not signatories to the
contract, principally the right to enforce any terms on
performance of duties. Any rights to third parties can be excluded
but this must be expressly written into the contract.
■ Equal Pay Act (1970) and Equality Act (2010): The 1970 act
covers equal pay between men and women and is largely
superseded by the Equality Act (2010). The latter act is based on
the EU Equal Treatment Directives and expands the UK
legislation to cover race relations, disability discrimination in
addition to sexual discrimination.

UK legislation, which may require the parties to include specific

obligations and provisions in the contract, could include:

■ Data Protection Act 1998 (and a raft of regulations): This sets

strict rules on the processing and handling of data, in particular
on sensitive personal data and leads to sensitivities where
personal data is to be exported outside the European Economic
Area. The Act also requires certain provisions to be included in
contracts where data processors are being used.
■ Freedom of Information Act 2000 (public sector contracts only):
Imposes extensive obligations on public bodies to provide
information in response to requests. The timescales for
responding are challenging (20 days). Typical issues in project
agreements are:
□ The extent to which pricing and related information should be
exempt from disclosure, and
□ Compliance with the required timescale for employer
responses to information requests.
■ Transfer of Undertaking (Protection of Employment) Regulations
 2006 and as amended in 2014 (‘TUPE’): Setting out provisions
dealing with the potential transfer of staff on the transfer of an
undertaking and protecting their rights in various ways. TUPE can
be an issue both on commencement and termination of a project
(usually outsourcing or managed services contracts) and can
have a significant financial impact.
■ Health and safety regulations: This is a huge area and it is
worthwhile noting that personal liability for negligence now
extends to individual directors and organisations. A number of
industries have specific legislation which applies to their sector.
Note that effective from February 2016 the sentencing regime
has also changed, with unlimited fines and jail sentences
available for most forms of breach.
■ Building regulations and town and country planning issues: The
Town and Country Planning Act (1990) and local council
regulations.
■ Environmental legislation: There is an extensive list of regulations
that may apply. A sample list of such legislation is given below:
□ Water Resources Act (1991)(Amendment) Regulations (2009)
□ Water Industry Act (1991)
□ Environmental Civil Sanctions Order (2010) SI1157 and
Environmental Civil Sanctions (Miscellaneous Amendments)
Regulations (2010)
□ Capital Allowances (Environmentally Beneficial Plant and
Machinery) Order (2003), as amended
□ Environmental Damage (Prevention and Remediation)
(Amendment) Regulations (2010) SI 587
□ Environmental Protection Act (1990)
□ The Hazardous Waste (England and Wales) Regulations 2005,
as amended
□ Climate Change Act (2008)
□ The Clean Neighbourhoods and Environment Act (2005)
□ Environment provision of the Town and Country Planning Act
(1990)
□ Environment Protection (Duty of Care) Regulations (2014)
■ Legislation relating to electronic contracts, e.g. The Electronic
 Commerce (EC Directive) Regulations (2002).
■ The Bribery Act (2010): Covering all acts of bribery undertaken by
employees and agents of a company. Fines can be very
significant (e.g. 10 per cent of its worldwide parent company
gross revenues) for unethical conduct.
■ The Modern Slavery Act (2015): Covering slavery, servitude,
compulsory labour and human trafficking.

Bear in mind also that case law, as well as setting rules of

interpretation of clauses (see Activity 7 of this stage), sometimes
goes further and sets rules on what can and cannot be contracted for
and for what can be bindingly enforced by a contract. Examples
relevant for major projects include rules limiting the enforceable
length of non-solicitation clauses and rules making contracts for
illegal purposes unenforceable.

5.2.1.2 International law and law of a foreign country (if

relevant)
Procurement with an international dimension not only adds
complexity to the management of a project, but also needs careful
consideration on the legal front. The issues can be broken down into:

■ Which country’s governing law should apply?

■ Which country’s or countries’ courts should have jurisdiction in the
event of litigation?
■ What impact will a given country’s custom and practice have on
the content of the contract, how it is negotiated and how it is
performed?

Jurisdiction: Where the parties to a contract come from different

countries or are to perform the contract in a different country from
their own, real problems can arise in establishing which courts
should have jurisdiction. There are various conventions and treaties
which set out rules to apply in establishing this against the relevant
factors, often including the domicile of the parties, where the contract
is to be performed and what the parties have agreed.
It is very important to get this right: There is a real risk that,
regardless of what the parties have agreed in the contract about
jurisdiction and governing law, a given country’s courts may decide
that they have jurisdiction and will hear the case with their own views
on how the contract should be interpreted. In some cases, you
cannot remove this risk entirely because the relevant countries may
not be signatories to treaties or conventions on these issues.
As well as agreeing and stating the jurisdiction, you need to think
about how to enforce judgment; agreeing to be able to sue in the UK
may be of little use if all the pertinent assets are in another country.
There are extensive international agreements on mutual
enforcement of judgments (so courts in country ‘A’ will often agree to
enforce judgments from courts in country ‘B’ and vice versa). A
further degree of complexity comes from the fact that countries also
have international agreements on enforcement, arbitration and other
non-litigation dispute resolution measures and these do not always
mirror agreements on enforcement of court judgments. Consider
mentioning the use of Incoterms, for where certain materials may be
being imported from overseas.48
Custom and practice: The practices built up in different countries
over the years, including the influence of governing law, will affect
how the contract is performed, which in turn may affect what you
need to agree in the contract. Similarly, different countries often
develop different approaches to various contractual, commercial and
risk areas, and bridging this gap can cause difficulties. Again, local
advice can be invaluable in guiding you through this.
Different governing law will also set different rules for what terms
are enforceable and how they are interpreted. For instance, in most
of the world stated liquidated damages for poor performance cannot
exceed a genuine pre-estimate of likely loss. However, in the USA
and Middle East, they can be punitive; also, take advice on the effect
of cross-border taxation and the treatment of sales/goods/value-
added taxes where companies trade internationally. Ensure that
gross costs are understood, if you are used to normally dealing with
costs ex-VAT.
Lastly, to point out the obvious, just because the law of contract is,
say, that of England and Wales (or of Scotland or Northern Ireland),
does not mean other laws of the country in which it is wholly or partly
being performed do not apply (e.g. local health and safety
obligations, employee relations law, etc.). Many UK Acts have cross
territorial application, for example bribery and corruption laws.

5.3 Activities
The process is illustrated in Figure 5.1.

5.3.1 Activity 1: Brief the drafters of the contract terms and

requirement
At a minimum, those drafting the contract terms and detailing the
requirement must have access and full understanding of the chosen
package contracting strategy, which includes a full understanding of
the current standing of the package scope and its interactions and
interdependencies with others. Otherwise, we have seen, for
instance, they may well enthusiastically develop a fully defined
requirement, in terms of goods and services specified when actually
the contract requires a performance specification. Failure to have
this initial understanding can result in significant wasted professional
time being expended, which not only costs in fees, but delays the
overall project. Make sure that the responsibility for design and
specification rests where it best suits the employer’s requirements.
Contract forms or procurement routes can sometimes be
inadvertently selected.
Figure 5.1 Process diagram for the prepare contract terms and
requirements stage

In addition, unless there are sound commercial reasons not to, it is

suggested that drafters are also briefed on the business case and
the procurement management plan as well as having access to the
relevant documents. This is to ensure that they understand the ‘big
picture’ of the project, how their part fits into it and have a full
understanding of the inter-dependencies of their contract package
across the project. The drafters should also be given a list of the
names and contact details for those parties with whom they are
expected to liaise to obtain answers to questions arising for the
detail. This may be an extensive list where the contract is complex or
international.

5.3.2 Activity 2: Draft the conditions of contract

Activity 2 is split into the two possibilities:

■ Selection of a standard form of contract; if it is decided to use a

standard form.
■ Drafting specific terms; if a standard form of contract is not used.
5.3.2.1 Activity 2a: Choose standard conditions of contract
If using standard conditions of contract, review the standard
conditions for alignment with the procurement management plan,
identifying amendments which need to be made.
As stated in the previous chapter in Activity 7, there are a number
of good reasons for using standard conditions of contract. The more
they are adjusted, the more these advantages decline (and any
advantage gained may even disappear). Adjustments to standard
terms may render the resulting contract (terms, requirement,
payment document, etc.) unwieldy and unclear; possibly containing
ambiguity and inconsistencies, which do not aid the successful
delivery of a contract or project which it covers.
If it is anticipated that standard terms need to be adjusted, we
suggest that, as a project manager or project procurement
professional, a tight rein is kept on any changes. In the real world,
there are always unexpected risks that cannot be totally excluded
and removed by legal drafting, although legal professionals will
attempt to do this. The reality is that legal drafting does not remove
risks, it just transfers or shares contractual ownership and hence
which party takes the first order effects, but the employer often takes
– or shares – the second and third order effects. For example, while
the provider might have damages if they deliver their contract late,
the employer’s contract/project is still late, which may well have
impact on operations, reputation etc.
So beware spending lots of time doing this. Good planning and
drafting can reduce the risks but the cost of preparing a theoretically
all-embracing contract has to be weighed against the cost and delay
due to its creation, not to mention the prolonged duration trying to
get the other party to accept all of the terms. For instance, a 500-
page contract document, describing rights, obligations and remedies
for non-performance would be an overkill for a 10-page requirement
specifying goods. We suggest that a team leader responsible for the
development of the requirement is involved in the review process to
guard against overkill when developing the contract.
In the course of drafting, we suggest that:
■ Rigorous monitoring is undertaken to ensure that additional
amendments are not surreptitiously introduced.
■ Rigorous change control needs to be adopted for any
amendments.

5.3.2.2 Activity 2b: Specifically drafted conditions of contract

If drafting contract terms from scratch, then agree the defined terms
and the structure of the contract prior to drafting the detail.
NB: Developing bespoke terms can be very expensive so make
sure that if this option is chosen there is a real tangible benefit to
doing so. Unless a strong relationship is developed with the provider
it is also likely that agreeing the terms will take longer because they
will be unfamiliar with them.
In this instance, we mean of the whole contract, including the
requirements and not just the contract terms. The risk of omitting key
provisions which would automatically have been included in standard
contracts must be considered, along with the extra time and cost of
actually doing the drafting work for new clauses. It is very important
that working protocols on terminology and structure are established
early on and communicated as there will be no prior models or
templates to fall back on. ‘Defined terms’ are the key terms of the
contract which will be repeated throughout the contract, both in the
conditions of contract and requirements. Before any work is done, it
is therefore worthwhile agreeing these and the overall contract
structure.
The above is simple to say, but requires considerable thought and
time to get right.

5.3.3 Activity 3: Brief the drafting team and those detailing

the requirements on 2a/b
If standard conditions of contract are being used, there is a need to
ensure that those who will be detailing the requirements are able to
understand its terminology and structure before they commence
drafting. They may already have knowledge and previous experience
and if so may need little briefing. Previously used successful
approaches often offer the lowest risk, e.g. how the technical
requirement is structured.
The drafting team will need to have an understanding of any
relevant amendments and of the agreed structure for the
requirements. If, during the briefing, valid suggestions for
improvement are made, they should be considered. Do not
immediately agree to make changes: it is better to think through the
impacts first. It would be preferable, though, to agree these changes
early on rather than introducing changes and revisions to make the
contract work when much has already been written.
If the contract terms are being drafted from scratch, the drafting
team will need to be briefed on the defined terms and the contract
structure.

5.3.4 Activity 4: Draft contract terms or amendments

Both the contract terms and the requirements should be:

■ Well structured; so that participants know where to find relevant

information.
■ Concise; so that having found the relevant section or paragraph, it
is not necessary to wade through unnecessary flannel or
legalese.
■ Precise; so that what is required is adequately described (without
over-specifying, which restricts innovation). We often find that
obligations may be expressed in abstract legal terms that could
be ambiguous. It is essential to express, in tangible terms, WHO
has to do WHAT, WHERE and by WHEN.

An understanding of the above should mean that each party better

understands what is expected of them, which in turn should lessen
the chances of any failure to perform thereby resulting in potentially
reducing the number of disputes. If problems do arise, the clarity of
contract terms and requirements usually leads to a speedier
resolution. Any ambiguities can lead to protracted disputes where
one party may interpret a clause to its advantage whilst the other
party may interpret it in another way as being to their advantage.

OUR TOP 7 DRAFTING TIPS FOR THE CONTRACT TERMS

AND REQUIREMENTS

1. Make obligations clear – use ‘shall/will’ and not ‘it is our

intention’, ‘we propose’ or ‘it is expected’.
2. Keep it as simple as you can – most project undertakings are
complicated enough without adding unnecessary complexity.
3. Keep language and terms consistent – contracts are not
literary works and do not require a variety of expression.
Ideally, state things only once and refer back to the original
statement. This avoids any small changes that are introduced
causing ambiguity and inconsistency.
4. Take account of the ‘rules of interpretation’ (see Activity 7).
5. Work through processes and consequences – what happens if
something is not done or not agreed?
6. Keep the drafting team size to a manageable number. If
sharing the work, plan up front in detail who is doing what and
what the drafting conventions are.
7. Get the members of the drafting team to review each other’s
work – this helps ensure clarity and consistency of style,
language, terms, etc. as the drafting of the contract
progresses. Even if something is written by one expert for
another expert, its meaning should still be clear to an informed
non-expert and be contractually correct.

5.3.5 Activity 5: Develop the requirements

To varying degrees, the requirements will have been partially
developed in the previous stages. We re-iterate that now is the time
to specify it to a level of detail which:

■ Ensures that the employer will receive a package of works, goods

or services that are fit for the employer’s purpose. This aspect
 needs to be viewed from both the employer’s viewpoint and the
potential provider’s viewpoint i.e. how they will read it.
■ Allows the provider as much leeway in what is provided and how
it is provided in order to achieve greatest value for money for the
employer.
■ Matches the strengths of the party who will be delivering it, e.g.
for a new construction asset, there is little point in specifying all
the benefits that the employer hopes to receive from it if the
constructor only has construction expertise and is building what
has been designed by a third party.

Developing the requirement has four stages:

1. Clarification and updating of the package scope and inter-

dependencies: This includes confirming the employer’s and
other stakeholders’ strategic goals as relating to the project and
package objectives, and verifying and clarifying of any potentially
conflicting or ambiguous statements regarding the package.
2. Elicitation of detail: To the level determined in the procurement
management plan for how the requirement will be expressed. Key
steps within this stage are to:
a. Agree techniques for soliciting requirements, e.g. value
engineering techniques, problem analysis, ‘board
blasting’/brainstorming, Ishikawa (cause and effect) diagrams,
structured interviews, etc., from which a programme of work
can be established.
b. Implement effective fact-finding processes through interviews
or workshops.
c. Identify features which are:
i. Needed: What has to be in the requirement for it to be fit for
purpose?
ii. Wanted: What would add value to the project and make it
better if accommodated?
iii. Nice to have: What is on the ‘wish list’?
3. Triage: Decide which features are appropriate to include in the
requirement. It is rarely possible to include every requested
 feature gathered during the elicitation activity due to disparate
priorities, limited resources, time-to-market demands and risk
intolerance. Deciding what should be in the requirement should
be judged by the project sponsor and the ultimate users,
facilitated by the project manager. Inclusion criteria should be
used to arrive at an agreed set of desired and realistic
requirements. This may be achieved by:
a. Identifying criteria for inclusion, e.g. technical feasibility.
b. Testing for a requirement, e.g. asking if it is a description of an
output.
c. Normalising requirements, e.g. discarding duplication,
omissions or ambiguity.
d. Testing all of the above with the employer and other
stakeholders.
Take care to ensure that the phraseology used to define the
requirement matches the type of specification you are seeking to
use, e.g. beware of brand preference. For instance, if you are
using a performance specification, but specify a component that
has to be used and the asset then does not meet the
performance requirement, the provider may well argue that the
component specified is the reason and hence not liable for the
lack of performance.
4. Detailing of the requirements: Much that was said in section
5.3.4 about drafting the contract terms (Activity 4) also applies to
drafting the requirement in terms of practical tips that were given
for drafting. The key point is that if the previous steps have been
followed, then the detailing of the requirement becomes much
easier and a much better requirement normally results.

5.3.6 Activity 6: Periodic reviews by the drafting team and the

project manager
This should include review of the drafting teams’ work by an
appointed and qualified peer delegate. The objective is for errors or
misunderstandings to be picked up early and resolved, rather than
being allowed to propagate throughout the whole contract
documents or the parts that an individual is writing. Review levels
may be from informal ‘buddy reviews’ through to systematic reviews
which are identified in the project plan for the drafting work. A good
test would be to discover if a person with some knowledge and
experience of what is being drafted, but by no means an expert or
specialist, understands what is required and how it is to be delivered.

5.3.7 Activity 7: External review

At a minimum, there needs to be an external review performed once
the contract terms and/or requirements are thought to be complete. It
is strongly suggested that there should also be periodic external
reviews to catch errors early in the process. External reviewers
should ideally be personnel that have had some involvement in the
earlier stages of drafting, as this ensures an understanding of what
the contract is about. External reviewers also need to have sufficient
legal and/or technical knowledge to be able to competently
understand the relevant documents.
Apart from comparing the requirement, however expressed, with
what is the desired outcome for the contract, reviewers of both the
contract terms and of the requirement (and for that matter the
drafters) should ask themselves the following questions:

■ Are there clauses that over-constrain the providers’ ability to

deliver; and hence potentially increase costs and timescales?
Two simple questions can be asked to challenge constraints:
a. ‘Who or what states that we must or must not do this?’:
This question should identify the source of the constraint. The
source may be a legal requirement or ‘rule’ of the employer
organisation. Alternatively the source may be questionable;
being perhaps, a local practice. subjective interpretation or
based on an invalid assumption.
b. ‘What would happen if this constraint was relaxed?’: This
question identifies the consequences of relaxing the constraint
and may usefully expand the leeway that the providers are
allowed to deliver the contract. As a result, potential providers
 may be less constrained in utilising their inherent expertise,
resulting in improved delivery timescales and/or reduced
prices.

■ What’s missing? It’s easy to evaluate and critique what is in front

of you. Stand back when looking both at the overall content and
each section and ask what, if anything, have we missed that we
should cover? Having said this, do not add additional rules which
over-constrain the provider and add cost.
■ Are the rules of interpretation (sometimes called ‘rules of
construction’) at the forefront of your mind? These are highlighted
in the box below. It should be noted that this list is not exhaustive,
but can be a pointer to the most common causes of disputes over
the meaning of drafted clauses. To some extent, the principles
below overlap each other and some may conflict in practice. In
this sense, they are not ‘rules’ but potentially conflicting
principles. The legal interpretation of a poorly written contract can
be problematic; causing arguments and counter-arguments to a
certain interpretation. The solution is a well-written contract that is
‘well-structured, concise and precise’, with its intentions openly
and unambiguously stated in the contract documents. In practice,
this is harder to achieve than simply stating it as an objective.

Rules of interpretation: Should a dispute go to court, the

purpose of the rules of interpretation or construction of contracts
is to discover the intention of the parties, as expressed in their
acts and words. Over the years, certain rules of interpretation
have developed with case law and statute. The objective of
stating them here is to avoid a contractual dispute developing in
the first place.

(1) Intentions are gathered from the words and conduct of the
parties in making the contract. Consequently:
■ A ‘secret’ unexpressed intention has no relevance.
■ If something is not stated or there is ambiguity in how it is
stated, then intention can be implied from the conduct of the
 parties.
■ Equally, where there is omission or ambiguity, intention can
be implied from the recitals, e.g. documents given as
background to the contract.
(2) Words will be construed to have an ordinary meaning, unless
it can be shown they are mutually understood by the parties to
have a special sense. This ‘special sense’ could be by custom
or usage in a particular industry or sector. It could also be by
reference to defined terms stated in the contract.
(3) Each party will be presumed to have used the words in the
context in which the other party was entitled to understand
them, i.e. a contract should be written to be understandable
from the other parties’ perspective, because that is how it will
be interpreted in the courts (see below).
(4) The words employed will be construed most strongly against
the party using them. This means that if there are two
reasonable interpretations of a set of words, one of which
favours the employer and one of which favours the contracting
party and it is the former who has written the contract, then
the interpretation which favours the contracting party prevails.
(5) All parts of the contract will be construed together and the
general intent thereby asserted will govern the interpretation
of particular words and phrases. For instance, if in 9 out of 10
places in the contract, it states that a party shall do something
in one way and in one part it says do it another way which
contradicts this, the general – the 9 out 10 – will apply.
However, if the ‘1 out of 10’ has a specific circumstance
attached to it, then it would apply in the specific circumstance
only (see point (8) below).
(6) Hand-written words will prevail over printed ones where in
conflict. The reason behind this is that the parties show their
real intention by hand-writing in words, even though they may
not have erased the printed word by mistake or oversight.
Include any post tender discussions and verbal agreements in
a summary document to be included as an appendix to the
contract.
 Consider including example scenarios in the terms of the
contract to clarify what terms mean in practice.
(7) Printed or hand-written words prevail over verbally stated
words or records of what was said, e.g. in pre-contract
negotiations. This is because it is far easier to prove what is
written than to interpret two different parties’ recollection of
what was said.
(8) Detail overrides generality: If in a part of a contract, it states
that in particular circumstances that a party shall do ‘X’,
whereas in a more general statement it states they shall do
‘Y’, then ‘X’ shall prevail in the particular circumstances.
Consequently, the particular circumstances need to be
described sufficiently, so that it is clear when ‘X’ applies. An
example of this in one standard form of conditions of contract
is a general statement that ‘subcontractor’s people and
construction equipment are treated in the same way as those
of the main provider’. The specific exception is for claims and
variations when they are treated differently, but only for the
purpose of pricing those claims and variations.

One means of reducing uncertainty in interpretation between

contractual documents is to state the order of precedence of
contractual documents. This provides that if there is ambiguity
between two documents, the one with the higher precedence
effectively overrides the lesser document.
Another mechanism for reducing uncertainty is the use of an
‘entire agreement’ clause. This guards against the potential for any
pre-contract discussions or un-referenced documents to be
construed as being part of the contract, when that was neither
party’s intention. An ‘entire agreement’ clause ensures that only the
documents referenced form part of the agreement or contract and
not any others, e.g. verbal agreements, notes of meetings recording
agreements or tender clarifications. It can be as simple as stating in
a conditions of contract clause something like “This contract is the
entire agreement between the parties.” The reader should note that
this does not exclude liability for fraudulent misrepresentation, i.e.
knowingly lying (which is also a criminal offence) and, without further
additional clauses, negligent misrepresentation, e.g. making a
statement which you think is true without having exercised due skill
and care in checking the facts or arriving at an opinion.

5.4 Outputs
The outputs from this stage should be ‘well-structured, concise and
precise’ documents as follows:

■ Contract terms.
■ Pricing document (if separate).
■ Requirements.

These documents can be used for either tendering or single-source

negotiation, which is described in Chapter 6.

Notes
44 Revay, S. G. (1993) ‘Can Construction Claims be Avoided?’.
45 Fenn, P. and Gameson, R. (1992) Construction Conflict Management and Resolution.
46 An appropriate level of record keeping should be done efficiently as part of normal
‘contract administration’ not just to be relied upon if a dispute occurs when things go wrong,
but also for auditing and accountability purposes generally.
47 The most high profile exponent of this is the NEC3 family of contracts which has
‘Stimulus to Good Management’ as one of its explicit three high level objectives.
48 http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/.

OceanofPDF.com
 6

Select provider and

award the contract

6.0 Overview
In this stage, the ‘best value’ available provider(s) for the individual
contracted-out project packages are selected and the contract
awarded to them. This stage is particularly key, as once the
contract(s) are placed, the legally binding commitments will have
been made and external costs will start accruing.
During this stage, a more detailed view is taken of what criteria are
used to shortlist and select the potential provider(s) given what they
will be asked to deliver in the contract, including risks allocated to
them and other factors such as market conditions.
The stage includes:

■ Definition of the selection criteria, which may include factors such

as track record, price and experience of personnel.
■ The process that needs to be implemented based on the overall
timescales of the project or programme.
■ The discipline that must be exercised in interactions with potential
providers to avoid prejudicing any competition, entering into a
contract inadvertently and/or under different terms than intended.

In this chapter, we describe an intensive selection process that

would be due on a significant contract. For smaller procurements,
the process can be tailored to be appropriately cost effective and
may not have as many stages. The available budget for the selection
process should have been initially estimated during the project
procurement strategy stage (see Chapter 3) and refined as
necessary during the package contracting strategy stage (see
Chapter 4). Further adjustment may be necessary during the
selection process as more information comes to light from the
informed parties involved (see section 6.4.2).
There are legal regulations governing the selection of providers,
including UK Acts of Parliament governing public procurement and
EU directives (as summarised in section 5.2.1). Consequently, it is
necessary to check that the process adopted does not contravene
any such legislation and we therefore strongly recommend that
specialist advice is obtained to ensure compliance.

6.1 Background
‘Best value’ is a term often bandied around and can mean many
things to different people within organisations and projects. Under
EU procurement terminology, a term used is the most economically
advantageous tender (MEAT).49 It should be understood that best
value is not limited to cost but can be better thought of as obtaining
the most benefit (in terms of cost, time quality and risk) given the
resource used to get that benefit. Whichever term applies, it normally
involves some combination of the following five factors:

■ What are we buying (what are we getting for our money)?

■ How are we going to obtain it? In a project environment, where
delivery happens over a period of time and often interacts with
other live services or assets, the ‘how’ of delivery can be just as
important as the end result (what you get).
■ When are we getting it (especially if there are programme
dependencies)?
■ How much will it cost? And this further splits down into purchase
cost and whole life cost.
■ An acceptable level of uncertainty associated with the above
factors. This is about assurance and the ‘comfort factor’.

The relative importance of these factors depends on the nature of

the deliverables being provided:

■ A time critical deliverable might be a school to be ready to service

the increasing population of children for a particular catchment.
■ A quality critical deliverable might be upstream valves for an oil rig
(and what happens if they go wrong (viz. Deepwater Horizon Oil
Spill of 201050)).

In the value continuum:

■ At one extreme, if the employer is specifying commonly available

low technology goods to be delivered by a certain date, then
providing the goods meet the technical specification, they will
primarily be selected on lowest purchase cost.
■ At the other extreme, for a unique and innovative package which
is critical to the success of the overall project, then the likely out
turn cost will be only one of many factors considered.

Thought, therefore, should be given to what, precisely, best value

means when selecting a provider for an individual contract and the
best process for ensuring that is what the employer gets. The Kraljic
matrix of section 3.3.6 is worth considering to help determine the
most appropriate relationship when deciding on a selection
approach.
6.1.1 Principles of an effective and efficient selection process
Both for the successful delivery of the contract and for subsequent
contracts, it is imperative that the selection process is:

■ Clear, with a degree of transparency, and hence unbiased (and

perceived to be so). If this is not the case, the reputational risk of
the employer organisation can suffer both in the general eyes of
stakeholders, e.g. press, public, politicians etc., and in the eyes
of those organisations that may bid for future work. If not so, then
they will either not bid or put in high prices for future work. To this
end, it is wise to identify the selection criteria in advance of
putting the tender documents together, and not once responses
are received. It is not necessary to publish the selection criteria
unless it is a public works tender (when it is an absolute must).
Publishing can lead to bidders concentrating solely on
‘answering’ the weighting matrix and not giving an ‘honest and
natural’ response.
■ Documented, so that a decision can be justified both internally
and, if necessary, externally.
■ Relevant, in terms of any questions asked are pertinent to the
specific contract. Having said this, the earlier filtering questions
on relevant experience and financial standing are likely to be
more general, while the final questions should be specific to the
package.
■ Proportionate, in terms of the value of the contract that will be
awarded and the effort needed to both answer and mark them.
By value, we do not just mean cost, but benefit and risks to the
overall project. Do remember that external effort is expended by
each and every one of the potential providers, which for all but
one will be largely wasted effort, and that each submission needs
to be marked by internal resource. There are a number of
electronic and web-based tendering tools available which can be
used for the administration of the tender process. A useful
guideline document on e-tendering is provided by Cooperative
Research Centres (CRC) Australia.51 These can significantly
 reduce the time required to analyse bids, as well as help ensure
consistency of fair and equal communications during the bid.

Having said the above, do:

■ Consider the consequences of getting the wrong provider through

running too lightweight a competition. Selection of the ‘wrong’
provider could lead to poor quality, delays and disruption to other
packages and additional un-budgeted costs.
■ Always undertake an element of post tender review and analysis,
to clarify bids, and re-visit if necessary.
■ Avoid the easy option of ‘automatic’ selection based on, for
instance: unsubstantiated opinion; the existing incumbent
providing satisfactory performance only when others could
provide superior performance etc. What appears to be a ‘no-
brain’ choice may end up as excessively costly. An objective
review is essential. It is best to solicit independent input outside
of the project team. Often other parts of the employer’s business
can have a very different impression of a ‘favoured’ provider.

In addition, the process needs to protect bidding organisations’

intellectual property rights and project specific solutions that give
them competitive advantage. At the very least, ground rules and
protocols for what, how and when information from an individual
tenderer is shared – if at all – need to be established upfront (see
section 6.1.4 below).

6.1.2 Legal compliance red flags

As we pointed out in section 6.0, due regard needs to be given to the
regulation of provider selection and the process should be checked
against the applicable legislation by a legal representative. In
addition, diligence needs to be given to the behaviour of providers as
contravention of compliance regulations governing aspects such as
such as health and safety, environment, bribery, modern slavery, etc.
Appendix C provides a list of ‘red flags’ where a provider’s behaviour
might suggest contravention.

6.1.3 Ownership, governance and personnel

The first fundamental need is to allocate the ownership of the
selection process to a named individual. This could be for the overall
project, e.g. the project manager, who may then delegate the
selection process for each individual package or category of
packages to a named deputy.
However, given the previously identified principles for an effective
and efficient selection process, for each competition it is necessary
that there is some sort of check and balance, both to ensure that:

■ The selection criteria used and process match the above

principles.
■ At the various stages of down selection, including final award,
they are fairly applied without favouritism or bias.

This implies that for whoever is doing the administration and scoring
of the proposals, there is always someone above them who is
checking. For instance:

■ If it is a small project with the selection process being run by the

project manager, then the process, selection criteria and scoring
and marking thereof are signed off by the project sponsor.
■ If it is a procurement specialist, then they are signed off by the
project manager.
■ Larger packages, especially with subjective criteria such as
written texts, presentations, site visits etc. are marked by
consensus.
■ Key packages on larger projects – or categories of packages –
are signed off by a provider selection panel (PSP), which may
include some members of the project board or steering group.
■ A formal sign-off template/report should, ideally, be prepared for
the project (an example template is provided in Appendix B).

These checks should not be line by line re-scoring, but sufficient to

ensure the previously mentioned principles are adhered to in
practice and that the bid will meet project/package objectives.

6.1.4 Communications control

Information of significance to the employer and the respective
providers will need to be passed between them in order to carry out
the selection process. Factors to be seriously considered are:

■ maintaining the confidentiality of information; and

■ ensuring bidders are given equitable access to information to
maintain fairness.

In order to control the flow of information a person needs to be in the

role of ‘communications controller’ whether as a dedicated role or
not. The communications controller will have the responsibility of
being the primary point-of-contact (PoC) and also for keeping
communication records being appropriately segregated.

6.1.4.1 Confidentiality
The confidentiality of information supplied to the employer by
providers and vice versa is to be respected. Individual companies’
intellectual property (IP) can be a valuable source of competitive
advantage and needs to be respected and appropriately controlled
by all involved parties. It is therefore imperative that a
communications protocol is set up between the employer and each
of the potential providers. Key features typically include protocols on
what the parties can share with other, primarily:

■ Information that is confidential to the employer, which is not to be

distributed outside the potential providers and their bid teams.
■ Answers to clarifications on the conditions of contract and the
requirement.
■ Individual tenderers’ IP and proposed project specific solutions.

In this respect, non-disclosure agreements (NDA’s) should be put in

place at an early stage in the selection process, which protect all
parties’ interests. Newcomers to the selection team need to be
informed of the terms of these NDAs and the whole selection team
periodically reminded, so that terms are not inadvertently broken
during or following any face-to-face interaction with potential
providers. A secure process is needed to store and respond to
questions and clarifications. This may well require infrastructure,
such as a secure internal file-server.
The obligations of the Data Protection Act 1998 (see section
5.2.1.1) must also be observed should any information be of a
personal nature (e.g. outline curriculum vitaes (CVs) of project
teams).

6.1.4.2 Information sharing

Fairness must be observed by providing information equitably
between providers to exclude the possibility of any bias. Where
clarification questions are addressed, it is necessary to share such
questions and answers with all bidders, having removed the private
details. Sufficient time for responses should be allowed for all parties
to respond.
At each stage of the down selection, it is also necessary to inform
successful and unsuccessful candidates, which avoids unsuccessful
providers wasting their time (this courtesy also helps to maintain
relationships). Unsuccessful bidders should be given brief feedback
on why they have been unsuccessful. An e-tendering tool (see
section 6.1.1) can automate and significantly simplify this process
and also provide traceable electronic records.
For a contract with a public authority the provisions of the
Freedom of Information Act 2000 must also be observed (see
section 5.2.1.1).

6.1.4.3 Selection team make-up

In a project environment where the employer’s and provider’s
personnel may well be working alongside each other, we
recommend that the core of the team that runs the selection process
should include those who will work alongside the chosen provider.
This will provide continuity and avoid steep learning curves during
delivery. During selection, it is also necessary to involve specialist
personnel including:

■ Procurement professionals to review the process, e.g. to ensure

appropriate protocols and regulations are observed such as EU
procurement rule.
■ Subject matter experts, who can be called in as and when needed
or desirable.

Subject matter experts: Users with subject matter knowledge

and expertise who may contribute to defining requirements and
acceptance criteria. APM Body of Knowledge 6th edition

Note that such specialist focus can be quite narrow, therefore they
need to be briefed on the big picture of the project, how the
individual package fits into it and the critical aspects of that package.

6.2 Risk management

The use of externally contracted resources impacts risk level
associated with a project. This level of risk is geared to the level of
dependency on the provider(s).
The necessary risk management plan should include:

■ Technical risks that are specific to the work being undertaken by

the prospective provider and that can be obtained from its own
risk register.
■ Technical risks, owned by the employer, associated with the
dependencies on the success of the provider in containing its
risks.
■ Risks associated with the external contracting itself.
The prospective provider should be asked for:

■ Its description of the nature of each risk.

■ The containment put in place.
■ The contingency allocated along with the method of calculation for
the associated risk budget.

It should be made clear who manages each risk as a contractual

obligation and who has liability, i.e. if the risk happens then does the
provider bear the resulting cost even if it has underestimated? There
are two commonly occurring connected dangers here:

1. There may be confusion between management of the risk (who

manages it) and liability if it happens. Ideally, they have the same
owner, but not always.
2. Ownership, as expressed in the risk register, may conflict with its
allocation in the conditions of contract.

Both 1 and 2 allow potential for dispute, therefore clear and

unambiguous expression is vital.
In addition to the risks, prospective providers should indicate all
dependencies upon which their proposals are based. These
dependencies may result in additional risks in the employer’s overall
risk register.
Appendix A (Table A1) provides examples of the typical risks that
are associated with external contracting together with
containment/preventative measures that may be applicable and that
should be accounted for during the selection process.
To avoid potential contractual commitments, all documents
supplied during the selection process, including any meeting
minutes, should include an appropriate declaration such as:

‘The content of this document shall not constitute a contract

either in part or in full and it shall not be implied that any
contract is to be placed between any parties as a result of any
statements herein’, often shortened to ‘without prejudice and
 subject to contract’.52

6.3 Inputs
The inputs to the select provider and award the contract stage are:

■ The availability of the project sponsor and, if appointed, project

board or steering group. Note that ownership of the selection
process will be assigned as a first activity of the stage, including
the appointment of a provider selection panel (PSP) for
significant packages, where warranted.
■ The business case and the procurement management plan
documents. A briefing for the selection team (being an individual
or PSP) should be prepared by the project sponsor focussing on
issues relevant to the package but also of the wider project
context. This briefing also needs to cover the available budget for
the selection process (see section 3.4). Note that this briefing
may give rise to some questions. For instance, if a cost-based
contract strategy is specified, then ability to do ‘open book’
financial administration is a prerequisite for successful
implementation. Not all providers may be prepared or able to do
this.
■ Knowledge, and in some cases expertise, on the relevant law.
While this varies with geography, it generally follows similar
principles. For each part of the world the appropriate research
needs to be done to determine the compliance requirements. In
the case of procurement crossing national boundaries, the
jurisdiction applying needs to be specified. As an example, while
the EU Procurement Directive covers the EU member states and
applies to all bodies doing work for public authorities; it is enacted
in the UK by an Act of Parliament and therefore will continue to
apply until this Act is changed, even after the UK has formally left
the EU. This legislation specifies criteria and process including
the need for, format and content of an advertisement right at the
outset of the process. If you wish to change something that was
 stated in the original advert, then the competition has to start
again. Such legislation is subject to change and case law, so is
not covered in detail here, but can be found on up to date
websites. Note that although precise EU procedures apply to only
public sector work the principles of fair competition law53, 54 apply
to all contracting work, of whatever value and also between
private sector providers. In competitive tendering the contracting
process must be manifestly fair to all.
■ The requirement as the nature of the work and ball park monetary
value will largely determine to whom the potential package is
advertised and which tenderers it will attract.
■ By the time of the final selection, in most competitions, it will be
necessary to have the final draft contract terms, requirement and
form of pricing document (albeit not yet priced) in place prior to
the final round of the competition as this will dictate the prices
tendered, including risk allowances, as well as written responses
which are specific to the package.

6.4 Activities
The process is illustrated in Figure 6.1.

6.4.1 Activity 1: Appoint provider selection panel (PSP)

The PSP should include:

■ Members from the project board or steering group.

■ Those team members who are going to work with the provider
(they could also be in the team who will do the administration and
scoring).
■ A representative of the ultimate user.
Figure 6.1 Process diagram for the provider selection stage

The PSP should be made up of unbiased personnel and the PSP

members should be required to state any potentially biasing interest
(e.g. share ownership in respondent companies or their parent
companies). Any conflicts of interests should be declared very early
in the tender process and where possible, such people should be
replaced.
The PSP will typically have its own terms of reference (ToR), will
set the ToR for the selection team and have an assigned
chairperson.

6.4.2 Activity 2: Agree what ‘best value’ means for the

package and resulting high level selection process, criteria
and weighting
The first thing for the PSP to agree on is what process will be used
to select the individual provider. The selection team may contribute
further information affecting the budget. If so, then this should go
through due governance and be approved or rejected by the project
sponsor.
Table 6.1 gives a very brief overview of the four main procurement
methodologies and, if they apply to the employer, the relevant EU
procurement procedures.
Having decided on the most appropriate process, a programme of
action needs to be drawn up which fits in with the overall project
timescales. Where there are numerous packages to be tendered,
then a ‘tender event schedule’ can be useful detailing all the pre-
contract activities and ensuring that all can be achieved/resourced
appropriately. Under EU procurement law, there are strict minimum
timescales which have to be adhered to. Given this, it is sensible to
have the initial meeting of the PSP sooner rather than later.
For most selections, there are two stages. Prior to getting into the
detail of writing questions, a set of outline selection criteria should be
established, which can then be developed by the selection team,
prior to being signed off by the PSP.
The initial shortlisting criteria will form the basis for the pre-
qualification questionnaire (PQQ). They should be short and simple
to answer, both by the organisations that might respond and those
who will score them. As an example, a criterion could be that any
company has to have a turnover of at least four times the estimated
value of the contract. This is so that any competing organisations
can quickly de-select themselves and not waste time on bids that
they cannot win. Likewise, the scoring organisation will not then have
to spend time evaluating what turn out to be non-compliant
organisations. It should be noted that when compiling a PQQ there
are potentially mandatory PQQ criteria to include, linked to the
regulation requirements applying (see section 6.0 above).
Criteria for the final selection, when there are fewer competing
organisations, tend to be more subjective and therefore take longer
both to write and score. The exception to this is the price component,
which is easy to score. We suggest (and this method is commonly
used) that a weighted value tree is used to understand what is
important to the employer or project for this selection exercise. This
should be broken down into more detailed criteria around which
questions can be based and the answers weighted in proportion to
the importance the employer attaches to them. An example is given
in Figure 6.2.
Table 6.1 provides advice of when to use a particular selection
methodology against the type of work being procured.

6.4.3 Activity 3: Develop the provider long list

The provider long list (if required, depending on the procurement
route) is compiled following research of the available providers. The
idea is to ‘market’ the package to attract expressions of interest. This
can be undertaken via Internet search engines, industry periodicals,
buying guides, recommendations and previous experience. Consider
hiring category/sector specialists, placing open adverts, hosting
‘meet the buyer’ events.
Market the package with the aim of ensuring that potential
providers are not only aware that it is out there, but that the best and
most capable (for the package) will bid, i.e. forming an attractive
proposition to them. Key information, including an overall description
of the outline requirements is a prerequisite, together with the likely
timescales for delivery. Consider doing this far earlier in the process
to have sufficient time to do it justice – compile a tender event
schedule very early in the project process (strategy stage or concept
stage – to avoid 11th hour work). If it is a major and unique package,
industry ‘open days’ may be held to consult with those likely to bid.
This helps shape and inform potential bidders how the package will
be let and engages with those who will ultimately provide the
package. A word of caution though; the engagement method will
often determine the initial impression of the employer. If this
impression is not good, then it can adversely affect the
attractiveness of the package to the market and may damage the
employer’s reputation.
Figure 6.2 Example value tree for a housing association
appointment

Table 6.1 Characteristics of differing procurement methodologies

Type Characteristics When to use (See also section 3.3.6 Equivalent EU

for consideration of the type of procedure (2016

supplier relationship) guidance)55

Open market (anyAdvertised to the world. When there is an exacting or precise The Open Procedure

organisation can Large number of bidders specification, normally for goods, and a

respond) Selection on lowest price sufficient number of providers who can

For example, e-Auctions. supply it (i.e. commodity type goods).

Limited When the employer has significant When there is a large number of The Restricted

competition (two knowledge of the market place providers who could potentially meet the Procedure

stage) and past experience of individual unique requirement, some filtering for Note that there has to be

providers (i.e. where an initial the best ones is needed prior to a a two-stage competition

selection can be done based on detailed bid. to be compliant.

experience). For the final bid, the employer can For ‘best value’ read

Initial stage using a PQQ, or only define what it is they want to a level of ‘most economically

a short list invited to tender. detail that ensures they will get it and advantageous tender’

The final selection is typically the constraints that the bidder must (MEAT).

done on best value criteria (a adhere to, yet both of these give the

combination of price and other bidder some leeway to innovate to give

factors). a ‘best value’ bid, howsoever that is

defined.

Ongoing Employer cannot define exactly High value adding requirements with a The Competitive

discussion, then what they want and/or how it is to large risk – both opportunity and threat Dialogue and

negotiation with a be delivered. They use the market – element in it. Competitive Dialogue

limited number of place to help them define this and, with Negotiation

providers in doing so, the market better Procedures

understands the requirement. A three-stage process of

pre-qualification;

invitation to participate in

the dialogue; and

invitation to tender (best

and final offer).

Single source Where the solution is very specific When time or quality is paramount. The Innovative

to a known source. Request for Ideally, there is an ongoing commercial Partnership Procedure

submission of alternative ideas by relationship which prevents the

providers. Negotiation with new employer from being taken advantage

providers or single source. of when pricing.

If the procurement is undertaken from within the EU and meets

certain criteria,56 then the employer will have to publish in
‘Supplement S’ of the Official Journal of the European Union,57
which will attract interest from those who think that they can fulfil the
outline requirement, i.e. the wider market itself may determine the
long list. We suggest that further helpful information about the
package be available to those potential bidders that may not know
the particular application domain of the package.

6.4.4 Activity 4: Develop pre-qualification questionnaire

(PQQ) and scoring criteria (and send to potential providers)
Once it is known how many and which providers are interested, a
pre-qualification questionnaire can be written, together with scoring
criteria.
The following information is normally asked from prospective
bidders at this stage:

■ Financial information: In order to provide reassurance that an

organisation has the financial resources to deliver the package.
For instance, current credit rating or the sales revenues of the
organisation relative to the estimated value of the proposed
package.
■ Industry and other external accreditations: For example, in the
aerospace sector providers may need to be accredited to specific
aviation standards, or in their industries there may be specific
BS/ISO standards to comply with. A common accreditation
requirement in all sectors is accreditation to ISO9001, the generic
international quality standard.
■ Organisational capacity and its capability to deliver the
outline package: This concerns the potential provider’s track
record of successfully delivering similar packages.

The reviewing of the presented financial information and

accreditations will normally yield a ‘yes/no’, ‘pass/fail’ result. The
associated thresholds need to be clearly stated in the PQQ to allow
competing providers to quickly de-select themselves and thus not
waste time on bids that they cannot win. Likewise, the selection
panel will not then have to spend time evaluating what turn out to be
non-compliant bidders. Indeed, if subject to EU procurement
legislation, potential providers are entitled to be informed of the
criteria and thresholds at the time that the PQQ is issued.
See section 6.4.7 (Activity 7) below for advice on the development
of the scoring criteria, which also applies to the PQQ version.
Regarding a presented track-record of successfully delivering
similar projects, most providers will have libraries of ‘case studies’
which they will select and fine tune depending on the information
they have on the employer, the package and the specific questions
asked. A challenge (particularly when at this stage there may be a
high number of responses to a PQQ) is to determine the veracity of
the presented case studies, as often the material presented may be
‘glossy marketing material’. Consequently, ‘hard’ and verifiable data
and references need to be requested. As an example of ‘hard’
verifiable data, in the construction sector there is a scheme called
the ‘considerate constructor scheme’ whereby, for each project,
external assessors give a score on how well a provider has
managed any impacts on neighbouring parties, including members
of the public and any adjacent businesses.
We recommend that a number of words or page limit is set to
encourage full, but succinct responses to the PQQ.
Questions asked in the PQQ should be posed from the
perspective of what is required for the specific package; however,
the bar needs to be set at an appropriate height to ensure that the
market has the ability to supply it.
Too low a bar and/or too many ‘yes/no’ or ‘pass/fail’ type questions
may lead to:

■ Too many of the interested potential providers pre-qualifying for

the next round.
■ There being little to distinguish those most suitable and able from
those less suitable and able.

In either of the above cases this may lead to the need for an
unplanned extended PQQ (Activity 6a) to be inserted into the
process, which causes extra expense and time to the employer, as
well as the potential providers.
On the other hand, too high a bar will lead to an absence of
sufficient competition at the final selection stages. To avoid an overly
labour intensive final stage of selection we recommend that the
number of bidders for that stage be targeted to be between three
and six.
In some cases, it may not be necessary to run an external pre-
qualification competition at all. Knowledge, research and effective
marketing may mean that the employer’s selection panel may
identify a sufficient number of suitable and creditable potential
providers to move to the final selection process without the need for
a pre-qualification competition (with due regard to fairness of
competition law). This can save all parties concerned the associated
time and cost.

6.4.5 Activity 5: Potential providers respond to the PQQ

Observing the guidelines as expressed in Activity 4 above should
minimise the cost and time required to respond to a PQQ.
Nevertheless, prospective providers will need to allocate due time
and resources to respond within the timescales required. It is
therefore important to provide prior warning of there being a pending
PQQ in order that providers can appropriately plan bidding activities.
Be clear regarding how potential providers should respond in
terms of the medium (e.g. hard copy, e-tender tool or email), where
the response should be sent and, of course, a closure deadline.
Also, state in the documentation that the employer:

■ reserves the right not to place any contractual arrangement

following the PQQ evaluation;
■ will not be responsible for any work undertaken by responding
organisation or costs involved, and
■ may require further stages of selection.

This information should all be defined in the PQQ pack together with
how to communicate with the employer regarding any questions and
queries.

6.4.6 Activity 6: Evaluate and down select to a shortlist

During this activity, the responders to the PQQ are evaluated and
marked against the assigned scoring criteria. If the previous stages
have been well executed (in terms of the questions posed in the
PQQ and the scoring criteria) then the process should not be too
onerous in terms of scoring each individual response.
It, however, remains a risk that if the package has been
successfully marketed and the bar set too low, then marking the
resulting high number of responses can be quite an onerous activity.
Regardless, the selection process against PQQ responses should
generate a shortlist of between three and six potential providers.
Both the successful and unsuccessful responding organisations
should be informed of their selection/non-selection at this stage. If
you give any reasons for their non-inclusion make sure it is short,
succinct and based on fact. It is best in the long run to be honest
with the reasoning given.

6.4.6.1 Activity 6a: Repeat 4, 5 and 6 with those remaining

using an extended qualification questionnaire (EQQ) if there
are too many
In highly competitive markets it is sometimes difficult to select a
shortlist immediately from consideration of the PQQ responses. This
could be by design, whereby the initial PQQ is more designed to
quickly eliminate those definitely not suitable, while the EQQ is
designed to go a bit deeper to select those most suitable.
Alternatively, it could be by accident whereby the initial PQQ did not
provide sufficient differentiation for the final selection. For example,
in extreme circumstances, say 15 organisations scored top marks, in
this case an EQQ is used to request further information to be
considered.
6.4.7 Activity 7: Develop the final selection criteria and
marking scheme and send tender to potential providers,
together with a draft contract
To ensure fairness and a ‘level playing field’, key information that has
a bearing on the requirements must be provided to all contenders.
This information often is generated as the response to questions
asked by potential providers, but which clarifies the solution required
for all. The requirements for the solution may also have changed
during this dialogue (e.g. an off-the-shelf solution may be found that
eliminates custom works), and in that case all contenders should be
informed of the change.
If Activity 2 has been carried out thoroughly then the selection
team will have a good basis for developing the final selection criteria.
The final selection criteria will need to take account of further
technical detail that will have been developed in parallel with the
PQQ process and also may be influenced by specific responses to
the PQQ/EQQ. Such feedback from potential providers may point to
the most efficient implementation methodology. The score weighting
will then need to be updated in consultation with the PSP for sign-off.
The most common error we observe when developing scoring
criteria is that they are expressed in too prescriptive a way, almost
telling the potential providers what to write in their responses. This
can lead to there being little or no differentiation between responses.
This is particularly irksome at the top of the scoring criteria when one
potential provider just ‘ticks the boxes’ to score maximum marks,
while another does this and manages to differentiate themselves
with the ‘wow’ factor, yet also scores the same top marks. An
example scoring criteria which may avoid this pitfall is given in Table
6.2.
Make sure the scoring metrics are objective, relevant and specific
– not too generic, and not too long as to make points irrelevant.
Consider whether some scores are part of a weighted approach or
are yes/no gates.
Good practice is that the final invitation to tender (ITT) includes the
scoring criteria to be used and if subject to EU procurement
legislation this is obligatory.
As outlined in Activity 4, we re-iterate the desirability of number-of-
words or page-limiting written responses.

Table 6.2 Example scoring criteria

Score Response Type Reason indicated for Score
0 Non-compliant response No relevant information/solution provided in response to contract requirements.

1 Unacceptable response Partially compliant response but with serious deficiencies in solution offered,

indicating serious difficulties/inability to deliver contract requirements.

2 Unsatisfactory response Partially compliant response with shortfalls in solution offered, indicating not all

contract requirements could be met and thus difficulty in delivery of the contract.

3 Acceptable response Compliant response, indicating basic contract requirements are met but not

exceeded. Contract could be delivered.

4 Good response Compliant response, clearly indicating entire delivery can be met and solution

offers some limited benefits beyond stated requirements.

5 Excellent response Compliant response, bidder illustrated comprehensive understanding of contract

reqs. Proposed solution provides significant additional benefits beyond stated reqs.

A full invitation to tender (ITT), which is issued to all tenderers,

normally consists of:

■ The instructions to tenderers which detail the process that is to be

followed and relevant timescales. If there are to be presentations
and reality checks, especially if scored, these should be stated up
front. The instructions should include:
□ An introduction to the project explaining the overall outcomes
expected, the scope of work, key specifications and overview
drawings.
□ Any specific questions if the bidder is being requested to
submit a technical proposal.
□ Details of any project constraints, such as the programme
sequence or site access.
□ The form of pricing, which may be in a prescriptive form to
allow comparison.
□ Details of any mid-tender meetings and/or questions and
 answers process.
□ A checklist for what documentation should be submitted with
the tender (to ensure all required info is provided).
■ An outline programme schedule indication.
■ The (near final) draft contract pack (including contract terms,
requirement, any annexes (e.g. a statement of work – see section
6.4.10.2 below) and pertinent standard reference documents
applying.

Lastly, it is an option that potential providers may be given the

opportunity to provide a non-compliant, or variant, bid in addition to
the compliant bid. This gives the potential providers an opportunity to
offer a ‘value added’ solution where the additional benefits (whether
due to enhancements or cost savings) may outweigh those of the
proposed technical requirement as given. This could include, for
example, removing a constraint. The ITT should state how such a
non-compliant proposal is to be evaluated.

6.4.8 Activity 8: Tendering provider proposals and interaction

The final ITT engagement process may consist of the provision of
written responses and formalised clarification questions and answers
or may additionally include presentations and ‘reality checks’. The
applicable process elements are described in Activities 8a and 8b
below.

6.4.8.1 Activity 8a: Tenderers provide their responses

As with the issuing of a PQQ in Activity 5, reasonable prior notice of
the issuing of the ITT should be given to the short-listed providers to
enable the mobilisation of their bidding teams.
The potential provider’s proposal-writing team will often need to
include busy subject matter experts and also delivery personnel that
may well have commitments to delivering existing already won work.
Sufficient time must therefore be allowed for responses to be
prepared.
6.4.8.2 Activity 8b: Presentations and reality checks
The process of assessment of individual ITT responses may often be
helped by undertaking additional activities consisting of
presentations and/or ‘reality checks’, as described below.
Presentations (or a project ‘walk-through’) to clarify
understanding of what has been bid: It may be appropriate to
request responders to give a time-limited presentation to the PSP
followed by a question and answer session. The reasons for doing
this include:

■ standing back from the detail of the individual responses to gain

the ‘big picture’ of what will be delivered and how it will be
delivered;
■ to clarify the detail of individual responses; and
■ in doing the above, see ‘the whites of the eyes’ of the people that
the employer’s team will hopefully be working with, as opposed to
against, to deliver the package successfully.
■ During these interactions an assessment should be made of how
much management time is likely to be needed to interact with the
provider. This estimate should feed into the overall management
budget for the project.

Consider the merit of doing this either before, during or after the bid,
depending on timescales – to get a good mutual understanding it will
be needed at some point, and possibly on multiple occasions. So
allow enough time to do it.

Reality checks (a process to clarify the bids received): Reality

checks can be undertaken to differentiate potential providers and to
weed-out those that have made embellished claims. Forms of reality
checking include:

■ Demonstrations of existing similar solutions.

■ Visits to existing customer sites, or other facilities (e.g.
manufacturing) that the provider would use in implementing its
proposed solution.
■ Checking references, via telephone conference or more formal
interviews.
■ Observing the proposed provider team in action by, for instance,
setting them a scenario for them to work through. Sometimes,
this would include them working with the employer’s team.
■ Evaluating their behaviour when in negotiation.

For both the conducting of presentations and the undertaking of any

reality checks the PSP may need to be augmented by the inclusion
of key subject matter experts (SMEs) and the employer’s delivery
personnel to address the due technical detail and to assess the
tenderer’s responses to technical questions.
It should be noted that throughout both presentations and reality
checking careful management is required to ensure that unfair bias
does not creep in.
It should be emphasised that the same unbiased format should be
used for all bidders. Beware lethargy. Allow sufficient time – you
don’t want to be rushing through meetings – this is the time to get
the package understanding right.
Document the outcomes of the meeting, and follow the clarification
up professionally. These clarifications can be used (and relied upon)
later, as part of the final contract if carefully prepared.

6.4.9 Activity 9: Evaluate and down select

The evaluation and down-select process followed for the ITT must
be consistent for all responders. Standard, let alone good, practice is
that the scoring criteria is prepared prior to receiving responses:

■ If subject to EU procurement, tenderers must know the scoring

criteria prior to bidding.
■ The more subjective the responses, i.e. written text, the more
important it is to have a number of markers and to record reasons
for the final mark, especially if there is initially variation in scoring,
e.g. if initial scores range from 3 out of 10 to say 8 out of 10, with
the final score being 7, the difference of opinion needs to be
 reconciled and justification for the final score. This is especially
true under procurements subject to EU procurement regime, as
to satisfy transparency, bidders can see these reasons and
challenge.
■ It makes sense to collate these scores and the weightings in a
spreadsheet which calculates final mark automatically (see Table
6.3).
Table 6.3 Example provider selection scoring table
Item Aspect Element Supplier Supplier Supplier Supplier
Weighting Weighting 1 2 3 4
Product Demonstration
10% 66% 90% 71% 63%
Demonstration 1
50% 62% 90% 70% 55%
Demonstration 2
50% 70% 91% 72% 70%
Functional
25% 84% 92% 74% 57%
Requirements

Data Display
12% 65% 95% 65% 59%
Display Manipulation
12% 89% 98% 78% 50%
Tools
12% 88% 84% 51% 11%
Data Interfaces
12% 73% 93% 53% 10%
Standards Compliance
12% 84% 87% 82% 38%
Safety and Security
10% 83% 82% 87% 93%
Training
10% 85% 100% 57% 65%
Performance
10% 100% 100% 100% 100%
Host Platforms
10% 89% 88% 95% 90%
Technical Architecture
10% 77% 77% 70% 58%
Open Standard
40% 70% 70% 60% 50%
Service Orientation
40% 80% 80% 70% 50%
Ability to evolve with
40% 80% 80% 80% 75%
requirements

Execution/Vision
20% 90%
Vendor Viability
50% 90% 90% 90% 90%
Product Viability
50% 90% 90% 90% 90%
Indicative Cost
25% 72% 82% 38% 46%
Licence Structure
10% 90% 95% 80% 80%
Product Price
40% 94% 100% 13% 63%
Maintenance and
30% 45% 75% 0% 0%
Support Price

Implementation Price
20% 60% 59% 60% 41%
Reference
10% 30% 70% 60% 60%
Reference Sites
50% 30% 70% 60% 60%
Customer
50% 30% 70% 60% 60%
Recommendations

Overall Result
74% 67% 48% 44%

6.4.10 Activity 10: Clarifications and final contract

negotiations prior to awarding the contract
Once the successful provider has been selected it is necessary to
put in place the final agreed contract and arrangements for speedy
start of the associated works.

6.4.10.1 Final clarifications and negotiations

In some cases, some further negotiation may be required to finalise
the contract documentation. A good article which covers the common
legal pitfalls and what to do about them can be found in the APM’s
Project magazine,58 with an extended version published on-line.59
At this stage, it is important to ensure that the final contract
documentation does not unfairly favour the selected tenderer over
the other respondents. Any changes must not affect the result of
tender evaluation (scoring). Additionally, it is imperative to check that
the selected tenderer has responded against the latest and complete
versions of the contract documentation with no amendments or
questions outstanding.

6.4.10.2 Contractual documents and associated content

 Ambiguity and precedence
The contractual documentation pack needs to be thoroughly
checked to remove ambiguity, however there is a risk that some
statements may be open to interpretation. For this reason, it is
important to include a statement of precedence for the documents
forming the pack. Providing numerous annexes can be useful but
also can give rise to contention, therefore it is best to moderate the
need for additional documents.

Contract terms
The employer will provide the terms that define the contract, which
will be nominally as defined in the prepare contract terms and
requirement stage (see Chapter 4), but may require adjusting
following the negotiations undertaken during provider selection. The
‘conditions’ of contract form the top-level document that will define
the legal basis for the contract and will normally be drafted by the
employer’s commercial department or lawyer. Conditions are the
words that cannot change except by a supplementary agreement by
the parties to the contract. Other documents and terms, such as the
requirement, may be in ‘bite sized’ annexes. This allows for flexibility
during the negotiation phase and during execution, when it may be
appropriate to apply contract changes. Annexes may also refer to
additional documents (e.g. a SoW).

The provider’s technical proposal (if applicable)

For performance type specifications, the provider may also have had
to develop a technical proposal response (to varying levels of detail)
which details what the provider is going to supply to satisfy the
employer’s performance requirements. If one of the principal reasons
for selecting the provider was because of the advantages of their
proposed technical solution this document may be referenced as an
annex in the contract. If not, at best, there will be arguments which,
at worst, may result in the provider not having to supply the technical
solution which was a primary reason for their selection (although
they would still have the legal obligation to meet the employer’s
requirements).
In addition to referencing the document into the contract, we also
recommend that there is an explicit statement in the conditions
giving precedence (see ambiguity and precedence above) to the
employer’s performance requirements. This is to ensure that if there
is an ambiguity or inconsistency between the two documents, then
the employer’s requirements will prevail.

A statement of work (SoW)

A SoW can be a useful tool as an annex to the contract terms to
provide specific details for the solution not contained in the
requirement and for example, the preferred project management
methodology. The SoW may allow iterative dialogue, regarding
specific points, to go on as parallel negotiations to define the optimal
way for how the solution is to be delivered by the provider.
Beware however, that a SoW can also be a further source of
interpretation and ambiguity and therefore an ongoing review
needs to be carried out across all contractual documents. As stated
above, we recommend that a precedence clause is included
mandating the precedence tree.
The SoW may go through a series of drafts to clarify work
packages and procedures. Example content may include (if not
already covered in the contract terms or requirement):

■ Description and scope of work.

■ Expected key milestones.
■ Deliverables list and acceptance criteria.
■ Quality requirements.
■ Project management requirements (e.g. risk management,
organisation chart, key meetings).
■ Communications provisions.
■ Security requirements.

6.4.10.3 Provider’s priced proposal

The provider should respond against the documentation pack in the
form of its cross-referenced priced proposal. The response may be
split into ‘technical’ and ‘commercial (priced quotation)’ bindings for
consideration by separate employer departments. As above it needs
to be stated and understood that in the case of any contention
remaining (which should have been eliminated) then the employer’s
documentation will take precedence.
Once the parties are ready to enter into a contract, the provider
should acknowledge its acceptance and this is most conveniently
facilitated by the employer sending an acceptance form or ‘form of
agreement’ with the contract documents for signing and return. Make
sure that any changes/clarifications are embodied in the contract
terms now, and not left until after the contract is signed.
Some special contracts, such as deeds, are different from normal
contracts. It should be considered whether part of the contract being
considered may involve a deed or another special contract to be
required (e.g. a deed will govern a conveyance of land or interests in
land, certain types of mortgage or charge, powers of attorney). In
these circumstances a lawyer should be consulted to look at the
specifics and the bearing on any other contract.

6.5 Outputs

6.5.1 Award of contract

Once the successful provider has been selected the award of
contract is enacted by the contract being signed by authorised
parties representing the provider and the employer. Note that these
parties need to hold the appropriate delegated authority level for the
value of the contract. It also needs to be double-checked that the
provider has signed the contract based on the full set of finally
agreed documents supplied by the employer and has not made any
amendments.

Notes
49 http://www.europarl.europa.eu/news/en/news-room/20140110BKG32432/new-eu-rules-
on-public-procurement-ensuring-better-value-for-money.
50 Encyclopaedia Britannica (2010) Deepwater Horizon Oil Spill of 2010.
51 Kajewski, S. (2006) Guidelines for Successful eTendering Implementation.
52 Broome, J. C. and Horne, R. ‘Point of Law’, pages 56–58, Project journal, issue 287,
Summer 2016.
53 UK Act of Parliament, 1998, The Competition Act 1998.
54 Act of Parliament, 2002, The Enterprise Act 2002.
55 Based on the UK Government Guide (UK Crown Commercial Service, 2016).
56 See http://europa.eu/business/public-contracts/index_en.htm for further information.
57 The Official Journal of the European Union (the OJEU) is the official gazette of record for
the European Union (EU). It is published every working day in all of the official languages of
the member states.
58 Broome, J. C. and Horne, R. ‘Point of Law’, pages 56–58, Project journal, issue 287,
Summer 2016.
59 http://www.jonbroome.com/blog/june-2016/what-every-project-manager-should-know-
about-offer and acceptance: common pitfalls of the ignorant and what to do about them.

OceanofPDF.com
 7

Manage and deliver the contract

7.0 Overview
This chapter describes the delivery stage; when the employer’s
project manager is required to manage the delivery of what has been
described in the individual providers’ contract(s) as part of the overall
project. The employer’s project manager will have initiated the
overall project and briefed his/her internal team as part of the
organisation’s standard project management procedures.
Management and delivery of the contract therefore is a flow-down of
that process in the context of using an external provider. The delivery
process described below is for a significant contract. The process
should be tailored to be cost effective in keeping with the cost-base
for the contract. The individual management budget should have
been determined during the select provider and award the contract
stage (see section 6.4.8.2).
7.1 Background
Once the contract has been placed ‘and the clock is ticking’ the
provider is obliged to deliver the required solution in keeping with the
specific provisions of the contract.
Solution delivery is best broken down into manageable chunks (or
phases) as shown in Figure 7.1 although it should be recognised that
these phases may often overlap and involve repetition to iteratively
build-up the solution over time.
To re-iterate a point we made earlier, it is necessary that the
employer’s project/contract manager has the ability to manage the
contract as well as administrating it. By ‘administrating’ the contract,
we mean, for example, certifying payment and ensuring technical
compliance against progress in stages. Traditionally, ‘administrating’
has also meant collecting records in order to be able to defend a
potential payment claim once the full requirement has been
delivered.
During drafting of the contract terms, flexibility to allow the efficient
management of change should have been addressed. The contract
should not tie the hands of the employer’s project manager to be
able to apply flexibility where it is due and as the project progresses.
Such flexibility can often avoid undue negotiation dialogue that has
to be backed-up by the associated paperwork. Of course a project
manager may be assigned following the completion of all of the
previous stages. In this case the project manager may find
encumbrances that are not ideal, such as an inadequate provider
selection process. In this case the project manager may need to
backtrack to revisit the earlier processes (using this guide as an aid)
to make-good the situation. The generic procurement and
contracting risks of Appendix A may also provide a useful checklist to
spot emerging issues.

7.2 Inputs
The inputs to the manage and deliver the contract phase will be
formed by the outputs of the previous stages, including as a
minimum:

■ Written acceptance of the contract from the provider signed by a

duly authorised person (checked to ensure that the version is the
latest and is not subject to modification).
■ The conditions of contract document.
■ The requirement document.
■ All other documents referenced in the contract, including where
applicable:

Figure 7.1 Solution delivery phases

□ Statement of work.
□ Non-disclosure agreement (NDA).
□ Work breakdown structure.
□ Project schedule.
□ Key payment milestone and acceptance criteria definition.
□ List of deliverables.
□ List of dependencies and assumptions.
□ Risk register.
□ Security requirements.
□ Warranty and support provisions.
■ The provider’s technical proposal.
■ The provider’s pricing document.

It should be noted that some, if not all, of these documents may be

commercially sensitive and the appropriate marking should be
applied according to the non-disclosure agreement (e.g. ‘commercial
in confidence’ quoting the NDA reference). Due attention must be
paid to the personnel allowed to view this information, e.g. where
more than one provider is used each may be mutually excluded from
viewing the other’s documents.

7.3 Activities
The overall process is illustrated in Figure 7.2 and the individual
activities are described below.
At the outset, the initiation stage sets up the necessary
infrastructure for running the overall project and should include
forming the necessary relationship(s) with the provider(s).

Figure 7.2 Manage and deliver the contract process

It is almost inevitable that some more detailed delivery planning

will need to be conducted to firm-up the detail of what the provider(s)
need to supply and how it will integrate with the rest of the solution;
including the employer’s work packages and those of any other
providers. The planning/definition stage is therefore included
following Initiation, its depth depending on the level of planning
already conducted during provider selection.
The follow-on implementation stage may include design and build
sections, culminating in the final delivery of the solution preceding
the contract closure, handover, operation and support stage (see
Chapter 8). For goods, the delivery of the requirement may be at a
point in time. For works, such as the construction of an asset,
delivery happens over a period of time.
Several parallel management activity streams need to be carried-
out during Implementation:

■ Work package execution (whether internal or contracted):

The work must be undertaken in an ordered sequence to take
account of the dependencies across the delivery teams. This
often is carried out in a cyclic fashion to allow for integration of
the work package outputs to take place to build up the solution.
■ Risk management: Risks may emerge, become issues or be
retired throughout implementation and need to be constantly
managed to minimise impacts.
■ Change control: Changes during implementation (whether
initiated from internal or external sources) are to be expected and
need to be catered for as part of the normal delivery process.
Depending on the risk allocation in the contract, some change will
be at the provider’s risk and some will be at the employer’s risk
resulting in a price change and/or schedule extension.

7.3.1 Activity 1: Initiation

Initiation needs to focus on the specific needs of the contracting
relationship for each individual package (large projects may need
several initiation streams covering many packages). Regardless, it
needs to be done quickly and efficiently and in accordance with the
contract – so before a package is initiated, key participants need to
have read the contract.
The initiation stage is the point when the employer’s project
manager needs to take the initiative and provide leadership to his
internal team and to the provider’s project manager and senior team,
promoting action and efficiency. We suggest that the employer’s
project manager uses a structured initiation process as described
below in Figure 7.3.

7.3.1.1 Contract review

A first action of the employer’s project management team should be
to review the contract, specifically to ensure the contractual
documentation (contract terms, requirement and any referenced
SoWs) are correct and complete (particularly the issue status).
Inconsistencies or omissions could, in extremis, invalidate the
contract. More likely, they will cause delay and extra cost to one or
both parties, but aggravation for both parties. Moreover, the delivery
team need to understand and appreciate how to operate the contract
and what has to be delivered. The initiation phase (and indeed the
follow-on phases) is eased significantly by the definition of detailed
provider SoWs (annexed to the contract) during the select provider
and award the contract stage (see Chapter 6).

7.3.1.2 Identify key roles, responsibilities and levels of

delegation
Ideally – and highly desirable – is that the employer’s project
manager will have been involved during the negotiations and already
have met the key players. Management of providers is very much a
people-orientated activity and it is desirable that people from all
parties need to get to know each other (ideally during the negotiation
phase but certainly at the inaugural meeting).
Figure 7.3 Initiation stages

Responsibilities within the respective organisations should be

defined so that ownership is clear. Stakeholders (all management
staff including their names, seniority, responsibilities and reporting
line – organisational chart) within each of the parties should be
identified in order for the employer’s project manager to develop a
stakeholder management plan. Key roles are typically:
For the employer
Project manager: Oversees and has responsibility for the project
delivery. Has ultimate responsibility for the performance of the
project and providers.
 Contract manager (if not the project manager): A person
nominated to manage the provider, undertaking day-to-day
communications and reporting progress and issues to the project
manager.
Commercial/purchasing managers: Persons responsible for the
contract and the drafting of any change orders.
Technical authority (TA): The senior person responsible for the
technical solution.
Quality representative: The employer organisation’s person
responsible for approval of the quality plan, auditing and delivery
quality sign-off.
For the provider
Project manager: The project manager responsible for all project
management processes on the provider’s behalf. This person will
normally be the primary point-of-contact for the employer’s project
manager.
Commercial representative: The person responsible for
contractual negotiations and pricing issues for the provider.
Technical authority (TA): The senior person at the provider
responsible for the contracted technical solution.
Key design and development personnel: The team of personnel
responsible for working on the contracted packages.
Quality representative: The person responsible for quality aspects
on behalf of the provider.
Delegated authorities to perform key tasks (e.g. issuing/approving
variations, signing off payments, etc.) should be discussed and
agreed so that people know who their opposite number is and the
limits of their authority. This delegation must be formally
communicated across the parties.

7.3.1.3 Schedule meetings and set agendas (prioritising the

inaugural kick-off meeting):
The number and types of meetings, together with agendas should
have been specified in the contract as this has a bearing on
employer/provider costs. If not, then this needs to be specified.
Regardless, details need to be worked through. The types of
meeting normally consist of:

■ A provider inaugural kick-off meeting.

■ Regular review meetings.
■ Technical meetings (e.g. design or gate reviews).
■ Ad-hoc meetings to address specific concerns or issues.

For each type of meeting the nominal attendance, agenda and

minutes format (and who takes them) needs to be set. Record
keeping is vital to avoid different recollections of verbal agreements
developing.
Provider inaugural kick-off (KO) meeting
It is good practice to invite representatives of the wider provider
delivery team to the inaugural KO meeting to allow any questions or
clarifications to be dealt with. Where there are provider
interdependencies then representatives of the involved providers
should attend.
The KO meeting is a chance for the employer’s project manager to
assert his/her authority and make clear expectations. The KO
meeting should be a platform to make sure all understand the drivers
behind the project; what their part is in it and how the contract
impacts on them. It is also a chance to gauge the ‘atmosphere’ and
the temperament of the team members, which could impact
performance. The employer’s project manager should set the
agenda and chair the meeting. A typical agenda would include:

■ project/programme overview;
■ stakeholder management;
■ communications;
■ change control;
■ configuration management;
■ quality management;
■ planning and project schedule;
■ reporting;
■ resource planning;
■ delivery planning;
■ acceptance; and
■ actions agreed.

The detailed governance arrangements for the employer and the

provider need to be confirmed (in conformance with the contract),
including an escalation procedure to cover how any issues/disputes
that develop between the parties will be managed.
In section 4.4.5 we describe a formal set of issue/dispute
resolution procedures which can form part of the contract in order to
make clear the escalation process and the options in the event of a
dispute becoming serious. By careful monitoring of the project’s
progress and the way in which the employer/provider relationship is
progressing, the respective project managers can detect early
warning of issue escalation enabling action to ‘nip-in-the-bud’. A
positive relationship formed between the respective employer and
provider project managers is key to avoidance of costly issue
escalation and potential litigation.
At the KO meeting points of contact (for inclusion in the
communications plan) should be identified to allow the controlled
transfer of information and day-to-day management interaction.

7.3.1.4 Formalise communications

In section 6.1.4 of the select provider and award the contract stage,
we emphasise the importance of controlled communications. A
communications plan should be developed to formalise
communication routes and information management. The key roles,
responsibilities and levels of delegation determined in section 7.3.1.2
should form the starting point and a RACI (responsible, accountable,
consulted, informed) matrix developed (if not already specified in the
contract) to identify who is responsible, accountable, consulted and
informed during the contract.

7.3.1.5 Agree tools and conventions to be adopted

Different organisations will have chosen, or developed, their specific
tools to be used to conduct their operations (registers, databases,
workflow systems etc.). The tools chosen may impact the extent of
information available and how it can be communicated to others (e.g.
there are multiple project scheduling tools available – some
compatible and others not). The contract may have specified the use
of specific tools by the provider in which case there should be no
issues. In many cases, it will be unrealistic to expect the provider to
invest in specific tools to be compatible with the employer (e.g. the
provider may have a large infrastructure that is costly to adapt, e.g.
an electronics production line or material requirements planning
(MRP) system).
It is necessary to determine the actual tools that will be used by
each party and, if incompatible, how information will be transferred.
Additionally, the conventions that will be used (e.g. date, time and
document configuration standards).
Often, providing document performas (e.g. for the write-up of
meetings and contractual communications between the parties) can
help.

7.3.2 Activity 2: Planning and definition

It is unlikely that everything down to the last detail of exact goods
and services will have been specified in the requirement. A planning
and definition phase is therefore almost certainly required. Thorough
planning often pays back hugely by saving wasted effort/rework
during design/build.

Consultation: The key to a successful planning and definition phase

is thorough consultation across all parties. Feedback from the
provider should be thoroughly analysed as often suggestions from
the implementer provide a practical/experienced insight into the
problem areas and any ‘stock’ solutions available.
Technical agreement can often be expedited by undertaking
workshops at which all contributing parties participate and have the
chance to air their opinions/preferences. At such events, it is
essential to state the objectives of the event and to ensure that it has
a facilitator/chairperson. The outcomes in the form of decisions and
actions should be carefully minuted to avoid subsequent contention.

Procurement-scheduling: An important planning activity is the

linkage of the overall project schedule to the in-feeds required from
the providers. Ideally in-feed dependencies have been taken into
account during contractual negotiations. However, we find that in
practice it is often the unexpected dependencies that cause cost and
time overruns. Planning and definition activities therefore need to
include a review of the respective schedules to identify any
additional linkages (bearing in mind that manufacturing lead-times
can vary day-to-day). Dependencies may also be due to the
supplying of key information and approval turn-around. Bear in mind
that there may also be provider–provider dependencies that could
ultimately cause delay or cost overruns.

De-risking: During the planning and definition phase it is often of

value to undertake investigative or experimental works in parallel
with the above activities. Such activities may be able to reduce or
remove risks that would otherwise impact the implementation phase.
Examples of such activities would be to evaluate a number of
competing products to make a selection or to produce a basic
prototype/model to establish key performance parameters possible.

Planning and definition phase outputs: Typical outputs defined at

the conclusion of the planning and definition phase include:

■ documentation plan (indicating the hierarchy and ownership

(provider/employer) of technical design documents);
■ outcome of any de-risking activities;
■ baseline provider schedule including project milestones in
alignment with the payment milestones of the contract;
■ updated risk management plan (for both parties); and
■ approved quality plan.
These outputs should have been subject to review and any
contention may trigger contract change requests, that should be
resolved by the end of the planning and definition phase via the
change control procedure (see section 7.3.5).

7.3.3 Activity 3: Implementation

In Figure 7.2 we depict an ‘implementation cycle’: ‘Design, Build,
Deliver, Integrate, Accept’. This is because the implementation;
involving one or more providers as well as the activities of the
employer’s internal team is often cyclic in nature with individual
packages being delivered throughout. Significant risk is introduced
due to the need to integrate the works together, which may involve
interdependencies between multiple contracted providers. Such
interdependencies, which may be realised well into the overall
project, are often cited as the most frequent cause of issues
developing that can significantly impact time, cost and quality if not
accounted for (see Appendix A).
The implementation cycle is affected by:

■ The impact of realised risks and the resulting negotiations

between parties to resolve the impact ownership (covered by the
risk management activity – see section 7.3.4).
■ The advent of necessary contract changes (covered by the
change control process – see section 7.3.5). Changes may result
from risk realisation, or from changes to the overall requirement.

During implementation, a good management technique for the

employer’s project manager to use is the Deming circle60 (see Figure
7.4).
Figure 7.4 Deming circle

The Plan, Do, Check, Act method can be used to evaluate overall
status of the project and may be geared to the reporting cycle. It is
essential to gain periodic performance and status information from
the provider(s) via their respective project managers including, at
least, the following aspects:

■ Budget status.
■ Schedule status.
■ Earned value/cost-to-complete estimate (for input-based
contracts).
■ Key performance parameter status.
■ Priorities and key objectives.
■ Risk status.
■ Issues status.
■ Change request/approved change status.
■ Status against plan/key milestones status.
■ Exceptions and reason for incomplete/corrective action.
■ Review of the contract closure/handover aspects (see Chapter 8).
■ Next period plan.
Regular review and planning meetings should address all these
items, but should mainly concentrate on any variances from plan or
any issues arising and, importantly, what to do about them. Ideally,
contractual risk allocation will be clear in the contract, so
accountability for corrective action should be clear. Note that we
have included a review of the handover (due at the end of the
project) aspects in order to ensure these are considered during
implementation rather than left until near the end. The frequency of
progress reviews may not necessarily be constant through
implementation but may increase at key times when a provider’s
delivery may be critical. ‘More rather than less’ communication is
desirable. It can be difficult to get a complete assessment of the
performance of off-shore providers and in this case a frequent
(possibly even daily) 30-minute team teleconference can tease-out
problems at an early stage.
A sufficient level of resources should be allocated for the review of
the provider’s design and deliverables. An appropriate technical
understanding is necessary and, if not available internally, external
consultants may need to be brought in to assist with reviews.
The ‘build’ sub-phase will include the ordering and expedition of
any materials, inwards inspection, module fabrication and final
assembly. In many cases the only way of properly monitoring the
build sub-phase is by on-site inspection at the location where the
work is being done. Such inspection may include:

■ Checking of material orders placed.

■ Checking of quantities of materials received and associated
documentation (certificates of conformity, acceptance/test
certificates, etc.).
■ For off-shore providers, checking of import and export
documentation and licences.
■ Checking that provision has been made for storage, including
space, environmental and safety provisions.

On-site fabrication, erection and installation works must be regularly

monitored and earned-value analysis is often the best technique to
use to understand the efficiency of the provider and to obtain a
reliable prediction of cost-at-completion and the completion-date
forecasts.
The cost of delays across the project may be amplified due to the
unavailability of a provider’s critical delivery. It is therefore vital to
keep on top of progress; as liquidated damages clauses, if imposed,
seldom will cover the resultant losses and damage to reputation. If
slippage has occurred it may be the best policy to apply additional
resources, possibly combined with incentivisation, to regain the
schedule.
A factor to consider during the implementation phase and
throughout the project generally, is the morale of workers, whether
internal employees or provider’s staff. An ‘us and them’ mentality can
be quite damaging and can lead to poor performance. On a day-to-
day basis, the employer’s project manager should monitor morale
and promote ‘team spirit’ throughout the greater team including the
personnel at the provider’s site. Team-building events such as get-
togethers following attaining primary milestones may be worthwhile
for lengthy projects; especially if there is an opportune moment when
staff are co-located.

7.3.4 Activity 4: Risk management

When project packages are outplaced the risk management activity
for the entire project or programme needs to be expanded to cover
the associated risks. Additional risk aspects include:

1. The risk of using external contracted resources (Appendix A

provides a list of the additional risks to consider).
2. Technical risks that are devolved to the provider, but that may
none-the-less have impact on the time cost and quality of the
main project or programme (the secondary effects).

7.3.5 Activity 5: Change control

Change control: A process that ensures that all changes made

 to a project’s baseline scope, cost, time or quality objectives are
identified, evaluated, approved, rejected or deferred. APM Body
of Knowledge 6th edition

When project packages are outsourced the management of changes

is expanded to cover the potential provider contract changes that
may be necessary.
Significant management time may be required to impact changes
and determine whether provider contract(s) need to be changed.
Figure 7.5 illustrates the basic change control process.
The change control process itself remains the same whether work
is outsourced to providers or not. A change request may originate
from the employer or the provider and will be recorded in the change
log, as normal and evaluated by the employer’s change control
board. The difference for outsourced work is that there is a contract
to be considered which will be a defining factor for costs.
Obtaining agreement on whether the detail of a particular
requirement is actually a change to contract can often be a time-
consuming process in itself, particularly if there is room for
interpretation of the contract documents. If it is determined that there
is no actual change to contract then the provider is obliged to deliver
accordingly. We strongly recommend the promotion of a degree of
‘give and take’ by both employer and provider (e.g. the detail of a
particular requirement may be flexible without damaging the overall
deliverables) to avoid lengthy negotiations and potential relationship
damage. If it is determined that one or more provider contract(s)
need to change then a negotiation needs to take place to quantify
the cost of the change. This involves the provider(s) doing their own
impact assessment and then quoting their price and timescale for
effecting the change. Ideally, this conditions of contract give some
structure and criteria for how the change is assessed. The change
may be optional (e.g. an employer may ask the provider to quote for
optional add-on to the work package) in which case if the provider’s
price(s) are not acceptable then the quotation(s) may be rejected. If
the change is considered necessary then an unacceptable quotation
from an existing provider may trigger a wider trawl covering potential
new providers. Some cost-of-change containment factors when
outsourcing project packages are:

Figure 7.5 The change control process

1. During the package contracting strategy stage (see Chapter 4),

provider interdependencies should be minimised; the more
providers used, the higher is the risk that changes may affect
multiple providers. Working with just one or two providers (by
combining project packages) will contain the complexity of the
change impacting task and associated costs.
2. The provider contract terms (see Chapter 5) should ensure that:
a. The cost of bidding against contract changes is a liability of the
 provider.
b. The provider’s quoted price for the project package should
include a reasonable and moderate amount of change without
the need to re-quote (albeit any changes to the requirement
will need to be fully documented).
c. The employer reserves the right to seek competitive quotations
against contract changes.
3. During the select provider and award the contract stage (see
Chapter 6):
a. Multiple sources for project packages should be identified,
including the possibility of doing the work in-house. Back-up
providers may need to be brought in should an existing
provider’s pricing be hiked to cover changes.
b. Provider capacity should be established to check that a
change does not prohibitively extend the schedule.
c. At initial meetings, does it sound like any changes will be
‘pounced-upon’ by a provider to make a significant increase to
the price due to the initial ‘buying of the job’?

The employer needs to be realistic in assessing the amount and

quantum of likely change. Not only do they need to set aside a
contingency for the amount which might be payable to the provider,
they also need to sufficiently resource the contract with staff to not
only manage the change (as in minimise likelihood and impact), but
also administrate the contract to promptly agree the contractual
change on time and cost. Our experience is that the longer this is put
off because it is ‘hard’, then the harder it gets.

7.3.6 Activity 6: Final acceptance

7.3.6.1 Completion
Final acceptance may be the sign-off point for the provider to
underpin its final claim for payment under the contract terms. This
acceptance event usually follows integration of all the work packages
to form the entire solution. Note that under some contractual
schemes (e.g. BOOT and DBFO – see section 4.4.3) retention is
also held by the employer pending a period of operation of the
delivered solution (e.g. a performance bond).
During implementation, a number of phased integration events of
different packages may have taken place (as indicated in Figure 7.2
activity 3). Employer and provider payment milestones may be
attached to these interim events. At these interim events, it may be
agreed that the work of some providers has been completed and
their claims for full payment may be due. If this is the case, there will
remain a risk that deviations and faults in their workmanship may
emerge later in the project. The contract may already have
anticipated this, specifying retention, bonds or parent company
guarantees are kept in place until the asset has been up and running
successfully for a period of time.
The final acceptance event (and any interim acceptance events)
need to be documented by an acceptance certificate signed by the
accepting authority (which may be an external party appointed by the
ultimate employer). The acceptance certificate should document any
defects and ‘snagging’ that need to be resolved before the assigned
payment claim can be made. Note that it is best practice to ensure
that the acceptance certificate is signed by the authorised parties at
the acceptance event itself, rather than wait for it to be sent through
or generated later.
The contract terms of any overarching contract of the employer
may also include a guarantee period in which case this overarching
guarantee needs to be flowed-down into the providers’ contract
terms.

7.3.6.2 Contract closure due to termination

Circumstances may have changed whereby a decision may have to
be made over whether a project or a contracted package should
continue or be terminated. This decision will invariably be based on
an assessment on the project’s continued benefits realisation as
shown in Figure 7.6. Liabilities for terminating contracts need to be
taken into account in deciding whether to terminate or not. For
instance, under the contract, the employer may well not just have
liabilities for the work done, but not yet paid for, but for costs
committed by the provider and loss of profit.
Reasons for premature closure could be internal (e.g. performance
issues) or external (e.g. due to the context of the overall project
changing; company mergers, etc.).
If the project is still thought to be able to provide sufficient
business benefits, then it should continue in its current or a similar
configuration. If ‘similar’, then it might be that changes are made
through the change control process (see section 7.3.5 above). If
benefits are not at an appropriate level, then some other action will
be required. This could include terminating the contract.
For instance, a project may have to provide for the maintenance of
a company’s owned car fleet. If the company decides to switch to a
leased car system, then the maintained project is no longer required.

Figure 7.6 Contract closure decision

Ideally, the contract terms will give direction on how this is done
and indicate the employer’s liability, i.e. what will still be owed to the
provider. It is very important that these mechanisms are followed
otherwise the employer may end up paying significantly more than
they would otherwise. If the mechanisms are not specified in the
contract, then we recommend legal advice is taken in order to
determine liabilities.
Once a decision is made to close a project down then the contract
closure, handover, operation and support stage is entered, which is
described in Chapter 8.
7.3.7 Activity 7: Follow-on contract closure, handover,
operation and support (see Chapter 8)
Enabling contract closure, handover, operation and support is an
essential part of the overall project delivery process (see Figure 7.2
activity 7) and is particularly important when significant works are
outsourced to provider(s). Note that contract closure may have been
required to occur early (see section 7.3.6.2).
Before signing a contract at the select provider and award the
contract stage (see Chapter 6) the success criteria in the form of
deliverables and performance should have been defined so that both
the employer and provider have a shared understanding of what is to
be delivered and how it is going to be accepted. These commitments
should be jointly reviewed and understood. There may be a ‘hands-
off’ contracting strategy, where the employer has minimal
involvement during the majority of the delivery phase, however the
handover to operations may still involve significant collaboration and
joint planning.

7.4 Outputs
The outputs from the manage and deliver the contract stage will be a
fully implemented, delivered, integrated and accepted project
package as defined by:

■ The contract documents defined above in the inputs section (see

section 7.2).
■ Any agreed modifications or additions to the contract documents
that have been the subject of approved change notices.
■ An updated documentation pack formed by the outputs of the
earlier stages of the process including:
□ The business case, including the necessary project outcome,
boundaries and scope (with particular emphasis on benefits
realisation – including any benefits realisation plan produced).
 □ The procurement management plan.
□ The archived provider selection documentation pack.
■ Final project schedule that records the completion dates of the
tasks.
■ Finalised risk register that identifies any ongoing risks that have
not been able to be retired.
■ Archived meeting minutes.
■ A record of steering group/project board decisions.
■ ‘Go-live’ information (configuration information, back-up
procedures, etc.).
■ The documentation required for ongoing operations (including any
user and installation manuals).
■ A schedule of obligations that need to be fulfilled during ongoing
operations, such as performance metrics and criteria that may be
linked to a performance guarantee and against which funds are
withheld.
■ The follow-on maintenance, operation and support contracts.

Note
60 Deming, E.D. Out of the Crisis (Deming, 1986).

OceanofPDF.com
 8

Contract closure, handover, operation

and support

8.0 Overview
In this chapter, we consider the arrangements for contract closure,
handover, operation and support defined as follows:
Contract closure: The completion of all activities associated with
the delivery of a package including the supply of all necessary
supporting information to the employer to enable closure and transit
of the deliverables to the operational phase at handover.

Closure: The formal end point of a project or programme, either

because it has been completed or because it has been
terminated early. APM Body of Knowledge 6th edition

Handover: The gate point at which the management and

responsibility for the contract deliverables transfers from the
provider’s project package delivery team to the ongoing operational
team (which may be the employer, the provider’s operational team or
a third party).

Handover: The point in the life cycle where deliverables are

handed over to the sponsor and users. APM Body of
Knowledge 6th edition

Operation and support: The activities that follow-on from contract

closure and handover, including the activities supporting ongoing
operation and maintenance.

Operations management: The management of those activities

that create the core services or products provided by an
organisation. APM Body of Knowledge 6th edition

8.1 Background
In most works contracts, on completion of delivery and acceptance,
the tangible requirement will be handed back to the employer
organisation to operate. From a contractual point of view, the
common issues that need to be thought through and specified
include:

■ How the project is to be handed over to operations.

■ Correction of any defects that emerge.
■ Any ongoing service requirements.

Some general principles applying to contract closure, handover,

operation and support need to be considered during the prepare
contract terms and requirement stage (see Chapter 5), before the
contract is signed.
■ Begin with the end in mind: This should include pre-planning
for:
□ Early termination.
□ Extended scope and the contractual conditions that must be
met.
□ Any variation to the approach to liabilities that may apply.
■ Formulate your closure strategy: Think about your closure
strategy in sufficient time to plan it. This should include how you
are going to ensure lower tier suppliers are achieving successful
contract closure, without which you may not be able to achieve
your top-level objectives. If you are the top level employer, you
may wish to ensure that contract governance gives you
assurance of the performance and costs of the whole supply
chain to avoid last minute surprises due to issues between
providers.
■ Determine the success criteria: Make sure your success criteria
are clear and unambiguous (as far as practicable) and ensure
that incentives will drive providers in the direction that you intend.
Success criteria may vary between tier-one providers depending
on the product/service contracted as they are flowed down
through the supply chain.
■ Look from the provider’s perspective: Try to see your
incentives from the provider’s perspective and review what the
incentive would make you do in their position. If you choose not
to use incentives, consider the behaviours that this may
encourage. Considerations may include:
□ Flow down of terms and conditions.
□ Flow down of behaviours.
□ Intellectual property rights management.

The assignment of liabilities for defective work or performance and

the ongoing protection of intellectual property rights need to be
covered, so that the employer is not tied in to the provider for
eternity.
Many of the considerations are generic to almost any package, but
how they are implemented may be different dependent upon your
perspective. With this in mind, it is useful to put yourself
metaphorically in the shoes of your opposite number, particularly
when setting/agreeing targets as this will help you to estimate the
response of the respondent and for you to gauge whether their
corresponding actions will be as you would hope.
In many cases the personnel involved (for the employer and the
provider) following handover will be different from those having been
responsible for delivery of the solution. This stage therefore will need
to include a thorough review by the receiving ‘operational’ team and
a sign-off by their authorised representative that they accept the
solution as delivered.
In service contracts, such as IT outsourcing arrangements or
private finance initiatives (e.g. a toll road), the service or asset is
operated by the provider. In this case, in addition to the above
mentioned aspects, de-commissioning or handing-back following the
defined operating period needs to be covered including
circumstances in which this may be done early or late. For example,
early hand-back could be due to the provider defaulting on the terms
of the contract (resulting in termination), or be due to a changing
environment (e.g. the service is just not needed any more).
The key point is that this needs to be thought through, written
down and incorporated as part of the contract terms and requirement
before the contract is entered into.

8.2 Inputs
The inputs to the contract closure, handover, operation and support
stage are the outputs from the manage and deliver the contract
stage (see section 7.4). The way that these inputs are used will
depend on the type of contract.
In the case of a works contract the delivered solution will normally
be formed of tangible deliverables that will be operated by the
employer under the controlled conditions defined in the ‘go-live’
information (configuration information, back-up procedures, etc.) and
any documentation required for ongoing operations (including any
user and installation manuals). The ongoing provider liabilities will
consist of any agreed performance guarantees or warranty
arrangements or the correction of defective work or materials should
they emerge within a set time period following handover.
For service contracts, ongoing provider liabilities will be extended
to cover the operational duties of the provider that apply once the
solution has been delivered. Further inputs will apply consisting of
the set of conditions covering satisfactory operation (the
performance metrics) and the methods to be employed for
measurement and validation against them. In this case ongoing
dialogue is implied between the employer and the provider(s),
therefore a defined management structure (covering governance and
communications) will be necessary. De-commissioning and hand-
back following the defined operating period needs to be covered
including circumstances in which this may be done early or late.

8.3 Activities
The process is illustrated in Figure 8.1. The activities are segmented
into the three major stages:

■ contract closure (see section 8.5);

■ handover (see section 8.6); and
■ ongoing operations, maintenance and support (see section 8.7).

These activities follow-on from the decision to close the contract (see
section 7.3.7). The ‘contract closure’ and the ‘handover’ stages may
be conducted in parallel; feeding into the preparation for the
‘operation and support’ activities.

8.4 Activity 1: Assign resources

The resources that you need to achieve the right conditions to close
a contract and to achieve handover are likely to be different from
those during delivery; for example increased financial activity may be
required. It is beneficial to estimate as soon as practicable the
resources that will be required and what must be in place to support
the collation of the information needed for efficient use of those
resources. Similarly, if it is known during the manage and deliver the
contract stage (see Chapter 7) what financial information is going to
be required to close the contract, including its format, then this
allows gathering of the information progressively. This can
significantly shorten the closure stage and has the benefit of
reducing risk.

Figure 8.1 Contract closure, handover, operation and support

process

Resources are required for the following activities:

■ Project closure tasks such as team disbanding and information

archiving.
■ Financial tasks such as final invoice calculation/compilation and
auditing.
■ Legal tasks such as any final variation settlements or dispute
resolution.
■ Operational resources to review and approve handover to the
operation stage.
■ Technical resource to answer technical questions arising and to
conduct training where necessary.
■ Management resource to manage the process itself.

It should be noted that the above resources may need to be provided

either by the employer or the provider(s) and this responsibility
needs to be documented.

8.5 Activity 2: Contract closure

8.5.1 Review closure readiness

As the work associated with the package progresses (see section
7.3.3) the specifics relating to closure (what needs to be done to
close it out) should be thought about in preparation.
Following the decision to close the contract (see section 7.3.6) it is
necessary to review readiness (i.e. what remains to be done to
achieve contract closure and handover). This may be minimal for
small and uncomplicated packages but may be significant;
dependent on size and complexity (for example where multiple
interacting providers are involved).
A closure readiness review meeting of the parties involved should
be held as soon as practicable after the closure decision. The
agenda for this meeting should cover:

1. Overview of the overall project particularly focussing on the

project package under consideration for closure.
2. Review of the existing acceptance documentation:
a. Acceptance criteria have been met/proving trials successfully
completed.
b. Snags have been cleared.
3. Review of the existing operational, maintenance and support
documentation.
4. Check that archiving has been implemented appropriately with
the required retention period.
5. Review of the warranty provisions and any ongoing liabilities of
the employer and the provider(s).
6. Review of the key dates identified (contract closure, handover,
operation and support timelines see section 8.5.2).
7. Identify follow-on actions; assigning a RACI for each action plus
forecast completion date.
8. Set the date for a follow-on review meeting, if needed.

Completion of the contract will be authorised by the employer

organisation via a completion certificate or a formal communication
to this effect. In the case of input-based contracts, the provider must
provide an accurate figure for the cost of all works up to completion
(documented in its final invoice) prior to this being submitted.
Retention amounts will be in accordance with the contract. It must be
ensured that all pertinent materials are accounted for and ownership
is transferred formally (per the contract).
At this point it is normal for loaned equipment to be returned or
stored for a defined period before destruction and these provisions
need to be agreed with the provider including all associated costs
before contract completion.
Operational, maintenance and support documentation (as defined
in the requirement) must be made available as a deliverable.

8.5.2 Review contractual liabilities and set timelines

Closure of the contract may not discharge all liabilities of the parties.
The approach to liabilities should be clearly stated up-front in the
contract, including any retention and the conditions under which the
liabilities no longer apply.
Examples of ongoing liabilities that can apply for works contracts
are:

■ Potential legal action (where deadlines have not expired, e.g.

fraudulent misrepresentation, procurement irregularities).
■ Consequential impacts, e.g. asbestosis liability.
■ TUPE liabilities.

Such liabilities are usually handled by the affected parties putting in

place a provision, insurance or bond to cover the associated risk
(e.g. employer’s liability insurance).
Other liabilities for works contracts may be options for contract
extension, warranties, parent company guarantees and performance
bonds that have a defined timeline. Note that warranties include
‘implicit’ or ‘implied’ warranties under general contract law (such as
fitness for purpose and merchantable quality) and ‘explicit’
warranties that are detailed within the specific contract.
In many cases works contracts can be closed following delivery
and acceptance of the requirement and successful handover. The
ongoing liabilities are often borne by means of financial provisions or
insurance as part of the ‘normal business’ cover of the employer.
Services contracts may well include an operational phase, which
brings further liabilities with due timelines covering the operation
term and additional follow-on liabilities. For an operational contract
there may be a number of key parameters, e.g.

i. Completion of useful life.

ii. Completion of decommissioning.
iii. Date for re-tendering the operational contract.

All of the applying liabilities need to be identified and appropriate

cover put in place before the contract is closed.

8.5.3 Review lessons learnt

In the manage and deliver the contract stage we recommended that
a lessons learnt log be set up as a living document to be updated
during delivery.
It is worthwhile to conduct a lessons learnt review activity at the
completion point of the overall project, prior to the handover point.
The employer organisation’s lessons learnt log should be provided to
its internal project delivery teams. Lessons learnt activities are
almost always worth far more than their cost and can give insights to
the follow-on project teams that can save potentially large amounts
by the avoidance of common errors.

8.5.4 Proceed to handover decision

The decision to proceed to handover is to be taken by the employer
based on the results of activities 8.5.1–8.5.3. If all is in order, then
the handover activities can be commenced. It may be appropriate to
close the contract at this point or that action may be withheld until
after a successful handover, dependent on the risk of flow-back
actions that will still need to be taken under the contract. The
contract closure panel will need to take a view on the level of risk
and close the contract if it is considered to be a low enough risk.
Alternatively, the contract may be held open in suspense until
handover has been achieved. In many cases handover will not be
fully effected until the ultimate capability is up and running
successfully (see the example below).

Handover example: power station

Let’s take the example of a process job, say a power station:
individual components will often be tested at a factory and the
employer will want certificates which demonstrate this; they will
then be tested to make sure that they fit together (several
components are fitted together and a sub-system system tested
on-site, e.g. a pressure test). There will then be a
commissioning phase where parts of the system are checked to
make sure that, in isolation, they work. These parts are
progressively added together until the whole system functions.
There will then be an optimisation and/or ramping up phase
where performance is ramped up and it is optimised to work in
accordance with the performance spec requirement. With a
power station you don’t suddenly run it on full power! Equally,
you might be tweaking feedback loops, etc. There might then be
 a continuous running phase where it has to run to the
performance spec requirements for a specified period. In that
continuous running phase, the employer’s staff might remain
involved (perhaps taking some of the benefit if they are
generating power and conducting training).

From this example we see that the exact point of handover may
be significantly later than the delivery of the hard asset.

8.6 Activity 3: Handover

8.6.1 Overview
Handover is the point at which the management and responsibility
for the contract deliverables transfers from the provider to the
employer organisation or other parties responsible for the ongoing
operation and support of the project package. The required ongoing
operational and support contracts need to be negotiated and agreed
during the preceding manage and deliver the contract stage (see
Chapter 7) in order that handover can be achieved without delay
following delivery contract closure.
In many cases handover activities are similar to and can be
merged with contract closure activities, the exception being the
actual award of the ongoing operational and support contracts
(unless the delivery contract includes providing operation and
support).
For large or complex project packages, it may be a lower risk for
both the employer and the provider to stage the handover. This
approach gives confidence that achieving final handover will be on-
schedule; or alternatively prompts an action plan for recovery.
Handover stages may include, for example:

■ Testing.
■ Commissioning.
■ Staged handover of deliverables.
A successful handover requires, in addition to a delivered and
operation-ready requirement, the outputs from the above contract
closure activities such as:

■ An information package (e.g. as designed/as built).

■ Training manuals.
■ Trained operators.
■ Operations and maintenance manuals.
■ Asset integration data.
■ A recommended spares holding and maintenance-led spares
ordering triggers.
■ Shared learning from the project delivery (lessons learnt).

8.7 Activity 4: Ongoing operation,

maintenance and support activities
Ongoing operation, maintenance and support activities can range
from the basic honouring of warranty provisions through to the
management of a follow-on service contract.
The ongoing owner of the business benefits will judge whether the
business benefits being delivered remain worthwhile. Attention
needs to be paid to continuity, although the ongoing owner will not
necessarily be the same person as the package-delivery sponsor.
In most cases operations, maintenance and support will be
handled by means of a new contractual arrangement covering all
activities beyond handover.
During the support stage a whole life view of the asset or service
needs to be taken including the element of challenging whether the
benefit is provided – is there still a business need or have
priorities/circumstances changed?
The focus will be on delivery of business benefits as set out in the
full business case (FBC) (see Chapter 2), i.e. the basis for justifying
the original investment. The FBC should have set out the
requirement for post-delivery review to assess delivery of benefits
(reviews being repeated at appropriate points over the life of the
support contract). Reviews should check that:

■ The expected benefits are being delivered (regular reporting of

performance and improvement opportunities).
■ The relationship with operations and support providers plus the
potential to improve are being actively managed.

A benefits realisation plan (see section 2.3.1) can be a useful aid;

providing guidance on how to:

■ Manage performance.
■ Maintain/improve on performance.
■ Manage change to scope and operation during operation.

The main considerations for smooth running of operational services

are:

1. Requirements definition and stakeholder issues.

2. Developing the operational services contract:
a. Clear ownership of requirements and outcomes from the
service.
b. Senior management and other key stakeholders are fully
committed.
c. Thorough attention to risk management by all involved in
delivery.
d. Shared understanding across the delivery chain of how the
service will be provided.
e. Appropriate measures for performance, quality and budgets.
3. Managing the operational services contract:
a. Adequate skills and resources provided by all parties to the
contract – throughout the life of the contract.
b. Continual checking and revisiting of key assumptions.
c. Ensuring context, complexities and interdependencies of the
contract are well understood by everyone involved.
d. Excellent governance arrangements.
4. Looking to the future:
a. Formal change control procedures that everyone follows.
b. Appropriate incentives for continuous improvement.
c. Potential changes ahead considered and planned for, linked to
ongoing business strategy.
d. Future supplier arrangements considered, such as exit
strategy and re-competition.

8.8 Outputs
The outputs from the contract closure, handover, operation and
support stage will vary depending on the nature of the required
ongoing activities. The main outputs are likely to be:

■ ‘Go-live’ information (configuration information, back-up

procedures, etc.).
■ The documentation required for ongoing operations (including any
user and installation manuals).
■ A schedule of obligations that need to be fulfilled during ongoing
operations, such as performance metrics and criteria that may be
linked to a performance guarantee and against which funds are
withheld.
■ Follow-on provider contracts that will be commenced following
handover. These contracts will have been negotiated during the
earlier stages in the overall procurement cycle.
■ A support infrastructure, which could include helpdesk resources,
technical support personnel (e.g. on-call), service level
agreement (SLA) metrics and review, management resources,
offices and IT facilities, asset register, spares holding (potentially
held at multiple geographical locations) and resources to
undertake obsolescence management.
■ A benefits realisation plan, where appropriate, to detail the
assessment criteria for the ongoing benefits being provided. This
will also form an input to the decision to terminate ongoing
operations (e.g. due to obsolescence or economic factors).
OceanofPDF.com
 Acronyms and abbreviations

APM Association for Project Management

BCS British Computer Society
BOOT Build, own, operate, transfer
BOT Build, operate, transfer
BSO British Standards Organisation
CIPS Chartered Institute of Procurement and Supply
CRC Cooperative Research Centres (Australia)
CV Curriculum vitae
DBFO Design, build, finance, operate
ECI Early contractor involvement
EU European Union
FBC Full business case
FP Fixed price
GMP Guaranteed maximum price
HR Human resources
IPR Intellectual property rights
IRR Internal rate of return
ISO International Standards Organisation
IT Information technology
ITT Invitation to tender
JV Joint venture
KO Kick-off (meeting)
MEAT Most economically advantageous tender
NDA Non-disclosure agreement
NEC3 New Engineering Contract version 3
NRM New rules of measurement
MOD Ministry of Defence
MRP Material requirements planning
OGC Office of Government Commerce
PaBS Package breakdown structure
PDCA Plan, do, check, act
PESTLE Political, economic, sociological, technological, legal, environmental
PFI Private finance initiative
PM Project manager, programme manager
P3 (PPP) Project, programme and portfolio or Public, Private Partnership
PQQ Preliminary qualification questionnaire
PSP Provider selection panel
Q&A Questions and answers
RACI Responsible, accountable, consulted, informed
RFI Request for information
RIBA Royal Institute of British Architects
ROI Return on investment
SBC Strategic business case
SLA Service level agreement
SME Subject matter expert
SoW Statement of work
SPV Special purpose vehicle
SWOT Strengths, weaknesses, opportunities, threats
TA Technical authority
ToR Terms of reference
TUPE Transfer of Undertakings (Protection of Employment)
UK United Kingdom
VAT Value added tax
WBS Work breakdown structure

OceanofPDF.com
 Bibliography

Act of Parliament. (2002). Enterprise Act 2002. London: HM Stationery Office.

APM. (n.d.). APM Body of Knowledge 6th edition. APM.
Bakshi, A. (1995). Alliances Change Economics of Andrew Field Development. Offshore
Engineer, 50(1).
Bensaou, M. (1999). Portfolios of Buyer–Supplier Relationships. Sloan Management
Review, 15 July.
Broome, J. (2002). Procurement Routes for Partnering: A Practical Guide. London: ICE
Publishing.
Broome, J. (2016). Point of Law. Project, 56–58.
Chartered Institute of Procurement and Supply (CIPS). (n.d.). Retrieved from CIPS:
www.cips.org.
CIPS. (2014). Supplier Incentivisation. Retrieved from www.cips.org:
www.cips.org/Documents/Knowledge/Procurement-Topics-and-Skills/10-Developing-and-
Managing-Contracts/Contract-Management/Supplier_Incentivisation.pdf.
Deming, W. E. (1986). Out of the Crisis. Cambridge, MA: MIT Press.
Dhanushkodi, U. (2012). Contract Strategy for Construction Projects. Manchester:
University of Manchester Faculty of Engineering and Physical Sciences.
Encyclopaedia Britannica. (2010). Retrieved from www.britannica.com:
www.britannica.com/event/Deepwater-Horizon-oil-spill-of-2010.
European Union. (1993). Guide to the Community Rules on Public Works Contracts
(Directive 93/37/EEC). European Union.
Fenn, P. and Gameson, R. (1992). Construction Conflict Management and Resolution.
Proceedings of the First International Construction Management Conference.
Manchester, UK: E. & F.N. Spon.
Ganes, A. and Naevdal, S. (2008). Software Contracting and Agile Development in the
Norwegian ICT Industry – A Qualitative Survey. NTNU.
IACCM. (2011). The Operational Guide – Contract and Commercial Management. London:
Van Haren Publishing.
IACCM. (2013). Fundamentals of Contract and Commercial Management. London: Van
Haren Publishing.
Kajewski, S. (2006). Guidelines for Successful eTendering Implementation. Brisbane:
 Cooperative Research Centre (CRC) for Construction Innovation.
Kraljic, P. (1983). Purchasing Must Become Supply Management. Harvard Business
Review.
NEC. (2015). Early Contractor Involvement (ECI). London: NEC.
Newberry, T. and Watkins, P. (2012). APM C&P SIG Masterclass 5 – Selecting the Right
Provider. Retrieved from www.apm.org.uk:
www.apm.org.uk/sites/default/files/open/CP%20Masterclass%205%20Selecting%20the%
20Right%20Provider%20Rev.pdf.
Nijssen, J. (2015). When Contract Management Meets PRINCE2. Kampen, the
Netherlands: Pinetop BV.
OGC. (n.d.). Gateway Process publications. OGC.
Porter, M. E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business
Review.
Revay, S. G. (1993). Can Construction Claims Be Avoided? Building Research and
Information, 21(1), 56–58.
RIBA. (2013). RIBA Plan of Work 2013. RIBA.
RICS. (2013). New Rules of Measurement. RICS.
RICS. (2014). Appropriate Contract Selection. RICS.
Rocque, B. L. (n.d.). PMP, Enabling Effective Project Sponsorship: A Coaching Framework
for Starting Projects Well. Retrieved from http://threehouses
consulting.com/docs/RocqueProceeding.pdf.
Soames, B. (2011). Buying Just Like The Ancient Greeks: What Ancient Greek Purchasing
Can Teach Us About Procurement Now. Buy Research Publications.
Tate, M. (2015). A Practitioner’s Guide to Selection and Procurement. BCS The Chartered
Institute for IT.
UK Act of Parliament. (1998). Competition Act 1998. London: HM Stationery Office.
UK Crown Commercial Service. (2016). A Brief Guide to the 2014 EU Public Procurement
Directives. London: UK Crown Commercial Service.
UK Ministry of Defence. (2013). Better Defence Acquisition. The Stationery Office.
Ward, G. (2008). The Project Manager’s Guide to Purchasing – Contracting for Goods and
Services. London: Gower Publishing Ltd.
www.gov.uk. (2014, October). Early Contractor Involvement. Retrieved from www.gov.uk:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/377586/Early_con
tractor_involvement__ECI__guidance__Oct_2014_.pdf.
Yates, A. (1991) ‘Procurement and construction management’ in P. Venmore-Rowland, P.
Brandon and T. Mole (eds), Investment, Procurement and Performance in Construction,
London: E. & F. N. Spon.

OceanofPDF.com
 Appendix A – Generic procurement
and contracting risks

Table A1 provides examples of the typical risks that are associated

with external contracting together with containment/preventative
measures and contingencies that may be applicable and that should
be accounted for during the selection process.

Table A1 Typical risks associated with external contracting

Risk description Possible containment/preventative
measures

First time use of a provider – • Prior research of a provider’s track record

performance may be unsatisfactory (cost, (reference customers, published,
time, quality). performance measures, case studies,
working practices).
• Generate a detailed statement of work
(SoW) that clearly states objectives and
performance measures and ensure this is
referenced in the contract.
• Payment milestones linked to specific
gates, deliverables and performance
measures with contract termination as an
option.
• Ensure that the provider generates a full
proposal, cross-referenced to the SoW,
including a plan for the contracted works
with milestones identifying deliverables, an
identified project manager and issue
escalation process.
• Allocate responsibility for provider
management (usually the overall project
 manager) and ensure close monitoring of
progress and performance including face-
to-face meetings and access to working
resources for quality/working practice
assessment.
• Mandate the generation of a quality plan by
the provider, requiring approval by the
employer.
• Mandate the generation of a risk
management plan by the provider detailing
containment measures and contingencies.
The provider may leave the consortium – • Prior research of the provider’s solvency.
bankruptcy, change of management, loss of • Ensure that the contract includes provision
personnel resources. for the termination by the provider with
appropriate compensation measures.
• Close communications (often prior-notice of
problems may be evident from general
communications, unavailability of resources,
etc.)
Incompatible working practices • Ensure that the SoW requires the provider to
(Differences in process, terminology and supply a description of its standard
culture) – errors and inefficiency may be procedures and how these will be employed
introduced due to differences in to undertake the contract works.
terminology/language, processes, • Detail the reporting requirements in the
organisational structures and local cultures. SoW.
Once the contract is in place and work has • Obtain a copy of the provider’s procedures
commenced if misunderstandings develop manual or methodology at bid-time.
then additional management time will be • Obtain an organisational chart for the
required to investigate and determine the contracted resources to be employed in the
‘delta’ in understanding. project with channels for escalation.
• Agree on a language that will be used
throughout the project at bid-time (English).
Agree on formats for date and time
• Ensure that the project kick-off meeting
includes a review of working practice
 alignment and have available templates for
key deliverable documents.
• Ensure that sufficient provision for progress
meetings is made. Supply a performa
agenda for meetings.
• It will help greatly if the employer’s project
manager makes a positive effort to
understand any challenges from the
provider’s perspective as often
misunderstandings are just as problematic
for the provider and mitigation is likely to be
a joint initiative.
Poor progress/financial reporting – the • Clearly state the reporting requirements in
provider may not give sufficient information the SoW and ensure that these are
to allow progress between milestones to be acknowledged in the provider’s proposal
gauged or cost-to-complete to be gauged in document.
input-based contracts. • Introduce mandatory reporting in the pricing
document as a condition of prompt payment.
• In input-based contracts mandate the
inclusion of estimate to complete in regular
progress reports and ensure that these are
phased appropriately with the main project
reporting schedule (ensure that invoicing is
also appropriately phased for cash flow
management).
Poor change control – the provider may • The SoW should include a change control
initiate uncontrolled changes (e.g. procedure and this should be referenced in
add/remove functionality through ad-hoc the contract document, including provision
communications). that the employer must approve the change
prior to it taking place.
• Ensure that approval authority for changes
is assigned by both parties.
Poaching of work or personnel – providers • Ensure that the contract includes an
may campaign to work directly with the appropriate clause to prevent solicitation of
employer, or recruit key personnel. work or recruitment of personnel by the
provider.
 • Ensure that all contractual communications
are channelled through appropriate
channels.
• Where the provider is a known competitor
restrict access appropriately. Don’t include
them on the tender list unless there is a
good reason to do so.
• Be aware of the dangers and escalate to
your commercial manager should any
contravention be suspected.
• Agree the approach with the employer and
get them to attend meetings to show their
support for you as the employer’s project
manager.
Export control issues – where export • Where the provider also requires putting in
licences are required work/communications place an export licence ensure applications
may be delayed until all licences are are coordinated.
granted. • Ensure that all export-related
communications carry the appropriate
export licence statement.
• Use clear terms in the contract.
IPR issues – there may be • Be realistic about what IP the parties can
misunderstanding of the ownership of actually claim/own.
intellectual property rights (IPR). • Determine the ownership of IPR at the bid
phase and include a clear statement in the
SoW detailing ownership.
• Ensure that project personnel are aware of
the IPR provisions for the project.
Conflicts in division of work – providers • Clearly state the ownership of work
may duplicate work being done by others. packages in the SoW and ensure that this is
acknowledged in the provider’s proposal
document.
• Consider a scope responsibility matrix to
define who is doing what.
• Spend time on managing the various
interfaces across the programme.
 • Ensure that the provider’s project plan is in
alignment with the employer’s project plan.
Poor support provision – providers may • Ensure that the SoW states clearly the level
not provide the appropriate level of support of support required.
for related tasks in the project or for post- • Include a resource histogram in the bid and
delivery support. contract documents.
Award of contract (AOC) slippage – the • Request an instruction to proceed (ITP) with
employer’s overall contract may take longer limit of liability (LoL) from the employer to
than expected to be signed and this will allow initial works to proceed.
result in a corresponding delay in the signing • Build a risk-buffer into milestones in
of provider contracts, which are negotiated anticipation of slippage in signing of the
during the stage of contract finalisation. overall contract.
• Allow in the employer’s risk budget for
increased resources to be applied to catch-
up and include flowed-up costs from the
There is a risk that the employer may sign-
providers (e.g. overtime working).
up to fixed delivery dates that are no longer
• Proceed at risk prior to contract signing: This
in-line with the ‘AOC + N weeks’ dates in the
is not a recommended strategy except in
provider contract(s) leading to potentially
specific cases where there are extenuating
another negotiation round with the selected
circumstances (e.g. other related contracts
provider(s).
may be adversely affected). This decision
would need to be taken by the employer’s
senior executive management.
Re-assignment of risk (uncontrolled risk • Enforce a strict change control procedure,
transference) – in meetings during delivery which should, ideally, be described in all
a provider may allude to a risk having been SoWs.
transferred to the employer from the • Ensure that all meetings are minuted.
provider. The risk of this occurring increases • Add a disclaimer to minutes performa such
with the number of providers and also if the as: ‘These minutes do not constitute
related SoWs may not have been sufficiently approval of any change to the contract or
clear or specific. reassignment of risk and any proposed
change will be subject to the agreed change
control procedure.’
• Ensure that meeting minutes are subject to
review.
• Include review of the risk register in
 progress reviews.
Dependency linkages – where there are • At bid time make the need to define all
several tiers of provider dependencies need dependencies a priority for the employer
to flow upwards appropriately. A second tier and all providers.
provider’s dependency may actually be • Be wary of accepting a proposal that has
linked to the employer’s works, but not little or no dependencies or risks defined.
properly acknowledged in the respective • Include clear dependency linkages in the
contract. schedule and examine these at each
progress review.
Acceptance ambiguity – the employer’s • Hold a significant retention that is only
authority may accept the provider’s releasable at full system sign-off.
deliverable (e.g. a sub-system) in isolation • Test and verification plans are typically
without proper integration and then find developed during the planning phase.
integration issues that require diagnosis and • Guard against test and verification plans that
corrective action from the provider. specify isolated tests of sub-systems. If
isolated tests are necessary then implement
a phased sign-off based on initial and final
(integrated) tests.
Review cycle delays – documents authored • Define efficient mechanisms for secure
during the planning and implementation transfer of documents between all parties.
phases often require inputs from all parties • Schedule specific review gateways and
and are therefore subject to reviews to meetings.
ensure that all have ‘bought-in’ to the final • Consider co-location of parties at key
approved version. Often, provision is not decision points.
made for the time that is taken for reviews • Define time limits for review.
and therefore work may be delayed until all • Create and circulate a full documentation
parties agree and sign off documents. plan with (responsible, accountable,
consulted and informed) matrix that
identifies ownership of priority documents.
Requirement creep – an employer’s team • The key to ensuring that requirements do
member instructs a lower tier provider not ‘creep’ as a result of direct
directly resulting in unbudgeted work that is communications is to mandate that all of
unexpectedly billed to a higher tier provider. such communications are documented and
copied to the employer.
• The early exercising of the change control
procedure by the employer, even for a ‘nil
 impact’ technical change will often focus the
parties on adherence to the proper
formalities and avoid drifting into creep of
requirements.
Diminishing resource priority – there is a • Specific named personnel may be specified
risk that the personnel assigned to delivery in the contract or SoW (albeit this might be
may be less qualified and inexperienced in very specialised ‘consultancy’ type roles)
than those assigned at the bid phase, thus however it is not always possible for named
causing work to be of a lower quality or personnel to be available.
protracted. • SoWs should state that provider personnel
should ‘hold appropriate qualifications and
be sufficiently experienced’. Ideally outline
CVs of the provider’s proposed personnel
should be requested in order that any
replacements can be assessed like-for-like.
• The possibility of change or loss of
personnel should be included in the
employer and provider risk registers with
appropriate containment and mitigation
proposals.
• Employer project managers should actively
assess the capability of provider personnel
during the planning and implementation
phases.
Single source dependency – single-source • Always have a ‘plan B’ to replace the single-
providers may be difficult to control as they source even though this may be unpalatably
are effectively bottleneck. Poor performance costly (accordingly include in the risk
of a single-source provider is a relatively register).
high risk and will need to be very carefully • Make sure that the single source knows
monitored if a single source is the only there is an alternative.
solution. • Identify a clear payment milestone plan with
gating and break clauses.
• Act on any flowed-up dependencies as a
Undertaking a formal selection process can priority.
supply a clear understanding why there is a • Monitor the single source intensively for
single source as this can feed into prior warning of issues (consider co-locating
containment actions. personnel for day-to-day monitoring).
• Record in detail any underperformance.
Insufficient levels of authority – the • At bid-time, request the names, positions
provider’s personnel managing the project and contact details of the provider’s key
may not have a sufficient level of authority to personnel who may be called upon to
make the necessary key decisions thus resolve issues for example; senior
causing delays due to the provider’s executive, divisional executives (where
governance process. several divisions are involved), quality
manager and these personnel should be
included in the employer’s stakeholder
management plan.
• Agree an escalation route for issues.
• Carefully document any risks and issues
(e.g. events leading up to the problem) for
consideration by the provider’s senior
management.

OceanofPDF.com
 Appendix B – Example
tender report template

TENDER REPORT

Project number ....................................................................................

Project title ....................................................................................
Project manager ....................................................................................
Location ....................................................................................
Discipline ....................................................................................

Title Name Signature Date

Director of estates projects
Senior supplier
Category manager (Construction)
Project manager
Cost manager

Contents
1. Executive summary
2. Introduction
3. Tender process
4. Tenders received
5. Detailed tender analysis
6. Tender interviews
7. Programme
8. Value engineering options
9. Further potential savings
10. Conclusion and recommendations

Typical appendices:
Appendix A – Tender returns inc. form of tender
Appendix B – Detailed tender comparison
Appendix C – Post tender interview scoring
Appendix D – Post tender queries/correspondence

1. Executive summary
Description of works
Describe the works that are programmed to be completed including any abnormal items.
[No more than two A4 pages]

Tender values
Original Budget

Approved Budget

Approved Tenderer Tenderer Tenderer Tenderer

Budget 1 2 3 4

Preliminaries

Building Work

M&E Work

External Works

Overheads & Profit

Construction Cost £0 £0 £0 £0 £0

Project Risk

Design Fees

College Direct
Contracts

VAT

Project Cost £0 £0 £0 £0 £0

Value Engineering

Potential Savings
Expand the above table as necessary to suit specifics of tender.
[Double Click on table to edit]

Reasons for variance

Explain the reason why there is a variance between the original budget and the approved
budget and then the tendered figure.

Potential value engineering options

Detail any steps that are possible to reduce/increase this variance if applicable.

Recommendations
Please state your recommended supplier with reasons.

Next Steps
Please advise what the next steps are in order to commence this project.

2. Introduction
Project overview.

3. Tender process
Please detail the tender process; including evaluation criteria.

4. Tenders received
Please list the names of the tenders received.

5. Detailed tender analysis

Please insert your excel spreadsheet comparison; Include normalisation of tender returns.

6. Tender interviews
Please document information gathered from pre/mid and post tender interviews.

7. Programme
Please provide a commentary on any programme related issues included in the tenders
received.
8. Value engineering options
Please explain any value engineering and cost saving measures there are and then
potential savings that could be made.

9. Further potential savings

Please detail any further potential savings that could be made that require further
discussion.

10. Conclusion and recommendations

Please detail your conclusions and recommendations for the tender.

OceanofPDF.com
 Appendix C – Red flags

Table C1 Red flags

Topic Red flag
Bribery and corruption Award of subsidiary contracts in advance of the main contract.
Retaining, regaining or obtaining works
Abuse of position (use of insider information, gifts and hospitality)
Misrepresentation (tailoring documents, altering submissions,
charging for unused work/materials)
Failing to disclose (inaccurate information, differing information to
each bidder)
Ignoring process consistently
Forcing through orders
Continuing to use a poor supplier
Anger when challenged
Winning all the work
Regular ‘emergency’ work
Concealing conflicts of Related share interests
interest 1 on 1 meetings with suppliers
Negative returns of a COI form when it is blatant
Winning bidder drafts the spec
Regular offsite meetings with no expenses claimed
Moving job to a provider – risk of insider information
Manipulation of the Specification narrowness – favouring a particular provider
specification Low number of bids received
Evaluation process not followed
Unauthorised sign-off
Specification narrowness
Bid rigging Same companies win/lose repeatedly
Main competitors not bidding
Suppliers seemingly taking it in turns to bid lowest
Low number of bids received
 Inconsistent bid rates from bid to bid
Bid rates suddenly lower when a new supplier is introduced
Same suppliers listed to bid on lots of different commodities
Very ‘similar’ RFP submissions
Unlikely bid winners
Submission of significantly higher price
Provider deliberately not compliant with tender instructions
Provider deliberately does not meet specification
Ghost companies Holding companies that don’t trade
Provider whose name sounds like a major player, but isn’t
Provider’s logo does not match the services offered
Company structure is not transparent
Local company registered overseas.
Company generally unknown in the applicable market
Can’t provide references
Recently formed company
Invoice values are round amounts
Bank account details on invoices don’t match registration details or
A/P details
Sole source Service could easily have been tendered but wasn’t
No market price checking undertaken
Commodity not previously sole sourced
No justification of sole source

Poor reasoning for provider selection

New type of work for this provider, or not their core business
Same provider but now at a higher cost
Regular gifts or hospitality

OceanofPDF.com
 Index

Figures and tables are in italics. Definitions are in bold

adjudication, and disputes (i)
affordability criteria (i)
agendas (i)
‘agile’ project delivery (i)
alliances (i)
amendments (i)
arbitration (i)
archives, document (i)
award of contracts (i)

benefit, definition of (i)

benefits realisation plan (i), (ii)
Bensaou model (i), (ii)
‘best fit’ contracting strategy (i), (ii), (iii)
‘best value’ principle (i), (ii), (iii)
bi-party contract (i)
bonds, guarantee (i)
BOOT (build, own, operate, transfer) contracts (i)
BOT (build, operate, transfer) contracts (i)
bottleneck items (i)
boundaries (i), (ii)
breaches, of contract (i)
budgets, outline (i), (ii)
build, operate, transfer (BOT) contracts (i)
build, own, operate, transfer (BOOT) contracts (i)
business case, definition of (i)
business case sponsor (i)
buyer-supplier relationships, definition of (i)
captive buyers, definition of (i)
captive suppliers, definition of (i)
change control process (i), (ii), (iii), (iv)
clarifications, final (i)
closure, definition of (i)
closure strategy (i), (ii)
collateral warranties (i)
communications (i), (ii)
completion, of contract (i)
complex projects (i)
concept and feasibility (i), (ii)
confidentiality (i)
constraints (i), (ii), (iii)
construction industry (i), (ii)
consultations (i)
contract closure (i), (ii), (iii), (iv)
contract closure, definition of (i)
contract, definition of (i)
contracting strategy, packaging (i), (ii), (iii), (iv), (v)
Contracts (Rights of Third Parties) Act (1999) (i)
cost
influence curve (i)
reimbursable contracts (i)
savings (i)
target (i), (ii), (iii)
cost influence curve (i)
criteria
affordability (i)
final selection (i)
‘make or buy’ (i), (ii)
scoring, providers and (i), (ii), (iii), (iv)
success (i), (ii)
custom and practice, foreign countries and (i)

damages, liquidated (i)

DBFO (design, build, finance and operate) contracts (i), (ii)
definition phase, planning and (i)
delivery
‘agile’ project (i)
manage and (i)
options (i)
solution (i), (ii)
delivery options (i)
Deming circle (i)
design, build, finance and operate (DBFO) contracts (i), (ii)
developing requirements (i)
dispute resolution processes (i)
documents
archives (i)
briefing (i), (ii), (iii), (iv)
contractual (i), (ii)
drafting contracts (i), (ii), (iii)
driving factors, contract (i)

employer, definition of (i)

engineering industry (i)
EQQ (extended qualification questionnaire) (i)
EU (European Union) legislation (i)
extended qualification questionnaire (EQQ) (i)

FBC (‘full’ business case) (i), (ii), (iii)

feasibility, concept and (i), (ii)
fee based arrangements: (i)
final selection criteria (i)
‘Five Forces Analysis’ (i)
foreign countries, law of (i)
‘full’ business case (FBC) (i), (ii), (iii)

gate reviews (i), (ii)

gate reviews, definition of (i)
GMP (guaranteed maximum price) contract (i), (ii)
goods, definition of (i)
governance (i), (ii)
governance, definition of (i)
governing law (i)
government contracts (i), (ii)
guaranteed maximum price (GMP) (i), (ii)
guarantees, providers and (i)

handover (i), (ii)

handover, definition of (i)
housing associations (i)

implementation cycle (i)

incentives, use of (i), (ii)
industry sectors (i), (ii), (iii), (iv)
information gathering (i)
information sharing (i)
initiation process (i), (ii)
intellectual property (IP) (i), (ii)
internal rate of return (IRR) (i)
international law (i)
investment, relative (i)
invitation to tender (ITT) (i), (ii)
IP (intellectual property) (i), (ii)
IRR (internal rate of return) (i)
ITT (invitation to tender) (i), (ii)

joint venture (JV) (i)

jurisdiction, foreign countries and (i)
JV (joint venture) (i)

key roles (i), (ii)

key terminology, contracts and (i), (ii)
KO (kick-off) meeting (i)
Kraljic matrix (i), (ii), (iii), (iv)

law
 governing (i)
international (i)
UK (i)
lead-times, critical (i)
legal profession (i), (ii), (iii)
legal requirements, contract terms and (i), (ii), (iii)
lessons learnt (i)
leverage (purchasing power) (i)
liability, contractual (i), (ii), (iii), (iv), (v), (vi)
life cycle stages (i), (ii)
liquidated damages (i)
litigation (i)

maintenance and support (i)

‘make or buy’ criteria (i), (ii)
manage and delivery (i)
management based contracts (i)
market consultations (i)
market exchanges, definition of (i)
material requirements planning (MRP) system (i)
MEAT (most economically advantageous tender) (i)
meeting, KO (kick-off) (i)
methodologies, procurement (i)
most economically advantageous tender (MEAT) (i)
MRP (material requirements planning) system (i)

NDA’s (non-disclosure agreements) (i)

needs, identified (i)
non-critical (standardised products) (i)
non-disclosure agreements (NDA’s) (i)

operation and support, definition of (i)

operations management, definition of (i)
operations, ongoing (i)
outcomes, variation (i)
PABS (package breakdown structure) (i), (ii), (iii), (iv), (v)
package breakdown structure (PABS) (i), (ii), (iii), (iv), (v)
package, definition of (i)
PESTLE (acronym) (i)
PFI (private finance initiative) (i), (ii), (iii)
planning
benefits realisation (i), (ii)
defined (i)
definition phase (i)
management (i)
MRP (material requirements planning) system (i)
plans, defined (i)
portfolio management (i)
power, purchasing (i)
power station example (i), (ii), (iii)
PPP (public private partnerships) (i), (ii)
PQQ (pre-qualification questionnaire) (i)
pre-qualification questionnaire (PQQ) (i)
presentations, provider (i)
private finance initiative (PFI) (i), (ii), (iii)
problem-solving (i)
procurement, definition of (i)
procurement process (i)
programme management (i)
project
‘agile’ delivery of (i)
alliances (i)
board (i)
brief (i), (ii)
complex (i)
life cycle of (i)
procurement in context (i)
relationships (i), (ii)
risk (i)
scope statements (i), (ii)
sponsor (i)
 wind-farm example (i)
project board (board), definition of (i)
project risk (risk), definition of (i)
project sponsor (sponsorship), definition of (i)
proposals (i), (ii)
provider, definition of (i)
provider selection panel (PSP) (i), (ii), (iii)
providers, potential (i), (ii), (iii), (iv), (v)
PSP (provider selection panel) (i), (ii), (iii)
public private partnerships (PPP) (i), (ii)

reality checks, provider (i)

red flags, legal compliance (i)
reimbursable contracts (i)
relationships, nature of project (i), (ii)
requests for information (RFIs) (i)
requirement, definition of (i)
requirements
developing (i)
hierarchy (i), (ii)
legal (i), (ii)
MRP (material requirements planning) system (i)
terms and (i), (ii), (iii), (iv), (v), (vi)
retention payments (i)
return on investment (ROI) (i)
reviews
contract (i), (ii)
gate (i), (ii)
objective (i)
periodic (i)
RFIs (requests for information) (i)
risk
assessments (i)
de-risking (i)
events (i), (ii)
minor (i)
 third-party (i)
transfer threshold (i)
risk event, definition of (i)
risk management (i), (ii), (iii), (iv), (v)
risk owner, definition of (i)
ROI (return on investment) (i)
rules of interpretation (i)

savings, cost (i)

SBC (‘strategic’ business case) (i), (ii), (iii), (iv), (v)
scope, definition of (i)
scope statements (i)
scoring criteria, providers and (i), (ii), (iii), (iv)
selection process
final criteria (i)
provider (i), (ii)
PSP (provider selection panel) (i), (ii), (iii)
teams (i)
services contracts (i), (ii)
services, definition of (i)
solution delivery (i), (ii)
sourcing, externally (i)
sourcing, internally (i)
SoW (statement of work) (i), (ii)
sponsors (i), (ii)
stakeholder, definition of (i)
stakeholder management, definition of (i)
stakeholders, key (i), (ii), (iii), (iv)
standard conditions (i), (ii)
statement of work (SoW) (i), (ii)
strategic alliances (i)
‘strategic’ business case (SBC) (i), (ii), (iii), (iv), (v)
strategic items (i), (ii)
strategic partnerships, definition of (i)
strategies (i), (ii), (iii)
subject matter experts, definition of (i)
success criteria (i), (ii)
success criteria, definition of (i)
support infrastructures (i)
SWOT matrix (i), (ii)

target costs (i), (ii), (iii)

technical proposals (i)
termination, of contract (i)
terminology, key (i), (ii)
terms and requirements (i), (ii), (iii), (iv), (v), (vi)
tools, operation (i)
trends, recent procurement (i)

UK case law and legislation (i)

uncertainty, reducing (i)

variation outcomes (i)

warranties, collateral (i)

WBS (work breakdown structure) (i)
WBS (work breakdown structure), definition of (i)
wind-farm project example (i)
work breakdown structure (WBS) (i)
works contracts (i), (ii)
works, definition of (i)

OceanofPDF.com