Contract Management 2

Contract Management
Lecture 2
Abdullahi Nur
Contract Administration
 Contract administration requires an understanding of the legal
documentation for the project and also:
– the commercial intent of the parties
– the operating, industry and community issues associated with service
provision
– the legislative and regulatory context in which the project operates
• It is the best practice to prepare a comprehensive Contract
Administration Manual that enables the Project Director to
understand the key contract provisions and the environment in
which the contract must be administered, which will specify:
– What needs to be done, by whom and when ?
– How will employer’s role be performed ?
– What are the ramifications of any non-performance or default by
either party and how these should be addressed ?
Performance Reporting and Monitoring
• Performance measures lie at the heart of performance management and it is
important that performance measures are linked to strategic objectives, or to
desired outcomes.
• The employer understands the contractor’s internal operating environment, such
as its cash flows. It is through this understanding that the employer can derive an
awareness of the private party’s strengths and weaknesses, including financial
performance.
• The Employer monitors ‘soft’ indicators of the management quality of
contractor looking for weaknesses or trends that may provide an early indication
of trouble ahead.
• The employer regularly reviews the quality of the service as measured against
the KPIs and output specifications.
• Having assessed the data collected through these monitoring activities, the
employer takes appropriate action to mitigate or control any risks that are
materialising, and to maximize value for money from the project.
Performance Monitoring
 • The stepped approach to performance reporting:
Step 1: Understanding the business
 • Strategic and Project level requirements
 • Cash flows, Project costs and debts
 • Risks
 Step 2: Analyse the underlying quality of the project
 • Financial Health
 • Management Quality
 • Service Performance
 Step 3: Reporting requirements
 • Internal MIS
 • Senior Management
 • Government and Parliament
Relationship Management, Dispute Resolution
and Issue management
 • It is imperative to maintain a strong relationship between the
employer and the contractor. Good relationship management
enables the parties to anticipate risk events more effectively
and deal with those risks that do materialise.
 • Good communication and a strong relationship are essential,
especially if issues arise which go to the heart of the contract’s
operation.
 • It is also important to recognise that disputes and service
delivery issues most likely will arise and will need to be
appropriately managed.
 • If the parties have strong dispute and issue management
principles and procedures in place, these will help minimise
damage to the relationship and assist the parties to achieve
success in the project.
Relationship Management
• Establishing relationship management structures
– Senior Management Support; Peer to Peer communication; separation of roles;
Defined roles and responsibilities; escalation paths
• Understanding one another
– Objectives and expectations; future plan and directions; concerns about wider
relationship; Opinion surveys
• Establishing and using communication channels
– Formal and informal contact points; horizontal and vertical communications;
documenting verbal communication
• Relationship management and succession planning
• Monitoring the Relationship
Governance, Probity & Compliance
• It is the duty of the employer in ensuring appropriate
governance, probity and compliance practices are established
within the organisation and in its interactions with the
contractors and any other government stakeholders.
• This assists the employer to comply with relevant laws,

regulations, and government policy.
Knowledge and Information Management
 • Employer’s ability to successfully manage a contract can

depend upon the Project Director having an effective
knowledge and information management strategy tailored
to the project’s needs.
 • In a well-managed project, the Project Director ensures
the information collected in relation to a project is
maintained, periodically reviewed, and organised for easy
retrieval and access. These practices assist the employer to
comply with:
 – record-keeping obligations
 – disclosure obligations, such as those under Acts
 – intellectual property laws and confidentiality obligations
Change Management
• During the lifecycle of any project, it is likely that a number

of changes will occur, requiring proper management.
• Changes may be contemplated at the time of procurement
and provided for in the contract, or not contemplated during
procurement but seen as desirable or necessary alterations to
services or the contract.
• In either case, change events are both a source of risk and a
potential opportunity to extract additional benefits from the
project.
Change Management
• Good change management processes incorporate the
following features:
– Appropriate protocols are in place to manage change –
Appropriate staff have the authority to request and authorise
changes
– Potential changes are assessed thoroughly by suitably
experienced personnel, having consulted with all relevant
stakeholders
– Changes are appropriately prioritised and their
implementation is properly resourced
– The implementation of changes is controlled and tested –
Changes are appropriately documented
– Changes do not compromise value for money outcomes
Contingency Planning
• It may not be possible to fully transfer responsibility for the risk

of service delivery failure to the contractor.
• If the contractor fails to deliver services according to the
requirements of the contract, the employer, and possibly
government as a whole, may retain accountability, and potentially
face adverse reaction from end users and third parties.
• In addition, the contractor’s obligation to provide services may be
suspended through the operation of force majeure provisions. If so,
the employer may be compelled or subjected to strong pressure to
ensure that the public or other third parties are not inconvenienced
by a disruption to the supply of those services.
• Effective contingency planning is that the employer can react to
unplanned events and control the impact of these events on service
delivery value for money outcomes.
Ongoing Review
• Contract management processes must change and adapt
throughout the lifecycle of a contract, and therefore should
be reviewed on an ongoing basis to ensure that management is
sufficiently informed of current and emerging risks and issues.
• In addition to regular reviews, the impact of the following
events should be considered as and when they occur:
– divergence between each party’s expectations and actual
project outcomes
– changes in the project itself through change events,
contingency events, or as a result of the project moving from
one stage to another in its lifecycle
– changes in the external environment in which the project
operates.
Contract Management Training
• For contract management to be effective, Project

Directors need not only a strong knowledge of the basics, but
also a detailed practical understanding of commercial and
legal dimensions of contract management. The training will
meet this second need.
• As this practical understanding is vital to the success of

the Project Director, and the contract management team, in
implementing effective contract management practices, the
training will be mandatory for employer’s personnel involved
in the management of projects.

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What are the main components of contract administration?

What are the main steps involved in performance monitoring?

Contract Management

• This assists the employer to comply with relevant laws,

 • Employer’s ability to successfully manage a contract can

• During the lifecycle of any project, it is likely that a number

• It may not be possible to fully transfer responsibility for the risk

• For contract management to be effective, Project

• As this practical understanding is vital to the success of

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