Contract Management – key to projects

If there is one area most overlooked in project management it must be the contracts department. I don’t know how many times I have arrived to a project team to assist with difficulties on a project only to run afoul of contractual problems. Virtually every week I speak with project managers attempting to pull a project through difficult times and finding that their contracts have provided no leverage to do so.
Now, this is not to blame the contracts department. In fact, the most common problem with contracts on a project is that project management doesn’t consider them during planning at all. Contract officers are often considered by project managers as a purchasing clerk and left to their own devices. Big mistake. Today we’ll be looking at how to integrate contract management systems and functionality into your project management process.
First of all, do you know what contracts are involved in your current projects? The answer is often no. One of the big benefits of all this “collaborative” project management functionality we’ve seen lately is the ability to integrate document management into your projects and to even attach documents to individual tasks. This makes an ideal holding place for contract documents and, better yet, contract summary documents outlining key milestones or promises of both the vendor and the client that must be met.

Without going any farther, if you’re not doing this already, take a look at it now. You might find a colossal impact in the efficiency of managing your project environment by implementing this one process and, best of all, you’ve probably got the functionality for doing this already in your project management tool. If you’re still struggling with older versions of your scheduling system, the ability to track documents in your project is worth upgrading for.

The implementation for this is simple. Start with a new process that has a soft copy of all significant contract documents stored with the project management group. Load those documents into the document management section of your project management software. Ask the Contracts Group for a deliverable summary with a description and date of each significant milestone in the contract and load those into the issues-management area of your project system. If any of these items have a direct impact on a task in your project, make the link between the document and/or the new issue and the task. That’s it – hey presto, you’ve implemented a process that has the potential to radically improve your project management effectiveness. As you now track these issues and have changes to the project, you will be able to immediately refer to the relevant contract information – your ability to avoid disaster because of contractual issues has now increased a hundred-fold.

But wait, there’s more. A search of contract management software for project management reveals hundreds of thousands of hits. This is obviously a popular subject. What does contract management software do, you ask? It sounds a lot like project management.

Most contract management software is designed to do what we’ve just discussed above. It usually includes several modules including a vendor database to ensure that vendors meet certain criteria, a templates area for managing boilerplate contracts and a deliverables area with some date management modules to enter and track the significant dates and deliverables for each contract. As we’ve discussed, you can probably implement 80% of this functionality just by using the document management and issue management functionality of most project scheduling systems lately.

Where contract management software has already been implemented, some people will be tempted to integrate these data systems together. It’s certainly possible, of course, but the number of data transactions between the systems is probably quite low for most companies and so the relatively tiny penalty of double-entry may not warrant such an integration for these systems.

Other contract management systems such as Prolog and Primavera’s Expedition are designed to manage the myriad communications and contract changes that result in some project environments such as the construction industry. These systems go far beyond simple document management and attempt to manage the workflow of a dynamically changing contract that is expected to evolve as the project progresses. For project environments like this, implementation of these kinds of systems can pay for themselves with a single incident. The true benefit of contract change management is found when projects end up in that unfortunate project phase called litigation. When this happens, he who has the best paper-trail usually wins. The project manager who can reconstruct the project as it actually happened and can track the back-and-forth communications on a particular issue is likely going to be able to pay back the value of this kind of software and all the time spent on it on its first use.

Contracts, are fundamentally a recording of the promises of things to be delivered and when they’ll be delivered between the vendor and the client. For the things you’ve contractually promised to your client, you should be tracking them distinctly within your project schedule. Same goes for those things promised you by your vendors.

When project managers integrate contract officers into their team, the project almost always improves its likelihood of success. When project managers and contract offices work on the various risks associated with different deliverables, they can make contracts which encourage the right kind of behavior. I can’t tell you how many times I’ve seen a project where a key supplier is terribly late on a component which is mission-critical to the project schedule only to find that there are no penalties in the contract for the supplier if he is late.

Even if you are not contracting outside your organization, managing the promises of deliverables between departments is equally important. Simple promise documents and project charters can be constructed which lay-out the things to be delivered and when they’ll arrive. It can go a long way towards avoiding confusion and upset and a smart project manager will integrate this data into their thinking.

Originally published October 2002 in PM Times


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