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What You Need to Pay Attention to in Contract Management

During Project Development and Project Execution, Contract Management is a delicate topic that many Project Directors overlook at times​.

​  There are several reasons for this, one being that many PMs are too busy with the technical part of the project and overlooking minute details within the contracts is all too easy… after all, many of us tend to be big-picture thinkers.  But, as it has been said, the devil is in the details!

Based on a study by [email protected]™ with the feedback from Multinational companies like Alstom, Siemens, GE and participants in our PM Trainings show noticeably that Project Contract Management including the following key topics

  1. Project Due Diligence
  2. Contract Review, Monitoring and Controlling
  3. Risk Management
  4. Claim Management
  5. Communication Management.

All of these are of paramount importance for successful projects, financially and technically.

​  And paying attention to each one takes time, energy and understanding as often we have to look over each segment numerous times before moving on.​
​Contract management is most critical during the project development phase.  It is the key factor to make or break the project. A well-defined business case is the first step to guarantee that the project seems feasible, thereafter the project needs to be incorporated into a contract to ensure the terms and conditions are feasible and understandable to all the parties involved. Once the contract is signed, the project needs to be executed accordingly and any discrepancy might lead to misunderstandings, additional cost and time and sometimes it can even lead to a complete halt of the project.  So best to be clear and concise up front!

Having experience with not only the technical side of things, but also the legal aspects of contracts will really support you here.  If you do not have much legal experience, it may be in your best interest to find a great contract lawyer to be on your team!​

Most of the time, the root cause of contractual issues are misunderstandings about the scope of work, unclear descriptions or even missing descriptions, no experience in legal matters and its consequences, no standards and​ inexperienced staff​.  And for those who say they don’t have enough time for contractual management have not factored in their own time and energy that may be wasted on a failed project that doesn’t come to fruition… Not to mention possible hashmarks on their credibility!

​A PM has to have a general knowledge of these things in order to do well.  Think of the contract as the foundation of a building; if the foundation has cracks in it the building will eventually come down.​

The contract has a periodical importance:

  • At the beginning of the project until it is signed
  • At the end of the project during the panic curve

Many times the contract is ignored or neglected by project engineers

  • Ad hoc change of management does not include official approval to technical or commercial alterations in the contract
  • “Grey zones” are there either by coincidence or even intentionally created to leave room for further concessions or amendments.​

Basic recommendations for contract management in projects are: 

  • Stick to the contract – but find amicable ways of managing the project in the interest of all parties involved
  • Create awareness about the contractual determined requirements to the entire project team
  • Sort out and address​ the grey zones and/or the compliance issues at the beginning – that would be the least costly
  • Participation of Contract Managers in risk projects – Risk Review
  • Proposal/contract release by Review Board and documented decision making
  • Taking country specific legal regulations into account
  • Use the services of a Contract Manager for professional contract management
​In summary, contract management is a key element in initiating and executing a successful project.  It is there so that everyone has guidelines to follow and so that everyone understands their scope of work.  Take the extra time needed in the beginning to sort out all areas of the contract, and go over the contract a few times to avoid grey areas or areas that are not clear and concise.  And if possible, find yourself a great go-to Contract manager for your team!​
Peter Wyss