Contract Management in Projects Oliver F. Lehmann, MSC, ACE, PMP
22
Contract Management in Projects
Workshop Agenda:
15:00 – 15:55o Welcome: Objectives, agenda, ground rules of
the workshopo Attendees: Short self-introductiono Overture: Contracting– when the project
becomes the businesso Discovery: Doing projects the cross-corporate
way (breakout groups)o DebriefingBreak
16:00 – 16:55o Learning: Project business as high-risk businesso Discovery: Adding legal risks and business risks to
project risks (breakout groups)o DebriefingBreak
17:00 – 17:55o Learning: Resolving crises with benefit
engineeringo Discovery: Business acumen for project
managers (breakout groups)o DebriefingBreak
18:00 – 18:50o Learning: The “Mission success first” paradigmo Discovery: Resolving crises and
salvaging the contract (breakout groups)
o Debriefing
18:50 – 19:00o Wrap-up, adjourn
33
Contract Management in Projects
Workshop Audience
• Project managers in customer-facing projects (contractor side)
• Projects with massive contracting/subcontracting (customer side)
• Professionals from Business development
Project sales
Bid & proposal management
Contract & claim management
Contract-heavy program & portfolio management
PMOs (= Project management offices)
PBMOs (= Project business management offices)
Experts (Trainers, educators, consultants, writers, etc.)
Self-employed freelancers
44
Contract Management in Projects
Oliver F. Lehmann, MSc, PMP, ACE
• University studies (Stuttgart, Liverpool)
• Degrees: MSc (Master of Science in Project Management)
PMP (Project Management Professional)
ACE (Approved Consultant & Educator in Project Business Management)
• Professional history: Project management practitioner since ~1983 Trainer since 1995, assignments in Europe, Asia, USA Analyst, writer, and speaker
• Giving back to the profession: Volunteer at PMI®* since 2001 President at PMI Southern Germany Chapter 2013 to 2018 President at the Project Business Foundation since 2019
77
Contracting– When the Project Becomes the Business
New team structures – the cross-corporate matrix
88
Contracting– When the Project Becomes the Business
A survey
• Made: 12-2016
• Responses: 590
• Region surveyed: Global
• Scale: -3 to +3
• Average: +1.3+1.0
Past
Future
99
Contracting– When the Project Becomes the Business
Projects performed under contract
• 3 global surveys 2015, n = 245
2018, n = 325
2019, n = 346
56.9% 35.0% 8.1%
0% 25% 50% 75% 100%
Nov 2019
May 2018
Sep 2015
What type of project are you currently managing (or have you just finished)?
Customer project: My project is performed under contract for anexternal, paying customer.
Internal project: My project is performed to meet the needs of arequester inside the own organization.
The setting of my project is different.
Customer project:My project isperformed undercontract for anexternal, payingcustomer.
Internal project:My project isperformed to meetthe need of a requester inside the own organization.
The setting of myproject is different.
56.9% 35.0% 8.1%
0% 25% 50% 75% 100%
Nov 2019
May 2018
Sep 2015
What type of project are you currently managing (or have you just finished)?
Customer project: My project is performed under contract for anexternal, paying customer.
Internal project: My project is performed to meet the needs of arequester inside the own organization.
The setting of my project is different.
1010
Contracting– When the Project Becomes the Business
In projects under contract, multi-tier Project Supply Networks (PSNs) evolve.
• A simple example:
Customer
1st Tier:(Prime) Contractors
2nd Tier:Subcontractors
Flo
w o
f d
eliv
erab
les
Flo
w o
f m
on
ey
Seller
Seller
Buyer
Seller Seller
Seller
Buyer
1414
Project Business as High-Risk Business
Internal projects and customer projects have different benefit generation.
• Example: Internal projects with single delivery and staged deliveries
SingleDelivery
Delivery
Project lifespan Benefit realization lifespan
t
StagedDeliveries
Delivery
Project lifespan
Benefit realization lifespan
t
DeliveryDelivery
Delivery
1515
Project Business as High-Risk Business
Internal projects and customer projects have different benefit generation.
• Example: Customer(-facing) projects
FreebieProject
Delivery
Project lifespan Benefit realization lifespan
t
PaymentPaymentPayment Payment
Customer Project
Payment
Project lifespan
Benefit realization lifespan
t
PaymentPaymentPayment Payment
Delivery
1616
Project Business as High-Risk Business
Contractors must make profit withthe project, but also observecash-flow.
-2,000,000
-1,000,000
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Project Margin - Development over TimeFor a project with payments linked to milestone achievements
Margin Cumulated costs Revenues
Project Finish
1818
Project Business as High-Risk Business
In all industries, Project Business Management is high risk business for all parties involved
• Project risks
• Business risks
2020
Resolving Crises with Benefit Engineering
Survey: Causes of conflicts in PSNs
1. Conflicting business interests
2. Diversity of cultures
3. Incompatible egos
…and many more.
2121
Resolving Crises with Benefit Engineering
Challenges for project managersin internal projectsand customer projects are different.
2222
Resolving Crises with Benefit Engineering
Challenges for project managersin internal projectsand customer projects are different.
2424
Resolving Crises with Benefit Engineering
Challenges for project managersin outsourced projects are also different.
Commonly observable differences
Projects performed by internal teams
Projects performed using one or more contractors
During a previous Make-or-buy decision, the selected option was…
Make Buy
Are ... for the actually performing organization(s)
Cost centers Profit centers
The (internal or customer-side) project manager needs a budget
Possibly Definitively
Conflicts commonly occur… Inside the own organization Inside the own organization, with contractors and among contractors
The project manager has to cooperate for staffing with…
HR department Procurement department, corporate counsel, management
Disputes are to be finally resolved… By management At courts
The actually performing organization(s) do(es) the project to attain…
Deliverables and change Income
Project selection is made as… A sequence of internal decisions
A bid/no-bid decision (contractor-side), contract award (customer-side)
Project work for the requester is based on… Internal requests and agreements
Legally binding contracts
The project manager’s familiarity with the performance environment is generally…
High Low
A project budget is developed through… A more or less informed management decision, or not at all
Based on the prices of contractors, that become project costs
A project budget is usually managed by… The project sponsor or a supervisory board or may be inexistent
The project manager
Project managers must consider… The interests of the own organization
The interests of both customer and contractor(s)
Organizational interfaces are generally… Among business units Among business entities
Project matrices are generally… Cross-functional Cross-organizational
Management attention is generally expected to be provided from…
Own management Contractor management
The requestor supports the project with… Product ownership Provisions, enabling services, payments
Worst case for the project Project cancellation Contractor bankruptcy
The project competes for resources with… Functional organization and other projects
Other customers of the contractor(s)
2525
Resolving Crises with Benefit Engineering
Challenges for project managersin outsourced projects are also different.
Commonly observable differences
Projects performed by internal teams
Projects performed using one or more contractors
During a previous Make-or-buy decision, the selected option was…
Make Buy
Are ... for the actually performing organization(s)
Cost centers Profit centers
The (internal or customer-side) project manager needs a budget
Possibly Definitively
Conflicts commonly occur… Inside the own organization Inside the own organization, with contractors and among contractors
The project manager has to cooperate for staffing with…
HR department Procurement department, corporate counsel, management
Disputes are to be finally resolved… By management At courts
The actually performing organization(s) do(es) the project to attain…
Deliverables and change Income
Project selection is made as… A sequence of internal decisions
A bid/no-bid decision (contractor-side), contract award (customer-side)
Project work for the requester is based on… Internal requests and agreements
Legally binding contracts
The project manager’s familiarity with the performance environment is generally…
High Low
A project budget is developed through… A more or less informed management decision, or not at all
Based on the prices of contractors, that become project costs
A project budget is usually managed by… The project sponsor or a supervisory board or may be inexistent
The project manager
Project managers must consider… The interests of the own organization
The interests of both customer and contractor(s)
Organizational interfaces are generally… Among business units Among business entities
Project matrices are generally… Cross-functional Cross-organizational
Management attention is generally expected to be provided from…
Own management Contractor management
The requestor supports the project with… Product ownership Provisions, enabling services, payments
Worst case for the project Project cancellation Contractor bankruptcy
The project competes for resources with… Functional organization and other projects
Other customers of the contractor(s)
2828
Resolving Crises with Benefit Engineering
Typical causes of troubles in projects under contract
• Deadlines
• Negative margins
• Operational disruption
• Poor communications
• Late, missing payments
• Provisions and enabling services
• And many more
3131
Resolving Crises with Benefit Engineering
What makesit easy today
In the past
- Poorly informed customers - Employees doing mostly well-defined
manual work - Small number of long-term suppliers - Few sources of raw materials - Simple, static markets - Controllable competition - Small number of laws - Integrity considered a secondary topic - Safety and security issues mostly ignored - Static processes - Well-predictable future - Decisions driven by perceived importance
Today
- Heterogeneous, global customers with easy access to information
- Talent gap for talented employees that do mostly intellectual work and are able to adapt quickly to changing requirements
- Complex and dynamic supply networks, often developed ad-hoc
- Thorny competition for many raw materials - Fast-changing global markets with
disruptive innovations, often surprising incumbent players
- Dynamic competition - Unmanageable “jungle” of national and
international laws and regulations - Professional integrity scrutinized by various
stakeholders - Safety and security issues have become
mission critical - Ever-changing processes with a high degree
of adaptiveness & agility - Future driven by disturbances & uncertainty - Decisions driven by perceived urgency
3333
The “Mission Success First” Paradigm
A failed project in 1999: NASA’s Mars Climate Orbiter
• Cause: Miscommunication of navigation thrust data between NASA: Using metrical units (Newton-seconds, N-s)
Lockheed: Using US customary units (Pound-seconds, lbf-s)
Customer
1st Tier:(Prime) Contractors
2nd Tier:Subcontractors
Flo
w o
f d
eliv
erab
les
Flo
w o
f m
on
ey
Seller
Seller
Buyer
Seller Seller
Seller
Buyer
NASA
Lockheed
(100 N = 22.5 lbs)
3434
The “Mission Success First” Paradigm
A failed project in 1999: NASA’s Mars Climate Orbiter
• Cause: Miscommunication of navigation thrust data between NASA: Using metrical units (Newton-seconds, N-s)
Lockheed: Using US customary units (Pound-seconds, lbf-s)
3636
The “Mission Success First” Paradigm
A conflict of interests
• Need of the project: Intensive communications across tiers
• Common reality: Insufficient communications due to lack of Time and resources
Good will and trust
Customer
1st Tier:(Prime) Contractors
2nd Tier:Subcontractors
Flo
w o
f d
eliv
erab
les
Flo
w o
f m
on
ey
Seller
Seller
Buyer
Seller Seller
Seller
Buyer
! !
! !!
Legal implications in case of a lawsuit
Power distance
3939
The “Mission Success First” Paradigm
Cross-corporate projects
• Tap into Assets of other organizations, turn them into Project Resources.
The keys to success
• Cooperation drives the project.
• Turn Contract Parties into Project Partners.
• Strive for Completing over Competing.
• Mission Success First as the dominant culture across the Project Supply Network.
4040
The “Mission Success First” Paradigm
Seven Immediately Effective Steps for the Cooperative Transformation
• Be more Dilligent in selecting business partners.
• Adopt Better Contract Types and Practices to turn contract parties into project partners.
• Establish “Project Business Healing Days”.
• Use ADR (alternative dispute resolution).
• Educate and Consult all individuals to develop business spirit and acumen.
• Join communities and Share Lessons Learned with others.
• Seek External Help to promote a “Mission Success First” culture.
Thank You!
PMI Southern Germany Chapter:https://www.pmi-sgc.de
Project Business Foundation:https://www.project-business.org
Images:- Own work- NASA- Shutterstock
- bluedog studio- Everett Collection- ImageFlow- Kurhan- Mehaniq