Contract commencement

As introduced in the Unit on Project Stakeholders, contractors and consultants are an integral part of your project team – in some projects, they are the whole team! 

Their coordination – and, often, their direct management – is the project leader’s responsibility.

As with internal project team members, however, you may have had no input into the acquisition.

Regardless, the first thing you need to do once delivery starts is commence or ‘kick-off‘ each contract.

Good contract management requires a complete set of contract documentation (including the supplier’s initial proposal and subsequent correspondence) and a clear understanding of each party’s obligations. 

If you were not involved in the sourcing process, talk to the procurement team to understand any significant issues or risks relating to the contract and the procurement process, particularly details of any negotiations and the rationale for any changes. 

They will also be able to detail the drivers for assessing value for money so you will understand what provisions you should keep an eye on during the contract performance phase.

With this information, you should commence updating your project management plan and related documents to include all aspects relevant to contract delivery, including:

• Key activities: A summary of key activities to be completed (including milestones/dates, contract expiry, notice periods, extension options, contract review timings, processes, etc) and who is responsible for each activity – WBS / schedule.
• Roles and responsibilities: A list of the main individuals involved in the contract, their positions, contact details, and responsibilities (for both the procuring entity and the supplier) – stakeholder register.
• Risk management: Details of risks that have been identified and how and by whom they will be managed – risk register.
• Contract governance: Details of stakeholder engagement, contract oversight, process for escalating issues or disputes, internal reporting including content, frequency, and distribution of any reporting within the procuring entity (for example, monthly reporting to the senior management team).
• Supplier reporting: The frequency and content of the supplier’s reporting and timeframes for acceptance of reports, including details of the reporting from subcontractors.
• Meetings: A schedule of meetings and any standing agenda items, the process for the production, and agreement of minutes and turnaround times.
• Performance management: Details of how performance will be managed, including the reporting of Key Performance Indicators (KPIs) or Service Level Agreements (SLAs), how data will be gathered, verified, and calculated, details of remedies or withholds, etc.
• Training needs: Contract management requires a broad range of knowledge and skills. Assess if you and the people on the contract management team have the necessary skills and knowledge to manage the contract. If not, consider organizing training to address any shortfalls. The sooner, the better, as there are lead times to build appropriate capability.
• Delivery and acceptance: Details of the acceptance process or specifics around the delivery of goods or services, including standards to be met and audit requirements around those standards, compliance certificates, etc.
• Payment arrangements: Details of pricing, including payment terms, milestone payments, etc.
• Supplier access and security: Details of access to facilities or information systems and security requirements (either personnel or cyber).
• Insurance and guarantees: Details of any insurance certificates, bank guarantees, or indemnities provided by the supplier, expiry or renewal dates, and storage location details.
• Contract variations: Details of the process defined in the contract for requesting variations to the contract and details of delegates.
• Extension options or contract renewal: Details of options and information about the review of the contract, the process for extending the contract, and the lead time needed for any re-application.

A contract start-up meeting is an excellent way to begin as it allows you to establish a working relationship with your supplier and to develop a shared understanding of critical aspects of the contract, including commercial, operational, performance and administrative expectations.

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Managing supplier performance

Most contracts are completed without problems, but as a contract manager, you need to be prepared to address supplier performance issues as they arise.

Most contract management problems can be avoided by developing an effective working relationship with the supplier.

Both parties should agree (ideally within the contract):

• what aspects of performance will be measured
• how they will be measured
• how frequently they will be measured, and
• who will do the measurement.

The data that you collect can be used to identify any gap between the supplier’s performance and the standards expected and defined in the contract. 

You therefore need to be confident that the information you use to assess the supplier’s performance is accurate, fair, and complete.

If performance measurement indicates a gap between the supplier’s performance and the expected standard, you must work with the supplier to bridge that gap. 

This helps to ensure that your organization is getting what it expects and what it is paying for (therefore achieving value for money).

Supplier underperformance can be minimized by having a performance measurement approach that allows prompt and ongoing feedback to the supplier about their performance, particularly regarding timeframes or deliverables. 

As a contract manager, you need to be aware of any signs of potential underperformance so you can address them before they become serious.

Prompt action can help prevent the problem from worsening!

It also lets the supplier know of any potential performance problems early and may make it easier for them to address the issues at a low cost and with minimal disruption.

Performance management arrangements contained in your contract might direct:

• discussions to hear the supplier’s perspective on the performance gap
• agreeing on corrective actions to get performance back on track, and
• establishing a process for checking the required improvements are taking place.

Corrective actions could include the supplier replacing or using additional personnel, reporting back more frequently on progress, modifying processes or systems, or clarifying the procuring entity’s requirements.

Usually, responding to issues will not involve a contract variation as the supplier only provides what they initially agreed to provide for the price already set out in the contract.

In the next Unit, we will look at how you might manage more serious contractor under-performance.

Source: Australian Government Contract Management Guide