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Planning for Contract Management

SERIES ARTICLE

Advances in Project Management Series

By Louise Hart

Sydney, Australia


The delivery method for many projects is to engage a contractor to deliver the project. This is common even for – perhaps especially for – the huge Government infrastructure projects that cost billions and take years to deliver.

Governments and other organisations generally outsource delivery because they don’t have the capacity to do it themselves. They enter into contracts to pass the delivery risk to a contractor who does have the capacity. While this aligns with the principle that a risk should be allocated to the party best able to manage it, there is a critical distinction between allocation of risk and elimination of risk. Too often, contract management is ignored or downgraded because of a misguided belief that a risk which has been allocated to the contractor ceases to exist.

It is often possible to eliminate certain risks, and it can be a very good thing to do. Every risk eliminated is one less to worry about, and there is generally quite enough to worry about as it is. But risk allocation is just that – allocation. No matter where the risk is allocated, it still exists. Allocation of a risk to the contractor does not eliminate it, as evidenced by the many contracted projects that run over time and over budget, sometimes spectacularly so.

Delivery risk continues to exist. If you choose to pass it to a contractor, that just means you will now have to manage the risk by managing the contract, instead of managing it directly.

The time to recognise this is before you enter the contract, while there is still time to do something about it. Once a contract has been entered into, it can be very difficult to amend it. Many infrastructure projects are structured as Public Private Partnerships (PPPs), which means the ‘contract’ is really a suite of contracts covering design, construction, finance and operations and involving a number of different parties, consortia and syndicates: amending these complex arrangements is deliberately designed to be very difficult indeed. But even a simple design and build contract can’t be amended without the cooperation of the other party, who is unlikely to be receptive to changes that aren’t in their favour.

If you want a contract that helps rather than hinders contract management, you need to plan for the management phase as part of contract procurement. The contract is one of the most powerful tools you have for managing risk and you sign it only once. Some risk management controls can be introduced or eliminated at any time, but controls in the contract are either there on day one or not there at all. You need a contract with the right provisions, and you need a contract manager who will use those provisions to manage the contract effectively.

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To read entire article (click here)

 

Editor’s note: The Advances in Project Management series includes articles by authors of program and project management books previously published by Gower in UK and now by Routledge. Information about the series can be found at https://www.routledge.com/Advances-in-Project-Management/book-series/APM

 


 

About the Author

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Louise Hart

Sydney, Australia

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Louise Hart
is an independent consultant specialising in major projects and procurement. Louise’s past roles span the public and private sectors and include: solicitor in international law firms in Sydney and London; adviser to the Latvian Ministry of Economic Reform; Privatisation Legal Adviser for the flotation of Railtrack PLC, then the owner of Britain’s rail network; transaction manager for two major re-structurings of the Channel Tunnel Rail Link PPP project; and Project Director for the establishment of the NSW $3.6 billion PPP for the procurement of the Waratah fleet of double deck passenger trains now serving Sydney’s network.

Louise is the author of the book, Procuring Successful Mega-Projects: How to establish major Government contracts without ending up in court, an insider’s guide for public project directors. To learn more about the book, visit https://www.routledge.com/Procuring-Successful-Mega-Projects-How-to-Establish-Major-Government-Contracts/Hart/p/book/9781472455086