Should there be an Internal Contract

Between PMO’s and Functional Departments?



By Xiaohua Zeng

SKEMA Business School

Paris, France



Organizations have been facing various challenges and more complex when they deal with projects because there are many factors that might lead to a project failure which could generally perform as quality reduction, cost increases and time postpone etc. In project-oriented organizations, there are both external and internal projects. The biggest difference is that internal projects are a strategic choice and an option for the organization design while external projects are performed per force because of the customized nature, in other words, external projects are undertaken for an external client. In this context, organizations are usually aware of taking a contract with the external clients while used to ignoring the necessity of setting contracts for internal projects.

Since internal projects are driven by organizational strategies and in most cases performed by a PMO, they form networks that extend across the hierarchical functional units and meanwhile PMO plays the role of interacting with both projects and hierarchy. Therefore, the tensions and conflicts between PMO and functional departments are rising and inevitable, which absolutely increase more risk for project success as well as organizational strategy realization. How to resolve the conflicts and ensure a better internal project environment is significant for organizations. This paper discusses the necessity of an internal contract between PMO and functional departments and the value/effects it could bring to organizations for internal conflicts resolution. By analyzing and comparing with other solutions, the paper aims to prove there should be an internal contract between PMO’s and functional departments.

Key Words: Internal contract   Conflicts resolution   Project environment   Organization structure    Hierarchy


Managing projects are never easy. The ultimate question that we ask ourselves from time to time is how can we ensure the project deliverables and realize expected benefits? In this paper, we focus on internal projects in project-oriented organizations and compare the conflicts resolutions between PMO and functional departments.

Firstly, let us take a look at the differences between external projects and internal projects. Organizations do external projects based on customer demands. Therefore, there are at least two entities involved in an external project: project owner and project contractor. And organizations tend to set a contract with involved entities in order to set rules and define responsibilities. However, internal projects are as much important as external projects for organizations based on the fact that organizations could improve some processes, upgrade infrastructure and enhance business/strategies by internal projects. Generally speaking, most internal projects are undertaken without an external contractor and because of which there is no contract applied either, the efforts are based on the cooperation of PMO and functional departments.

In project-oriented organizations, running internal projects are often not desirable. A simple reality they are facing now is the conflicts between projects and other functional departments. Managing projects are different from managing operations or any other business processes, while they share a common resource pool in the organization without any agreements in legal effect. It could result in many problems, for instance, unlike the conflicts between project owner and contractor in an external project that could be solved by a legal process according to a contract, the tensions between PMO and functional departments could only be solved by negotiations, tolerances, shared understanding and culture influences.  Therefore, it could cost longer time to resolve the conflicts in organizations and leave long-term culture issues. This paper proposes to adopt a contractual agreement to better resolve the conflicts between PMOs and functional departments.

The paper is going to identify some common conflicts between PMO and functional departments. And develop alternatives based on the problems, by comparing and analyzing the options we are going to choose the preferred proposal. With the research findings, the paper needs to answer the question “should there be an internal contract between PMO’s and functional departments” and contribute more value to sustain internal project success in organizations.


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Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

About the Author

Xiaohua Zeng

Paris, France


Xiaohua Zeng
is a MSc student in SKEMA Business School, major in Project and Programme Management & Business Development (PPMBD). She graduated from Jimei University with a Bachelor degree in Economics. In 2015, she joined HSBC and worked as anti-money laundering investigator in Financial Crime Compliance Department located in Guangzhou, China. For the past few years, she has participated both campus and social activities, such as volunteer teacher in rural parts of China, the founder of Mandarin tutor center in Xiamen, entrepreneur in churches and business assistant in a trade company. Xiaohua (Diana) Zeng can be contacted at [email protected].