CHAPTER 4

Developing a Contract
Management Plan
MsC. Bui Thi Bich Lien
Objectives

At the end of this lesson, you should

be able to:

❖ Sketch a contract management

plan
❖ Identify the types of tenders &
tendering procedures

❖ Distribute risks in tenders via tender

sum formulation 2
Introduction

Keeping Track of Contracts

✓Keeping track of one contract can be easily done. What if
you have to deal with dozens or even hundreds of
contracts…?
✓According to the Institute of Supply Management (ISM)
in the US, a typical Fortune 1000 company has between
20,000 – 40,000 active contracts.
✓Each contract has different expiry dates, and each
contract may have its own set of requirements
✓Keeping track of such details is often demanding and time
consuming.

3
Introduction
• A study by the Journal of Contract
Management surveyed over 100 companies
in the US and Europe and found that 81%
had difficulties simply locating specific
contracts.
• A survey by the International
Association for Contract and Commercial
Management (IACCM) in 2003, found that
as much as 70% of international
corporations state that contract
management is a key operational
weakness.

4
 1. Life cycle of contract
Conception Corporate strategy – commercial strategy – need identification –
budget allocation – contract strategy
Gestation Market test – negotiation – business case - bid

Birth Drafting – negotiation – execution (signature) – copies to key

stakeholders

Life Mobilization – contract management plan – progress monitoring

– changes to scope or duration – dealing with problems – SRM –
CRM – progress payments – transfer of legal title – progress
meetings – project memo – system for communication
Death Final delivery – final payment – final “sign-off” (issue certificate)
Expiry of warrantees/guarantee – latent defects period – IPR
provision expire – archival of documentation – document
retention and destruction policy.
5
MsC Bui Thi Bich Lien
❖Pre-contract Stage
➢ This occurs before the contract has been executed. It is
during this stage that the design is developed and the
tender process occurs
➢ This stage is critical which is often overlooked. Sales staff
in their eagerness could overlook or even ignore the
commercial terms which may disadvantage the client.
➢ Contract managers should be drawn in from the
beginning to ensure the company’s interest is protected
from risks. They are the people who understand the legal
implications and consequences of contract fulfillment
and breaching.
❖Post-contract Stage
➢This commences as soon as the preferred tenderer
appointed as the Contractor and the contract is
executed between it and the tenderer
➢Now that the tender exists, it is in this second
stage of the contract life cycle in which the form of
contract is used to govern the actions of the
parties
➢It provides a common reference point that both
parties use to remind themselves of their rights
and obligations.
Contracting process
 Contract process
▪ Step 1: Initiation is the first stage in the contract lifecycle when the
organization recognizes the need for a contract.
▪ Step 2: Planning is the second stage, during which the organization
develops a plan for the contract. It includes planning a strategy for
CLM depending on the enterprise requirements and resources.
▪ Step 3: Implementation is the third stage, during which the
organization carries out the plan. It includes developing contracts
according to plan and communicating the objectives clearly to all
employees.
▪ Step 4: In the negotiation stage, both parties agree on the terms of
the contract. That is often done with the help of lawyers to ensure
that all terms are fair and legal.
▪ Step 5: The contract is executed or signed after negotiation.
That is when both parties are legally bound to the terms of the
contract.
▪ Step 6: The management stage is when the contract is in
effect, and both parties fulfill their obligations. Then, the
organization monitors and manages the contract to ensure its
terms are met.
▪ Step 7: The contract may be renewed if both parties agree to
extend it. This stage includes renegotiating the terms of the
contract and executing a new contract.
▪ Step 8: The close-out stage is when the contract is completed,
and all obligations have been fulfilled. This stage includes
terminating the contract and archiving it for future reference.
2. Contract management matrix
3. Contract made by tender

❖All contracts need a mass of documents (plans,

specifications, conditions) to be produced to be able
to seek competitive tenders
❖All tenders are governed by rules and codes of
tendering conduct
❖For a tender to be fair, the following conditions apply:
➢The client has to produce documents with exact
specifications and quantities to all tenderers
➢The tenderers have to price the tender without
colluding with other suppliers
❖Single Stage Selective Tendering
➢ Also known as selective tendering
➢ The first step away from the problems of open tendering
is to restrict the number of tenderers being invited to
submit bids
➢ This is the purpose of single stage selective tendering
➢ Basically, it consists of pre-selecting a limited number of
contractors to tender for the work
➢ A client who contracts regularly will usually have an
approved list of contractors, from which a short list can
be drawn up
❖Two Stage Selective Tendering
➢ The process is split into two stages
➢ The first stage is a process for the selection of a contractor
and for the establishment of a level of pricing for subsequent
negotiation
➢ The detail needs only to be sufficient to provide a basis for
competition and a basis for the negotiation of the price during
the second stage
➢ In the second stage, the client’s professional team
collaborates with the selected contractor, to design and
development of the project
➢ This form of tendering is used where the magnitude of the
work may be unknown
❖Selective Tendering for Design & Build
➢The contractor has no professional team and is solely
responsible for the entire project
➢The tender price is the price for which the contractor
offers to carry out and complete
❖Negotiation
➢ This approach is more suited to procurement strategies that
are markedly different from traditional methods
➢ The inherent flexibility demanded by such approaches means
that there is no standard method for negotiating a contract
➢ This method will lead to serial contracting where contractors
are asked to bid for a project on the basis if they build this one
satisfactorily, others of a similar type will follow and the same
bill rates will be used
➢ One major benefit of this system is the desire to preserve
continuing business relationships rather than fight particular
claims or disputes
4. Decision to tender
➢ If the contractor wants the job, then a further decision is taken about the
state of the market and an assessment of what the project is selling for at
the moment. This assessment is then modified by the level of risk
associated with the project, particularly in terms of contractual obligations
put forward by the client.
➢ If the contract is risky, a substantial premium should be added to the
contractor’s bid so that the risks are covered. The calculation is in theory
at least similar to the actual calculations made by insurers when examining
pricing and pricing risks.
➢ Finally, the contractor’s own cash flow has a significant impact on the
tender. Having a detailed knowledge of costs and finance, the contractor
can predict the monthly net cash flow in or out of the project. If the
project takes place near the end of a tax year, the contractor may want to
reduce the level of profit appearing on the balance sheets for the purpose
of reducing tax liabilities. This can be done by artificially reducing the rates
for work at the beginning of the project and adding a corresponding
proportion on to the rates for work later on in the project.
5. Withdrawal of Tender

▪ The basic contractual position is that since a

contractor’s tender is merely an offer, it may be
validly revoked at any time before it has been
accepted. If this happens in respect of a main
contract, the client may well be disappointed.
However, the client is unlikely to suffer great
financial loss as a result.
6. Systems concept of contract
management
7. Guidelines on developing a contract
manage

A. Purpose of the Plan

➢useful tool for administering the contract
➢executive summary of the roles and responsibilities of
the contracting parties
➢identify who is responsible for the various contract
administration activities
➢flexible and can adapt to changing circumstances
B. Background
➢ contract particulars
➢ the organization’s objectives
➢ the provider/contractor responsibility to deliver/perform
based on certain set standards which may include
quantity/quality benchmarks, time frames
➢ contract value, fee, performance incentives as applicable
➢ Other key requirements from provider/contractor in
respect of environmental, safety, health, etc.
➢ Use of RFPs(Request for Proposals)
C. Identification of Key Contract Management
Team Leader and Members, Authorities, and
Limitations
➢The team leader with his line of authority
➢The core and extended team members
➢The teams may also contain nominated
contract specialists and subject matter experts
to call upon when required.
D. Contract Details
➢Provider/Contractor details
➢Contract number/identification
➢Performance period
➢Contract value with reference to purchase
order / contract numbers
➢Contract type
(eg performance incentives)
E. Methodologies for Developing, Negotiating,
Approving, and Monitoring
➢Project execution
➢Compliance controls
➢Industrial relations
➢Contract audit functions
➢Performance measures to be
➢Performance reward criteria
➢Contingency payments must be recognized that some
risks and/or extraordinary payments may arise due to
unforeseen problems.
F. Key Contract Vulnerabilities
➢ Risk to organization’s assets, intellectual property, and financial
losses
➢ Risk of unauthorized employees signing contracts and committing
the company financially and legally
➢ Risk of non performance and non compliance
➢ Risk of not monitoring and following up
➢ Risk of misplacing original signed contract
➢ Risk of inconsistent contract practices
➢ Risk of not keep the confidentiality of certain contracts
➢ Strategy for reducing business risk to organization
➢ Other risks like accidents, EHS
G. Post-Contract Liabilities
➢Provider/contractor’s guarantees & warranties
on service/product
➢Budget/cost overruns
H. Inspection, Work Certification, and Acceptance
Process
➢Joint inspection of contractor’s performance
➢Contractor’s self-assessment program coupled
with the organization’s surveillance and
acceptance
➢Appropriate corrective actions for below-par
performance
I. Key Performance Matrix
➢ Compliance with minimum contract
requirements (KPIs can also relate to Risks and
Accident Rates in addition to contract
completion)
➢ Tie in with performance incentives (can be
paid out on regular basis, one off, or in varying
amounts in line with performance standards
achieved)
J. Contract Transition Planning
➢Outlines procedures for transition from
contract award to contract performance
➢Are resources ready?
➢Is the timing correct?
K. Documentation and Reporting Requirements
➢Specifies types of document and document
information required in respect of deliveries,
shortfalls, quality reports, overruns, etc.
(Standard templates can be used)
➢Strict compliance to contract terms may call for
specific types of documents like Charter
Parties, Bills of Lading, Letters of Indemnity, etc
L. Contract Change Control Process
➢Outlines structure and procedure for managing
change (from contract proper) control relating
to scope, cost, time schedule and the
appropriate mitigating steps to take and the
approval of these events. (eg escalation clauses
based on fixed formula such as CPI)
➢The Contract Budget and stage payments to
the supplier can be set out on a simple chart
and be monitored
M. Invoice Review and Payment Procedures
➢Compliance to contract parameters
➢Reference to “provisional payment”, progress
payment, performance incentive, “retention
money”, product/service liability hold-back,
etc.
➢Procedures for invoice processing
N. Contractor Litigation Management
➢ Feed-back channels defined for
product/service assessment, complaints, etc
➢ Claims procedures (Valid or invalid?)
➢ Forum for amicable settlement of disputes
(Avoiding litigation) Controlling and
overseeing litigation costs (Who will pay for
what?)
O. Ancillary Agreements and Contract Records
➢Checklist and file for all necessary Governmental and
International agreements, e.g., licenses & permits,
which are deemed essential to the contract in
question.
➢All other relevant contract records like 3rd party
certifications as to product quality, copyright
approvals, patents, etc critical to the performance of
the contract
➢Ancillary contracts may be independently managed
P. Post Contract Liabilities
➢Contractor to provide all identifiable post contract
liabilities with adequate documentation supported by
an audit trail to assess impact measurement, follow-
up, cost implication
➢One likely area is that of site cleanups inherent to
contractor’s responsibility in most large construction
projects
➢Contractor’s responsibility to repaint a condominium
a few years later after completion of the project
Q. Contract Closeout
➢Refers to the major elements of contract
closeouts, which occur after the contractor has
completed his work scope and the organization
has finished verification of contract completion
8. Formulation of Bids

❖Fixed Price Contract:

➢Under the lump sum agreement, the
contractor agrees to perform all work at a fixed
price
Cost estimate= $100, 000
Fee= $10,000
Price= $110,000
9. Simple planning techniques

▪ Work organization chart

▪ Project delivery schedule
▪ Use of network techniques

Applying AOA
Proper use of dummies
In (a) activity A is referred to as 1-3; and activity B as 1-2
In (b) activity A is referred to as 1-2 and activity B as 1-3
Using dummies allows activities A & B to have their unique predecessor-
successor events

Source: Successful Project

Management, Gido & Clement
10. Important Notice to Contract Management
Plan
❖Centralize and Systematically Document all Contracts
a. Ensure the accurate documents align with the contract’s
process;
b. Helps you quickly access data when needed;
c. Track all operational steps in order to make a right and fast
decision;
d. Makes your work more effective in terms of time, 5S, and
working motivation.
▪ Strictly Follow all Steps of the Contract Management
Plan.
▪ It is crucial that anyone playing a role in fulfilling
an agreement understand exactly what their
responsibilities are and be aware of all key dates
and milestones related to successfully executing
the contract
▪ Should have an internal plan for measuring
performance, and defining scorecards to identify
any performance issues.
▪ Automate As Much As Possible.
▪ Using technology to improve some of the
challenges: bottlenecks, forgotten milestone dates
and other problems
▪ Software solutions: improve efficiency and prevent
important actions
Components of contract management plan

▪ Contract management plan includes:

▪ Identify contracting parties
▪ Identify trade route and invoicing route
▪ Vendor selections and prequalification
▪ Identify the number of contracts that must be in place
▪ Build a plan to manage the execution of the contracts – a
contract management plan
• KPIs of contracting party
• Drafting
• Negotiation
• execution
Case study
▪ Company X in Singapore is the supplier of materials into
Vietnam for Manufacturer Y. Material manufacturer is in
Australia
▪ Manufacturer Y after producing will sell goods back to company
X
▪ Materials is from Australia to Vietnam
▪ Goods from Vietnam to distributor of Company X in Vietnam
and Cambodia
▪ By Sept 2018, all contracts must be in place for execution to
ensure 40 mil GBP for the business
▪ Group discussion and present contract plan – starting from April
2018:
▪ Team forming
▪ Contract model, timing completed
Case study

▪ Contract change control process

▪ A global project request to change distributor of
medicine in Vietnam. Cut-off date is Jun 2019.
▪ Outline contract change control including clear
project time – line, task to be done, risk identify,
mitigation