CONTRACT_ADMINISTRATION_AN_INSIGHT

CONTRACT ADMINISTRATION – AN INSIGHT
By
Lt Col L Shri Harsha, PMP
Abstract
The last two decades has seen the Indian economy grow by leaps and bounds. Liberalized
policies, large inflow of foreign investments, return of the intellectual resource led to the
extensive growth of economy in the country. The growth of industry has been phenomenal and
we have witnessed progress in all domains – IT, ITES, construction, medical services, financial
services etc. The Government has also taken a proactive role in supporting this growth and
invested extensively in infrastructure creation all across the country. Companies across the
country recorded consistent growth and the shareholders confidence was at its peak.
However, today rising inflation, increasing players in the market and migrating human
resource apart from a host of other factors has given rise to cut throat competition. The world
has not witnessed such large scale turbulence in the economic market as presently prevailing.
With the economy slowing down, sustainability of operations is becoming a major concern for
the management. Under such trying conditions, the question is how are companies going to
tackle the adverse conditions to tide over this crisis and retain their market share.
One important aspect of good business management is Contract Administration. Effective

contract administration is an art and a science. Rational approach with a human touch ensures
successful contract administration, which in turn leads to successful projects. Project Managers
being the point of contact for effective contract management, apart from professional and
technical acumen, they also have to master the art and science of contract administration.
Introduction
The buoyant economic conditions prevailing in the country today calls for a high degree
of prudent planning. With inflation touching almost 12%, a global slowdown of economic
activities, rising borrowing interest rates have all compounded to bring in an extra shade of
caution in all commercial activities. Turbulence in the political environment all over the world,
including US, is forcing business houses to tighten their purse strings and to examine all business
deals with a microscope.
At the back of these commercial activities lies “Contracts”, like a back bone, controlling
and guiding all these business activities. Any one involved in any commercial or business
activity spends a major portion of their time fulfilling contractual obligations. The complex
nature of contracts is phenomenal and mind boggling due to the fact that, each contract though
legally independent, gives rise to many inter dependent commercial contracts, some identified
and some unidentified.
The importance of Contracts has been understood and emphasized since time
immemorial. The great administrator Kautilya had also identified good contract administration as
an essential ingredient of enhancing commercial activities and dwelled on the Law of Contract in
his treatise “The Artha Shastra”1.
This complex nature of contracts demands that Project Mangers, who actually execute
and fulfill contract obligations have adequate knowledge of the plethora of regulations, rules and
statutes governing these commercial contracts. Adding to these complexities is the process of
liberalizations, globalizations and privatizations in the country. Mergers and acquisitions add yet
another dimension to the contractual obligations of the companies.
Contract Administration – An Art or A Science?
Contract administration can be defined as the execution and monitoring of a contract for
the purpose of maximizing financial and operational performance and minimizing risks. This
involves tracking activities against contracts. Contract management is important because it is the
foundation of an organization’s procurement activities.Without dwelling much on the definition
or ingredients of a Contract, let us try to understand what Contract Administration is all about. In
a nutshell Contract Administration will involve all those activities that have to be performed by
the contracting organization to ensure that the contractor performs effectively to meet the
requirements specified in the contract.
Major activities that are undertaken under the wide gambit of contract administration are2:-
 Developing clear and concise performance based SOWs

 Preparing a contract administration plan that measures the contractor’s performance so
as to facilitate payment for his services.
 Obtaining supplies and services of the requisite quality and quantity in the specified
timeframe and within the budget.
 Effectively protect the interest of the organization.
 Orientation of the contractor to the working of the organization to enable better
understanding, increase functional efficiency and reduce future problems.
 Measure user satisfaction with the services or products procured through the contract.
 Identify an Alternative Dispute Resolution mechanism to resolve future contract
administration problems.
1. Kautilya, The Arthashastra, by L N Rangarajan, Penguin Classics,

2. A Guide to Best Practices for Contract Administration, Office of The Federal
Procurement Policy, Washington DC, 1994.
Undertaking these activities requires good logical, technical and human skills. Where
technical, procedural and legal systems are involved in contract administration, it takes a
scientific approach, follows a rational approach and tries to identify the why and how of
problems. On the other hand, human aspects associated with contract administration requires soft
skills and inter personal skills to handle contract administration problems, which is an art, that
requires to be mastered. No tailor made solution can be defined to these issues, and handling
them depends on individual capabilities, varying from situation to situation. Therefore, it
becomes imperative that apart from technical acumen, project managers must learn and master
the interpersonal skills also to successfully manage their contracts.
Principles of Effective Contract Administration
The contracting process can be divided into two phases -- pre-award and post-award.
Procurement actions such as statement of work and task order development, their advertisement,
amendment, proposal evaluation, award, and modification processes occur during the pre-award
phase of the contracting process. On the other hand, during the post award phase of the
contracting process, execution and closing are the major activities. Though major portion of the
contract administration occurs exclusively during the post-award phase of the contracting
process, certain activities are required to be meticulously planned during the pre award stage to
avoid complications at a later date.
The activities that have to be undertaken by the project manager at these two phases are
totally diverse and require a thorough understanding of the job at hand, the business environment
and the personal traits and behavior of the parties involved in the contract.
To facilitate smooth and effective contract administration some of the aspects that have to
be documented at the time of finalizing the contract between the contracting parties are:-
 Assigning of contract administration representative from the organizational team, his

authority and powers.
 Procedures for modifying the contract.
 Procedures for extension of contract time.
 Procedures for suspending or stopping the work, and resumptions of work after the
contentions have been resolved.
 Procedure for assigning contractual obligations and commitments in case of third party
assignments.
 Documents required to be maintained to successfully close the contract and also to be
used in case of litigations.

Benefits of Good Contract Administration.
Having seen the peculiarities, stages and skills needed to administer contracts effectively
and efficiently, the advantages that organizations can accrue out of the whole exercise are:-
 A better understanding of the Contract being framed right at the start of the project.
 Advance identification of problematic areas which may lead to strained relationships.
This will facilitate identification of solutions or workable alternatives to overcome such
situations.
 Ensures that adequate time and effort is spent on meticulous planning of the project.
 Standardizes contracting processes and procedures in an organization.
 Improve relationships amongst the stakeholders involved in the project.
 Clear assignments of responsibilities amongst the parties to the contract early in the
project.
 Identifies contractual obligations as milestones, which otherwise are forgotten till the
contract closure stage, and ensures their tracking.
 Facilitates forecasting, prioritizing and carrying out contract audit requirements in a
systematic and timely manner.
 Ensures timely completion of problems with no or minimal contentious issues.
 Facilitates fair and smooth claims administration.
Conclusion
The old adage “A stitch in time saves nine” appropriately describes the necessity of
effective contract administration. Good and prudent contract administration is essential for
ensuring better performance by the contractors and vendors. Even though there are no best
practices or text book solutions that can be prescribed, documenting the peculiarities of the work
environment typical to the organizations can be the first step at providing some practical
guidance that will help to improve the contract administration process.
To inculcate a habit of practicing contract administration by project managers at their

levels, designing a contract administration program and some formal training is desirable. Due
recognition of the efforts of the project managers in this regard in the form of awards, criteria for
performance evaluation etc will also go a long way in ensuring that contract administration
becomes a norm in the organization.

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CONTRACT ADMINISTRATION – AN INSIGHT

One important aspect of good business management is Contract Administration. Effective

Contract Administration – An Art or A Science?

 Developing clear and concise performance based SOWs

1. Kautilya, The Arthashastra, by L N Rangarajan, Penguin Classics,

Principles of Effective Contract Administration

 Assigning of contract administration representative from the organizational team, his

To inculcate a habit of practicing contract administration by project managers at their

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