Unit 6 Project Procurement

Unit 11 Contract Administration

BSP 466/356 – Contract Management

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Unit Outline
• Introduction
• Elements of contract administration
• Contract maintenance
• Change control
• Management reporting
• Asset management
• Reference Book (Contract management guidelines Chapter 5 & 8)

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Introduction
• Contract administration is the management of contracts made with customers,
vendors, partners, or employees.
• Contract management includes negotiating the terms and conditions in contracts
and ensuring compliance with the terms and conditions, as well as documenting
and agreeing any changes that may arise during its implementation or execution.
• It can be summarized as the process of systematically and efficiently managing
contract creating, execution, and analysis for the purpose of maximizing financial
and operational performance and minimizing risk.
• Contract management is the process that enables both parties to a contract to meet
their obligations in order to deliver the objectives required from the contract.
• It also involves building a good working relationship between customer and
provider.

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Introduction (Cont.)
• Contract administration is concerned with the mechanics of the
relationship between the customer and the provider, the implementation
of procedures defining the interface between them, and the smooth
operation of routine administrative and clerical functions.
• Clear administrative procedures ensure that all parties to the contract
understand who does what, when, and how.

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Elements of contract administration
The procedures that combine to make up contract administration are as follows:
1) contract maintenance and change control
2) charges and cost monitoring
3) ordering procedures
4) payment procedures
5) budget procedures
6) resource management and planning
7) management reporting
8) asset management.
• These procedures will need to be designed to reflect the specific circumstances of the
contract and the organisation. Bear in mind that additional administrative procedures
may also be needed.

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Contract maintenance
Procedures should be established to keep the contract documentation
up to date and to ensure that all documents relating to the contract are
consistent, and that all parties have a common view. For a large or
complex contract, or a situation where a number of Service Level
Agreements (SLAs) are covered, a formal document management
procedure is critically important; some form of change control
procedure is needed for all contracts (see below).
• Applying document management principles involves:
• identifying all relevant documentation (including contract clauses
and schedules, SLAs, procedures manuals etc)
• change control procedures, and ensuring no changes are made
without appropriate authorisation
• recording the status of documents (current/historic, draft/final)
• ensuring consistency across documents.
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Change control
• Changes to services, procedures or contracts may have an effect on service delivery,
on performance, on costs and on whether the contract represents value for money.
• So the specification and management of change control is an important area of
contract administration.
• A change control procedure should provide a clear set of steps and clearly allocated
responsibilities covering:
1) requesting changes
2) assessment of impact
3) prioritisation and authorisation
4) agreement with provider
5) control of implementation
6) documentation of change assessments and orders.

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Management reporting
• Requirements for service performance reports and management information should have been
defined before and during contract negotiations, and confirmed during the transition period of the
contract.
• It is likely that information requirements will change during the lifetime of the contract, which
should be flexible enough to allow for this.
• Information may be required about all performance measures or only about exceptions – that is,
instances when performance differs from what was expected.
• ‘Exception reporting’ minimises the time the customer needs to assess performance and ensures
attention is focused on areas that need it most.
• For many business managers a summary of the service they have received along with a note of
exceptions is normally sufficient.
• However, the ability to access more detailed performance figures should be retained to facilitate
trend analysis and investigation of exceptions.
• Information from the provider about service performance may be sent to each business unit or to a
central point – probably the contract manager – for distribution.
• The contract manager may be required to provide additional quarterly or annual reports on the
service to customers.
• During the early stages of the contract the contract manager should ensure that all information flows
between the provider and the customer organisation, and between various internal groups, are
identified and tested.
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Asset management
If ownership of assets used in the delivery of services is retained by the
customer, then the customer will have responsibility for those assets. In
many cases day-to-day management of assets will be carried out by the
provider, but the contract manager should ensure that:
1)the organisation’s asset register is kept up-to-date
2)any third party use of assets is recorded (for example if the
provider is able to deliver services to other customers)
3)upgrades and replacements are planned and budgeted for.
The contract manager will be responsible for liaison with the provider
on administration, upkeep and maintenance of assets.

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Roles and Responsibilities
The last section outlines the roles involved in contract
management and the tasks for which they are responsible

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Senior management – customer and
provider sides
• There should be a Senior Responsible Owner (SRO) who is responsible for
the successful outcome of the contract, which includes overall responsibility
for the relationship as well as for individual projects or programmes to be
delivered through the contract. This individual must be a senior manager,
with authority to take major decisions on behalf of the customer
organisation. Note that the title of the role is generic; in construction projects
it is referred to as Project Owner; the title Programme Director is another
application of exactly the same role in a programme management context.
• There should be a correspondingly senior role on the provider side, often
referred to as the Industry Executive. This individual should have similar
responsibilities for the success of the contract from the provider perspective
and a senior level of authority in their organisation.

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Contract manager – customer side
The main functional responsibilities of the contract manager (or contract management team) on the
customer side are to:
• track the interpretation of business requirement into contractual provisions
• act as a single point of contact for all formal and legal correspondence relating to the contract
• maintain the specification of contract performance metrics
• monitor contract performance and report at overall service or business outcome level
• monitor subordinate performance metrics as appropriate
• represent the customer’s interests to the provider at contract level
• oversee operation of the contract(s)
• determine and take remedial actions by agreement with the provider
• negotiate remedies with the provider
• escalate contract problems as necessary
• maintain/develop contract specifications.

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 Contract manager – provider side
The main functional responsibilities of the contract manager on the provider side are to:
• track the interpretation of the business requirement into contractual provisions
• monitor contract performance and report at service/business outcome level as appropriate
• monitor subordinate performance metrics
• identify and manage exceptions
• represent the provider’s interests to the customer
• respond to changing customer needs
• marshal and apply the provider’s resources
• determine and take remedial actions by agreement with the customer
• negotiate remedies with the customer
• escalate problems as necessary
• operate the contract to specification
• operate subordinate services/contracts
• maintain/develop service components
• set/maintain/develop infrastructure strategy according to the contractually allocated responsibilities
• maintain/develop supporting infrastructure according to the contractually allocated responsibilities.
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 Relationship managers – customer and provider side
The main functional responsibilities of the relationship managers on the customer and provider side are
identical. They are:
• encourage an atmosphere of trust, openness and communication and an attitude based on working together and
shared objectives
• proactively look for ways to improve the relationship wherever possible
• ensure that all stakeholders in the arrangement feel that they are involved, that their views are important and that
they are acted upon
• establish and manage a communication framework and ensure that it is used effectively
• establish and manage communication flows between customer and provider, and ensure that they are used
• ensure that communications at all levels are peer-to-peer
• manage the dispute resolution process
• resolve ‘soft’ tensions between customer and provider, that is, situations where tension is felt or perceived but no
formal issue has yet arisen
• ‘manage upwards’ to ensure that senior management are informed about issues before they escalate, and can
intervene as appropriate
• establish regular reporting procedures, both formal and informal, and ensure that they are used
• organise forums, working groups, seminars, roadshows, training sessions, and other information-sharing activities
involving staff from both the customer and the provider side
• promote understanding of each other’s business practices and common techniques
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The people who use the service
• Where the service is of a type delivered to end users, who may
be citizens, staff in the customer organisation, or staff in other
organisations, the main functional responsibilities of end users
are to:
1) utilize the service
2) report incidents, problems and issues promptly and
accurately
3) monitor customer aspects of service quality
4) escalate problems as necessary.

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