contract management in projects - project business

Contract Management in Projects

Oliver F. Lehmann, MSC, ACE, PMP

22


Workshop Agenda:

15:00 – 15:55o Welcome: Objectives, agenda, ground rules of

the workshopo Attendees: Short self-introductiono Overture: Contracting– when the project

becomes the businesso Discovery: Doing projects the cross-corporate

way (breakout groups)o DebriefingBreak

16:00 – 16:55o Learning: Project business as high-risk businesso Discovery: Adding legal risks and business risks to

project risks (breakout groups)o DebriefingBreak

17:00 – 17:55o Learning: Resolving crises with benefit

engineeringo Discovery: Business acumen for project

managers (breakout groups)o DebriefingBreak

18:00 – 18:50o Learning: The “Mission success first” paradigmo Discovery: Resolving crises and

salvaging the contract (breakout groups)

o Debriefing

18:50 – 19:00o Wrap-up, adjourn

33


Workshop Audience

• Project managers in customer-facing projects (contractor side)

• Projects with massive contracting/subcontracting (customer side)

• Professionals from Business development

Project sales

Bid & proposal management

Contract & claim management

Contract-heavy program & portfolio management

PMOs (= Project management offices)

PBMOs (= Project business management offices)

Experts (Trainers, educators, consultants, writers, etc.)

Self-employed freelancers

44


Oliver F. Lehmann, MSc, PMP, ACE

• University studies (Stuttgart, Liverpool)

• Degrees: MSc (Master of Science in Project Management)

PMP (Project Management Professional)

ACE (Approved Consultant & Educator in Project Business Management)

• Professional history: Project management practitioner since ~1983 Trainer since 1995, assignments in Europe, Asia, USA Analyst, writer, and speaker

• Giving back to the profession: Volunteer at PMI®* since 2001 President at PMI Southern Germany Chapter 2013 to 2018 President at the Project Business Foundation since 2019

Overture:Contracting– When the Project

Becomes the Business

66

Contracting– When the Project Becomes the Business

An example

• R&D innovationprojects

77


New team structures – the cross-corporate matrix

88


A survey

• Made: 12-2016

• Responses: 590

• Region surveyed: Global

• Scale: -3 to +3

• Average: +1.3+1.0

Past

Future

99


Projects performed under contract

• 3 global surveys 2015, n = 245

2018, n = 325

2019, n = 346

56.9% 35.0% 8.1%

0% 25% 50% 75% 100%

Nov 2019

May 2018

Sep 2015

What type of project are you currently managing (or have you just finished)?

Customer project: My project is performed under contract for anexternal, paying customer.

Internal project: My project is performed to meet the needs of arequester inside the own organization.

The setting of my project is different.

Customer project:My project isperformed undercontract for anexternal, payingcustomer.

Internal project:My project isperformed to meetthe need of a requester inside the own organization.

The setting of myproject is different.

56.9% 35.0% 8.1%

0% 25% 50% 75% 100%

Nov 2019

May 2018

Sep 2015

What type of project are you currently managing (or have you just finished)?

Customer project: My project is performed under contract for anexternal, paying customer.

Internal project: My project is performed to meet the needs of arequester inside the own organization.

The setting of my project is different.

1010


In projects under contract, multi-tier Project Supply Networks (PSNs) evolve.

• A simple example:

Customer

1st Tier:(Prime) Contractors

2nd Tier:Subcontractors

Flo

w o

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Flo

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Seller

Seller

Buyer

Seller Seller

Seller

Buyer

Project Business as High-Risk Business

1212


Contract risks in the PMBOK® Guide

P. 460

P. 461

P. 445

1313


The common process to develop and do the business.

1414


Internal projects and customer projects have different benefit generation.

• Example: Internal projects with single delivery and staged deliveries

SingleDelivery

Delivery

Project lifespan Benefit realization lifespan

t

StagedDeliveries

Delivery

Project lifespan

Benefit realization lifespan

t

DeliveryDelivery

Delivery

1515


Internal projects and customer projects have different benefit generation.

• Example: Customer(-facing) projects

FreebieProject

Delivery

Project lifespan Benefit realization lifespan

t

PaymentPaymentPayment Payment

Customer Project

Payment

Project lifespan

Benefit realization lifespan

t

PaymentPaymentPayment Payment

Delivery

1616


Contractors must make profit withthe project, but also observecash-flow.

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Project Margin - Development over TimeFor a project with payments linked to milestone achievements

Margin Cumulated costs Revenues

Project Finish

1717

Delays easily drivethe project intoa loss.


1818


In all industries, Project Business Management is high risk business for all parties involved

• Project risks

• Business risks

Resolving Crises with Benefit Engineering

2020


Survey: Causes of conflicts in PSNs

1. Conflicting business interests

2. Diversity of cultures

3. Incompatible egos

…and many more.

2121


Challenges for project managersin internal projectsand customer projects are different.

2222


Challenges for project managersin internal projectsand customer projects are different.

2323


The main challenges

2424


Challenges for project managersin outsourced projects are also different.

Commonly observable differences

Projects performed by internal teams

Projects performed using one or more contractors

During a previous Make-or-buy decision, the selected option was…

Make Buy

Are ... for the actually performing organization(s)

Cost centers Profit centers

The (internal or customer-side) project manager needs a budget

Possibly Definitively

Conflicts commonly occur… Inside the own organization Inside the own organization, with contractors and among contractors

The project manager has to cooperate for staffing with…

HR department Procurement department, corporate counsel, management

Disputes are to be finally resolved… By management At courts

The actually performing organization(s) do(es) the project to attain…

Deliverables and change Income

Project selection is made as… A sequence of internal decisions

A bid/no-bid decision (contractor-side), contract award (customer-side)

Project work for the requester is based on… Internal requests and agreements

Legally binding contracts

The project manager’s familiarity with the performance environment is generally…

High Low

A project budget is developed through… A more or less informed management decision, or not at all

Based on the prices of contractors, that become project costs

A project budget is usually managed by… The project sponsor or a supervisory board or may be inexistent

The project manager

Project managers must consider… The interests of the own organization

The interests of both customer and contractor(s)

Organizational interfaces are generally… Among business units Among business entities

Project matrices are generally… Cross-functional Cross-organizational

Management attention is generally expected to be provided from…

Own management Contractor management

The requestor supports the project with… Product ownership Provisions, enabling services, payments

Worst case for the project Project cancellation Contractor bankruptcy

The project competes for resources with… Functional organization and other projects

Other customers of the contractor(s)

2525


Challenges for project managersin outsourced projects are also different.

Commonly observable differences

Projects performed by internal teams

Projects performed using one or more contractors

During a previous Make-or-buy decision, the selected option was…

Make Buy

Are ... for the actually performing organization(s)

Cost centers Profit centers

The (internal or customer-side) project manager needs a budget

Possibly Definitively

Conflicts commonly occur… Inside the own organization Inside the own organization, with contractors and among contractors

The project manager has to cooperate for staffing with…

HR department Procurement department, corporate counsel, management

Disputes are to be finally resolved… By management At courts

The actually performing organization(s) do(es) the project to attain…

Deliverables and change Income

Project selection is made as… A sequence of internal decisions

A bid/no-bid decision (contractor-side), contract award (customer-side)

Project work for the requester is based on… Internal requests and agreements

Legally binding contracts

The project manager’s familiarity with the performance environment is generally…

High Low

A project budget is developed through… A more or less informed management decision, or not at all

Based on the prices of contractors, that become project costs

A project budget is usually managed by… The project sponsor or a supervisory board or may be inexistent

The project manager

Project managers must consider… The interests of the own organization

The interests of both customer and contractor(s)

Organizational interfaces are generally… Among business units Among business entities

Project matrices are generally… Cross-functional Cross-organizational

Management attention is generally expected to be provided from…

Own management Contractor management

The requestor supports the project with… Product ownership Provisions, enabling services, payments

Worst case for the project Project cancellation Contractor bankruptcy

The project competes for resources with… Functional organization and other projects

Other customers of the contractor(s)

2626


The main challenges

2727


An example: Deadlines

2828


Typical causes of troubles in projects under contract

• Deadlines

• Negative margins

• Operational disruption

• Poor communications

• Late, missing payments

• Provisions and enabling services

• And many more

2929


The focus

3030


The process

3131


What makesit easy today

In the past

- Poorly informed customers - Employees doing mostly well-defined

manual work - Small number of long-term suppliers - Few sources of raw materials - Simple, static markets - Controllable competition - Small number of laws - Integrity considered a secondary topic - Safety and security issues mostly ignored - Static processes - Well-predictable future - Decisions driven by perceived importance

Today

- Heterogeneous, global customers with easy access to information

- Talent gap for talented employees that do mostly intellectual work and are able to adapt quickly to changing requirements

- Complex and dynamic supply networks, often developed ad-hoc

- Thorny competition for many raw materials - Fast-changing global markets with

disruptive innovations, often surprising incumbent players

- Dynamic competition - Unmanageable “jungle” of national and

international laws and regulations - Professional integrity scrutinized by various

stakeholders - Safety and security issues have become

mission critical - Ever-changing processes with a high degree

of adaptiveness & agility - Future driven by disturbances & uncertainty - Decisions driven by perceived urgency

The “Mission Success First” Paradigm

3333


A failed project in 1999: NASA’s Mars Climate Orbiter

• Cause: Miscommunication of navigation thrust data between NASA: Using metrical units (Newton-seconds, N-s)

Lockheed: Using US customary units (Pound-seconds, lbf-s)

Customer



Flo

w o

f d

eliv

erab

les

Flo

w o

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ey

Seller

Seller

Buyer

Seller Seller

Seller

Buyer

NASA

Lockheed

(100 N = 22.5 lbs)

3434


A failed project in 1999: NASA’s Mars Climate Orbiter

• Cause: Miscommunication of navigation thrust data between NASA: Using metrical units (Newton-seconds, N-s)

Lockheed: Using US customary units (Pound-seconds, lbf-s)

3636


A conflict of interests

• Need of the project: Intensive communications across tiers

• Common reality: Insufficient communications due to lack of Time and resources

Good will and trust

Customer



Flo

w o

f d

eliv

erab

les

Flo

w o

f m

on

ey

Seller

Seller

Buyer

Seller Seller

Seller

Buyer

! !

! !!

Legal implications in case of a lawsuit

Power distance

3737


NASA showed The Transformation

3838


The main lesson

“ ”

3939


Cross-corporate projects

• Tap into Assets of other organizations, turn them into Project Resources.

The keys to success

• Cooperation drives the project.

• Turn Contract Parties into Project Partners.

• Strive for Completing over Competing.

• Mission Success First as the dominant culture across the Project Supply Network.

4040


Seven Immediately Effective Steps for the Cooperative Transformation

• Be more Dilligent in selecting business partners.

• Adopt Better Contract Types and Practices to turn contract parties into project partners.

• Establish “Project Business Healing Days”.

• Use ADR (alternative dispute resolution).

• Educate and Consult all individuals to develop business spirit and acumen.

• Join communities and Share Lessons Learned with others.

• Seek External Help to promote a “Mission Success First” culture.

Thank You!

PMI Southern Germany Chapter:https://www.pmi-sgc.de

Project Business Foundation:https://www.project-business.org

Images:- Own work- NASA- Shutterstock

- bluedog studio- Everett Collection- ImageFlow- Kurhan- Mehaniq

https://www.pmi-sgc.de/

https://www.project-business.org/

contract management in projects - project business

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