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CONTRACT MANAGEMENT

RESEARCHWORK

BY

ENGR SHADRACH NZEWUNWA

COVENTRY UNIVERSIT

AUGUST 15TH 2016

Contents Introduction .................................................................................................................................... 3

Implications of Awarding Contract ................................................................................................. 3

Methodology in Contracting ........................................................................................................... 4

Pre-negotiation stage...................................................................................................................... 4

Contract Strategy ........................................................................................................................ 5

Legal Preparedness ..................................................................................................................... 6

Health and Safety ........................................................................................................................ 6

Documentation ........................................................................................................................... 7

Negotiation phase ........................................................................................................................... 7

Contract Terms (Pricing and Payment Strategy) ........................................................................ 7

Tendering Procurement Process................................................................................................. 9

Risk Assessment .......................................................................................................................... 9

Post-negotiation............................................................................................................................ 10

Service delivery Management .................................................................................................. 10

Contractual Management and Monitoring ............................................................................... 11

Good business planning ................................................................................................................ 12

Summary and Recommendation .................................................................................................. 13

References..................................................................................................................................... 14

CONTRACT MANAGEMENT PROCESS

1.0 Introduction

Effective procurement through proper contractual agreement is increasingly becoming an

important consideration especially in the provision of Information Technology. Stakeholders in

contractual agreements are striving to improve the procurement performance for efficient cost

saving, improving the level of probity, and have developed deliverables that results to financ ia l

gains. To attain these objectives, it is imperative to conduct an ideal contract management in the

three stages of contractual engagement. According to Van Aaken, 2009 contract management

encompasses the process of managing a contractual creation, implementation, and subsequent

assessment in a systematic and efficient manner. Anson et al. 2010, assert that the importance of

conducting a proper life cycle management is to maximize the operational and financ ia l

performance while minimizing the risks involved in implementation (p. 132).

Lagos Deep Offshore Logistics (LADOL) company seek to contract a UK company in the

provision of IT commodities/services to its new facility at Lagos’s free zone port. The procedures

in effective management of the contract processes are discussed as follows:

1.1 Implications of Awarding Contract In seeking to award an IT contract to improve its deep offshore operation, the company makes an

assumption it shall hire skilled personnel, superior management with the external suppliers

providing IT services (Han & Mithas 2013, p.315). It is expected that after contracting an IT firm

to provide solutions related to Information Technology, the firm will benefit from more efficient

operations. In light of this, the firm will experience efficiency in data entry, software

maintenance, disaster recovery and network management. In the procurement process, the firm

that meets the tendering criteria will be selected. The criteria for selection also encompass the

minimum requirements, pricing (lowest price bid is not recommended and PQQ will be applied

based on criteria), timeline, and competence in service delivery (cips, 2009)

According to Han & Mithas (2013), the contracting firm (LADOL) will benefit from the following:

Vendor’s expertise and sophistication

Improvement in service delivery

Cost reduction

Improvement in financial performance

On the other hand, there are impacts that the firm will incur due to outsourcing the services of an

external IT firm. First, outsourcing an IT firm will involve massive transfer of assets and cash

infusion due to the payment of services to the supplier (Han & Mithas 2013, p.331). Indeed, the

cost of switching to the new Information system and equipment will be high. Secondly,

outsourcing may result in laying off of some employees in favour of the IT vendor. However, due

to the system security concern it is expected that outsourcing will retain a significant number of

employees.

1.2 Methodology in Contracting

The contracting process is broadly categorised into pre-negotiation phase, negotiation phase, and

post award phase (Anson et al. 2010, p.123) In each phase, the contracting firm should carry out

numerous activities that are geared to ensure ideal provision of the IT services to the firm and add

value to business (Anson et al. 2010, p.123).

2.0 Pre-negotiation stage

At the pre-negotiation phase, the contracting firm will prepare adequately for the subsequent

negotiation and award of the contract (Sullivan 2012). The negotiating team should identify and

articulate the scope of the project (Shell 2014, p.93). Identifying the scope of the project helps in

explaining the boundaries of the project while establishing the responsibilities of every team

member. Moreover, identifying the scope of the project helps in setting up the procedures that

will assist in the completion of the work, verification, and approval of the project (Shell 2014,

p.93). The Scope of proposed IT contract includes the provision of Networking materials, and

Network software management.

At the pre-negotiation stage, the parties in the contract should demonstrate readiness and ability

to engage constructively (Hensher and Stanley 2008, p.1143). After establishing the scope, the

pre-negotiation phase, the firm prepares a business case in a bid to secure the approval of the

management. The business case stipulates the policies and contract objectives. At this stage, it is

imperative that the management establishes that the proposed contract is attainable with clear

outline of the contract outcomes, the Critical success factors, alternatives, the risks, and

contingent needs (Zulkernine et al. 2008). After preparing the business case, it should be signed

by the stakeholders and the sponsor. Importantly, an ideal business case helps in post

implementation review to establish whether the goals were attained (Drake & Haka 2008, p.29).

It is at the pre-award stage that the team engages in assembly of the project team. In doing this,

individuals included in the team should conduct numerous meetings to deliberate in the project

approach. The number of meetings will majorly depend on the complexity of the project while

the choosing process of the individuals in the team is primarily determined by the complexity

and expertise needs.

2.1 Contract Strategy At the pre-negotiation stage, the contract strategy should be developed that lays the foundation

on the awarding of the contract (Zulkernine et al.2008, 1043). In this case, the contract strategy

should manage the organization’s responsibilities and ensure that the supplier meets the

minimum criteria for the award. A corporate strategy is formulated cognizant of the critical

success factors, time scale, complexity of the tasks. As such, the contracting firm sets the SLA

that is to be negotiated in the subsequent stage. Furthermore, it is imperative that the firm

conducts a risk assessment at the pre-negotiation stage to establish the possibility of unwanted

occurrence. Moreover, the pre-negotiation stage also entails the development of contract

management plan and exit strategy. In formulating these, the contracting firm is able to ensure

that the contract will be managed optimally and will be completed on time.

2.2 Legal Preparedness

At the pre-negotiation phase, the contracting firm should adhere to the relevant laws that relate to

the specific contract. Some of the notable laws that may affect the IT project include the

Procurement laws, Computer Misuse Act, Data Protection Act, Freedom of Information Act,

Digital Economy Act, Privacy, and electronic communication Act (Mayer & Bercovitz 2008,

p.149). In the pre-negotiation stage, the legal team of both entities will analyse the areas that

affect them for subsequent compliance. In the pre-negotiation stage, the parties in the contract

will have the opportunity to educate the team Involved in the subsequent negotiations.

2.3 Health and Safety

The health and safety of the software developers could be negatively affected if the organisation

does not provide appropriate measures that will cater to avert such. In this case, the organisation

may need a health and safety expert to help in compliance and usage regulation. The organisation

put in place policies to protect the health and safety of the developers. In this case, the policies

address the problem of repetitive strain injuries, back pains, and numbness (cips, 2013)

Provision of appropriate tools such as injury free keyboards, adjustable chairs

To provide rest time for the employees since too much exposure to the monitors and

displays can cause headaches or eye strains (ergonomics).

The working environment for the computers and other electrical equipment’s should be

protected from dangerous and hazardous cables.

The Staff should be competent enough to exercise caution when cabling in the suspended

ceilings and equipment’s into confined places.

2.4 Documentation

In the pre-negotiation stage, the contracting party will ensure that the prerequisite documents and

payments are paid, and the clearance certificates by the applying entity are paid (Mayer &

Bercovitz 2008, p.149). Moreover, in the pre-negotiation stage, the parties ensure that the

requisite application fees are paid, which is essential as a pre-requisite of the contract (Bajari,

McMillan & Tadelis 2009, p.373). It is in the negotiation stage that the contracting firm and the

stakeholders evaluate the yield to the various entities. In light of this, the analysis will unveil the

royalties and taxes that are payable in the contracts

3.0 Negotiation phase

In the negotiation phase, it is essential that the firm evaluates the best alternative in the

contractual engagement. In making the decision during the negotiation, the project team should

evaluate and strike a balance between the potential savings, the effect on the market, and

compare the compliance with that of the procurement directives (Giannoccaroc & Pontrandolfo

2009). Besides, at the negotiation phase, the firm should evaluate the ethical issues and concerns.

3.1 Contract Terms (Pricing and Payment Strategy)

It is at this stage that the parties in the contract evaluate the terms of trade for an assessment on

the best deal. Moreover, the negotiation phase will enable the evaluations of the terms of

engagement together with consideration about the insurance policy coverage. It is also important

to understand the duration that the contracted company will take to complete the tasks, define

deliverables and time for measuring achievement. However, any aggrieved party will negotiate a

better deal (Giannoccaroc & Pontrandolfo 2009, p.559). As such, the contracted firm may

arrange for a period extension or extension time for the attainment of the deliverables.

More importantly, at the negotiation phase, lowest price bidding is not recommended, however

PQQ shall be applied as a criterion in choosing competent IT firm and tendering procurement

process followed accordingly. As such, the proposed IT requirements to be provided by the

contracted firm are estimated at £ 15M. In context of an IT project, it is recommended that

payment be made according to the deliverables. In this case, after the contract deliverables are

completed third way, the first phase payment should be made appropriately. As such, this is an

important aspect as it needs to be included in the negotiation phase to consider the financial

Implications. It is at this stage that the firm sets the Service Level Agreements that will

encompass the stipulation and negotiation on the common understanding of the responsibilities

and priorities in the contractual agreement (Giannoccaroc & Pontrandolfo 2009, p.566).

3.2 Tendering Procurement Process

3.3 Risk Assessment

In the negotiation stage, the parties in the contract have the chance of evaluating the risk

assessment for them to reconsider whether to proceed with the contract agreement and award.

Most importantly, evaluation of contract and modification aspect, amendment, and correction.

The parties in a contract should evaluate the terms and conditions of the contract to ensure that

they are acceptable to both sides. Besides, assessing the attitude of the other party is essential to

establish the possible agreement and ability to offer deliverables. It is important to establish and

build trust between the two sides to ensure adherence to the stipulated policies. In this case, the

negotiating team should ensure that it demonstrates the adherence to the respect and dignity of

the other party while the firm guards against the corruption, bribery, and criminal activities

(Girth, et al 887). Moreover, it is essential that the business demonstrates open disclosure and

transparent procedures in the negotiations. Finally, in the negotiation phase, the parties in a

contract should assume a win-win situation with contention on both sides regarding the financial

implications, timeline, and deliverables among other essential elements. Thus, the parties should

agree on the vital elements of the contractual agreement, obligations, time on deliverables,

financial or cost implications, and completion and passage decisions.

Risk assessment should set to determine whether there is adequate fairness and flexibility. In this

case, the parties in a tender should evaluate whether the terms and conditions contains the

privilege clauses. Without proper flexibility in the contract, the parties should consider

cancelling the order as the case of Halifax (HRM) Vs Amber contracting limited in the year

2009. In this case, HRM has issued a tender for upgrade of the sanitation systems. Despite

Amber being the lowest bidder, HRM cancelled the awarded contract since the firm

demonstrated unfairness in the contract, a verdict that was held by the court (Malabari, 2016). As

such, it is imperative to access the risk exposure in contracting, with review of fairness.

4.0 Post-negotiation

The post-negotiation phase of the contractual engagement entails the period after which the

contract is awarded to the most preferred contract (DiMatteo 2010, p.727). In this case, the

parties in the contract should ensure that the contractual obligations of the parties are well

known, and the terms of the agreement are clearly stated.

4.1 Service delivery Management

During and after the implementation phase, the parties should ensure ideal service delivery

management where the objectives of the IT project and procedures are evaluated against the

expectations. Regarding this, there should be adequate evaluation to ensure that cost and value

are achieved by both parties; there is performance and customer satisfaction; value addition, and

prompt responsiveness when needed. Moreover, it should be evaluated whether the two parties

have developed an ideal relationship and that benefits are realised (Girth, et al 887).

Any changes that may be considered should be managed properly and effectively to improve the

contract output. It is also imperative that factual data is gathered during and after project

execution, while analysing feedback to establish the level of satisfaction obtained. Additionally,

at the post-negotiation stage, supplier performance should be measured through various attributes

such as product quality, Mean Time to Repair (MTTR), delivery percentage against failures,

SLAs, customer experience, lead times, Relationship management, and responsiveness

(DiMatteo 2010, p.724).

4.2 Contractual Management and Monitoring

It is important that the supporting documents in the contractual engagement between LADOL

and UK IT company are clearly written in a simple language and concisely. Concerning this, it is

essential to determine the contractual administration, monitoring and enforcement of the contract

(DiMatteo 2010). Regarding the financial obligations, the parties in the contract will ensure that

all reports and data are evaluated regularly as per the initia l agreement for adherence to proper

conduct. In a case of any breach of the contract, either of the parties should enforce penalties by

suspending or cancelling the contract altogether. After completion of the contract, the team

managing the contract should embark on contract closure with the aim of providing a mechanism

for management of the resolution of the outstanding matters. In this stage, proper recording is

conducted to document level of achievement against failures. And all outstanding issues are

identified, resolved by applying the pre-negotiation procedures and policies.

5.0 Good business planning

A good business plan is realized if there is proper arrangement for service delivery and satisfact ion

prevails on the interacting parties. The ultimate goal is to ensure that the contracted entity benefits

from the venture and the contracting firm realize value for money. In the context of contracting

business plans, the supplier should be cooperative and responsive (Anson et al. 2010).

Additionally, in proper business planning; the management should demonstrate professional and

objective analysis over the changes that arise while promoting efficiency in service delivery. A

company that intends to support optimization in its business dealings should portray an effective

contract management practices in the pre-award and post-award activities. Regarding this, the plan

should help to unveil whether the intended supplier will be in a position to deliver the service and

needed technical expertise.

After awarding the contract, the business should continue with good business plans to ensure

that there is clarity in purpose, which will help to ensure transparency in all aspects of the

procurement process and that the management can promote the business agenda as intended. As

asserted by Goo et al. (2009), a good business plan should provide for unforeseen occurrences

that may arise during the interactions with other trading partners. In the context of contract

management, a company should show flexibility plan in its plans while providing for

contingency plans. Concerning this, in a bid to ensure business continuity, a good business plan

should provide for alternatives in case the contracted firm does not supply or offer the intended

service within the stipulated time or if there are litigations over the remuneration (Shell 2014,

p.106). Furthermore, a good business plan is one that subdivides the activities into simple steps

or simple orders to enhance successful completion of every activity in the plan as intended.

6.0 Summary and Recommendation

In a contract the parties are supposed to engage lawfully and responsibly in the three phases of

contractual engagement. In the all phase, the parties should meet all the essential elements that

are needed before the negotiation. Notably, the formulation of the business case forms the

ground for subsequent evaluation of the achievement. It is important that the project manager

ensures that the selected project team is competent and has the ability of engaging in fruitful

negotiations. Moreover, setting an ideal contract strategy is imperative as it ensures that the

procedures are stipulated and proper guideline is documented. It is mandatory for the contracting

firm(LADOL) to conduct an ideal risk assessment and establish precisely the contract

requirements during the pre-negotiation phase. While awarding the tender, proper evaluation

should be conducted while also following the tendering process as stipulated in the procurement

laws. At the negotiation phase, the contracting firm should seek to establish the relationship with

the supplier, improve the contract and amend identified changes for the better while promoting

proper service delivery.

From a legal perspective, a valid contract should have the essential elements such as an offer,

acceptance, and consideration, capacity of the parties in a contract (Farnsworth 2008). In this

case, the contracting firm will make an offer in regard to the scope of the contract, the budgeted

cost, and completion time, pricing, and payment strategies. On the other hand, the contracted IT

firm will either accept the offer as it is or make adjustments in the negotiation phase where the

award of tender is done to the best firm (Farnsworth 2008). Additionally, the contracted firm

should have the capacity to contract and should be a recognised entity that follows the laws. The

consideration in the contract becomes the price or the cost that the two parties agree to. A breach

of the contract may happen due to minor breach or material breach. In regard to minor breach,

either of the party may fail to conduct a specific performance while the material breach may be

occasioned by economic waste or pricing (Farnsworth 2008). In the case of breach of contract,

the parties can resort to arbitrations as opposed to seeking legal damages (Farnsworth 2008).

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