12.5. Performing Contract Administration (PMBOK, Section 12.5)
Contract administration is the process of ensuring that both the buyer and the seller live up to the agreements in the contract. The project manager and the contract administrator must work together to make certain the seller meets its obligations, just as the vendor will ensure that the buyer lives up its agreements as well. If either party does not fulfill its contractual requirements, legal remedies may ultimately be pursued.
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Another aspect of contract administration, especially on larger projects with multiple sellers providing various products, is the coordination between the contractors. The project manager or contract officer schedules and confirms the performance of the sellers so that the deliverables, schedule, and performance of a contractor do not infringe or adversely affect the performance of another contractor.
Within the contract, there must be the terms for payment. Typically, the performance and progress of the contractor is directly linked to payments it receives. The project manager must track performance and quality to approve or decline payment as needed. The contract should define the metrics for acceptance to avoid disagreements on performance.
12.5.1. Completing Contract Administration
The actual process of completing contract administration relies heavily on communication between the project manager, the contract officer, and the seller. The communications plan may have considerations for how and when the communication between the buyer and seller should take place and what the purpose of the communication should be. There are several tools and techniques to assist the project management team with the contract administration process:
Contract change control system The contract change control system defines the procedures for how the contract may be changed. The process for changing the contract includes the forms, documented communications, tracking, conditions within the project, business, or marketplace that justify the needed change, dispute resolution procedures, and the procedures for getting the changes approved within the performing organization. The system is part of integrated change control.
Performance reporting Performance reporting is the communication between the project manager and management on how the seller is performing under the guidelines in the contract. This is part of communications and should be documented within the communications management plan. The buyer has to confirm that the vendor is living up to the terms of the contract.
Inspections and audits If you hired an architect to build your dream home, would you wait until the house is completely built before inspecting the work? Of course not. You'd have to, and likely want to, perform periodic inspections, audits, and walk-throughs of the home as it's under construction. The same is true in project management: The buyer completes inspections and audits to confirm that the seller is abiding by the contracted requirements for the project.
Payment system Sellers like to be paid when they have completed their obligations. How the sellers are paid is controlled by the payment system, which includes interaction of the project manager and the accounts payable department. The performing organization may have strict guidelines for how payment requests are submitted and approved and how payments are completed. On larger projects, the project management team may have specific procedures for submitting the payment requests.
Claims administration Uh-oh! Claims are disagreements between the buyer and the seller usually centering on a change, who did the change, and even if a change has occurred. Claims are also called disputes and appeals, and are monitored and controlled through the project in accordance with the contract terms. The contract can, and usually does, determine the path to resolution, which may include arbitration or litigation to resolve the claims between the buyer and seller. No fun.
Records management system Guess what this system does. Yep. It records and organizes all of the documentation of the contract, the related communications, the work results, and performance of the vendor. The records management system is part of the project management information system.
Information technology Who's administering a contract manually? Information technology (IT) can help the project manager, the project management team, and the vendor efficiently abide by the terms of the contract and keep the project moving forward. For example, IT can help the project manager build the information recorded in the records management system.
Buyer-conducted performance reviews The buyer has to confirm that the seller is living up to the terms of the contract. Specifically, the buyer reviews the quality of what the vendor has created, the cost of what's been created, and if the vendor is on schedule. All of these items are documented in the terms of the contract—no fudging from the vendors is allowed.
12.5.2. Reviewing the Results of Contract Administration
Contract administration calls for communication between the seller and buyer, the project manager and the vendor, and the stakeholders. There must be significant documentation of the agreement that both the buyer and the seller agree to before the procured work begins. Once the procured work, service, or product has been delivered from the seller to the buyer, there must be agreement that the delivery is in alignment with the original agreement. There are five outputs of the contract administration process:
Contract documentation All of the contract documentation, including the contract, schedules, approved and declined contract changes, technical documentations, and any other contract-related paperwork is included as part of the contract documentation.
Contract change requests Both approved and declined changes are documented as to their cost, time, and effect on the project and the procured work. Changes that are approved require updates to the project plan, subsidiary plans, and possibly to other project documentation. Recall that integration and the contract change control system are invoked for proposed changes that affect the contracted work.
Recommended corrective actions The buyer may make recommended corrective actions for the seller to bring the seller's performance into alignment with the project scope and the contracted requirements.
Organizational process asset updates Consider the correspondence between the project manager and the seller, the seller's payment requests, and the seller's performance review. These documents all become part of organizational process assets for future reference.
Project management plan updates The contract administration process may cause the project management plan to be updated. Specifically, the procurement management plan and the contract management plan may need to be revised.