Commercial Best Practices For Project Success.
We have all implemented contracts, completed projects or managed the performance of suppliers. Why do some projects succeed and others achieve marginal success, or even fail? Let’s review some of the top reasons projects and supplier performance are successful and exceed expectations.
By Bill Ray and Craig Nicholson
A project begins with the completion of contract signature. However, the success and failure of the contract begins in the commercial phase where the deliverables of the project are developed and agreed upon. The inclusion of best practices in this phase drives behaviors during execution putting both buyer and seller on the path to success. The topics below, if addressed in the commercial phase, will improve project results.
Know Your Contract
Top on the list is Knowing The Contract. Countless hours were spent negotiating and compromising to get a conformed and executed contract. The contract document may have been completed by a separate team (the Contract Team) than those actually administering, managing and executing the work (the Project Team). The Contract Team breathed life into the contract jointly reviewing every word. The contract is then passed to the Project Team to get the job done. The Project Team needs to have the same level of contractual understanding as the Contract Team. Too often, the Project Team does not take the time to read the 100+ pages of contract documentation and focuses on the high points – when does it start, when does it finish, what is the scope and only pulls out the contract to read in times of conflict. By then, it is too late with each party digging through the contract to find their golden nugget of language to defend their position. The contract needs to be read in its entirety and any questions resolved with the Contract Team before beginning work. In addition, both parties should discuss the contract in detail during the project kick off. If there are changes in personnel once the project has started, the process needs to be repeated. Do not assume the other party has read the contract, knows what they are doing and will deliver on their obligations. While neither party wants to spend time constantly citing contract clauses, the contract is intended to provide both parties a clear and consistent roadmap of deliverables and remedies to reduce conflict, not create it.
Communication
Communication is as important as knowing the Contract. Communication is a 360 degree tool. It means communicating both within your own team as well as the other party. Communicating means telling everyone what you are doing and why. It also means identifying and asking for clarification when there are areas of doubt. There is no need in letting the other party progress to the brink of failure before stepping in and expressing concerns. Communicating concerns early helps both parties work to a common goal before a crisis. Communication can also help bridge gray areas of the contract that neither party recognize as their responsibility
Planning
No project can succeed without proper planning. Most failed projects start with insufficient planning by the project team. Dropping even the most talented team into a project where there was insufficient time to ground themselves on the project deliverables, work through the scope needs, understand logistics, local resource availability and contingency planning rarely results in quality performance. The project team should be defined early and provided the time and resources to properly plan the project. During the planning process obvious and potential barriers are identified and addressed. An optimal project plan is developed to minimize resources and cost while still meeting the schedule and objectives. Time is available to identify and schedule quality subcontractors. Communication during the planning phase prepares both parties for their roles in the upcoming project and identifies potential conflicts well ahead of the project itself.
Contingency Planning
Virtually no project is completed exactly as planned. As a result, significant pre-planning with contingency plans are critical to project success. Areas of high risk need to be evaluated for “what if” scenarios with appropriate contingency plans. High risk project points can be defined as the installation of new complex components, implementation of new processes or a first of a kind activity. The buyer and seller should jointly review the risk areas and decide on the degree of contingency planning. Contingency planning may have cost, such as having additional crew, spare parts, expedited transportation, reserved capacity at machine shops or resources standing by or may be as simple as locating local suppliers to perform work at a predefined price and schedule. A buyer may wish to stock additional parts to mitigate standby time. A seller may book machine shop time to assure proper component fit up with minimal schedule impact.
Teamwork
If the teams divide into Adversarial camps, the project will rarely succeed. Completing a project is a team effort between buyer and seller. While there is a natural division between buyer and seller, they are in fact separate companies with different stakeholders and profit centers, there needs to be collaboration and professionalism to support a common objective. Teamwork and perspective is lost when individuals or teams entrench over contract line items that become win/lose. The supplier is often forced to unnecessarily rework poorly defined contract scope to the satisfaction of the buyer at significant cost and schedule impact. The supplier becomes unmotivated to perform their best work and just wants to get off the job with minimal loss in profit and reputation. Clear contract terms will assist both parties interpret scope and contract deliverables consistently.
Accountability and Mutual Support
Another component of project success is Accountability and Mutual Support. Accountability is taking ownership of your deliverable. The deliverable is defined in the contract and is further clarified in the project kickoff meetings. Accountability is ensuring resources, skills, tools and materials required to complete the project are available in the proper quantity at the right time. Simply put – it is doing your job. Mutual Support is both parties working towards the same goal. It does not mean being soft or allowing the other party to abuse your resources and assistance. Mutual Support is the result of good communication and working in support of the other party. In the end, both parties want a successful and profitable project. The right way to achieve that end is to meet your obligations while also helping the other party meet theirs. Successful projects always have two winning teams.
Cost Control
Insufficient cost control methods can affect both parties. For those executing a project, effective cost control is the ability to track progress and job cost against a baseline plan or budget with the ability to apply resources or modify schedules to keep the cost at or below the baseline target. There are many project management software tools that track earned value of work performed versus actual cost consumed. Good project managers consistently monitor cost versus budget and make adjustments to stay on plan. Similarly, they keep the project on task, preventing “scope creep”. Scope creep is a common problem where incremental scope is absorbed by the project without requesting a change order to support the additional cost or schedule impact. The accumulation of repeated, small scope creep events can have the same cost effect as a major scope addition, but with far less visibility. For those purchasing a project, incremental costs above the fixed or budgeted price, such as extra work, overtime and additional parts or services, must be accounted for in real time and added to the original budget. Tracking these costs allows informed decision making to control, correct or avoid uncontrolled sunk cost overruns. The total budget for the project is comprised of both cost allocated to the supplier, incremental scope additions plus the burden of all of the direct and indirect costs to support the supplier. Too often the supplier supporting costs are neglected or underestimated during planning and result in unanticipated cost overruns at project completion.
Technical and Commercial Balance
All projects are comprised of workscopes (technical) and contract terms/price (commercial). The efforts to support technical and commercial must balanced. Over emphasis on one or the other may result in a loss of perspective with quality shortcuts or bogging down into the minutiae of detail. Too much focus on commercial and the quality of work may suffer or result in short term decisions with undesirable long term effects. Too much focus on technical and cost and schedule can get out of control.
Conclusion
Considering the best practices outlined above, we see the benefit of including these objectives in the commercial process at the outset of the project. A well written bid document carries more than the scope and commercial terms. It defines the standard of how the project is implemented. A clear scope of supply, planning requirements and project team structure with interface points should be included at the completion of the commercial process. Further, outlining communication and progress reporting methods helps improve the probability of teamwork and success. Lastly, requiring a project kick off meeting attended by representatives from both parties’ Contract and Project Teams ensures the agreed intent of the project is communicated openly and evenly to the Project Team.
For additional discussion:
bill.ray@aimpowerconsulting.com
craig.nicholson@aimpowerconsuting.com