Successfully Contracting for Project Success: APM Contracts & Procurement Guide

1. How to successfully contract with others to deliver success : using the APM Contracts & Procurement Guide by Dr Jon Broome, deputy chair of C&P SIG

2. Why are you here ? “Project delivery often requires the contracting of other organisations to undertake specialist work or provide essential goods and services. It is therefore vital to be able to define carefully what you need from your partners, to know how to select them and how to manage them John will provide an overview of the contracting process and show you how the APM Contracts and Procurement Guide can help through each of of its stages. Bring your specific questions for guidance during the Q&A session.” X

3. A little bit about me … • Jon Broome BEng PhD MAPM • Past Chair, now deputy chair of the • Have my own company which consults primarily on ’package contract strategy’, ‘preparing contract terms and requirements’, training and dispute avoidance / resolution / expert witness. • Home sector is heavy engineering & construction, but have done major assignments in aerospace, ship building/defence, coal mining, rail and IT.

4. The intended readership The intended audience for the Guide is : • Project managers and project procurement professionals who would like a guide on how P3 procurement & contract management operates • Stakeholders – both internal and external to the project team - who need to increase their awareness of project procurement e.g. finance, engineers etc

5. Why is Procurement Important ? • If 80 – 90% of a projects spend is outsourced in some way, then might having the right organisations and people on board with good contracts in place be helpful ? • Research shows that good procurement decisions can have just as much effect on delivering projects to time, cost and performance as technical decisions. • A Project Manager can only manage a sub-project / contract through the cards he or she is dealt. Procurement is about the cards you deal yourself. Contracts management is about how you play them.

6. Procuring at a higher level.

7. Developments since the last Guide • The Project Life-Cycle now includes Operation & arguably Termination.

8. Developments since the last Guide • There is a greater emphasis on outcomes, benefits & wlc’s. • The Project Life-Cycle has expanded to include Operation & Termination. • As technology & society get more complex, there is an increasing need for collaboration to deliver projects. • Selection therefore includes culture and capabilities as the end ‘product’ cannot be fully defined. • Contracts need to align motivations and be more relationship based i.e. define how parties work together. • Consequently, procurement literature should cover the procurement of ‘sub-projects’ / Packages with the above characteristics, not just goods & services. • This can be for a Programme or even Portfolio of contracts.

9. APM Body of Knowledge 6th edition (definition) So, given these developments, IS THIS DEFINITION FIT FOR PURPOSE ? • “Procurement is the process by which products and services are acquired from an external provider for incorporation into the project, programme or portfolio.”

10. A new definition for Procurement ? “Procurement is the process by which the benefits, enhanced capability, functions / performance or resources (goods & services) required from or by a project or programme are acquired. It includes deciding the Package Breakdown Structure (PaBS) and, for each package, the development & implementation of the • a contracting strategy • contract documents, including the specific scope / requirement • process and evaluation criteria for selection and award leading to the effective management and administration of the contracts once entered into."

12. Why ‘Concept & Feasibility’ ? • We are talking about the business case. • How much will this change ? • If significant / critical parts are going to be outsourced, how can you not consider the market and likely packages & their procurement & commercial arrangements. • Shouldn’t PMs and procurement professionals be involved at an early stage then ?

15. Example ‘Make or Buy’ Criteria

16. Procuring at a higher level.

19. Based on a true-life story …

20. Figure 3.8: Diagram correlating Nature of Relationship with Type of Package

23. What Sort of Contracting Strategy ? High Joint Venture Companies Input-based Arrangements Cost reimbursable Project Alliances Management Contracting BOOT / DBFO (Build, Own, Operate, Transfer / Design, Build Finance, Operate) Arrangements Target cost contract Complexity / Degree of Uncertainty Fixed price contracts • activity schedule - lump sums • milestone payments Frameworks Bill of Quantities Strategic Outsourcing Price Based arrangements Schedule of Rates Low Trans- Short Medium Long Permanent actional 1 year 2 years 5 years 10 years 25 years TIMESCALE

25. Drafting Philosophy • The importance of briefing, so that reality is in accordance with desired strategies. • Transaction based contracts for commodities vs. Relationship based contracts for projects (where things do go wrong) leads onto ... ... • Contract administration vs. contract management. • Use standard forms where possible and limit amendments to those that are needed. • Control the lawyers ! Control the tech specialists !

26. What should a contract cover ? • Governance, especially in Partnering Style arrangements • Definitions • Design development and implementation • Types of liability : reasonable skill and care (services); fitness for purpose; tort. • Existing State / Starting Point • The Deliverable • Each parties Rights & Obligations during delivery • Constraints during Delivery • Subcontracting • Testing & Commissioning • Correction of defects after completion • Time, inc Final Certificate • Payment : Certification : when, by what criteria (foreign currencies) and by whom. Interest payments for late payment. • Approvals / Instructions etc. on behalf of Employer • Risk Allocation / Management of Change : the need, risk allocation, calculation of time and cost. • Title & ownership rights, inc IPR • Insurance : what each party should hold, indemnity. • Termination / Exit procedures • Dispute Resolution : options & sequence (dispute resolution board, adjudication; mediation; arbitration or litigation). • International Factors e.g. multiple currencies, shipping..

30. Types of Selection Criteria • Past Performance : for you & / or others • Price * / Cost factors * • The End Deliverable : Provider’s Proposals* vs. what you asked for • Means of Delivery * : Hard & Soft factors Internal vs. External • Capability : Organisationally &/or of Individuals * • Culture :Generally &/or Compatibility Organisationally &/or Individually VfM * Contractual status must be decided.

33. Initiating the contract … and then improving the operation of it.

34. Contract Administration v. Management

36. Key points summary • The earlier you get involved in procurement, the more influence you have over the cards you are dealt; • Project manage the pre-contract procurement phase, inc. your consultants; • RTFC and develop a project organisation that is fit for purpose; • Administrate and Manage the contract and don’t confuse the two. • Buy the guide – here, today, now with a 20% discount - so that you can more intelligently & effectively contribute at each stage.

37. Contact details : 07970 428 929 jon@leadingedgeprojects.co.uk www.jonbroome.com