Commercial and Contract Management

Question: Discuss about the Commercial and Contract Management. Answer: Introduction Commercial and Contract management is the concept through which all the parties to the contract totally understand their obligations and ensure that such obligations are fulfilled effectively and efficiently in order to get the best value for money. The role of mangers with respect to commercial and contract mangers are to keep a check on contract in order to ensure that the obligations of the contractors are met by them. A more modern approach to the concept of commercial and contract management would define it as a process of motivating, enabling and empowering contractors in order to derive additional value. According to Office of Government Commerce (2002), Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactivel y to anticipate future needs as well as reacting to situations that arise. I started with this definition to highlight the importance of contract management in any running project whereas in our company there is no contract management department taking care of all contracts of all our projects. I will be discussing in this paper about this issue within the company for most of our running projects, however I will select one of our main projects in Qatar market for geotechnical investigation, the Greenline Metro which is currently on going and expected to be completed by mid of 2017. I am working in ACTS a third-party leader company in geotechnical investigation and laboratory testing in the MENA region. My role here is decomposed to many tasks starting for being projects manager for most of our geotechnical investigation projects, monitoring all activities within the department, managing subcontractors, approving subcontractors invoices, issuing of financial work orders for the department on monthly basis covering all the works done in each month, working with the Head of division on reviewing some contracts. It took me couple of years to reach this career development and managing multi tasks in project management either in operations or in commercial. The main issues I would like to elaborate on are many commercial problems that was accompanied with this contract starting from the lack of internal communication and the negotiation pre-award, losing a lot of money due to outsourcing which in some cases it was not needed. I am choosing to discuss about these commercial issues because I believe that managing contracts of any project throughout the life cycle needs a good expertise to ensure performing all the obligations within the agreed contracts, between the client and us and between us and our subcontractors or suppliers. I want this to be clear in this paper because it will reflect the need of having a commercial manager in the company that fulfills his role as indicated by Lowe et al (1997) that he is a person controlling or administering the financial transactions of an organization with the primary aim of generating a profit including some activities that he can cover such as Manages the Commercial Team and plans, develops an d implements the Companys commercial plans for commercial and business development activities and must be adept at understanding and engaging in all aspects of the strategic function, which is where a specialist qualification in commercial management comes to the fore, in addition realizing project objectives, maximizing profit, taking advantage of opportunities and minimizing project risks and claims for loss and expense; negotiating and managing contract close-out, extensions or renewals as mentioned by Lowe (2013). From the above, the questions to be asked and treated in the next section are; Does the commercial manager is that important for solving the above highlighted issues? Can the company be improved and the project becoming more profitable by defining the pre award and post award activities for this manager? What are the key commercial concepts and principles that influenced these issues? This part of the essay, reviews the literature and relevant theories, which are available for the better management of commercial and contractual activities, so that the parties to the contract are able to get the best of the contract (Puil and Weele 2014). The main principles of Commercial and Contract Management (CCM) with respect to project management are related to success criteria, competitive advantage theories, value creation and relationship management of CCM. The principles of CCM are also with respect to body of knowledge and maturity of contracts (Puil and Weele 2014). The principles of CCM with respect to clients involve processes like assets and service identification, solution selection, requirement specification, services and assets procurement, service termination, asset disposal and management of contract. These principles also provided a guide for techniques like negotiating and drafting contracts, management of procurement strategies and contract management techniques such as value, risk, relationship and performance measuring management (Safa et al. 2016). The principles related to CCM also deal with the side of the suppliers. The principles include processes like opportunity development, implementation of projects, proposition identification, assets and services identification, disposal and termination. The principles also include techniques like bid management which includes estimation, strategies, models, pricing policies, resource procurement and production of the proposal along with contact management and drafting and negotiation of contracts (Sheikh, Jalil and Khan 2014). In order to adequately address the chosen issue in part A, it is very important to understand the importance of negotiation, communication and strategy with respect to commercial and contact management. Contact management refers to the process of efficiently and systematically managing the creation and execution of contract for the purpose o managing risks and maximizing financial and operational performance. Majority of contract management principles are related to post award strategies, but upstream and pre awards processes are also very important in contract management (Watson et al 2014). Organizations are increasingly facing problems with respect to improving performance as well as financial management and reducing cost. The identification of the need to drastically improve the contract management process is making it very significant to have professional contract managers within organizations (Mackin et al 2104). All contracts are founded so that they can get approval at different level and obtain the commitment of management. This includes the formulation of an appropriate business case with respect to the functional and operational strategies of the organizations. Contact and business objectives, policies and issues, which affect the investment and decisions, are set out in the business cases. The business case should be made in such a way that the contract fulfills its requirements and is affordable and achievable. The business case should address the outcome of the contact, important success factors, possible alternatives, the risks and their extent, time scale and identification of contingent needs. The business case has to be prepared by involving the end users where necessary and also the involvement of stakeholders. It has to be signed by the patrons and sponsors (Schooner and Castellano, 2016). Not only the time scale, complexity, nature and significance of procurement but also the extent to which it can be considered to be appropriate and beneficial, determine needs for having a separate team for contract and commercial management (Moduga et al. 2013). The factors which are to be considered before making a spate team for commercial and contract management are, the projects nature, nature of management style of the team and the work environment, internal and external communication. Along with the procurement, the tem can be derived from all sectors within the organization as relevant and appropriate. For example, teams like research and development, marketing and sales, finance and human resources, legal and design can be considered. The project may also opt to include the representative of the end users if it is an advantage for the organization. The individuals of these teams does not need to meet regularly, but based on the complexity of the project a core team can be cr eated and the members of which will meet regularly and this team will become the project management team. The importance of teamwork and the significance of the team leader have to be recognized (Puil and Weele 2014). The strategies with respect to a particular contract should be in compliance with the overall procurement strategies of the organization (Joy 2015). Contact management strategies, include relationship management, contract administration, subsequent service delivery, type of management to be adopted, per and post awards of contract and establishing the form of procurement. A successful contract management strategy can achieve benefits through, managing own responsibility of the organization during the contract, ensuring that the minimum performance criteria is met by the suppliers, developing effective relationships with suppliers to achieve short and long term supplier improvement. The issues, which need to be addressed while developing effective contract strategies, are significance, scale and nature of the organizations needs, value of needs, input or output specifications, market attractiveness and capacity, phasing and timescale and understanding the needs of suppliers and stakeh olders (Cruz and Marques 2013). There are various risks with respect to commercial and contractual activities. The Commercial and Contractual mangers have to follow a three way process with respect to these risks, risk analysis, assessment and mitigation. These three processes facilitate the taking of appropriate actions and decisions in order to control the risks appropriately. The process of risk analysis means the identification of potential issues, which can go wrong with respect to commercial and contractual business activities and then estimating the chances of each happening. Risk managements must be included in contract strategy formation as it is a fundamental part of such strategies (Kerzner 2013). Both formal and informal strategies can be adopted with respect to the process of risk management and the use of formal risk listing process should be adopted in case of complex projects (Burnett 2013). Outsourcing is the process by which an organization delegates its work to an outside source in order to make the process more cost effective. Outsourcing is not needs in an organization all the time and if this concept is applied all the time that it will cost the company more instead of bringing down the cost. Unnecessary outsourcing causes the organization to lose revenue and the use of such concept only must be done when it is necessary (Albano 2013). It is very important for the organizations to appraise suppliers. Supplier appraisal involves the evaluation of the potential capabilities of the suppliers to deliver goods and services to the organization in the present and in the future. Once this is approved, the supplier can be placed in the list of verified suppliers as a result the organizations do not have to conduct scanning for suppliers in the future. This process is very important with respect to successful supplier management, strategic sourcing and for the purpose of gaining competitive advantages with respect to procurement of goods and services (Kerzner 2013). It is the goal of every professional to arrange the best possible deal for his or her organization. This goal can only be achieved through the process of post tender negotiation. This strategy has to be integrated in the contract management strategy. If these negotiations ore conducted by the help of person who have expertise in that field, that it could be of a great help for the organization. Although it is to be noted, in this case that, no professional should adopt any unethical means for the purpose of such negotiations (Johnson 2014). The post management principles of contract are also vital for the organization. A company must appoint professionals for the purpose of relationships management with suppliers and service delivery management. The first is to maintain and develop a constructive relationship of the organization with the suppliers and the latter is to ensure that the services are performed in accordance to the terms of the contract. Changes in a contractual terms are investable, this becomes even more common when the the contract id of long term. Changes in the terms of a contract should not be a concern for the organizations and it should often be welcome if it increases the output of the contract (Wood 2014). In this part of the essay I was discuss how the principles and concepts discussed in part B of the assignment can be related to the issue. This segment will also also discuss how the codes and principles with respect to commercial and contractual management can be used effectively to address the issue and finding ways in which my role can be performed more efficiently and effectively along with how the activities can be performed in a more suitable manner The main issue, which I am taking about in this essay, is the problems faced in the process of pre contract negotiation and award management, unnecessary outsourcing and most importantly the lack of communication, which is the root cause of such problems. I need to develop a contract management plan for the purpose of my own role in the organization with respect to all the activities I have to perform regarding contract management. I need to allocate separate time for myself for the purpose of planning and preparing a business case, tender documents and drafting specification. Along with this, I also need to dedicate time and effort to determine how the contract is going to work once it has been awarded. The importance of contract management is very vital to the organization and it is more than essential to make a contract management plan before the contract is awarded. I should take time to consider how the obligations of parties can be carried smoothly and effectively. There are certain factors which I need to consider in order to fulfill by obligations with respect to the organization successfully. I should make proper arrangement with respect to service delivery so that both providers and consumers benefit from it. I need to ensur e that the organization is getting adequate value for money through the contracts and getting expected business benefits. I need to ensure that the parties to the contract are responsive and co-operative by setting guidelines and principles related to the same in the contract. I need to ensure that the customers are made aware of their obligations with respect to the contract. With respect to my role in the organization, I need to make sure that there are no disputes and surprises with respect to the contract. My role in the organization can be successfully carried on by making adequate flexibility in relation to the contractual parties especially in terms of partnership agreements. I should include such terms in the contract, which allows for changes in the terms of the contract if there is an occurrence of any unforeseeable problem. It is impossible to be certain about happening or non-happening of a certain event with respect to a contract (Turner 2016). Even if the risk management procedure as discussed in the part B of the essay is complied with thoroughly, there can still be scope for the rise of unforeseeable problems with respect to the contracts. I should be well equipped for problems, which may occur due to the change in the suppliers team after the contract has been awarded. I should set down guidelines on how the members with respect to the suppliers address Varity of issues in order to ensure that the problems are addressed adequately. I have to set methods and timescales thro ugh which the suppliers understanding and knowledge of the businesses of my organization can be enhanced and also transferred to the successive team members of the suppliers. It is very important for the purpose of my role in the organization to ensure that the guidelines set out in the contract demonstrate clear proof of success (or otherwise) with respect to the relationship. I need to ensure that the other parties to the contract can clearly identify their benefits with respect to the contract along with a distinct knowledge for the other party with respect to why they should contribute to the contract. I also need to understand the wants and expectations of the stakeholders and the end users with respect to the contract. Meeting the expectations of the stakeholders and the end users is an essential factor for the proper growth of the company (Samuel 2014). Usually the contract of our organization are short terms contract unless the projects is huge like the Greenline metro which is expected to last for three years from 2014-2017. With respect to this project, a lot of unforeseeable cost had to be incurred by us because we outsourced our workers to other companies and as a result, we ended up in a lot of scanning with respect to good suppliers, a lot of time was also consumed of the management in relation to reviewing contracts with other sub contractors. This also led to a higher transition cost for my organization. We also faced holdup problems with respect to the suppliers, as they were not able to live up to the contractual terms and agreements and some of them started to increase the per unit price intentionally. The main cause of such problems was that the organization did not have a proper contract management department, which is entrusted with the responsibility of addressing such issues effectively. This problem has to be solved by the organization by setting up an appropriate and separate team for the purpose of contract management as discussed in the part B of the essay. This team has to be set up taking representation from all the parts of the organization and also involving end users if it is beneficial for the organization. With respect to long term, contractual relationships as was in the Greeline project these teams can effectively mitigate the risks and problems, which are faced by my organization currently. My company also needs a contract exiting strategy with respect to long-term contracts like the Greenline project. A contract should only be brought to an end when both the parties to the contract have abided by their contractual obligations efficiently. This only occurs when all the aspects of the contract like price, time and delivery are met successfully. If the terms and conditions of a contract are not abided by, it account to the breach of the contract (CHENG, S ONG and YANG 2013). However, this was not the case with our organization with respect to the Greenline project and as a lesson; my organizations should develop a contract exiting strategy of its own with the help of experts. It is very important for my organization to identify the circumstances in which an early exit from a contract be desired and at time required. These measures have to be taken by the company when there is a major breach of terms on the part of the suppliers and on the event of frustrations of the contract. Breaches with respect to a legally binding agreement attract legal actions (Girth et al. 2012). My organization also needs to ensure that they have a specific team with respect to drafting of requirements and specifications. Specifications helps the suppliers to understand about the needs of the organization and what exactly the organizations expect from the, if such statement is drafted cautiously and is provided to the suppliers, it will be easy for them to fulfill the contractual obligations. In the initial stages if a professional team is appointed to draft the specification with reference to the business case, it would be great for my organization future growth. The management of the contract with Greenline with respect to outsourcing was not that good from the part of my organization. The main reason for this was the lack of a proper contract managing team whose knowledge and expertise is very essential for the management of such long-term projects. My organization should have revised its decisions about outsourcing with respect to its transaction cost. On the other had our company also missed out on one of the major principles of commercial and contract management, which is to analyze in details the requirement of the other parties to the contract. With respect to the long-term contract with Greenline, our organization has so far failed to analyze the needs of the company and as a result, my organization is facing difficulties in relation to the contract. The negotiation of a contract also forms an important part of contract management principles. Our organization was only represented by the department head for negotiation of the contract with Greenline. As he is not a specialist in that field, he was not able to negotiate the terms of the contract properly and a lot of relevant information, which would have benefited our organization, was missing in the contract. Concluding this section of the essay I would like to say that the organization would not have been in such, a position is it had an appropriate integrated commercial and contract management system. I have gained a lot of useful knowledge from this issue faced by my organization, so has my teammates and my organization themselves. I would like to discuss what we have learned through this issue and what was our next step towards reducing the risk of such events in the future. We have learned through this issue that the pre award activities are as important as post award activities with respect to a contract. It is very essential for our organization to find ways to reduce cost and enhance operational and financial performance. My organization has indentified that they need a professional contract management team with respect to both long and short term. I have gained the knowledge that it is very important for me to cautiously prepare the business case with respect to pre award management of contract so that the foundation of the contract is strong. I have also learnt that I need to develop pre contract strategies such strategies will involve managing my organizations own responsibilities as well as ensuring that the supplies are abiding by their contractual obligations. We as a team have understood the importance of risk assessment for the purpose of contract management. I have also learnt that unforeseeable circumstances may occur with respect to a contract and an early contract exit strategy has to be planned for circumstances where there is a signifiact breach in contractual terms. I have learned that I need allocate adequate time for planning the strategies with respect to the contract. My organization and I have adopted certain action plan with respect to contract management in the future so that we do not face such problem in the future. I have started paying extra attention towards my organizing skills so as to ensure that I leave do not leave out any relevant step with respect to contract management. I have learned the importance of pre-award contract management and have designed a plan so that I can concentrate more on such activities. My organizations have established an integrated contract management team for the purpose of contract management. The organization have entrusted the team with powers to control contracts on behaved of the organization. The organization has also appointer one professional contract negotiate for the purpose of contract negotiation. The organization has also set up a helpline number with respect to post-award delivery services of the contract. The organization has also appointed public relation offices whose duty will be to ensure that a contrastive and productive relationship is developed between the organization and the other parties to the contract. While doing this assignment I was enlightened with the fact that there are so many useful principles and concepts, which help us to manage contracts effectively and efficiently. I was little surprised to know the importance of pre contract strategies in the overall business scenario. The principles and concepts, which are available with respect to contract management, guide us on how to carry on our activities efficiently. The problems which my organizations and I were facing with respect to contractual management inspired me the most to find ways in which my I can help my organization with the issue. Due to vast availability of the resources with respect to the principles and guides of contract management, it was not that difficult for me to find principles, which were suitable for the issue faced by my organization and me. It was difficult for me to make the management understand the needs of these principles with respect to contracts entered into b y our organization. It was also difficult for the management and me to design an effective action plan in order to mange contracts. I discovered that I did not have much knowledge about contract management principles, which which could have resulted in negative outcome with respect to my future career development. I have acknowledged the importance of these principles in contact management and have taken a resolution to abide by them. I would like to change the approaches of the suppliers with respect to contract management, as it will not only benefit them but to the industry as a whole. 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