Post-award Contract Administration

Lessons Learned and Best Practices

Whileprojectmanagementandearnedvaluemanagementhavereceivedsignificant attentioninrecentyears,feworganizationshavepaidmuchattentiontopost-award contractadministrationandcloseoutactivities,whichareequallyvitaltobusiness success.

BY GR E G O RYA . G A R R E T T

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Post-award Contract Administration Process

Key Inputs Contract Project plans + schedules Work results Contract change requests Invoices Tools + Techniques Project management discipline Contract analysis + planning Kick-off meeting or preperformance conference Performance measuring + reporting (earned value management system) Desired Outputs Documentation Contract Changes Payment Completion of Work

Figure 1.

FORMOREThAnThREEdECAdEs,U.s.GOvERnMEnT audits conducted by numerous agencies and watchdog groups have indicated the real and compelling need for improved post-award contract administration by government and industry. In both the public and private business sectors, contract administration is often an afterthought, usually insufficiently staffed in both the quality and quantity of resources (contract manager, project manager, technical managers, property managers, supply-chain/subcontract managers, etc.). Typically, government and industry focus their time, attention, and key resources on soliciting, proposing, negotiating, and forming the contractsimply said, getting the deal. As a result, there are often very limited resources to manage, administer, and close out the deal. While project management and earned value management have received significant focus and attention in recent years for the value-added capabilities they can provide, few organizations have paid much attention to post-award contract administration and closeout activities, which are equally vital to business success.

Key Contract Administration Activities

About the Author

GreGory A. GArrett, CPCM, C.P.M., PMP, Fellow, serves as senior principal at Acquisition Solutions, Inc. He is a member of the NCMA Board of Advisors and is a member of the Washington, DC, Chapter. He has received numerous national and international business awards. Send comments about this article to cm@ncmahq.org. This article is a modified extract from the book World-Class Contracting, 4th Edition, by Gregory A. Garrett, published by CCH Incorporated, Chicago, IL, 2007.

Contract administration can be straightforward or complex, depending on the nature and size of the project. Administering a contract entails creating a contract administration plan, and then monitoring performance throughout the many, varied activities that can occur during project execution. Key contract administration activities include ensuring compliance with contract terms and conditions, practicing effective communication and control, managing contract changes, invoicing and payment, and resolving claims and disputes. A contractor getting paid more money for doing more work than was originally agreed upon in the contract is both fair and reasonable. Likewise, if a contractor fails to properly perform the work or fails to comply with the terms and conditions of the deal, there should be an appropriate remedy. Tailored project management and contract administration procedures are essential to ensure both parties know what is expected of them at all times; to avoid unpleasant surprises and reduce risks regarding requirements, costs, or schedule-related issues; and to solve problems quickly when they occur. However, government customers do at times consider contractors who effectively manage their contracts and actively pursue payment for contract changes to be nickel-and-diming them. Some contractors will intentionally low bid or underprice the initial bid in order to get the contract on the bet that they can make enough follow-on sales to offset the initial loss and create a profitable long-term business relationship. Often, government buyers are so motivated to reduce initial capital expenditures to fit their reduced budgets that they will essentially entice sellers into an initial low bid/buy-in business model. Effectively managing the contract scope of work, through proven project and contract management best practices, is wise and financially prudent for both the government and industry.
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Pre-performance Conference Checklist

Project Name Prepared by (Print) Customer Contact Telephone/E-mail q Complete requirements analysisverify and validate the requirements stated in the contract to ensure that the project, when completed according to the requirement statement, will meet the needs of both parties. q Summarize contract requirementscomplete a contract requirements matrix (see Form 2 on page 39). q Establish the project baselineensure that the baseline and specifactions are established. q Develop in-scope and out-of-scope listingsdevelop lists of items that the government and contractor consider within and outside the scope of the contract; these are useful for establishing and managing expectations and for containing contract cost growth. q List the contractors assumptions about the governments requirements and understanding of the end-users expectations. q Establish preliminary schedule of meetings between the parties. q Inform your team and other affected partiesbrief the team members who will attend the meeting, ensuring they understand the basic requirements of the contract and the project. q Review meeting findings with all affected people in your organization. q Document who attended, what was discussed, what was agreed to, and what follow-up actions are requiredby whom, where, and when. q Prepare and send pre-performance conference meeting minutes to the other parties.
Form 1.
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Date Prepared Contract

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Contract Requirements Matrix

Deliverables Description

Contract Reference

Delivery Date or Work Service Dates Breakdown Structure Element

Other Reference

Form 2.

The government needs to ensure they get what they paid for and get it when they need it! Contractors need to ensure they provide the products and/or services as and when they agreed to deliver.

Input

Input to the post-award phase of the contract management process consists of the following items: Contract The contract document is the primary guide for project execution and administration of the contract. Project Plans and Schedules The project manager shall prepare appropriate plans to ensure the work is properly completed on time, on budget, and meets contractual requirements. Such planning could include a work breakdown structure (WBS), organizational breakdown structure (OBS), responsibility assignment matrix (RAM), schedules (Gantt charts, milestone charts, project network schedules, etc.), and an earned value management system (EVMS). Work Results The results of performing the requirement will affect contract administration. Contract Change Requests Contract change requests are a common element of most contracts. An effective process for managing contract changes must be in place to ensure that all requests are handled smoothly. Contract changes may be called amendments, modifications, change orders, supplemental agreements, add-ons, up-scopes or downscopes. Contract changes are opportunities either to increase or decrease profitability for the seller. Changes are a necessary aspect of business for buyers because of changes in their needs. Invoices An efficient process must be developed for handling invoices throughout contract administration. Few areas cause more

The Post-award Contract Administration Process

Post-award contract administration is the process of ensuring that each partys performance meets contractual requirements. On larger projects with multiple product and service providers, a key aspect of contract administration is managing the interfaces among the various providers. Because of the legal nature of the contractual relationship, the project team must be acutely aware of the legal implications of actions taken when administering the contract. Effective contract administration is critical to effective project management because an organizations failure to fulfill its contractual obligations could have legal consequences. Thus, someone must observe performance of contractual obligations. That person is the contract manager, who must always be aware of the legal and financial consequences of an action or failure to act, and who must take steps to ensure required actions are taken and prohibited actions are avoided. In a real sense, a contract manager is a project manager, and the principles of project management apply to his or her work. Each party to the contract appoints a contract manager who monitors not only his or her own organization, but also the other party to ensure that both parties are keeping their promises. The contract managers must maintain these two perspectives throughout contract performance. The post-award phase of the contract management process (shown in Figure 1 on page 37) includes applying the appropriate contract administration and project management actions to the contractual relationships and integrating the output from these best practices into the general management of the project.

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Contract Closeout Checklist

Project Name Prepared by (Print) Customer Contact Telephone/E-mail
1. q yes q no q n/a All products or services required were provided to the buyer.

Date Prepared Contract

2.

q yes

q no

q n/a

Documentation adequately shows receipt and formal acceptance of all contract items. No claims or investigations are pending on this contract.

3.

q yes

q no

q n/a

ty

4.

q yes

q no

q n/a

Any buyer-furnished property or information was returned to the buyer. All actions related to contract price revisions and changes are concluded.

5.

q yes

q no

q n/a

6.

q yes

q no

q n/a

ty

All outstanding subcontracting issues are settled.

7.

q yes

q no

q n/a

If a partial or complete termination was involved, action is complete. Any required contract audit is now complete.

8.

q yes

q no

q n/a

Form 3.

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concern to sellers than late payment. Buyers can realize savings by developing an efficient and timely payment process because sellers are often willing to give discounts for early payment.

technical performance are effectively integrated and successfully implemented. Payment Process Every contract must establish a clear invoicing and payment process. The government and contractor must agree to whom invoices should be sent and what information is required. Contractors must submit proper invoices in a timely manner, and the government is then required to pay all invoices promptly. Contract Change Management Process As a rule, any party that can make a contract can agree to change it. Changes are usually inevitable in contracts for complex undertakings, such as system design and integration. No one has perfect foresightrequirements and circumstances change in unexpected ways, and contract terms and conditions must often be changed as a result. Dispute Resolution Process No one should be surprised when, from time to time, contracting parties find themselves in disagreement about the correct interpretation of contract terms and conditions. Such disagreements typically are minor and are resolved without too much difficulty. Occasionally, however, the parties find themselves entangled in a seemingly intractable controversy. Try as they might, they cannot resolve their differences. If the dispute goes unresolved for too long, one or both the parties may threaten, or even initiate, litigation. Litigation is time consuming, costly, and risky. You can never be entirely sure of its result. Rarely is the outcome a truly satisfactory resolution of a dispute, and it sours the business relationships. For these reasons, litigation should be avoided. One goal of business managers and contract managers should be to resolve disputes without litigation whenever possible. For effective dispute resolution, one must

Tools and Techniques

The following tools and techniques are used for contract administration: Project Management Discipline All work to be performed should be appropriately led, planned, scheduled, coordinated, communicated, tracked, evaluated, reported, and corrected, as necessary, using the basic guidelines of the Project Management Institute (PMI) Project Management Body of Knowledge (PMBOK). Contract Analysis and Planning Before contract award, each party should develop a contract administration plan and assign the responsibility of administering the contract to a contract manager. To whom should the job be assigned? A project manager could do double duty as contract manager. However, in most large companies, contract administration is a specialized function, usually performed by someone in the contracting department, because doing the job requires special knowledge and training. Contract administration is an element of both contract management and project management. Kick-off Meeting or Pre-performance Conference Before performance begins, the government and industry should meet (via teleconference, videoconference, Web meeting, or faceto-face meeting) to discuss their joint administration of the contract (see Form 1 on page 38). The meeting should be formalan agenda should be distributed in advance, and minutes should be taken and distributed. Each party should appoint a person who will be its organizations official voice during contract performance. At the meeting, the parties should review the contract terms and conditions and discuss each others roles. The parties also should establish protocols for written and oral communication and progress measurement and reporting, and discuss procedures for managing changes and resolving differences. Government and contractor managers with performance responsibilities should attend the pre-performance conference or at least send a representative. Important subcontractors should also be represented. The meeting should be held shortly after contract award at the performance site, if possible. Performance Measuring and Reporting During contract performance, the project manager, contract manager, and responsible business managers all must observe performance, collect information, and measure actual contract progress. These activities are essential to effective control. The resources devoted to these tasks and the techniques used to perform them will depend on the nature of the contract work, the size and complexity of the contract, and the resources available. On large, complex contracts, the government will often require the contractor to apply an EVMS to ensure that all aspects of cost, schedule, and

Recognize that contract documents are not perfect, Keep larger objectives in mind, Focus on the facts, Depersonalize the issues, and Be willing to make reasonable compromises.

When disputes become intractable, seeking the opinion of an impartial third party can sometimes help. When this approach is formal, and the decision is binding on the parties, it is called arbitration. Many government agencies now include a clause in their contracts that makes arbitration the mandatory means of resolving disputes. Contract Closeout Process Contract closeout refers to verification that all administrative matters are concluded on a contract that is otherwise physically complete. In other words, the contractor has delivered the required

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supplies or performed the required services, and the government has inspected and accepted the supplies or services (see Form 3 on page 40).

Copies of the minutes should be provided to each attendee and to others interested in the meeting but unable to attend.
Progress reports: Progress reports should be saved elec-

Output

The following output functions result from contract administration: Documentation This is essential to provide proof of performance, management of changes, justification for claims, and evidence in the unlikely event of litigation. The most important documentation is the official copy of the contract, contract modifications, and conformed working copies of the contract. Other important forms of documentation include:
External and internal correspondence: All appropriate

tronically and filed chronologically, by subject.

Project diaries: On large projects, the project manager and

contract correspondence should be saved electronically by the contract manager and project managers, with separate files for external and internal correspondence. Each piece of correspondence should be dated and properly electronically stored.
Meeting minutes: Minutes should be recorded electroni-

contract manager should keep a daily diary to record significant events of the day. They should update their diaries at the end of each workday. The entries should describe events in terms of who, what, when, where, and how. Preferably, the diary should have daily entries and kept in electronic form or in a perfect-bound book with pre-numbered pages. A diary supplements memory and aids in recalling events. A diary is also useful as an informal project history when a new project manager or contract manager must take over. It can be of great assistance in preparing, negotiating, and settling claims or in the event of litigation. However, a diary may become evidence in court proceedings, so a diarist should be careful to record only facts, leaving out conclusions, speculations about motives and personal opinions about people or organizations.
Telephone logs: Another useful aid to memory is a

cally for all meetings between the seller and buyer. The minutes should state the date, time, and location of the meeting and identify all attendees by name, company or organization, and title. They should describe all issues discussed, decisions made, questions unresolved, and action items assigned.

telephone log, which is a record of all incoming and outgoing calls. It identifies the date and time of each call, whether it was incoming or outgoing, and if outgoing, the number called. It lists all parties to the call and includes a brief notation about the discussion.

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Checklist of Tips for Successful Contract Administration

q Develop and implement a project management discipline to ensure on-time delivery and flawless execution. q Comply with contract terms and conditions. q Maintain effective communications. q Manage contract changes with a proactive change management process. q Resolve disputes promptly and dispassionaltely. q Use negotiation or arbitration, not litigation, to resolve disputes. q Develop a work breakdown structure to assist in planning and assigning work. q Conduct pre-performance conferences or a project kick-off meeting. q Measure, monitor, and track performance. q Manage the invoice and payment process. q Report on progress internally and externally. q Identify variances between planned versus actual performanceuse earned value management. q Be sure to follow up on all corrective actions. q Appoint authorized people to negotiate contract changes and document the authorized representatives in the contract. q Enforce contract terms and conditions. q Provide copies of the contract to all affected organizations. q Maintain conformed copies of the contract. q Understand the effects of change on cost, schedule, and quality. q Document all communicationuse telephone, faxes, correspondence logs, and e-mails. q Prepare internal and external meeting minutes. q Prepare contract closeout checklists. q Ensure completion of work. q Document lessons learned and share them throughout your organization. q Communicate, commmunicate, communicate.
Table 1.
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Photographs and videotapes: When physical evidence of

conditions at the site of performance is important, a photographic or videotape record can be helpful. This record will greatly facilitate communication and will provide an excellent description of the exact nature of the site conditions. Whenever a contract involves physical labor, the project manager, contract manager, or other on-site representative should have a camera and film or digital camera available for use. The purpose of documentation is to record facts and reduce reliance on human memory. Efforts to maintain documentation must be thorough and consistent.
Contract changes: As a result of changes in the buyers

cedures for modifying the contract and limiting the number of people entitled to make changes. It also entails establishing recognition and notification procedures in response to unauthorized changes. Finally, it requires establishing procedures for identifying, estimating, and measuring the potential and actual effect of changes on all aspects of contract performance. Table 1 on page 43 provides a checklist of tips for successful contract administration.

Conclusion

needs, changes in technologies and other changes in the marketplace, buyers need flexibility in their contracts. Thus changes are inevitable. Sellers must realize that changes are not bad, that they are in fact good, because changes are often an opportunity to sell more products or services. Payment Cash is importantsellers want their money as quickly as possible. The government should seek product and service discounts for early payments. Likewise, contractors should improve their accounts receivable management and enforce late payment penalties. Completion of Work This last step is the contractors actual accomplishment of the governments requirement for products, services, systems or solutions. Ensuring that the parties to the contract communicate with each other is important. A contract is a relationship. Because virtually every contract entails some degree of interaction between the parties, each must keep the other informed of its progress, problems, and proposed solutions, so that the other can respond appropriately. Like all human relationships, contracts are dynamic. As performance proceeds and events unfold, the parties will find that they must modify their original expectations and plans to adjust to real events. As they do so, they must modify the contract terms and conditions to reflect the current status of their agreement. Changes are an inevitable part of contracting, because no one can predict the future with perfect accuracy. However, the parties should make changes consciously and openly, so that they remain in agreement about what they should be doing. Lack of communication can result in dispute over what each partys obligations really are. An important part of communication and control is the effective management of changes. Effectively managing contract changes includes establishing formal pro-

Contract administration is an important aspect of successful business. Simply said, contract administration is the joint government and contractor actions taken to successfully perform and administer a contractual agreement, including effective changes management and timely contract closeout. The ongoing challenge is maintaining open and effective communication, timely delivery of quality products and services, responsive corrective actions to problems, compliance with all agreed-upon terms and conditions, and effective changes management. After the project is successfully completed, proper procedures are put into place to close out the contract officially. Of course, the goal of nearly every contractor is to capture the governments follow-on business, which is far easier to do if the contract and related project were properly managed by both parties. Remember, achieving a true partnership between a government and industry requires dedication and discipline by both partiesnot just one! Remember, too, the power of precedent. Your organization is always evaluated based on your past performance and the precedents it sets. Your contract administration, especially change management actions taken years ago, affect your organizations reputation today. Likewise, in both government and industry the contract management actions you take today form your organizations reputation for tomorrow. CM

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