Scope … what scope?
IACCM research shows the issue that most often results in claims or disputes is disagreement over scope and goals.
In many ways it seems remarkable that something so basic to a contract and relationship could so often be a cause of disagreement. But in reality it is difficult to accurately capture and communicate a detailed vision and requirements and there is extensive room for misunderstanding.
At a recent workshop, one participant challenged how much this really matters. “What is the financial loss associated with these disagreements?” he wanted to know.
The answer is ‘extensive’. Among the findings from IACCM research, losses caused by disagreements over scope and goals include:
•For the buyer
- delays in commissioning or production
- ‘panic actions’ to remediate that often result in a price or cost premium (overtime rates, substitute contractor)
- costs associated with retro-fit or rework
•For the supplier
- delayed acceptance and withheld payments
- liquidated damages, extra discounts, application of ‘goodwill’
- additional work for no payment
Interestingly, many scope issues become apparent only at the time of acceptance, suggesting the need for greater rigor throughout the contract lifecycle. Operational staff are often aware of potential shortcomings but are reluctant to report them.
Having recognized that this is a regular problem, what steps can be taken to avoid such issues? Well, that is the subject for another blog because we have identified ‘good practices’ I that regard. Meantime, feel free to share your ideas and experiences.