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Projects And Contracts

March 7, 2010

Last week, I attended a meeting held by the International Centre for Complex Project Management (ICCPM) in London. IACCM has been working with ICCPM and is curently leading a joint working group on complex project contracting.

Most participants at the meeting were from the defense sector. They described complex projects as those which had three specific characteristics:

  1. uncertainty, ambiguity, dynamic interfaces and significant external influences
  2. usuallly run over a period that exceeds the technology life-cycle
  3. can be defined by effect, but not by solution

Improving performance on these projects is important, because they tend to be of major social and political value. Today, they are fraught with cost overruns and time delays. The extent of these ovverruns is increasing on a year by year rate (which is interesting, given the investments there have been in the professionalization of project management and the range of tools and systems now available). The three factors listed above all represent risk – and can either generate collaboration, or defensive behaviors. There is a tendency for procurement, legal and contracts staff to react to risk through defensive approaches that protect their own company or organization, rather then expose the risks and seek shared solutions.

Perhaps part of the problem is that we are steadily becoming more ambitious in the projects we undertake. But another key aspect is that we are not structuring such projects the right way, in particular how we define and manage relationships. And that, of course, is where the contracting process should be offering some answers.

Contracts and contract negotiation at their best offer a forum for disciplined discussion and interchange. At their worst, they stifle such exchanges. This is where having the right personnel with the right motivations in the room or in the team becomes critical. Indeed, from their analysis of the ‘big issues’ that undermine success, ICCPM highlights a wide range of areas that ought to be addressed by the contracts process:

  • unaccommodated / unaligned stakeholder views of ‘success’ – an alignment that the sponsor and the commercial team should together be ensuring
  • tension between product success and project success (product versus outcome) – a key problem for traditional purchasing groups
  • lack of understanding of non-technical risks – because they tend to be suppressed and handled through risk allocation terms and confrontation
  • use of competition as a weapon – again, a procurement technique that often is not appropriate for complex projects where teaming is essential
  • institutionalized procurement practices – their words, not mine!
  • current tools and decision processes are unsuitable for analyzing uncertainty – contracts rarely deal well with uncertainty
  • inevitability of scope creep (cost and scehdule) especially if the contract is entered into too early- or perhaps if the governance process did not anticipate and enable required changes to be undertaken in an open and disciplined form

This fascinating list of findings is of course being considered by our working group, but it clearly raises questions about contracts and contracting skills that must be answered. Interestingly, it also raises questions about the nature and role of project management in such situations. One issue certainly seems to be that too many project managers are drawn from a technical background and lack the commercial and relationship skills upon which most complex projects depend.

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