Evaluation Commercial Contract Issues in Project Management

Project management is the art (and skill) of arranging the mechanism of a project, regardless that the project is creation of a new product, the commencement of a new service, an advertising crusade, or a marriage ceremony. A project is not somewhat that is fraction of usual trading processes. It is characteristically formed once, it is provisional, and it is precise. As one professional comment, “It has a beginning and an end.” A project utilizes assets (whether human recourse, monetary, raw materials, or time), and it has financial restrictions.

‘Project Management’ is an imperative subject because all businesses, big and diminutive, are concerned in executing new happenings as assorted as the growth of an innovative creation or service, or a community oriented movements. To remain in the lead of their business rivals, every business establishment encounters with progress of intricate procedures and services. These require cross-functional skills in a known organisation. (Modesto & Tichapondwa, 2009)

While dealing with any kind of project may it be construction projects, delivery projects, marketing or any other project, an organization faces many issues and troubles regarding the negotiations of contract regarding contract terms. Commercial managers are the ones who are experts in dealing with issues regarding project management.

Commercial management is explained as the recognition and growth of trading chances as well as the supervision of projects and contracts, from beginning to conclusion in a profitable way. Commercial managers are experts in the field of commercial management. (Definition by ICM)

Commercial Manager

Commercial Managers are experts who have pertinent information in a variety of significant factors of contract arbitration, risk management, project management, fiscal management, staff management, and advertising and promotion management. Performing as a Commercial Manager in a firm business, it is normally taken for granted that abilities and awareness in providing realistic supervision, lawful and commercial development facets, and administrative role performance are stressed and implemented steadily.  (Spain exchange)

Contract Management

Contract management is part of project management, whereas Contract management, as the terminology puts forward, is the supervision of contracts made with other businesses or individuals. But still the finest written and consulted contract will not bring out the results which were projected devoid of appropriate contract management. (Carter, 2009)

Contracts can be of different types depending on the nature of the project and task at hand.

Issues in Contract Management

So the very first and the most vital issues which are dealt with while working on a contract are discussed below.

Legal issues are the foremost on the list when we discuss the troubles and hurdles in contractual management. The contractor should know which laws apply in the country where the project is been held and what are the legal formalities necessary to carry out the operations and functions of that project.

Offer and acceptance

The first and the most basic step of the contract formation is the offer. The offer is made in formal written document usually and in comprises of all the terms and details of the projects as well as all the criteria which will be necessary in order to complete that contract and all those factors which might result in the breach of a contract. The offer from one party should follow the entire legal framework required in that specific location or area regarding the business type of the project. (Mcconville)

Example

We find many examples which relate to the issues arising in the incomplete or incompetent offers. For the sake of understanding we can take a simple example of auctions and tenders. The conventional approach to both is that the bidder makes a bid or a proposal or in proper terms an “offer” and acceptance takes place on the drop of the hammer in auctions and on a specific tender being selected in the case of tenders.

According to this conventional study there is no legal connection before the final drop of the hammer (or selection of tender). Therefore it is not necessary that due to the absence of any legal obligations, there will not arise any feud or dispute. For example, somebody wanted to auction his belongings and he advertised it in a local newspaper, but is it obligatory for that person to hold the auction at the exact place he had advertised in the paper? Will he be accountable for it if due to any circumstance he is unable to do so? Would some people stand up and demand the auction or possession of the belongings just because they were made an offer in the newspaper and they had to travel several kilometres to come to that auction?

The conventional approach to this question is that there are no specific or written remedies to it, but the advertisement as was not an offer, it was simply an invitation to treat, so that auctioneer will not be accountable to any claims. (Heffey, Paterson & Hocker, 1998)

The example discussed above depicts that mere small things can create big issues. So the responsibility lies on the shoulder of the manager who is looking after the contract negotiations and proceedings to make sure that the contract is complete and without any loop holes.

Type of Contract

Then the next issue which arises in the formation of a contract is the type of contract which is under discussion. The commercial manager’s job is to make the contract in such a way that no loop holes are left in the contract terms and details and this also depends on the kind of contract. There are different types of contracts which can be formed for example Simple, Speciality, contract under seal or deeds, Written and oral contracts, Signed and unsigned contract, Bilateral and unilateral contracts, Express, implied and quasi contracts, Executory and executed contracts.

The duty of the project manager is to handle the contract negotiations and terms corresponding to the type of the contract. (Boyce & Lake)

Uncertainty and Uncontrollable events

Another very important aspect in the contract formation is the provision of the uncertainty and uncontrollable incidents. There should always be a provision of uncertain issues, for example the legal policies may change or there might be some natural catastrophe. In both the cases the outcomes should be written in the contracts stipulating the terms in case of uncontrollable events.

Commercial Managers who look after the projects and contracts needed to carry out that project should be well acquainted with all the ups and downs in a contract formation. Sometimes the negotiations of the contract creates trouble as the other party does not agree to the terms laid down by the first one, and its harmful for the organization to agree to the ones laid down by the second party. So a manager should be expert in negotiating.

Contract Negotiation

Negotiation is one of the most important aspect and step in the whole contract formation. Every person has their own style of negotiating; we can not say there is one perfect style of negotiating terms in a contract. However the only factors which can identify the best possible style of negotiation that can be done are the temperament of the other party, the skills and abilities of the people dealing and arbitrating the terms with the other, the details that are to be a part of the contract.

All the above discussed factors combined will identify which style should be adopted by the commercial manager to discuss the contract stipulations. Then whichever negotiating way the manager chooses should have one main target and aim that is to bring both the parties to a mutual consent and interest, both the parties get benefitted equally and the complete value of the monetary fund involved in the project is utilized and justified completely. (Faratin & Klein,)

The Content of the Contract

The best contract is the one which has answered all the questions like, what is the project? Its definitions and specifications, when is the time? That is time scaling and the completion of the project. Where is the project? That is every detail about the location and destination of the project. How will the project work? That is how the final project or product (depending in the type of the project) will be delivered at the end of the completion period. How much will this project cost? That is all the little and minute details about the cost that will be incurred during the whole project and their payment schedule. The other specifications related to the project task and every other contingency factor which should be added as a provision in the contract.

Changing the Contract Contents

There are times when a contract needs to be changed because of many circumstances or changes in the external environment. In such cases the commercial manager should make sure that the changes are not done unilaterally, it should again be done with mutual understanding and consent. And both the parties should prepare themselves for any new risk factors due to amendments in the contract.

Risk Management

Managing risk is one of the duties and responsibilities of the commercial manager which is majorly vital in the project management. The best risk management practices are incorporated in the business operations and functions. Therefore, managing risk is very significant step in the complete cycle of project, may it be from the start of contract formation till the end of project delivery. This needs the recognition of threats and, where suitable, the execution of risk management at important and vital positions in the project management.

This risk management involves the steps of identification of the places or the possibilities where risk factors might be present and might jeopardize the development of the project. When dealing and managing risk, it should be kept in mind that whatever necessary actions might be taken should be in accordance to the legal framework of the contract and organization involved in the project. The risk management should also include the routine risk assessment and required changes in the risk treatment if necessary.

The sources of the risk can differ with the nature of the project. The bigger the project scale would be, greater will be the chances of risk involved. Risk might be from anybody, any participant involved in the project or even in the negotiations. If the project is between two or more business entities, each business will try to minimize their own risk and this might result in the conflicts between the parties. Now here comes the job for the Commercial manager to be a neutral figure and try to sort out the conflicts and manage risks by assigning proper job to the proper department with proper methodology. Often business fail due to the reason that risk was not analysed and identified at the correct time and no actions were taken. (Hendrickson & Au, 1999)

These were all the major issues in general when we discuss contract management in project developments. Commercial Managers, who are specialized in this field of project management, handle all these issues and hurdles with different strategies and tactics.