Saturday, August 21, 2010

Contract concepts Part I

So, you think you need to do a contract to get the project done.  A lot of projects use contracts, no doubt of that.  But, sometimes the contract objective is not all it seems to be.  Sometimes, a contract is a policy choice rather than a technical choice. 

Be aware: Contracts between suppliers and the project team are commonly employed to accomplish three objectives:

  • Change the risk profile of the project by transferring risk from the project team to the supplier. Presumably a due diligence examination of the supplier’s ability to perform confirms that the supplier has a higher probability of accomplishing the scope of work in acceptable time at reasonable cost than does the project team.
  • Expand the capacity of the project and perhaps add to the capability of the project by hiring the help by means of a contract.
  • Implement policy regarding sharing the project opportunity with participants in the supply chain. If the contract is related to a public-sector project, public policy regarding small business and minority business participation may be operative on the project team. In the private sector, there may be policy to involve selected suppliers and customers in projects, or there be policy to not involve selected participants in the project.

We would all hope that deciding whether or not to use a contract is itself a matter of following decision process and adhering to a decision policy.  For the most part, that would leave politics out of it.  Presumably, the policy says in one form or another: "decide in a manner that is most advantageous to the accomplishment of the project goals".  Who could object to that?

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