Contract Change Management

Transcription

1 Slide 1 Change Control Management Welcome to this module on Change Control Management. Slide 2 This module addresses the factors of change and will help you to understand how to control project changes and manage the implementation of change. It is divided into the following four sections: What is a Change? How do you design a Change Control Process? What is a Contract Variation? What is a Contract Claim? Change is not about failure. In any complex situation or where a project extends over a long period of time, change is inevitable. You should be worried if there isn t any change, since this would imply either weak controls or lost opportunities. So within limits, change is inevitable and good. That means you need a well-documented process under which changes will occur. It also means that a good baseline understanding is essential. If you do not understand the base, how do you know when it is changing? Change is often a source of contention between parties. This can be due to genuine differences of opinion, or it may be because it suits one party to represent the situation this way. In either case the quality of requirements, planning, implementation and the change process itself will be fully tested. Slide 3 When the contract is negotiated and signed, the complete requirements of the final contract documentation represent the agreed position between the client and the contractor. Once the document is signed, any alterations, enhancements, deletions or substitutions are changes. The contract documentation naturally should include all requirements concerning program, technical specification, performance, and quality. It should also include a clear process for change management. Throughout the project delivery process changes will occur for one reason or another. The skill of the contract manager lies in having a comprehensive understanding of the Contract and all of its requirements, plus being able to recognize changes and manage the change process as the project progresses. Of course change management reintroduces many of the skills and tactics of the original negotiation, with each side having different goals and objectives. Slide 4 What effect does a contract change have? These are the major impacts of most changes: Cost. The Client s cost effect (which is the Contractor s price effect) may increase, decrease or be zero. Of course a change may impact the supplier s cost without price impact. Program duration. This could decrease or increase. Contractor Performance. This could improve or get worse! Key Performance Indicators (KPIs) and the results of monitoring the contractor performance to them may change. New KPIs may need to be established. IACCM 2015 Page 1

2 Service Level Agreements (SLAs). These may not be met or could be altered. So new SLAs may need to be established. Statement of Work (SOW). The SOW may need to be adjusted in terms of responsibilities, deliverables or milestones. Of course it could be that a change may also affect contract terms or processes. In some cases it could even lead to partial or complete termination. Slide 5 Move the phrases on the right into the correct positions on the left. Once complete, click submit to move on. Slide 6 So let s take a look at the correct answers on the left Even if it is agreed that a change has no visible effect on the contract terms it must still be recorded in accordance with the process, or it may become a later source of dispute, or internal exposure, for example in an audit or executive review. These no affect changes when taken individually may have no quantifiable affect, but taken in total, they may actually accumulate to have a significant impact. Make sure your change control process reviews this type of change occasionally to ensure you are not suffering cumulative effects, or failing your duty as a contract manager to ensure full recording and reporting. Slide 7 Who can initiate change? Of course change requests may come from either side. The client, or the contractor, or both can initiate a contract change. The most important factor however is to understand who within either the client s organization or the contractor s organization can initiate contract change or agree to contract change! Be sure that the contract defines what form the request should take, where they should be sent and the process and authority by which they are reviewed and accepted or rejected, and the form that communication of the decision will take. Usually the process and authorities will vary depending on the scope and consequences of the change. It is important to have these parameters clearly defined and communicated both within your organization and the other side. Include in the formal contract who has authority to initiate and agree to changes. If this clause is not in the contract then make it absolutely clear in the project inaugural meeting, and record in writing which individuals do in fact have the authority. This may be in the form of a job title, rather than a specific name. At each project review meeting the contractor should formally report if any change requests were received outside the agreed process, and their status. Make note of the response and reiterate the change control process. If contract changes can be requested by anybody within the client s project team and implemented by anybody within the contractor s team, then project control is lost. The most unsuccessful projects prove this. Slide 8 When implementing the contract, consider the likely sources of change and monitor them. For example, will prices or charges potentially change and if so, what can cause this? Is user satisfaction important, or is there a volume or revenue commitment? Are markets volatile or is significant organizational change likely? Are there impending regulatory shifts? If you find that you are not on track, when might a change be necessary and what form might that take? IACCM 2015 Page 2

3 Your goal is to stay in control by preparing for change and avoiding surprises, especially those that will lead others to question your competence. Let s look at some typical reasons for contract change: Slide 9 On the right type in a few typical reasons for contract change. Click submit to move on. Slide 10 So let s take a look at the answers. There may be errors or omissions in the contract documentation. While every effort is made to draft robust contract documentation, in large complex contracts errors or omissions can occur. The scope may change. Based on business needs either side may wish to increase, reduce or otherwise modify the scope of work to be carried out. There may be technical change. Either side may wish to change technical specifications. During a long duration project, technology or service delivery capabilities or methods may alter significantly enough for one side or the other to request a change. Timelines may change. The client may wish to accelerate the project program, or the contractor may ask for more time to carry out their work. Other parties may initiate a change, for example, the customer s customer, partners in a training agreement, major subcontractors. This may not be your contractor s problem, but it is something you will need to evaluate. Slide 11 Let s talk in more detail about change management. Change management is a process that controls the development or evolution of a project. Changes are going to occur in all complex projects or relationships and result from a wide range of factors, many of which are outside the direct control of the project or contract manager. Unmanaged change and scope creep represent a major threat to success. A best practice indicator is the quality of your potential contracting partner s processes and resources that are used in managing change. This will have a significant impact on the relationship, efficiency and the success of the project. Poor quality should ring alarm bells; high quality should alert you to the need for matching capabilities or otherwise you will be at significant disadvantage in negotiating the consequences of change. You should have a list of questions that you would ask: Who is going to be responsible for receiving, reviewing and overseeing change requests? What processes do they use to monitor and oversee changes? What is the average cycle time for change requests to process and reach resolution for contracts or projects similar to this one? What is the organizational structure devoted to contract management? Make your process easy: easy to find, easy to access and easy to monitor. Try to build in consistency and compatibility with the other side. For example, use the same data, terminology and electronic interchange. Have documents redlined to record amendments and progress, and use a change control sheet to track changes. Finally your contract should reflect any core principles of change control management that you consider critical to success. This should extend beyond simple forms and agreement of IACCM 2015 Page 3

4 escalation procedures, which is where many of today s agreements stop. You may want to include service levels or performance metrics related to change management. Examples are cycle times for response and consequences of failure to respond in a timely fashion to change requests or to execute agreed changes. You should also consider what measurements are needed to monitor possible needs for change. These may not be formal service levels, but rather areas which could give you early warning of exposures. An example of this may be the accuracy or timeliness of price quotes or invoicing information provided. Slide 12 A contract variation is the process whereby agreed changes are incorporated into the formal contract. Of course a variation is not really a contract in its own right, but it must be viewed with the same attention as the original contract. Slide 13 Drag the terms on the left into the correct order. When you are happy, click submit to move on. Slide 14 So, let s take a look at the typical process. You ll no doubt go through an internal review process prior to signing. The appropriate levels of approval will need to be obtained to vary the contract. A variation could have an insignificant effect on the original formal contract or it could have a profound effect. One of the most frequent problems is that variations are agreed without checking for impact on other terms and a conflict of terms is created. This conflict creates a loophole for nonperformance and dispute. Read and consider the whole contract and downstream effects when making variations. Throughout the change process keep your management and project team informed of ongoing change negotiations. Remember no one likes surprises. Slide 15 The contractor can initiate a claim for a variety of reasons: the customers failure to meet responsibilities, or having to do more work than agreed to, incurring more cost or having the program changed by the client outside the formal change control process. At the monthly project review meeting always formally ask the contractor if there are any claims, and formally record the response in the notes of the meeting. Similarly the client may initiate a claim if contract conditions have not been met. For example, service levels were not met or milestones were missed. It is similarly wise for the contractor to ask specifically at review meeting whether all aspects of the contract are moving to the customer s satisfaction and to record the response in the meeting minutes. We have discussed the fact that changes are almost inevitable. But with good change procedures, followed by both parties, claims should not arise. However, they might occur if: Procedures were not followed A change was rejected A contractor carries out unauthorized work such as may be asked for or instructed by someone who does not have the authority to request it The contractor raises an issue, which is not dealt with under the change control process The project is moving towards a dispute. Claims should be seen as a red flag that all is not well! IACCM 2015 Page 4

5 Slide 16 How do you anticipate claims? By managing and understanding your contract. By embedding the right measurements that give early warning. By high quality and continuous communication. As we have previously said, use the formal project review meeting to fully review all issues. Slide 17 On the right, type in a few issues. Slide 18 Let s take a look at some of the correct responses. Use the project plan to track progress, and explore root causes of lags or errors in activities performed. Formally ask the other side if they have any claims. Formally ask if there are any change requests that require action through the change control process. Record responses in the meeting notes, and distribute them to the participants. Follow the same procedure with all participants in the deal. If something is not as it should be, don t assume it will be put right or believe the assurances of others that it is under control. Make sure it is formally discussed and minuted. Formal documentation tends to force out the truth. Slide 19 Should you be faced with a contractors claim, refer it to the change control process. It is important to determine the root cause to assess the validity of the claim. Once the root cause is established and the claim is determined to be valid, implement steps to avoid such claims in the future. Slide 20 An example of a project with good change control processes in place was the construction of the primary circuit for a commercial nuclear power plant. It was a project with a budget of 3 Billion and duration of 5 years, and involved roughly 25 contractors supplying diverse equipment and services. The creation of the Primary Circuit was a project in its own right and formed the largest and most complex element of the whole power station. The project scope covered the specification, engineering, procurement, installation and commissioning of the nuclear steam supply system and its overall project management. It included mechanical, electrical and chemical processing equipment and also the control systems. As you can see it was a very complex, advanced technology project with a tight construction program and with many interfaces between contractors. And it was a success. Let s take a look at why. Slide 21 The Project was a success predominantly due to: Expertise of its project and contract management team and their commitment to communication Robust contracts and specifications that were well documented and easily accessible Excellent project management procedures Good team relationships A robust change control procedure that was consistently followed Team incentives and commitment to succeed, rather than point fingers Changes were kept to a minimum by the precise and complete original specifications and contracts. Any unmanaged change could have caused serious project cost increases and serious program disruptions. A robust, but simple, change control procedure was in place and when any potential changes occurred they were managed very effectively. The team IACCM 2015 Page 5

6 operated flexibly, committed to their joint success, rather than competing or drawing rigid demarcation lines over roles and responsibilities. Slide 22 Now let s take a look at a bad example. This example was also a complex technology project, which required some creativity to produce new hardware, software and circuitry. Its goal was to design and manufacture a fixed and mobile telecommunications system forming an essential part of a larger infrastructure project with significant operational safety implications. The contract was very onerous and reflected both the client and ultimate client s requirements, but with heavy penalties for failure. A high proportion of the time spent on contract negotiation focused on these penalties. Although the project was complex in terms of technical requirements from the client, there were no formal interfaces among contractors. One contractor was employed to design and manufacture the equipment and two key specialist sub-contractor manufacturers were carrying out the manufacturing. The project is still on going and struggling with delivery over 12 months behind schedule. Overall, it is a classic example of poor project management, and in particular, bad change management. The outcome will probably be a formal legal dispute between parties. Slide 23 The project is a disaster for both the Client and the Contractor due to several factors: The client and contractor are very weak in overall project and contract management control. Neither party has good project or contract management procedures in place. The control specifications were poor, and the payment mechanisms were poorly defined. Bad team relationships and poor morale characterized the project almost from the start. Focus was on avoiding / apportioning the blame. Client and contractor change control procedures were not aligned. The client changed project managers three times, and the contractor changed project managers five times; there is no specified contract manager on either side. The contractor did not manage sub-contractors effectively Throughout the project duration, few records of changes have been kept by either party. Slide 24 - Exercise You have heard examples of good and bad change. Now it s your turn to do an exercise. For this exercise, you are responsible for managing the Customer Service outsourcing contract that your company has with Customer Service Unlimited, or CSU, a professional response provider. When the contract was written the VP of Customer Service wanted a response to all s within 4 hours. Some time has passed and the customer service VP now needs to improve customer response times from the current 4-hour turnaround threshold to all s returned within 2 hours. He believes that a response rate of less than 2 hours will result in happier customers and more repeat business. Your outsourced response provider, CSU Corp, handles 2 million queries per year at $1.55 per response. The contract specifies a $10 service credit for every query that does not get answered within 4 hours. You and CSU sit down to review history for the last six months and they have responded to: 48% of s in less than 2 hours 26% of s in 2-3 hours 24% of s in 3-4 hours 2% of s in over 4 hours IACCM 2015 Page 6

7 CSU has indicated that they would accept the requested change, subject to: Charge per query increased to $1.75 Service credit for exceptions reduced to $6 They have suggested an alternative where they would commit to an average response time of 2 hours if: The charge per query increases to $1.65 Agree to use a formula based exception percentage that yields an exception rate of $7 Your Task: What do you think, what would you do next? If you d like to work out the answer and get some feedback on your work, send you answer to Info@iaccm.com for review. Slide 25 - Exercise Take a moment to complete the task on screen. Slide 26 Exercise - Answer As you can tell, acceptance is critical to a successful deal. Let s do a brief exercise around acceptance. Following several failed projects and in view of turbulent and unpredictable market conditions, ABC Corp executive management decided that future contracts must include acceptance criteria that require products 'meet customer's then applicable quality criteria'. Consider the following questions. Why did it arise, does it address issues? What do you perceive as the management rationale for this policy? Is this an appropriate response to the issues described and if not, why not? What alternative(s) - if any - would you suggest? Who would you need to involve in developing these alternatives? Clickcontinue to move on. Slide 27 NEXT STEPS This concludes our Module. Please take the time to complete the Module Feedback. Once you have completed the Module Feedback, we recommend that you go to the Attachments to review the additional information. A Module Test is available for you to take in order to check your understanding of the material or practice for the Certification Exam. The required pass rate for all Module Tests is 80%. You may take this test as many times as you wish: please allow 24 hours between each attempt. Once you have passed all the Module Tests with at least 80% you will be invited to take the Certification Exam.. IACCM 2015 Page 7