The Process Organisation in Claims & Contract Management (Part 1)
The right action at the right time: The tender phase of a project.
2016-05-12. In May 2016, our specialist article "Claim & Contract Management als Teamaufgaben" (“Claims & Contract Management as Team Tasks”), published in the German trade magazine “Chemietechnik”, looked among other things at claims & contract management as an integral management system within project management that needs to be organised both in its set-up and its execution. The setting-up of claims & contract Management describes the tasks, competences and responsibilities of the various team members in the claims & contract management of the project. But what is covered by the execution workflow of claims & contract management and why is it needed? This present article gives an overview of these instruments for the tender phase of a project. Upcoming articles will look at the instruments that are used in the engineering and the engineering/manufacturing phases.
The execution workflow of claims & contract management seeks to clearly define the appropriate claims & contract management instruments for any point along the value chain of a project-driven company. The overall objective is to ensure a congruent methodological approach by everyone working on the project. At the same time, the timeline of the project, from the “bid/no-bid” decision (contractor side) or "make or buy?" decision (client side) to the final taking-over is considered in phases, whose respective start and end points are an instrument of the claims & contract management execution workflow. So much for the theory– what does this mean in practice? Below, we look at examples of the individual project phases and the claims & contract management execution workflow instruments they typically include, from the perspective of a contractor:
The Tender Phase
1.Claims & contract management: classifying the proposal
The "proposal classification" instrument identifies the likely complexity/risk potential of an order. Not only in claims & contract management, but here especially, it is important to maintain consistent application of the claims & contract management methods across projects. Similarly, the available human resources must be handled efficiently. By classifying the tender to be submitted (the potential order) in terms of potential risk (e.g. A-B-C: "A" = turnkey contract, "C" = low level execution complexity), we have an indication of how the respective claims & contract management should be scaled.
The Proposal-Risk-Analysis should be considered as a preventive instrument within the claims & contract management execution workflow. It is an iterative process that is repeated during tender preparation to identify expected project risks and appropriate remedial action (technological, commercial, contractual and organisational) that should be considered in the offer. The Offer-Risk-Analysis scaled in terms of scope, repetition and participants according to the offer classification. This means, for example, that if an offer receives an “A” (“turnkey”) classification, the scaling might look like this:
- The Proposal-Risk-Analysis carried out at a joint meeting of the offer team. Participants: Proposal Manager, technical specialists, nominated Claims Managers, nominated Project Manager.
- The expected project risks are identified on the basis of a detailed, company-specific checklist that considers their mutual interaction from the perspective of the various disciplines, and defines measures and who is responsible for these.
- The Proposal-Risk-Analysis repeated every 2 months up to tender, with the above-mentioned participants and level of detail. Our goal is to minimise offer risks as far as possible.
If a proposal receives a “C” classification ("low level execution complexity "), the list of participants and the level of detail of the Proposal-Risk-Analysis decreases. In this case, the Proposal Manager might perform the risk-check alone, and subject only significant supply risk categories to examination. While a Claims & Contract Manager is still nominated or this “C”-offer, he or she will only be occasionally consulted by the Proposal Manager.
3.Preparations for negotiation
Shortly, but promptly before the upcoming offer negotiation and the contract with the future client, preparations should be made by the Proposal Manager. Even if these negotiation preparations generally come under sales processes, they remain an instrument of the claims & contract management execution workflow. This is particularly so, because the claims & contract management officer and the Proposal Manager must liaise upon the scope for negotiating the specifics of the project contract that regulate work interruptions, deviations, changes and their consequences. Since negotiation preparations must also be scaled, it may here, for example, be specified that "C" offers always have a standardised negotiation framework for such aspects, or that here also, the nominated Claims & Contract Manager may only be consulted when needed.
In addition to the functions coming under the kick-off meeting in terms of the transfer of responsibility from sales to project management, the kick-off meeting also covers the following functions of the claims & contract management execution workflow:
- Reassessment of the proposal classification for claims & contract management (does the classification from the tender phase still hold?) by the project core team.
- Designation of the Claim & Contract Manager, who will follow the execution of the project up to acceptance by the client. NB: Class A" = one or more Claim & Contract Managers work full-time on the project, while for class "C" projects, a Claims & Contract Manager is specifically named for the project and is familiar with the basic project data, but might only be actively involved in the project work when needed.
- Filling the claims & contract management roles with members of the project team; e.g. designating the person responsible for recording additional expenses during the engineering phase. Furthermore, the construction site procurement officer should be named.
- Defining the overall strategy for the project claim management by contractual interface point; e.g. in the case of an “A” classification ("turnkey"):
- Strategy towards the project client: moderately offensive
- Strategy towards building contractor: offensive
- Strategy towards all other subcontractors: moderately offensive
The individual specific claims management measures for the various contractual interface points of a project should be determined in a separate claims management strategy meeting. Only the date for this meeting need be defined in the kick-off meeting. The participants will be determined according to the company Claims Management Handbook.
The aforementioned claims management strategy meeting is an instrument of the claims & contract management during the execution phase of a project, which begins after the kick-off meeting. How this strategy meeting is structured and which other claims & contract management execution workflow instruments should still come into play during the execution phase of a project will be discussed in part 2 of this article (expected publication date: 16/06/2016).
(Author: Jürgen Hahn)