The Process Organisation in Claims & Contract Management (Part 2)

2016-06-16. Our "Process Organisation in Claims & Contract Management (Part 1)" journal article published on 2016-05-12 described the organisational tools that are required during the tender-phase in order to assess the potential risks and anticipated execution complexity of a future project. Our article also dealt with the need to prepare the contract negotiations for a future project as a team, and with the structure of transferring information from the tender to the execution phase (engineering & construction/ manufacturing phase) of a project once a contract has been received. Part 2 of our previous journal article focuses on which tools are required for the process organisation of claims & contract Management during the project execution phase.

 

1. Project-Classification – laying proper and transparent foundations for Claims & Contract Management 

 

The anticipated execution complexity of the future project was determined using a clear metric, as part of the offer classification during the project's tender phase. This resulted in risk category allocation (e.g. A, B or C; "A" = turnkey contract, "C" = purely component-based business). This risk assessment was necessary in order to be able to efficiently scale the use of resources and claims & contract management methods. If applicable, this offer classification was repeated several times during tender preparation, in order to keep abreast of new information about the future project. The same apples to the execution phase. The Project Managers (technical/commercial) and a claims & contract manager take part in the order classification, which is repeated during the course of the project if necessary (whenever there has been a significant change in the execution conditions). It is used to scale the procedures and organise claims & contract management during the execution phase.

 

2. Claims-Fact-Review – promptly evaluating the consequences of impeded and altered construction processes 

 

From the very beginning of a project, it is necessary to promptly identify and document any process impediments, deviations and changes, seamlessly and factually. This identification and documentation is the task of all those involved in the project (please refer to our journal article, "Claims & Contract management as Team Tasks" in the German trade magazine "Chemietechnik" ("Chemical Technology"). If the team has successfully implemented this identification and documentation, the consequences must be promptly evaluated and appropriately documented. This should lead to a decision being taken about whether you should make a claim against the contractual partner as a result of an occurrence. This decision mainly depends on the following factors:

 

• What is the chosen claim management strategy for the respective contractual interface?
• Has the process impediment/ change/ deviation been verified and documented?
• Is there a contractually clear justification for compensation for the consequences of the impediment/ change/ deviation?
• Are there any strategic reasons for not demanding compensation from the contractual partner?

 

Similar deliberations are required if your company is subject to a claim for compensation for process impediments/changes/deviations from the respective contractual partner. As in the above-mentioned procedure, these must also be evaluated just like your own claims against the contractual partner. These tasks can be integrated into the process organisation of claims & contract management, by the Project Manager (technical/commercial) and the Claims Manager holding a regular "Claims-Fact-Review" meeting (preferably on a monthly basis). The input information for this Claims-Fact-Review should be in the form of a table displaying the following information:

 

• Consecutive identification number of the occurrence (process impediment/ deviation/ change)
• Statement of the basis of the claim (contractual/ legal)
• Evaluation of the applicability of the basis of the claim (how plausible is the basis of the claim?)
• List of available documentation/ correspondence about the process impediment/ deviation/ change (including allocating the task of preparing/ researching the necessary documentation/ correspondence to a named team member, if required.)
• Decision as to whether compensation for the respective occurrence should be requested from the contractual partner in the form of a claim.

The same procedure also applies to the claims of contractual partners. The results of this claim fact review provide essential input for the subsequent tools in the claims & contract management process organisation in your company. 

 

3. The Clarification-Meeting – reaching agreement and maintaining the partnership 

 

If the contractual parties only clarify their mutual claims for compensation for any process impediments/ changes/ deviations at the end of a project's execution phase, each of the other contractual parties run the risk of being "surprised" by the other party's compensation claims and being unable to investigate any claims in time or at all. A timely "claims resolution deadline" is required (which should ideally also be defined in the contract). Such a resolution deadline could take the form of a monthly clarification meeting for example, during which the contractual parties discuss their mutual claims and seek agreement. The results of the previous (internal) Claims-Fact-Review form the basis for this. Ideally, the clarification meeting results in a variation order being issued, which allows agreement to be reached about the mutual compensation claims of the parties forming an integral part of the contract.

 

4. Project-Risk-Analysis  – methodically evaluating the dynamics and complexity of a project 

 

Just as in the tender phase, a project's risk portfolio should also be reviewed at appropriate, regular intervals during the execution phase. The Project-Classification determines these intervals, as described in Point 1. The aim of the Project-Risk-Analysis is to make the project team aware of which interdepartmental risks threaten the project and which risks – from other specialist departments as well as their own – may interact with their own area of work. If the project team, consisting of the Project Managers (technical/ commercial), representatives of the specialist technical departments and the Claims & Contract Manager, is aware of these risks, it is able to determine defensive action and assign responsibility for this. The effectiveness of this action is reassessed during the subsequent offer risk check, at the latest. Risks ("threats") and associated defensive action determine the project's execution strategy, always within the company's own claims management mission statement.

 

Summary:

 

At first glance, the tools for the process organisation of claims & contract management appear to be time-consuming. But when you remember how time-consuming crisis meetings are when something has gone wrong, it quickly becomes clear that a structured claims & contract Management (and project management) approach is essential, including for the project's commercial success. Not least because the use of these tools gives the respective contractual partner an indication of reliability, which helps maintain a collaborative atmosphere.

 

(Author: Jürgen Hahn)