Project Management Contracts: Learn to Protect your Project
Do Managers need legal knowledge to read contracts impacting their projects? No. Do Managers need to be able to read and understand contracts related to their projects? Yes, if you cannot understand it, you cannot manage it. You may need legal assistance, but always know what is in contracts that impact your project.
How can Managers master the art of reading contracts to improve project outcomes? What do Managers need to know before they sign documents to buy, sell, or deliver work? Let’s find out!
Why Managers Need Contract Know-how?
Manage Suppliers
Reduce Risks
Mitigate unexpected costs
Why Contracts Matter for Project Managers
In today's business landscape, contracts are vital in managing projects and ensuring successful outcomes. Managers who can read and comprehend contracts have a distinct advantage in negotiations, risk management, and overall project success. In this article, we will delve into the essential aspects of contract reading, exploring the different parts of a contract and providing managers with examples, quotes, and detailed concepts to improve their contract management skills.
Only have 1 minute? Then watch this video for a summary.
Understanding the Parts of a Contract
Sample Contract Reviews can help you understand what is in a contract and why it is important.
1.1 Summary: The contract's summary provides a concise overview of the agreement, highlighting key details such as the parties involved, the goal of the contract, and the contract start date. It serves as a quick reference point for managers, helping them grasp the contract's essence without diving into the nitty-gritty.
Example: "The purpose of this contract is to establish a partnership between Company A and Company B for the development of a mobile application to start on June 1, 2023, and be completed within six months."
1.2 Definitions: Clear definitions are crucial for contract interpretation. The definitions section clarifies key terms, ensuring that all parties have a common understanding of the language used throughout the document. Managers should pay careful attention to definitions to prevent misunderstandings and potential disputes.
Example: "The term 'Deliverable' refers to any software code, design, or documentation produced as part of the project and approved by Company A."
1.3 Terms and Conditions: The terms and conditions section outlines the obligations, rights, and responsibilities of the parties involved. It covers payment terms, intellectual property rights, confidentiality, warranties, and dispute resolution mechanisms. Managers must thoroughly review this section to ensure compliance and identify potential risks or unfavorable terms.
"The devil is in the details. Pay close attention to the terms and conditions as they can greatly impact your project's success." - John Smith, Contract Specialist.
1.3.2 Billing and Payment: These are a subset of content in terms and conditions, but is an area that project managers must understand in great detail. Answer questions such as:
When will billing be due?
What is the billing period?
What are payment terms (how soon due to have to pay)?
How will payments be made?
Clearly document the process for billing work and expenses. Know if additional costs include fees or taxes. The process of cost disputes should also be detailed. Managers need to align budgets with billing information.
1.4 Service Delivery: This section delineates how the project will be executed, specifying the steps, processes, and milestones involved. It should clarify project management methodologies, communication channels, reporting requirements, and change management procedures. Managers should align the service delivery section with project management practices to maintain control and facilitate effective coordination.
Example: "The project will follow an Agile methodology, with biweekly sprints and a daily stand-up meeting to track progress and address any issues."
1.5 Service Levels: Service level agreements (SLAs) outline the quality standards and performance metrics that both parties expect from the project. Managers should meticulously review this section to ensure that realistic and measurable targets are established. Well-defined SLAs facilitate effective monitoring, evaluation, and course correction during project execution. It is also important to know what happens when SLAs are missed—such as issue resolution, corrective action, and refund of costs.
"SLAs are the yardstick by which you measure project success. Clear expectations lead to better outcomes." - Emily Johnson, Project Manager.
Strategies for Effective Contract Reading
Conduct Thorough Reviews: Managers should set aside dedicated time to read contracts carefully. They should highlight important sections, take notes, and seek clarification on ambiguous or unfamiliar terms. Avoid rushing through the process, as overlooking critical details can lead to costly mistakes.
Seek Legal Expertise: Where possible, involve legal experts or contract specialists in the review process. Their experience and knowledge can provide valuable insights, ensuring that contracts are thoroughly vetted and potential risks are identified and mitigated. Ask for support in making changes to wording to ensure it is done right.
Negotiate Favorable Terms: Contracts are negotiable, and managers should actively engage in discussions to secure favorable terms for their organization. Identify potential areas for negotiation, understand your organization's needs, and leverage your knowledge to achieve win-win outcomes.
Communicate Effectively: Maintain open lines of communication with all stakeholders throughout the contract.
10 Tips for Fast Contract Review
Scan the document first. Before you read the details, get the big picture of the contract.
Focus on your goals. Make a list of what you want the contract to cover before you get into the details so that you stay focused on what is important to you.
Know who wrote the initial contract. Contracts written by suppliers will benefit them. So check for content that reduces their responsibility or accountability and increases yours.
Understand how the contract is organized, and use clauses to track comments. Most contracts are grouped into sections called clauses. The clauses have main headings 2.0 Services, 3.0 Billing and Payment, 4.0 Intellectual Property, etc. Under these main sections are sub-clauses, which contain the contract details. These are referenced as 4.1, 4.2, etc. When making notes, document the clause number you are referring to.
Use scenarios to help you understand the impact. Create 'short stories' to review the impact of the clause. It helps to write these down and confirm the goal of what you want against the document. Change wording inconsistent with your goals.
Check for if/then connections. Be aware that clauses often refer to one another as part of "if/then" rules. So if an important clause references another clause, read both to confirm what can happen.
Be able to show what you give and get. Agreements are just details of 'give and get statements. So know what you are giving and getting—whether that is work, assets, responsibilities, payments, or credits.
Know how the contract ends. Contracts can end when the work ends, when work is accepted, or if terminated due to a variety of reasons. Sometimes contracts live on, even for completed work.
If you are not sure, don't sign. Once signed, you have an agreement. Better not to sign than regret it later. But if there is an issue, ask for an amendment to the contract.
Contracts are something every manager can master. It just takes practice. With help from legal you will be on your way to better contract management. Have your already signed a contract with your Supplier? Next is putting a Governance Model in place. I’ve got you covered, with this article on supplier governance.
