Contractual Relationships in Project Management
Most supply contracts have cost, timing and functionality elements, but contracts issued for a project require special consideration. The contracts that link project management to suppliers are usually based on a mutual interest in the completion of the project on time and within budget. This shared interest allows you to develop a positive relationship with suppliers backed up by contract sanctions for non-performance of key tasks.
Risk
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A project represents risks for owners if it is late or doesn't work as planned. The project generates extra costs if project management has to take special measures to speed up the work to maintain the completion date. Ideally, major suppliers and the owners share such costs. A contractual relationship based on shared risk means both parties try to minimize extra costs and execute their parts of the work to the best of their abilities.
Responsibilities
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While you can base the contractual relationship on shared risk, each party's responsibilities have to be clear. Normally contracts specify that each supplier and the owners are responsible for their own supply and their own work. The contracts must specify that you will fulfill your planning and coordination responsibilities and the suppliers their contractual responsibilities.
Supplies
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As project manager, you place orders for the goods and services you need for the project. The resulting contract must detail exactly what material or work the contractor has to supply, the total price, the timing of the supply and any special characteristics the material must have. While other parts of the contract influence the contractual relationship, the supply details specify its central obligations.
Acceptance
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A contract that forms the basis for a good relationship specifies the characteristics the supply must have for project management to accept it. If the project requires a certain quantity or weight of material or material with specific certifications, the contract has to specify the details. If workers must have licenses or permits, the contract has to list them. A contractual relationship based on such a contract gives project management a clear basis for acceptance of the supply or refusing acceptance if the supply doesn't fulfill contract requirements.
Payment
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The central obligation of project management is to make payments according to the terms of the contract. Typical contracts for major parts of a project specify progress payments, such as specific percentages on signing, start of production, shipment, acceptance and completion of project. A basis for a good contractual relationship structures the payments to minimize supplier financing requirements while limiting project management overpayment risk in case of non-performance.
Warranty
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A key part of project management is to deliver a project that performs the functions required by the owners. The project contracts will normally specify that suppliers of major project components have to warrant that their supply meets and continues to meet project requirements for a specified period. A positive contractual relationship means project management can resolve warranty questions with suppliers on an amicable basis.
References
Writer Bio
Bert Markgraf is a freelance writer with a strong science and engineering background. He started writing technical papers while working as an engineer in the 1980s. More recently, after starting his own business in IT, he helped organize an online community for which he wrote and edited articles as managing editor, business and economics. He holds a Bachelor of Science degree from McGill University.