Collaborating on Complex Project Contracts: The Power of People
Tim Cummins and I had an interesting discussion this morning on IACCM’s “Ask the Expert” call on complex contracting. One of the issues that came up is the role of procurement in managing complex contracts. All too many times, I have witnessed how lump sum bids focus only on cost, and fail to consider risk, safety, supply chain disruptions, and other unpredictable events. We both noted the importance of emphasizing project outcomes as a primary metric for measuing contrct performance – an obvious, but completely overlooked metric for procurement. Too often, the focus on price or cost reduction fails to consider the collaboration required to enable these contracts to be successful. I have seen myself all too many times, how procurement is often removed from the operational project site, and fails to grasp the context and complexity of the project environment. This brought up the next important element – the requirements for proper incentives, not just price. Incentivized contracts that focus on rewards for positive outcomes, as opposed to penalties for negative ones, often drive improved behaviors and more proactive performance. Finally, we talked about the need for real talent and changes in culture in these environments. Too often, procurement people are transaction focused, and don’t consider the types of collaborative behaviors, weekly planning meetings, open communications, and long-term joint alignment of resources that is necessary to manage complex, five year projects. People need to seek first to understand before blasting a supplier, and learn from the event.
I am continuing to work on collaborative complex project contracts with Marcos Primos, a visiting professor from Brazil, who works closely with Petrobras. Marcos also mentioned to me a book “Collaborative relationships in constructions: developing frameworks and networks”, edited by Hedley Smyth & Stephen Pryke (Wiley-Blackwell 2008) that is very related to this concept of people as the necessary cog for managing contracts. There is one chapter about disaster mitigation through collaborative knowledge-sharing practices, with the idea that manging contracts is about management of people.
Marcos, Tim, and I are interested in having discussions with managers in complex project industries that may be interested in learning more! We hope to pull together some best practices for further discussion on this site….