International contract management principles and practices

international contract management & the IMPORTANCE of SATISFIED SUPPLIERS

In order for the project manager to successfully implement and sustain the management of International contracts the manager must have the ability to work in an effective manner with contracting manager, purchasing professionals and subcontractors in accomplishing key objectives of the project. Contract development occurs in an environment of increasing complexity and regulation therefore, the project manager must possess a clear understanding of the contracting process and when doing so the project manager will have a distinct advantage. Effective negotiation of the contract as well as effectively administering the contracting requirements leads to success in the project, performance speed and a reduction in both risks and costs during the projects completion.

CHALLENGES

The work of Ernest Gabbard (2006) entitled: "The Challenges of the International Contracting Environment" states that: "If you are not intimidated by the international contracting environment and you properly prepare for these transactions, this environment offers professional challenges and rewards that are not available in the domestic U.S. " (2006) Preparation can be understood as 'key' in successful contracting. Gabbard states that: "The contracting and procurement professional has the primary responsibility to clearly establish the rights and obligations of purchaser and seller." (2006) the task in international contracting is basically the same concept as domestic contracting and yet international contracting is a great deal more complex in nature. Gabbard states that in order to understand the complexity in the international contracting environment one must understand the legal environment in which international contracting takes place which is generally within the realm of: (1) U.S. law; (2) the law of the country in which the purchase or sale is made; and (3) International Law. (2006)

II. CULTURAL ENVIRONMENT KNOWLEDGE

Failure to understand the cultural perspective of the other party to the contract has resulted in many:."..transactional problems associated with failure..." (Gabbard, 2006) if one is to avoid these pitfalls, one must first prepare through making a study of the culture of the host country, which will assist in realization of transactional success. This will include the steps of:

1) Conducting research to enhance knowledge of all aspects of international contracting;

2) Obtain advice and expand sphere of contacts; and 3) Engage professional consultants.

Gabbard states that while there is reluctance to acquire the expense associated with engaging consultants that experience informs one that: "...there can be a significant return on investment (ROI) for such a venture. Secondly avoiding failure through pitfalls in the transactional process it is important to be: "...flexible and recognize that all foreign sellers are not alike, just as domestic sellers are not alike." (Gabbard, 2006) in other words, there is great diversity and Gabbard (2006) illustrates this through providing an example stating: "Eye contact with our counterpart during a business meeting in most European cultures is desirable but not necessary. Eye contact is imperative during a business meeting in most Middle Eastern cultures; without it, we would not be trusted by our counterpart. However, in some cultures, such eye contact may be considered invasive and make your counterpart uncomfortable. As we may conclude, it would be quite important to research the appropriate behavior for this and other aspects of the culture for any foreign business environment. The key to adapting to the foreign culture is to understand it and be flexible enough to function successfully in the culture. In fact, with preparation, we can "enjoy" the experience." (Gabbard, 2006) Page (2007) explains the role of the contract manager stating that the role includes but is not limited to the following:

Supplier / Partner Relationship Management: Ensure that the proper tendering process is followed: formulating requests for information (RFI's) and requests for quotation (RFQ's) according to pre-established criteria on scope of works, specifications and agreement conditions; and Supplier / Partner Relationship Management: Problem Reporting & Management: This includes: (a) Create and maintain a central repository of contract related information, which include contract material, contact detail per category at group procurement, and an active tracking list with the recent issues and actions taken to solve them; (b) Identify technical opportunities and risk assessment in purchasing and contract management; - Critically read contracts, handle claims, tackle issues and problems in a logical way; (d) Understand the needs and priorities of the internal customer and his supply needs; and (e) Build and maintain networks of business contacts with suppliers. (2007)

The work of Vishal Patel entitled; "The Contract Management Benchmark Report: Procurement Contracts" states: "The sheer complexity and volume of corporate contracts have increased dramatically in recent years, and the cause can be attributed to such factors as globalization, outsourcing, intense competition, and complicated and numerous partnerships. Regulations are forcing companies to strengthen their contracting policies in order to document procedures, and track and control financial exposure. Inefficient management of supplier contracts and unclear policies and procedures can have a significant impact on the enterprise." (2006) According to Patel: "Contracts are a primary level for controlling costs, optimizing supply performance and mitigating risks..." which include price fluctuations, quality variances and delivery time inconsistencies. According to the Aberdeen benchmarking report and reported in a Selectica Press Release:

The process for supplier contracts is still largely inefficient and labor-intensive; few companies have effective policies and procedures in place.

Approximately 50% of companies admitted to having poor visibility into their supplier contracts.

Nearly 80% of enterprises are using manual or only partially automated processes to carry out contract management activities.

Best in Class' companies are out-performing the industry norm in compliance to contracts and are achieving savings with fewer resources. (Selectica, 2007)

The work entitled: "Contract Management Guidelines" states that there are three activities inclusive in contract management which are those of:

Service Delivery Management;

Relationship Management; and Contract Administration. (Office of Government Commerce: Principles of Contract Management Service Delivery, 2002)

Service delivery management "ensures that the service is being delivered as agreed to the required level of performance and quality. Relationship management maintains the relationship between the two parties in an open and construction manner and focuses on resolving and easing tensions and identification of problems proactively. Contract administration refers to the formal governance of the contract itself. It is very importance that the structures of management within the contract have a design that facilitates a good relationship. "Information flows and communication levels should be established at the start of the contract." (Office of Government Commerce: Principles of Contract Management Service Delivery, 2002)

Three primary levels of communication in a contract are:

operational (end users and technical support staff);

business (contract manager and relationship manager on both sides); and Strategic (senior management and board of directors. (Office of Government Commerce: Principles of Contract Management Service Delivery, 2002)

Stated as essential factors in good contract management are:

good preparation

The right contract

Single business focus;

Service delivery management and contract administration

Relationship management

Continuous improvement

People, skills, and continuity;

Knowledge

Flexibility Management

Change Management

Proactivity (Office of Government Commerce: Principles of Contract Management Service Delivery, 2002)

Poorly managed contracts may result in:

1) the provider is obliged to take control, resulting in unbalanced decisions that do not serve the customer's interest;