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The Problem of Flawed Construction Company Contract Management (2 of 2)

If you are a construction company, a general contractor, a sub-contractor, an HVAC or other specialized construction company or an engineering firm, Part 1 discussed some of the bigger challenges that result from flawed construction company contract management. In Part 2 we’ll dig deeper into other issues and look how comprehensive contract lifecycle management (CLM) solutions can keep you on the straight and narrow and help you to avoid missed opportunities, lost business and onerous penalties.

Perceived Capabilities

Several issues make construction management, and by association construction company contract management, more challenging than ever. One big issue is, recognizing that construction managers and construction business owners wanted contract management in their project and construction management software, vendors complied, and have created the illusion that contracts are being comprehensively managed. In reality, most solutions provide limited capabilities from a CLM perspective, effectively applying band aids on gunshot wounds. This can put you in the unenviable position of hoping that the criticality of any situation can be recognized early enough and pressure applied before, the injured bleeds to death. Is this any way to manage a critical element of your business? We think not. Contracts are a critical element.

Intense Competition

Business today is characterized by intense local and global competition. Winning and completing construction projects and bringing them in, on time and within budget can easily be the difference between business success or failure. As in baseball, three strikes and you’re out. With big incentives and even bigger penalties, there is little margin for error.

Here are a few areas where LCM solutions can save the day.

Missed milestones, dates or renewals.

How many times has a contractual obligation been missed because you have been constantly fighting fires to keep a project(s) moving forward and you did not realize that the milestone was upon you? I believe the honest answer is many times. And how many times has a self-renewing contract that you didn’t want to renew cost you money because a hard-nosed vendor held you to your unintentional, automatically renewed contract obligations. Has this happened more the once? These are easily avoided by comprehensive CLM solutions. CLM solutions provide a means for every contract date and obligation to trigger automatic notifications and reminders not only to the responsible parties, but also will provide visibility across the organization when required actions have and have not been acted upon.

Managing change orders tied to overall contract obligations.

Managing change orders can make or break any individual project. Most project/construction management tools provide an adequate means for managing change orders at a basic level. What most do not provide is an efficient means to see all change orders and associated documents in a single view, the ability to aggregate all change orders together including internal document values, the ability to make the internal document data searchable across all contract documents and after searching for any contract term, language, date or value, etc. within a document, to be able to hyperlink directly to that portion of the document and see it or to provide ad hoc or saved reports. Good CLM solutions do all these things. What that means is you have a much better ability to eliminate undercharging, penalities and surprises.

Lost contract payments or credits.

While most CLM solutions do not provide built in payment or credit tracking, good ones provide the ability to share data with procurement and other business systems. This allows payment histories and credit tracking to be associated with contract obligations. In addition, this helps eliminate missed progress payments or missing a credit, sometimes the difference between a profitable project and one that is not.

Increased demands, budgetary restrictions and more stringent financial terms means more risk.

Let’s face it, the competitive nature of today’s economy has required construction companies to accept ever increasing customer requirements, tighter margins, ever more granular performance metrics and inherently more financial risk.

Global competition makes flawless execution ever more important.

We all agree that competition is more fierce than ever. So what is flawless execution? First the result: flawless execution results in a happy customer who pays you on time and refers other customers to you. Flawless execution avoids the potential to miss contractual obligations; it minimizes the potential that your costs will exceed what you have charged because you understand how they affect the commitments of your contracts and flawless execution assures that known unknowns and unknown unknowns do not derail your efforts. CLM creates situational contract awareness.

A greater emphasis on compliance, performance, quality, and delivery methods.

Would you agree that contract compliance, performance according to contract, the quality of the work you do and the speed and reliability with which you deliver your projects is highly important to your customers? We agree. CLM gives you far greater awareness, visibility and control over issues that can make or break you.

Win your battles, win the war

“The Art of War”, an ancient Chinese treatise by Sun Zsu, is recognized by many business people a source of invaluable wisdom that relates to the prosecution of business war in current times. Chapter 12, “The Attack by Fire” discusses the use of weapons. How does this relate? Look at it this way. Each prospect engagement is a battle where your competitors are your adversary. Your first battle is to win the business. It will not be your last. You wil be tested all along the way to determine how well each battle is prosecuted, how well you execute your chosen strategy and how quickly you responsd to changes you did not plan for.

CLM a tactical and strategic resource

Into each engagement you arrive with certain resources, information, strategies and weapons. Contract Life-cycle Management (CLM) is both a competitive weapon and a tactical tool in your quiver. It allows you to properly access and track your committed objectives and milestones (planning and execution strategies), it allows you to quickly and easily understand the disposition of your resources (accurate information) and to react more nimbly to failed strategies and a changing environment (tactics). Having CLM as a part of your construction contract management toolset may not assure that you win absolutely every battle, but it will help you to win most of them, to live to fight another day and to dramatically improve your ability to win the war.

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