The Importance of Contract Administration – Initiation and Execution
Author – Ben Eastoe
So often we see the reliance on individual relationships to support a contract outcome. Whilst relationships are critically important when you have a contract to deliver, the best foundation to support a relationship in a contract environment, is ensuring that you always administer the contract. At Lidiar Group a key fundamental of our project delivery is “always administer the contract”…sounds simple enough and it is, with understanding what you are required to deliver and always being in advance of delivering those requirements. Why then do we see so many organisations fail to do this? It is with that question in mind that I write this article.
The Backbone of Commercial Operations
Whether you are a sole trader or a global multi-national, contracts sit at the heart of every relationship you have with your clients, suppliers and partners. They define a relationship, establishing expectations, performance levels, payment and terms, and more in many ways. In many ways, a contract is the central drive of a business relationship – people may change, roles may vary, but a contract will remain at the heart of the relationship.
Getting Contract Administration Right
Getting it right is essential. A well-executed and delivered contract aids business performance and success, so we must get it right. At Lidiar Group, our approach is founded on the following principles:
- Early Involvement – involve specialists early in the process and allow them to bring their expertise, experience and skills to the development of the contracts.
- Agree on Scope and Deliverables – In an earlier blog, we touched on this (https://lidiargroup.com.au/2021/09/28/the-importance-of-project-scope/). It is vital to ensure that all parties entering into the contract understand what must be delivered.
- Agree On Timelines – Ensure that all parties know the timeframes expected to work toward.
- Agree on Finances and Financial Processes – Ensure that all parties know and understand the contract’s financial terms. Payment dates, proof of works, payment performance gates, penalties, bonuses and so on must be agreed upon and understood.
- Build Relationships – Building and maintaining relationships is an important part of delivery and also being able to successfully navigate through any issues. Remember that the foundation of any relationship is ensuring that you deliver to the commitments you have made and the first part of this, always administering the contract.
- Proactive Communication – Proactively communicate with your contractual partners. If there is an issue or potential issue, be honest, open and genuine with your approach. The key to this is understanding that listening is a crucial part of communicating effectively and doing this will provide good information on your next step. You will have a much better understanding of any items that you need to navigate carefully around when you administer the contract and provide formal advice.
- Work Proactively on Solutions – One of the main challenges with the construction sector is that it is adversarial. We have become conditioned to work with often punitive contracts requiring significant legal stoushes to gain an outcome. Suppose there are strong relationships and a culture of collaboration, in that case, parties will often address contractual issues and find solutions to achieve the outcome without enforcing penalties or entering into a dispute.
- Invest in Time – If something is worth doing, it is worth taking the time to get it right. When administering a contract, take the time to get things right, don’t cut corners, don’t park elements in the too hard basket for later, and ignore things you don’t understand or want to understand. Take the time to get it right, or it will become a challenge later in the day.
- Keep Control – Version control is a necessary reality. Ensure that all parties have the latest version of any documentation, and all changes and versions are logged for reference if required.
- Project Controls – Administering the contract is reliant on correct up to date information and it is a must that this is managed by the appropriate project controls and structure.
- Go Legal as a Last Resort – When lawyers become involved, only the lawyers win. We have seen it time and time again across the industry where relationships have been destroyed, companies have been driven into the ground, claims and counterclaims have ruined careers, and all the while, the legal teams pick up their fees and head off into the sunset having done their job, but at a cost far higher than the monetary sum alone. In the unfortunate event that you end up with a dispute, you are far better placed to have a successful outcome when you have been in advance of your requirements and always administered the contract.
You Cannot Treat Contract Administration Like iTunes Terms and Conditions
We all do it. We updated iTunes or any other bit of software, and we scroll as fast as we can to the end, clicking agree in every available spot and pressing submit as quickly as possible. We don’t read the details. We don’t question what clauses are in there, and we don’t think about what may happen to our data, what protections we have or even what risks are associated with acceptance. For all we know, we could be promising to hand over 50% of our weekly wage to Apple.
Read every contract.
If you do not understand a contract or have trouble with legalese, then get external help and pay someone a fee to go through the contract and explain it in clear terms to you. A small investment could alleviate a lot of future pain if there are contractual problems down the line.
If you don’t, you run the risk of falling foul of the two biggest mistakes we have seen in contract administration.
- Not Following the Contract – You have to follow the contract; it explicitly stipulates your responsibilities in black and white. If you are contractually obliged to lodge variations within 48 hours, you must lodge variations within 48 hours. If you are contracted to provide a set program of works in a set timeframe, you must do so.
- Failing to Understand Terms – Contracts are packed with terms you must understand; non-comprehension is not a defence if you have not completed an element you are contracted to complete. By signing the contract, you have committed to do something; you cannot fail to deliver because you didn’t understand a term within the contract.
There will be challenges ahead when you don’t understand terms and don’t follow a contract. From lack of payment to litigation to expensive rework to a tarnished reputation, failure to administer and execute a contract is a significant risk to your organisation’s future.
At Lidiar Group, we administer contracts on behalf of clients in the resources, energy, construction and oil and gas sectors and have a team on hand with the knowledge and experience to support your next project. Contact us to find out how we can administer your next contract.
In closing some simple advice that I live by, “always be in advance of your contract requirements” and regardless of circumstance, “always administer the contract”.