Best Practice for Clients – Contract Award

Make sure your chosen contractor has made a realistic estimate of cost and schedule

Clients should ensure that suppliers do not over-commit, this includes timescales and performance as well as price.

The pressure within a client organisation to choose the lowest compliant bid is often irresistible. Projects are often at the limit of the required economic rate of return and the tendency within a client’s organisation can be to make optimistic, even heroic, assumptions. Clients need to judge as best they can whether a supplier has committed to something they cannot deliver (cost, timescales, performance).

It can seem that every time the tenderer is pressed on a particular point, the price goes up, which damages the predicted project economics. If clients are tempted to go ahead on the assumption that a supplier who has underestimated a risk will still be bound by contract to deliver, he must factor-in the risk.

Clients should be conscious of how timescales for the project are developing during the contract placing phase and the implications of slippages. There is particular danger when the start date slips but the completion date is fixed by factors such as regulatory requirements. There is danger when there is pressure from the client’s board to delay commitment in the expectation of better information without recognising the increasing pressure on the project. Suppliers will still be in sales mode and will be reluctant to say “stop”. A strong project management function within the client’s organisation will help with the appreciation of this risk.

Run a good contractor selection process

A realistic appraisal of the supplier’s capability is required. In particular, has the supplier relevant experience in the location in which the plant is to be built? Productivity factors and industrial relations management can deviate significantly from country to country.

The supplier’s preparedness to undertake the work should be rigorously tested before a contract is placed.

Good communications

Ensure appropriate level of contact with suppliers during the tender period. Be available to answer queries (recognising that any information supplied will need to be given to all tenderers). Be clear about the approvals process within the client organisation and the timescales required for this. If delays are anticipated, communicate these pro-actively so as to retain confidence and reduce the risk of suppliers dropping out.

Competent contractor personnel

Ensure that the supplier has personnel who are competent to do the work. For complex projects, the quality of leadership at senior level within the project is critical to success.   Highly effective project and site managers are in short supply. Ensure that the persons put forward in the tender phase are the ones who will deliver the project.

Make sure key project risks are understood

Clients must ensure they have comprehensively evaluated the project risks and the ability of a contractor to handle those risks. It is also in the client’s interests to ensure that the contractor understands those risks at time of tender and is realistic about his own capabilities. Site-specific conditions such as the sub-supplier availabilities and local industrial relations practices must be understood.

Ensure you have the right team in place to manage the contract

The client must have a team who are competent to manage the contract. They should understand the client’s obligations and what clients should and should not do to ensure the smooth running of the contract. Having a professional and experienced team on the client side will encourage the contractor to provide the same. It takes time and experience and people with the right attitudes to manage complex contracts and projects and these competences should be recognised and nurtured in a client organisation.