By Eugene le Roux, FSAIRAC, and Eamonn Ryan
Part 1: The contract as a driver of project success.
In HVAC&R projects, contracts are often treated primarily as commercial documents governing price, scope and payment. Yet their potential extends considerably further. A well-constructed contract can actively drive the technical processes that determine whether a project meets its performance, reliability and operational objectives. In an industry where complex systems must work together over many years, using the contract as a project-management tool can help turn technical requirements into measurable outcomes.
Could the special conditions in a contract effectively integrate the technical wisdom of systems engineering with the commercial conditions of the project?
PCH Vector | Magnific.com
Do you think there are people who view an order as being little more than a purchase note, with the standard legal and commercial conditions simply attached to it – perhaps without even reading or applying them?
It is an interesting question because, although project teams may spend considerable time discussing important aspects of programme management – requirement analysis, production readiness, reliability and the breathtaking beauty of the systems-engineering process, in which high-level requirements are cascaded down through successive system levels – none of these processes will happen effectively if something does not drive them.
This is where contract management enters the fray.
The contract can provide the necessary pressure to ensure that the required processes actually take place, particularly through carefully constructed special conditions. In this sense, could we regard the contract as a management tool with real power, based on the ability to control payments and establish contractual obligations?
If so, that power needs to be used carefully. The objective is not simply to create a document capable of imposing penalties or withholding payment. The contract needs to be constructed to achieve the desired technical and commercial results while maintaining a workable relationship between the parties.
This becomes particularly important because projects are inherently uncertain. Most projects are unique, and the uncertainties associated with one project will not necessarily be the same as those encountered on another.
The special conditions required to address those uncertainties should therefore also be specific to each contract.
Consider, for example, the project’s risk plan. It should focus attention on particular areas of uncertainty and identify the measures required to mitigate those risks. Contract-driven activities can then provide a mechanism for obtaining assurance that those risks are actually being addressed.
There may be many such aspects, each of which has to be dealt with in sequence.
The use of Statements of Work (SOWs), linked to individual contract items, has considerable merit in this regard. Each SOW can define a particular piece of work, establish the required outcome and provide the basis for the next stage. In this way, one SOW can feed into the next, creating a structured progression through the project rather than leaving technical requirements as broad intentions.
This raises an important question: could the special conditions in a contract effectively integrate the technical wisdom of systems engineering with the commercial conditions of the project?
The concept certainly has merit. The systems-engineering process identifies what the system must achieve and how its various elements must interact. The contract, meanwhile, can establish the obligations, deliverables, milestones and payment mechanisms that encourage the parties to deliver those requirements.
But there is a problem. Someone has to connect the two. And that brings us to the proverbial question: who is going to put the bell around the cat’s neck? If contract administration is separated completely from the technical personnel responsible for the system, this integration is unlikely to happen effectively.
Part 2 examines why the systems engineer may need to play a much more influential role in determining the content and structure of the contract – and what this could mean for the way complex HVAC&R projects are managed.
