Not another IT procurement disaster?- Part 2

Wednesday, March 19th, 2014

Our previous emphasis (read part 1 here) was on financial outcomes, which, of course, take place within the context of the contract.

Typically, contracts are negotiated and, when signed, will be meticulously managed by whoever is accountable on the project team.

In regard to the lump sum price, the contract specified,

“no amounts whatsoever, other than those mentioned in the price schedule, would be paid by the owner.”

So, what did the price schedule say?

Regardless, the attitude of some IT suppliers will be to use the contract change process to increase prices.

The audit report provides an insight into the “work schedule.” Article 6 of the specific terms and conditions allows the Metro to postpone completion of work by a month without compensating the supplier. Beyond the one month period, any delay is subject to the contract change process and involves compensating the supplier, unless it can be shown that the latter caused the delay.

In that case, the supplier would be required to provide solutions to mitigate the delays and submit a catch-up plan for lost time that would not incur additional costs for the metro.The emphasis (underlined) is ours and focuses on the effectiveness of contract management. Monitoring a supplier’s activities is a detailed task, for example, tracking their provision of resources against their plan that should have been provided with the tender.

The contract also provided that in the event of a delay in implementing the system caused by the supplier, the supplier would have to pay the Metro a cash fine for damages plus interest, calculated on the basis of the number of days of delay up to 10% of the value of the contract.

The operative words are ’caused by the supplier.’

The proof of this will require comprehensive documentation. The provision for liquidated damages lacks detail in the above explanation but the maximum is 10%.

Why?

Bearing in mind the 7.5 year delay; the detail beggars belief.

There can be little doubt that serious disputes arose and, the contract wasn’t terminated. Various claims were made by the supplier, including a request to review contract dates and work progress.

The audit report observes,

” A contentious environment quickly developed between the parties.”

That will surprise no-one but eyebrows will raise at the fact that,

“a negotiating committee was formed to attempt to resolve most of the claims.”

This report is an excellent case study, highlighting typical issues on IT contracts. The skill is to identify how to mitigate the risks that materialised. Procurisk would be of material assistance.

Thanks

Steve

 

www.Procurisk.com – The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “Contract Management failures again?

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