Managing Contracts (Part 1: Change Orders and Scope of Work)

In my last article I laid out several key items to track in terms of procurement planning. Those items also help with managing individual contracts. This week’s article is going to dive into managing individual contracts and focusing on change orders.

On the buyers’ side, their goal is to limit change orders and keep the pricing as close to the originally agreed upon price.

The sellers’ goal is to provide the bare minimum under the scope and prevent scope creep. Thus, when the buyer ask for something that is clearly not in the scope or ,maybe even expected but, not explicitly written, the seller will require a change order be executed. Some vendors are notorious for requiring a change order for anything not explicitly written in the contract.

Thus contract management starts before you even choose your supplier. It starts when you’re drafting the scope of work. All too often the project manager (PM) and procurement professional assume the vendor knows what the PM means when the PM writes the scope. This is a fatal mistake and sets the buyer up for death by change order. Therefore, the buyer needs to be meticulous when writing the scope of work.

The following are my tips for writing a scope of work:

(1)Tell a short story. What does your company do? Who do you serve? Why are you wanting to purchase this good or service.

(2) Don’t assume the seller is going to know what you mean. They genuinely won’t. And if they do, they’re going to play dumb and likely insist on a change-order.

(3) And explanatory/supplemental posts are your friends. I use these to explain processes, i.e. I’ll post the solicitation and then immediately after, post a supplement that details processes or specific features, etc. that I’m looking for. I found this has tremendous upside in terms of making your expectations clear.

Following these tips has tremendous upside in the long run. You’re less likely to need change orders, you’re more likely to find a quality supplier, and it builds a level of transparency up front that allows for the creation of a good business relationship.

While writing a good scope of work goes a long way towards making contract management easier, there’s still more work to do.

Before you post the solicitation, you should know how long you want the initial term to last and whether you want option years. This is going to have a huge impact on your overall management of the contract, budgeting, and planning.

Finally, the next article will discuss how to approach the term length, option years, and pricing.