Episode 181 – Contract Strategies – Ten Key Principles of Contracting

Manage This - The Project Management Podcast

The podcast by project managers for project managers. Selecting contractors and negotiating the terms of a major project is one of the most difficult aspects of project management. In this episode Ed Merrow sheds light on fairness in contracting relationships, for the relationships to be self-enforcing, and how not to unwittingly set your contractors up to fail. Table of Contents 02:53 … Meet Ed05:28 … Contract Strategies for Major Projects06:59 … Hiring Contractors is Never Easy07:55 … Key Principle #209:12 … #1 There is No Free Lunch10:20 … TINSTAAFL11:28 … #3 Complex Projects Need Simple Contracting Strategies13:03 … Collaboration15:07 … #4 Owners and Contractors are Different17:44 … #5 Large Risk Transfers are More Illusion than Reality19:25 … Importance of Scoping21:29 … #6 Contractors have Shareholders23:14 … Ren25:29 … #7 Contracting Games are Rough Sport27:05 … #8 Assigning a Risk to Someone Who Cannot Control that Risk is Foolish29:07 … #9 All Contracts are Incentivized33:20 … #10 Economize on The Need for Trust36:40 … The Value of Prequalifying Contractors40:13 … Getting the A-Team or the B-Team42:48 … Get in Touch with Ed44:02 … Closing ED MERROW: ...both owners and contractors play games. Contractors usually win those games. My advice is try to keep games out of your contracts. Try not to put in a bunch of complex provisions whereby you think that the contractor will “have skin in the game.” I want owners to remember that skin in the game is almost always owner skin. WENDY GROUNDS: You’re listening to Manage This. This podcast is by project managers for project managers. My name is Wendy Grounds, and with me in the studio are Bill Yates and Danny Brewer. We love having you join us twice a month to be motivated and inspired by project stories, leadership lessons, as well as advice from industry experts from all around the world. We want to bring you some support as you navigate your projects. If you like what you hear, please consider rating our show with five stars and leaving a brief review on our website or whichever podcast listening app you use. This helps us immensely in bringing the podcast to the attention of others. You can also claim free Professional Development Units from PMI by listening to this episode. Listen up at the end of the show, and we’ll tell you how to do that. Today our guest is Ed Merrow. Ed is the founder, president, and CEO of Independent Project Analysis, the global industry leader in quantitative analysis and benchmarking of project management systems. Ed received his degrees from Dartmouth College and Princeton University; and he began his career as an assistant professor at the University of California, Los Angeles. He followed that with 14 years as a research scientist at the RAND Corporation, where he directed the Energy Research Program. We’re talking to Ed particularly today about his most recent major research effort which is centered on the quantitative analysis of how contracting strategies and delivery systems shape project results. His new book is on this subject, and it’s titled “Contract Strategies for Major Projects.” BILL YATES: In our conversation with Ed on procurement and contract strategies, Ed is going to share with us the key principles of contracting that all those involved with planning and executing major projects should know. Here are three things to listen out for on this episode. One, contractors may make convenient scapegoats, but they are rarely to blame for bad projects. Number two, we depend heavily on trust, yet trust is not a contracting strategy. And number three, contractors are almost always more skilled at playing those contracting games than those owners are. WENDY GROUNDS: Hey, Ed. Welcome to Manage This. Thank you so much for joining us today. ED MERROW: Well, thank you, Wendy. I’m glad to be here. Meet Ed WENDY GROUNDS: We are looking forward to getting into this topic.