How to the closeout procurement plan
To cover the various dimensions and components that a practical contract closeout management plan entails altogether, we have decided to divide into three parts. The first part outlines define and describe contract termination. The second part presents a contract closeout plan, analyzes the procedures involved in contract closeout, and sheds some light on issues that generally emerge during project termination and explains how those issues can be negotiated or resolved. The third part describes the significance of lessons learned.
By its definition and application, the project procurement contract is created by parties-mostly the buyer and seller- to deliver a unique product, service, or result in exchange for a price. A contract is therefore generally terminated when the project deliverables as specified in the scope statement of work, project artifacts, and commitment are fully completed or executed, and the finished project is turned over to the seller according to the plan agreed upon by all parties. In other words, the buyer has delivered the required goods or performed the required services, and the seller has inspected and accepted the finished products or services.
There is also a time when a contract can end abruptly due to lack of resources, force majeure, poor planning, incompetent or callow project leaders, change of strategy, and technology, skyrocketing costs, conflicting aspiration, or political rivalry, and war. A party that is affected by the abrupt termination may reserve the right to sue for compensatory damages to recover costs sustained as the result of an unforeseen closeout.
In an industry like construction, the process of the project handover may involve two steps: the first handover period provides opportunities to the seller to inspect the finished product or service and identify patent defects for which the contractors may be liable. The second phase contains the additional buyer time to observe latent defects –including, for example, postponing the finished product acceptance until it rains to test if the roof has leaks-that the contractor can be reasonably liable. However, in case of misunderstanding, dissatisfaction, failure to deliver the product or service according to requirement, the injured party can pursue a lawsuit to recover monetary damage before or after contract termination.
Types of contract termination
There are three types of contract termination: Termination by mutual consent, Termination for Cause or Default, and Termination for the Convenience. When parties to a contract decide to terminate their respective rights and obligations under the contract mutually, the act is considered a termination by mutual consent. Termination for Cause or Default occurs when one party fails to conform, wholly or partly, to the terms and conditions of the contract. This may be due to the seller’s or buyer’s reputation. Termination for the Convenience occurs when a party to the contract feels that the project no longer serves its business interest. This act is widespread in public or government contracting environments. Though most contracts end successfully when the buyer performs the required obligation according to the agreement, under some circumstances, the parties may agree to end their contact even though the original objectives were not met. Moreover, a party may reserve the right to cancel a contract any time without recourse. However, when the other party invested money and time in the transaction, a lawsuit can ensue, and compensatory damages can be assessed to recover costs the injured party sustained as the result of the termination. The Uniform Commercial Code (UCC) covers some of the legal requirements of contract termination in Article 2-309 Notice of Termination, Article 2-312 Warranty of Tile, and Article 2-313.
A closeout management plan covers information about product warranties, guarantees, and discounts. Depending on the size, quantity, and cost of a project, warranty information constitutes one of the essential elements that the closeout planning team should consider. Every product manufactured or bought has a warranty statement to show a buyer that the goods and services that are produced or manufactured meet specific standards of quality, safety, performance, and title. If the goods do not conform to the warranty standards, the seller may be liable for damages for breach of warranty. Parties to a contract can create additional warranties or amend the existing warranty to maximize their individual or collective business investment. Under UCC Section 2-312, Warranty of Title, the seller is responsible to the buyer if he or she sells goods to the buyer that has infringed on a trademark, copyright, or patent that a party owns.
Procurement Project Closeout Issues
The settlement of the dispute between seller and buyer under a contractual relationship consists of a wide range of factors including payment, scope, delivery, schedule, performance, risk management, budget, technical issues, change management issues, and information technology costs. A sustainable method of a dispute resolution focuses on achieving a long-term and win-win solution and seeks to resolve issues reasonably. A negotiation where one party wins it all may not be good for anyone. In the case of stalemate between parties regarding claims made by one party against the other, besides going to court, parties can resolve the dispute through negotiation, mediation, and arbitration. The mediation process includes a third party that can listen to each side of the dispute and usually holds meetings with each party to gather facts to determine where each party claim stands and uses the information to find common ground and resolve the dispute amicably. Arbitration involves a third-party intervention to determine settlement terms between the feuding parties. Since both parties to the dispute normally agree to arbitrate, the arbitrator can compel parties to accept the settlement terms.
Lessons learned to provide opportunities to learn from previous mistakes. The Lessons learned covers essential project experiences acquired from project procurement pre-planning, initiation, execution, monitoring, controlling, and closing the project. Knowledge and experience of previous projects can be useful tools for future projects. They can save business enterprises potentially millions, if not billions of dollars, especially knowledge-intensive industries such as high tech, pharma, and engineering.
Understanding the knowledge and experience gained in scope management, cost management, risk management, the acquisition of significant complexity procurements, and added work improves the likelihood of completing future projects on time. It also reduces or eliminates the possibility of the cost increase, project completion slippage, and the cause that many buyers and sellers go to court in the first place. Change orders can impact stakeholders, including the contractor, subcontractors, and financial institutions, to name a few examples.
The scope of a project sets boundaries: what the project does and what it does not do. Often, not understanding project requirements can lead to project enlargement or failure. Any change in the scope should be charted and approved and documented to avoid additional costs, schedule delays, and a lack of total quality control.
Major complexity procurements present grave challenges to procurement management. They are unique items easily found on the market; they have multiple product components and may require contractors and subcontractors working together or separately to design or develop them. Complexity procurements also have many modules, hard to find locally, considered critical to the project, and may carry massive potential overruns. Firms, however, may need these procurements to make a breakthrough, discover or invent new product lines, maximize profitability, and be competitive, to name a few examples. Because of their importance, companies invest more resources in creating, purchasing, and securing complexity projects. In other words, major complexity procurements are high-risk products, potential showstoppers, and disruptors to product delivery schedules. They can also increase costs and degrade performance.
Risk management provides the capacity and the framework to deal with risk in an orderly way by first identifying the sources of threats, then assessing their probability and impact and minimizing them in a way that achieves an organizational goal and objective. A Risk Register is a great tool that most companies use to register potential risk activities, actions or behaviors including schedule, price hikes, and currency rate changes. As new risk is identified and listed, it is weighed and ranked numerically or qualitatively. Number 10 indicates the most severe impact. The risk registrar describes the causes, consequences, and implication of such risks. If a residual or new risk was found to have the potential of being a showstopper, the project procurement team can update the risk register and develop risk response plan.
Managing a change order poses a grave challenge as well as the opportunity that is worth, including in the Lessons Learned. A project scope changes can be add-ons, up-scopes, or down-scopes, modifications, redesigning, and reengineering issues. Change requests can impact project scope, time, cost, quality, risks, and human resources. Firms handle change requests differently. Some firms have what is called a Change Control Board (CCB) composed of key stakeholders. The CCB is responsible for reviewing and analyzing change requests. Change requesters use a change request form to register a proposed change. The form requires describing the evolution and proving the reasons for the difference. If the switch is needed, necessary, and beneficial to the project, the project manager, in consultation and approval of the project executives, will analyze the impact and integrate it into the master schedule.
The project manager must obtain executive or top project owner’s engagement and buy-in before executing or implementing these change requests. In other words, the project manager can only independently run changes that are within the project charter or already part of a previously agreed response to a risk event in the Risk Management Plan.
A project procurement closeout plan attempts to apply various tools and techniques to terminate the contract in an orderly fashion and to ensure that lessons learned through the process and application of project procurement management and scope management can be archived for future projects. The project closeout plan should include documentation, procurement planning, solicitation planning, solicitation, source selection, and contract administration phases.
A repository for project documentation is a valuable tool. This can be the source of information about the next project. Whether the project is abruptly terminated or finished as expected, it should be fully documented and archived. Activities that project management personnel executed in the previous project can be useful tools for the next project.
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