S-062 - Contract Strategy for Development and Projects
Introduction
The majority of any project budget is spent through contracts. The project scope needs to be packaged into optimal contract work scopes. From a single EPC contract, to a series of small contracts, no standard grouping is suitable for all projects; each project will have its own unique contract strategy.
The contract strategy will also indicate the likely value of each contract, leading to a view on how the contract might be placed into the market. Detailed assessment of the tender method and payment mechanism is part of Contract Tactics; refer to the Contract Tactics service.
The strategy is presented in a diagram commonly called the ‘Navajo Blanket’ from its appearance, showing the grouping of activities per contract.
Timing
Contract Strategy answers the questions ‘How should we package the work?’, ‘ Who can build this for us?’ and ‘How should we manage the contracts’, and is required as part of the feasibility assessment of a project. Therefore the contract strategy should be defined during the latter part of feasibility assessment.
Methodology
- Create a Work Breakdown Structure for the project as a matrix of asset breakdown versus development activity.
- Set aside core activities to be retained in house.
- Group irreducible activities that would never be split.
- Identify where client has an existing contract that could be used.
- Use themes to create several alternative strategies for the remaining scope.
- Make SWOT assessment of the alternatives and select preferred strategy.
- Make list of contracts and estimate of value of each contract.
Deliverables
- A Work Breakdown Structure matrix
- Core, Irreducible and Existing contracts set aside.
- Alternative strategies and a SWOT analysis
- A list of proposed contracts with value.
Duration
A 2 day workshop with the client development team will deliver the result stated.
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