SPONSORS

SPONSORS

Contract Risks for Project Vendors

 

Project Business Management

SERIES ARTICLE

By Oliver F. Lehmann

Munich, Germany

 


 

“What one owns in black and white can be taken home in peace of mind.”

Goethe, Faust 1[1]

Summary

In project business management, it is essential for project managers to know the contract. In addition to that, they should have education to understand commercial and legal risks of project business to the depth necessary to perform the projects successfully and satisfy stakeholders, while at the same time protecting the project and the own organization.

Case Studies

Project business is high risk business for all parties involved. In addition to the project risks that are present in all types of projects, project business comes with commercial risks and with legal risks.

This article focusses on the side of the vendor, who for a period of time becomes the contractor in the project. Here are some case studies that show exemplary how commercial risks can damage the contractor’s business.

Case study #1: Subcontractors get paid when the prime contractor has the money

In a project for a paying customer, a prime contractor awarded work to subcontractors. These subcontractors accepted a clause in their contracts that their payments depend on the payments made by the customer to the prime contractor.

Figure 1 shows the payment process.

Figure 1: The payment process in Case study #1

Due to reasons outside the control of the subcontractors, the customer repeatedly rejects payments. The subcontractors in turn do not receive their compensations on time, and the longer it takes, the higher the risk becomes that they may not receive them at all, due to unresolvable conflicts or insolvency of parties involved.

Case study #2: Waiting for the customer to do a sign-off

An engineering project to develop and build a custom machine for a client has been mostly finished. The machine has been set up at the contractor’s premises for sign-off by the customer. After that, it will be dismantled again, dispatched to the customer, re-erected, and commissioned. The customer has five days to visit the contractor.

During the course of the project, several payments have been agreed upon, triggered by achieved milestones. Customer sign-off on contractor’s premises is one of them, and it is the one that triggers the largest payment, as can be seen in the swim lane diagram in Figure 2.

More…

To read entire article, click here

Editor’s note: This series of articles is by Oliver Lehmann, author of the book “Project Business Management” (ISBN 9781138197503), published by Auerbach / Taylor & Francis in 2018. See author profile below.

How to cite this article: Lehmann, O. F. (2020). Contract Risk for Project Vendors, Project Business Management Series, PM World Journal, Vol. IX, Issue X, October. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/10/pmwj98-Oct2020-Lehmann-Contract-Risks-for-Project-Vendors-PBM-series-article2.pdf

 


 

About the Author


Oliver F. Lehmann

Munich, Germany

 

Oliver F. Lehmann, MSc, ACE, PMP, is a project management educator, author, consultant, and speaker. In addition, he is the President of the Project Business Foundation, the home association for professionals and organizations involved in cross-corporate projects.

He studied Linguistics, Literature and History at the University of Stuttgart and Project Management at the University of Liverpool, UK, where he holds a Master of Science Degree. Oliver has trained thousands of project managers in Europe, USA and Asia in methodological project management with a focus on certification preparation. In addition, he is a visiting lecturer at the Technical University of Munich.

He has been a member and volunteer at PMI, the Project Management Institute, since 1998, and served as the President of the PMI Southern Germany Chapter from 2013 to 2018. Between 2004 and 2006, he contributed to PMI’s PM Network magazine, for which he provided a monthly editorial on page 1 called “Launch”, analyzing troubled projects around the world.

Oliver believes in three driving forces for personal improvement in project management: formal learning, experience and observations. He resides in Munich, Bavaria, Germany and can be contacted at oliver@oliverlehmann.com.

Oliver Lehmann is the author of the books:

His previous articles and papers for PM World Journal can be found here:

 

 

[1] (Goethe, 2005)

%d bloggers like this: