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CONTRACTING FOR SUCCESS IN COMPLEX PROJECTS A REPORT ON THE FUTURE OF CONTRACTING IN COMPLEX PROJECTS

DISCLAIMER: This report represents a range of views and interests of the individuals and organisations participating in the Roundtable Series. They are personal opinions that do not necessarily reflect those of the organisers and sponsors of the Roundtable Series. Given the different perspectives of roundtable participants, the report does not reflect all the views of all participants and it should not be assumed that every participant would agree with every recommendation in full.

The document remains the property of ICCPM. We have no objection to this report being quoted, as long as ICCPM is recognised as the source and the quoted material remains unaltered.

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CONTRACTING FOR SUCCESS IN COMPLEX PROJECTS A REPORT ON THE FUTURE OF CONTRACTING IN COMPLEX PROJECTS

1Contracting for Success in Complex Projects

FOREWORD

1 Project Management International LinkedIn Group

In a world where success is increasingly measured by outcomes, the field of contract and commercial management takes on a new importance particularly when outcomes, in the main, are delivered by projects operating in an environment of ever increasing complexity.

Commercial innovation has become the key enabler of progress, delivering new capabilities and enabling the success of technical invention. Contract management has become a critical competency, establishing a shared understanding of roles, responsibilities and governance standards that enable the management of complexity.

The baseline for this report assumes that organisations are currently executing the fundamentals of both project and program management to an appropriate standard. Anecdotal evidence suggests that this is not the case. A recent post on the Project Management International LinkedIn Group entitled “Why some organisations do not follow proper PM Practices?”1 offers some interesting insights into why organisations fail to implement or apply good practice PM and ask some valid questions of practitioners. Unfortunately limited research exists to unpack this particular systemic problem. ICCPMs position on this has been very clear in that we have always offered the following:

“Appropriate well executed project/program management practice is adequate yet not sufficient to manage projects/programs in complex environments”.

We would now take this a step further and state that “The fundamentals of project and program management must be well executed as a minimum, to enable the application of systems and complexity based approaches to manage projects and programs in complex environments”.

Traditionally, the connection between contract management and project management has been limited and often administrative in nature. Similarly, many project managers have come from technical backgrounds, with little exposure to commercial disciplines.

Today, those gaps must be closed and it was in recognition of this need that IACCM and ICCPM came together to develop a series of joint workshops that led to this paper.

Our goal was to develop a shared understanding of the interdependencies between project management and contract and commercial management. It was also to propose a series of practical steps that can be taken to improve performance on major projects and reduce the unacceptable levels of failure that are seen today.

The recommendations contained in this paper are by intention broad in nature out of necessity to address issues at the institutional, organisational and individual level concurrently. The participants involved in the roundtables were by design representative of all layers in the value chain including executive leaders, policy makers, practitioners, consultants, educators, and subject matter experts some with education and experience in complexity and some without. This paper is a representation of the collective output from all contributors.

When it comes to establishing understanding, we can hail this paper as evidence of success. Whether the recommended actions are adopted and success rates are increased, only time can tell.

Deborah Hein Managing Director & Chief Executive ICCPM

Tim Cummins President & Chief Executive IACCM

2 Contracting for Success in Complex Projects

SPONSORS

SERIES SPONSOR

Capability Acquisition and Sustainment Group

EVENT SPONSORS/HOSTS

SUPPORTING SPONSORS

Brooke - Canberra and Melbourne, Australia

CSIRO Perth, Australia Institute for Public-Private Partnerships Washington DC, USA

NSW Roads & Maritime Sydney, Australia

University College London London, UK

Telfer Centre for Executive Leadership - Ottawa, Canada

Australian Institute of Project Management

Thales Group


AUTHORSDeborah Hein, International Centre for Complex Project Management

Professor Stephane Tywoniak, Ottawa University

Dr Erin Evans, International Centre for Complex Project Management

REVIEWERSBrett AckroydChivonne AlgeoBrian CollinsPhil CrosbyJohn DaviesAndrew DawErin Evans

Tony GrahamSteve HeinSally HughesAndrew JacopinoGreg LaxtonSusan LeslieIan Mack

Francis NormanJonathan NormanGenvieve O’SullivanChris SmithJulie SummerfieldStephane TywoniakMaree Weir

MODERATORSTim CumminsSusanne Madsen

Peter FielderIan Mack

Yvonne ButlerDeborah Hein

FACILITATORSBrett AckroydSophie AndrewTim BanfieldJames BawtreeJim BergmanPhil CataniaTony ChargePhil CrosbyJohn DaviesDoug Dempster

Julie DunlapErin EvansGraham EveilleBruce EverettTony GrahamStephenGreyDeborah HeinSteve HeinSimon HenleySally Hughes

Brett Nan TieFrancis NormanGenevieve O’SullivanFred PayneAlison PetchellPhil ReidDan RossNick SeiersenStephane TywoniakJennie Vickers

RECORDERS Anthony AllenCathy BaljakMargeaux CarsonPaul D’OrivalBrianna EdwardsMonique EwingJennifer GoddardMegan GordonDiane HopeLee HwhDaniel KopunicChantelle LeeMartine PeasleyTheonie ScottNandini Srikantiah

Ryan StaleyJennie VickersChristine WallVincent WallMercedes Zanon

Telfer Centre for Executive Leadership - Ottawa, Canada

Contracting for Success in Complex Projects4

ABOUT ICCPMThe establishment of the International Centre for Complex Project Management (ICCPM) in 2007 was led by the Australian Department of Defence (Defence Materiel Organisation) with support from the UK Ministry of Defence, US Department of Defense, Canadian National Defence and Defence industry as part of the Australian Department of Defence’s Complex Project Management Initiative.

The Complex Project Management Initiative was seen as an international response or reaction to the continual failure to deliver complex projects by governments. The rationale for establishing ICCPM was to create an independent, international, not-for-profit organisation that would support both government and industry’s ability to better deliver complex projects.

ICCPM provides a central and coordinating role, by bringing together leading thinkers and practitioners in the complex project sector from around the world. ICCPM’s key objectives are to:

• Develop and sustain effective collaborations;

• Educate and develop leaders and organisations on issues of complexity and managing complex programs; and

• Develop and disseminate practical knowledge and solutions.

As a not-for-profit organisation ICCPM seeks to translate contemporary research on the effective management of complexity into practical solutions for organisations facing the responsibility of delivering complex projects internationally, which is applicable across all industry sectors, corporate, NGO and government initiatives throughout the world.

Contracting for Success in Complex Projects 5

ABOUT IACCMThe International Association for Contract and Commercial Management (IACCM) is a not-for-profit organisation, founded in New York in 1999 with the support of a group of major international corporations. Its role is to provide a global forum for innovation in trading relationships and practices. Through its research, IACCM identifies the international standards and practices for defining and managing trading relationships. It promotes the use of those standards to support ethical and sustainable economic growth and organisational success.

Today, IACCM has more than 43,000 individual members, representing over 15,000 organisations in 165 countries. It works with government and the private sector to drive increased alignment between buyers and suppliers of goods and services. This is achieved through extensive research, training, capability assessments and advisory services. To fulfil its role, IACCM encourages collaboration across traditional boundaries of function, organisation or jurisdiction. Its broad membership is made up by professionals and leaders from contract, commercial and supply management, as well as lawyers, project managers and operations staff. IACCM also works extensively with academia, developing relevant courses and sponsoring the IACCM academic journal, the Journal of Strategic Contracting & Negotiation.

6 Contracting for Success in Complex Projects


CONTENTSForward 1

Sponsors 2

About ICCPM 4

About IACCM 5

Introduction 9

Contracting for a Complex Project – What is it? 11

Challenges in Contracting and Project Management where Complexity Prevails 13

Mechanisms to establish living/breathing contracts 15

Head/Umbrella Contracts incorporating - Just in Time Agreements 15

Rolling wave contracts 15

Visual/Comic Contracts 16

Strategy visualisation using soft systems methodology 16

The way ahead 16

Recommendations 17

A Burning Platform – The Business Case to Invest in Change 18

Projects by the numbers 18

Projects that are Complex 22

The Case for Change 25

Recommendations 28

Competency to Lead Complex Contracts 30

Essential Leadership Capability 30

Individual and Team Competencies 31

Recommendations 32

Organisational maturity to cope with complexity 33

Maturity Modelling 33

IACCM Capability Maturity Model 34

Project Management Maturity Models (PM3s) 34

Limitations of Maturity Models 37

Recommendations 37

Addressing Risk from a Systems Perspective 38

Application of Risk Policy 38

Advanced Risk Management Approaches 40

Recommendations 40

Governance in Complex Environments 41

Recommendations 42

A Holistic View 43

Recommendations 44


Annex A – Discussion Paper 45

Annex B – Case Study in Relational Contracting 50

Annex C – Case Study – Visual Contracts 58

Annex D – Case Study – Comic Contract 59

Annex E – Procurement Case Studies demonstrating deviant behaviour 61

Annex F – Case Study (Heathrow Terminal 5) 63

Annex G – Case Study (Adelaide Class Guided Missile Frigate (FFG)) 64

Annex H – Methodology for Roundtables 68

Annex I – Ottawa, Canada 19 May 2016 70

Annex J – Sydney, Australia – 22 July 2016 73

Annex K – Canberra, Australia – 28 July 2016 77

Annex L – Perth, Australia 4 August 2016 79

Annex M – Melbourne, Australia – 18 August 2016 81

Annex N – Washington, USA 15 September 2016 84

Annex O – London, United Kingdom 23 September 2016 86

Annex P – Summary of Recommendations 88

Bibliography 90


INTRODUCTIONWHY A ROUNDTABLE SERIES ON CONTRACTING FOR SUCCESS IN COMPLEX PROJECTS?

2 Third sector captures Not-for-profit, NGOs, Charities and like organisations.

In the 10 years since the inception of ICCPM, we have witnessed an increased emphasis on improving the delivery performance of complex endeavours. The management of complex projects is now established as a practitioner reality and professional field with an institutionalised competency standard and body of knowledge, career and talent management pathways, and educational programs in multiple jurisdictions including Australia, Canada, Norway, UK and USA.

Empirical evidence now exists that implementing approaches and methods appropriate for dealing with complexity, professionalising project teams, and assuring front-end project quality assurance assists in lifting the delivery performance of large/major/complex endeavours; this is encouraging. Studies and testimonials from the UK, Norway and Australia suggest that performance gains in the 5%-10% range are being achieved. However, this still falls short of the 40%-60% performance gap observed across industries and jurisdictions. We must recognise that the benefits of achieving greater levels of success should not only be measured in marginal cost savings but also in the avoidance or minimisation of issues that result from our failure to recognise and therefore manage the complexities in our environment.

An increasing share of world GDP is delivered through temporary endeavours such as projects, programs, strategic initiatives of one form or another, in government, industry and the third sector2. According to the World Bank, at least 25% of global GDP is delivered through projects. The ambition and complexity of these endeavours is anticipated to continue to grow apace. New product/service launches increasingly aim to combine ever-more sophisticated solutions that require combinations of technologies (hardware and software), professions, functions and cultures. Transverse, multi-disciplinary work has become the new normal.

There are significant increases in the rate of technology innovation and impacts on society. For example, automobiles are now combining multiple combinations of power sources (hybrid, electric and petrol powered engines), they integrate sophisticated hardware and software systems to regulate and manage power consumption, driving directions, and safety. Increasingly, the aim is to

develop safe, self-driving vehicles that will be controlled by auto-pilots as sophisticated as those now controlling commercial airliners. Governments face challenges of comparable complexity in addressing social inequity, bridging the gaps in education, welfare, and health outcomes for indigenous populations in Australia, Canada, and other jurisdictions requiring inter-disciplinary approaches that combine multiple branches and agencies of government.

Given this context, contracts as a major driver of complex project governance have a significant contribution to make on delivery performance. Too often, contracts have been identified as contributing to the challenges of successfully delivering complex endeavours, rather than enablers of success. Therefore, it was timely for ICCPM and IACCM to bring together their members to reflect constructively on how improvements could be identified and barriers overcome in order to achieve further gains in delivery performance.

The purpose of a contract is to establish the agreement that the parties have made and to set their rights and duties in accordance with that agreement. This purpose represents the universal understanding of the use of a contract. All too frequently this is limited and adversarial.

A paradox is therefore established when the project is complex. The contract is written to fulfil its purpose, in an attempt to codify certainty of the delivery despite the uncertain environment and impacts that this has on the delivery of outcomes and outputs. In our current way of working, this paradox therefore limits the usefulness of the contract. Depending on the work methods of the individuals involved (or their organisational cultures) the contract when working in emergent, uncertain environments is either (1) put aside, or (2) executed to the letter, delivering unsatisfactory outcomes. All too commonly the approach is that both of these typify the response to complexity. These scenarios should create extreme concern for management as both involve a high degree of risk and exposure for the organisations on both sides of the contract. We know from experience that both situations occur on a regular basis.


Whilst the contract itself is a major cause of failure, we should also recognise that the broader project execution strategy (PES) that includes industry engagement, source evaluation strategy etc. is also a key consideration.

It is well understood that without commercial and contracting functions it is very difficult for a Project Manager to understand the commercial realities of their projects in totality, including, critically, the project management baseline that must be managed effectively in a volatile and changing environment to deliver a successful outcome.

The project management and contract management functions have distinctly different accountabilities and responsibilities. The disconnect between contract and project management is further exacerbated on a complex program. The characteristics of these are that they will have multiple contracts, multiple stakeholders, multiple owners, multiple interdependencies, and multiple sources of funding, volatility, uncertainty, and ambiguity. In these complex situations, the pragmatic need of the Project Manager to adapt to emergent environments diverges from the interests of the Contract Manager.

What was commonly observed by roundtable participants is that the Project Manager and Contract Manager become frustrated with each other and move into their respective functional silos as a way of reducing uncertainty. The resources and energy wasted due to the internal turbulence as a result of poor communications, differing approaches, poor coordination and interactions is a source of under-performance. Tangible observations from participants included resources being misallocated; managerial attention diverted to fighting turf wars, and undermined trust. This cross discipline frustration was identified as being a result of the different responsibilities and accountabilities (and associated reward structures) that accompany each role. Despite being part of the same organisation rarely do these areas consider the needs of the other or impacts on each other.

For the organisation to deliver strategic outcomes it is very clear that alignment is fundamental and for this is occur the various functions involved in delivering them should be focussed on achieving the same outcome. Why has this not been a key objective for organisations? There are some organisations that are very successful in achieving this objective and do not suffer from this mis-alignment, some of our supporting case studies are evidence of this, these organisations are encouraged to share their experiences and successes so others may learn.

IACCM have also previously conducted numerous research activities focussed on the reasons for failure within the contracting and commercial function, surfacing some exceptional insights.

This roundtable series is the first time that IACCM and ICCPM have collaborated on this issue. We believe that marginal improvements in project delivery, on both contracting and commercial fronts, will deliver substantial benefits to business outcomes through projects. ICCPM has historically focused on project management aspects of projects that can be attributed to causing sub-optimised results and, in the worst case – failure. In looking deeper at contracting methodology it has been observed there is great opportunity to further enhance delivery capability.

This paper has been developed as a result of a consolidated analysis of information gathered during an international roundtable series delivered in partnership by ICCPM and IACCM. The roundtable series attracted contributions from more than 250 leading practitioners across seven locations: Ottawa (Canada), Perth, Canberra, Sydney and Melbourne (Australia), London (UK), and Washington DC (USA).

The paper is intended to provide the collective views of the roundtable participants supplemented by expert advice from contributors. It is intended to explore the key issues, challenges and areas for investigation and where possible provide ideas or solutions for organisations and practitioners to consider for contracting for success in complex project. Case studies relevant to topic areas have been included to aid practitioners interested in implementing or innovating in their respective organisations. It is also hoped that a compelling enough case has been made to encourage leaders in organisations to embrace ideas for changing the way programs, projects and contracts for complex endeavours are managed within organisations.

In commencing the roundtable process a discussion paper was developed and distributed to participants, it is attached at Annex A.

Together, ICCPM and IACCM are proud to present this publication to further the improvement of outcomes in contracting and projects through a range of research and systemic initiatives led by researchers and practitioners.

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CONTRACTING FOR A COMPLEX PROJECT – WHAT IS IT?

3 It is probably not necessary to provide a definition of what a contact is, however for completeness a definition is offered, obtained from the Law Handbook 2016, http://www.lawhandbook.org.au/07_01_01_what_is_a_contract

A contract is a legally binding3 or valid agreement between two parties. The law will consider a contract to be valid if the agreement contains all of the following elements:

1. offer and acceptance;

2. an intention between the parties to create binding relations;

3. consideration to be paid for the promise made (for common law contracts but not civil law contracts);

4. legal capacity of the parties to act;

5. genuine consent of the parties; and

6. legality of the agreement.

Complexity can be defined as “the state of having many parts and being difficult to understand or find an answer to”, this definition is one that people can easily relate to and is easily understood. It is a useful definition; however, the origin of the complexity terminology in a management and business context is equally important to understand. A complex system is characterised by its inter-dependencies and interactions that result in emergence of new states that are not predictable. The terminology is derived from the scientific community’s consideration and is grounded in ‘Chaos and Complexity Theory’.

A complex adaptive system:

“is a collection of individual agents with freedom to act in ways that are not always totally predictable, and whose actions are interconnected so that one agent’s actions changes the context of other agents. They interact with each other and their environment.”

The Competency Standards for Complex Project Managers defines a complex project as:

“open, emergent and adaptive systems that are characterised by recursiveness and non-linear feedback loops. Their sensitivity to small differences in initial conditions significantly inhibits detailed long-term planning for these projects, and their implementation is a dynamic process.”.

Complex projects:

• are usually adaptive systems of systems;

• have high uncertainty in scope definition;

• are distributed;

• have ongoing environmental and internal turbulence;

• are implemented through wave or iterative planning processes; and

• are unable to be decomposed to elements with clearly defined boundaries.

In combining these definitions, a Contract for Complex Projects’ could be defined as:

“a legally valid and binding agreement between parties that meets all of the necessary elements [offer, acceptance, consideration etc.] to deliver outcomes in an open, emergent and adaptive systems environment, characterised by recursiveness and non-linear feedback loops”.

It is important to recognise that it is not the contract itself that should be considered ‘complex’, it is the program/project/endeavour that is to deliver the outcomes/capability that determines the complexity. The contract however does need to recognise and reflect the environment, and enable the project to operate and deliver effectively. Effort should be taken to ensure that the contract is kept ‘as simple as possible but not simpler’ a notion attributed to Albert Einstein. This notion should encourage us to consider the consequences and/or impacts of over simplification or in the case of contracts - over standardisation - that leads us to try to apply a ‘one size fits all’ approach to contracts.

The Split Rock Inca Alliance Case Study at Annex B explores how value was delivered in relation to the Split Rock Inca Alliance and discusses how the relational contracting approach delivered sustainable value over and above alternatives, including traditional approaches.

Roundtable participants considered that the most useful approach when thinking about contracts for complex endeavours was that the contract must be a living, dynamic document that evolves throughout the lifecycle, and must, by definition, change over time. It must be continually updated

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to reflect the changing environment and must be focussed on relationships. It therefore behoves us to work hard to establish foundations of trust to enable an adaptive and relationship based paradigm to operate within. A healthy balance of experience, intuition and information (Artificial Intelligence (AI)) and Business Information Analytics (BIA)) based decision- making can only increase the chances of success.

PARTICIPANTS SAID:

Contracts are static - Contracts need to be dynamic and a living document. A lot of people place the contract in the bottom draw once signed and forget about it.

Communicate, collaborate and create an open and honest environment. Embed behaviour and develop the right culture and maintain these

Transactional contracts and relationships - We have been working in an adversarial environment where suppliers are seen as the enemy.

A REVIEWER SAID:

Care must be taken considering seemingly straightforward projects may become complex if the original assumptions are proven false (e.g. the living memory syndrome is a key element of understanding that just because we did it before does not necessarily mean we can do it again). If the team undertaking the activity haven’t done it before, then it has risk associated with it which may be considerably more than anticipated or expected given that a previous ‘generation’ solution exists.

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CHALLENGES IN CONTRACTING AND PROJECT MANAGEMENT WHERE COMPLEXITY PREVAILSThe purpose of a contract is to establish the agreement that the parties have made, and to set their rights and duties in accordance with that agreement. This purpose represents the universal understanding of the use of a contract. A paradox is therefore established when the project is complex, as the contract tries to codify certainty in an uncertain environment. This, paradox limits the usefulness of the contract and it is put aside, or it is executed to the letter and delivers poor outcomes. Both of these scenarios should create extreme concern for management as both involve a high degree of risk and exposure for the organisation.

A reaction to this paradox is to use multi-stage contracts such as ‘evolutionary acquisition’, ‘spiral development’ and to also contemplate agile contracts with variable pricing structures and the ability to rapidly deal with change. These forms of contract have the potential to alleviate the problems associated with a rigid single-stage contract, however, new risks are introduced such as:

• Scope of work uncertainty (especially from a supplier security perspective),

• Budgeting uncertainty and business case volatility, and

• Potential loss of project management and systems engineering discipline.

Without commercial and contracting functions it is very difficult for a Project Manager to understand the commercial realities of their project/s in totality, and the two functions have distinctly different accountabilities and responsibilities. This is exacerbated on complex endeavours that will have multiple contracts and/or multi-party contracts. In such circumstances, challenges associated with the risk allocation process are greatly increased. In some cases, the Project Manager and Contract Manager become frustrated with each other and revert to their respective functional corners or silos. The resource and energy wastage due to internal turbulence would be interesting to measure although not very useful. The frustration is caused, as mentioned, due to both functions holding different responsibilities and accountabilities (and associated reward structures), and rarely do each consider the others. Why? Should they not both be focussed on achieving the same outcome?

Across the roundtables, participants expressed their frustration with the limitations of traditional forms of contracting to support the successful delivery of complex projects. Complex projects defy the norms of traditional project management as captured in professional standards and guidelines:

• they are ambiguous and their goals may change over time,

• they are emergent and cannot be planned using traditional linear approaches, and

• they are interactively distributed and cannot be fully decomposed into elements with clearly defined boundaries.

In other words, complex projects do not conform to the “iron triangle” of traditional project management: cost, schedule and quality cannot be precisely specified at the outset of a complex project to meet pre-determined and at times static scope. If the ‘iron triangle’ continues to be used to measure success it must be continually refreshed and agreed as the program progresses. In other words, the ‘iron triangle’ is an ‘evolving triangle’ set against clear strategic goals that are stable and clear to all parties.

Therefore, traditional forms of contracting were perceived by the roundtable participants to be unsatisfactory across two broad dimensions: detailed prescriptions and rigidity. It should also be recognised that it is not just the ‘form of contracting’ that is the issue but rather the attitude to procurement that contributes to the problem. For example, an over emphasis on price in selection processes, aversion to sunk costs and/or open competition by default when it achieves no purpose.

One traditional response to complexity is to attempt to prescribe every detail in the contract over the lifecycle of the delivery. On the surface, such an approach enables the defining of measurable outcomes and precisely priced deliverables, however this approach also drives a “checklist” approach to the management of the relationship, which may ultimately undermine trust between contractor and client, encourages gaming, drives the focus of the relationship towards compliance, may trigger unnecessary governance costs and fuel risk aversion. Concerns about probity are approached at arms’ length, with a stick, driving out collaboration.

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The traditional approach is risk averse, and makes change difficult. The adversarial language in contracts, focusing on punitive penalties for failing to deliver defined outcomes, is setting up the contracting relationship for failure. Change is seen as a sign of management failure, not the reflection of the emergence of “unknown unknowns” which are typical of complex and uncertain environments.

For complex environments the ‘traditional’ throwing of a requirement or specification ‘over the fence/wall’ and adopting a ‘hands off ‘approach or worse still an ‘it’s all yours’ approach to risk must be emphasised as being totally inappropriate and guaranteed to fail. The essence of any success must be seen as being joint with appropriate responsibilities spread across the endeavour. Implementing this may cut across traditional business practice and will need to be part of any general education, training and/or development program for all members of a team undertaking such activities.

Output from all roundtables suggested ways to overcome these inadequacies. Consensus emerged across jurisdictions about the need to implement adaptable contracting approaches and education programs to support embedding new approaches.

Trust and collaboration between client and contractor have been expressed as necessary foundations to move from managing the contract to managing the relationship.

We need to move away from a situation where the contract is managing the relationship to one where the relationship is driving the contract

This needs to occur, through open dialogue – including when difficult, frank conversations are required. Ultimately what we are advocating is greater cooperation between parties to work in the adaptive and uncertain environment to find the most appropriate solution to achieve the outcome.

Roundtable participants recognised that change is inevitable in all contracts and guaranteed in complex endeavours. Therefore, the contract should be viewed as a living document, outcomes should be revisited regularly and the process of changing the contract should be seen as a healthy reflection on the relationship, not failure.

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MECHANISMS TO ESTABLISH LIVING/BREATHING CONTRACTS

4 Recitals refer to the “whereas” clauses that precede the main text of a contract. They provide a general idea about the contract to its reader such as, what the contract is about, who the parties are, why they are signing a contract. The recitals are like the preamble and are situated at the beginning of the contract. The recitals do not contain rights or obligations of the parties, but it merely explains or introduces the nature of or background to the contractual relationship.”

5 Dr Andrew Jacopino and Dr John Davies “Deploying Performance-Based Contracts for Outcomes” Presentation to 2015 IACCM Australasia Forum (Brisbane (2015) available at https://iccpm.com/sites/default/files/kcfinder/images/Resources/2015_iaccm_performance_based_contracting.pdf

6 http://www.australiandefence.com.au/news/air-underpinning-operations-air-force-engineering-capability

A number of mechanisms have been suggested by participants to enable living/breathing contracts.

Head/Umbrella Contracts incorporating – Just in Time AgreementsDeveloping a head/umbrella contract that specifies the aims and process for the collaboration, with more detailed agreements about well understood objectives and deliverables for phases or waves as they become more known and certain (Just in Time contacting) sitting beneath the umbrella. Each phase/wave should have its relevant KPIs to monitor performance adequately and KPIs should incorporate items that focus on trust and the quality of the relationship. The range of agreements should be open to review by mutual consent at regular intervals fit for the purpose of the endeavour.

Recitals4 currently exist in the contracting process that have in the main been used to articulate ‘what’ the purpose of the contact is and ‘how’ the parties might work together. Roundtable participants believed that the existing recitals would not achieve the intended outcomes of the proposed umbrella contact, in particular given that recitals are currently unenforceable. The intention of the head/umbrella contract would be to establish express terms that clearly articulate the parties’ obligations in regard to collaboration. It would also be used to clearly express best practice collaborative contracting that often includes a ‘best for program’ objective that should also link to ‘enterprise’ objectives.5

Rolling wave contracts6

Rolling wave contracts are an excellent mechanism to contract for what is able to be quantified and certain with agreed timing for rolling on or off the arrangement based on performance or changes in the environment. The highlighted extract provides a quick explanation regarding how the Australian Air Force uses rolling wave contracts to help manage aircraft maintenance.

AIR: UNDERPINNING OPERATIONS – AIR FORCE ENGINEERING CAPABILITY

Extract - Australian Defence Magazine 1 Feb 2016

To deliver this fundamental input to capability, the Air Force maintains a large technical workforce, but it also partners extensively with industry. Every platform has a different maintenance philosophy, with some requiring periods of deeper maintenance at fixed intervals for example and others employing a ‘phased’ approach, whereby smaller work packages are executed more frequently.

Because there isn’t a ‘one size fits all’ solution to its engineering and maintenance requirements, the Air Force maintenance regime therefore has to be extremely adaptive.

When industry is contracted to provide maintenance support, the preferred Aerospace Systems Division approach is to construct a rolling wave sustainment contract for all of the sustainment services, including Deeper Maintenance, whereby the period of a contract is for five years, with a ‘rolling wave’ extension process. “Each year we consider performance and, where it is delivered to an acceptable level, we’ll offer a further year’s extension. So typically at any given time you are five years from completion of the contract, but it can roll up to 15 or 20 years in total,” AIRCDRE Tammen said to ADM.

“Should you lose a year through poor performance, many of our contracts will include buy-back provisions. Subject to subsequent exemplary performance you can recover a year to get back to a maximum of five.”

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Visual/Comic ContractsUsing visual language (e.g. “comic book contract”) enables parties to gain a deeper understanding of the objectives and means to achieve them. Paradoxically, this more visual approach makes the enforcement of the contract simpler as the ambiguities of interpretation have been addressed at the time of forging the relationship, during dialogue. It also highlights that gaining greater skills in or use of additional facilitators to enable these meaningful discussions about the areas that should not be seen as black and white and set in stone need to occur. The use of visual or comic book contracts has proven successful in specific circumstances to overcome language and/or education barriers in countries like South Africa. Annexes C and D provide information firstly on contract understanding and useability in relation to visual contracts, and secondly a case study of the implementation of a comic contract to help vulnerable people understand their contracts.

Strategy visualisation using soft systems methodology The key to executing and implementing strategy, delivering outcomes and maximising benefits is to generate buy-in, motivation and alignment of all activities from a diverse range of stakeholders. It is about having the ‘people’ involved in the complex endeavour not only understand but ultimately take ownership and carriage of an organisations strategy, to have them see and feel where they are headed and how they can contribute. This is where ‘Strategy Visualisation’ comes into its own. People learn in different ways, humans’ process information in many different ways with some preferring narratives or process maps while others prefer illustrations or dialogue. A well-developed strategy will utilise many different methodologies as part of the engagement and development process, and importantly after the strategy is in place use similar to continue implementation.

“The best way to get humans to venture into unknown terrain is to make that terrain familiar and desirable by taking them there first in their imaginations” (Tichy and Cohen, 1997)

7 Tichy, N.M. and Cohen, E.B. (1997), The Leadership Engine: How Winning Companies Build Leaders at Every Level, Harper Business, London8 See esp., BS 11000 ‘Collaborative Business Implementation Guide’ (2013) p3; Australian Contractors Association, ‘Relationship Contracting,

Optimising Project Outcomes’ (1999) ch 5; Queensland Government Chief Procurement Office ‘Better Procurement Guide: Relational Procurement Options - Alliance and Early Contractor Involvement ‘ (2008) [10.1]; Australian Government Department of Infrastructure and transport ‘National Alliance Contracting Guidelines Guide to Alliance Contracting’ (2011) p 32; T. Lendrum ‘Building High Performance Business Relationships’ (2011);

Visualisation results in an illustration of people’s perceptions7, in most cases contrasting the current state to the desired future, and importantly generating alignment with the organisations vision. The organisational story becomes material, and through storytelling (a most powerful method of engagement) leadership links with the people in the organisation to envision the future. People interpret things but where an organisational story becomes embedded as part of the culture – and people are involved in the envisioning - it will stick.

Strategy visualisation is a powerful tool in the communication and engagement arsenal. It can reinforce the journey and story of an organisation, promoting things that are done well and at the same time unearthing practices and behaviours that are unhealthy. It can also be used to discover and test assumptions around culture, processes, dysfunction, behaviours, beliefs, standards and ways of working that are either accepted or unknown.

The way aheadIf we fail to recognise that complex endeavours require a different form and approach to contacting then we must accept that not only will organisations fail to achieve necessary performance on complex projects, they will also suffer issues around staff dissatisfaction, absenteeism, high turnover, dissident behaviour, reputational damage, cost blow outs (reduced profit), which all affect in some way the productivity and profitability of the organisation. A rich literature of advantages exists for organisations to move toward better complexity management (in all fields), for example:

• Superior cost, schedule, and quality outcomes;

• More effective risk management opportunities;

• Better goal alignment;

• Improved transparency and less surprises;

• Dispute minimisation;

• Reduced transaction costs;

• Enhanced flexibility and responsiveness;

• Increased likelihood for industry participation;

• Increased prospects for repeat business;

• Improvements in skills and knowledge transfer between parties to the contract;

• Enhanced personal satisfaction for all project parties,8 and

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• Increased opportunities for development of innovative solutions/processes/systems.

Contracts for complex endeavours must be designed taking in to account a range of issues. Those that are specifically needed to help manage complexity include:

• Express Terms for what is certain;

• Mechanisms to explore what is uncertain: Communicate, research, understand;

• Dynamic responsibilities and accountabilities - Jointly developed, agreed and amended as necessary RASCI (Responsible, Accountable, Support, Consult, Inform);

• Positive holistic relationships focussed on a collaborative operating environment;

• Flexibility/Agility - Flexible change mechanisms to enable agility and minimised conflict due to significant changes that are most likely:

• Concept of Managed Governance’;

Defence Policy procurement Manual p 1.2-3; Arthur McInnis, ‘Relational Contracting under the New Engineering Contract: A Model, Framework and Analysis’ (paper presented to the Society of Construction Law, UK September 2003); State of Flux ‘Supplier Relationship Management Research Report 2012: Voice of the Supplier - A Step Closer to Mutual Benefit’ (2012).

• Aligned benefits;

• Multi-disciplinary team that embraces and fosters creativity;

• Outcome focus - Win/Win;

• Mechanisms to try new ways to succeed (application of safe to fail experiments and use of prototyping);

• Contracting for capability – outcomes; and

• All available data including where appropriate ‘big data and business analytics’ used to provide insight and support decision-making - if understood and used correctly.

RECOMMENDATIONS• Executives must recognise the need to implement adaptable and dynamic contracting approaches

supported by education programs for everyone expected to execute including project and commercial (contract and legal) practitioners.

• Executives must value trust and collaboration between client and contactor/s as a foundation to move from managing the contract to managing the relationship. Greater collaboration between parties is absolutely necessary to work in adaptive and uncertain environments. Organisational culture including governance must be addressed to enable this to occur safely.

• Organisations must design and develop guidance on mechanisms such as those suggested to enable living/breathing documents to be used.

• Development of a global repository (database/library) of express terms that have been successfully deployed to manage complexity in contracts.


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A BURNING PLATFORM – THE BUSINESS CASE TO INVEST IN CHANGE

9 ICCPM Submission to the Productivity Commission Public Inquiry into Public Infrastructure, February 201410 Independent Project Analysis Inc., The Performance of Australian Industrial Projects, Prepared for the Business Council of Australia, 201211 Business Council of Australia, Pipeline or Pipe Dream? Securing Australia’s Investment Future, 201212 IACCM, ‘ROI of Contracting Management, February 2012 cited in IACCM, ‘The Future of Contracting’ 2012

The ICCPM submission to the Australian Productivity Commission9 inquiry into public infrastructure in 2014 proffered the following,

Complex Projects and Programs have been characterised by many sources as “embodying uncertainty, ambiguity, dynamic interfaces and significant political or external influences”. Contemporary research found, worldwide, only 40 per cent of projects were successfully completed on time and to budget with the best organisations outperforming the worst by a factor of 10. The research also emphasised that ’human factors’ such as difficulties in changing attitudes (58 per cent), dysfunctional corporate culture (49 per cent) and lack of support from senior management (32 per cent) were identified as the main barriers to success, with 35 per cent of major projects studied severely underestimating the degree of complexity.

These views continue to be articulated by other organisations, academics and practitioners worldwide.

Similarly, since 2010 the IBM Global CEO study has found that complexity is one of the most significant issues faced by CEOs and Executives in business and governments (globally). It is the issue they feel the least equipped to manage. Each subsequent release of the IBM Global CEO Study reconfirms that issues of complexity remain of significant concern to CEOs. The majority of CEOs surveyed continue to doubt their ability to manage growing issues of complexity. Clearly this has an effect on the bottom line in organisations. It also heralds that a business as usual approach to this issue is not viable and that we need to think and act differently.

Very few organisations rate themselves as excellent in delivering project results. Global surveys show consistently long term issues regarding the high cost of poor performance. The 2004 survey by PwC of over 10000 projects globally showed that only 2.5% were delivered on time, within budget, to scope and delivering the desired strategic benefits. In the same survey 27% of projects delivered 100% of the desired strategic benefits. More recently the PMI Pulse survey demonstrated that just 42 percent of organisations report having high alignment of projects to organisational strategy. This lack of alignment is

discussed as contributing to the failure rate of over 44% of projects to deliver the strategic initiatives. Organisations with high levels of agility or adaptability report more successful projects (69%) however only 15% of organisations demonstrate these levels of agility that deliver improved performance. This suggests that the majority of organisations are not operating with the capability to adapt to shifts in today’s complex market environment and shifts in consumer demands and expectations.

PROJECTS BY THE NUMBERSAustralian projects have a poor performance record with a failure rate of over 75 per cent10. A study commissioned for the Business Council of Australia11 indicates that “Resources projects are 40 per cent more expensive to deliver in Australia than on the United States Gulf Coast” and confirms that “performance in delivering projects, particularly major projects, on time while keeping cost as low as possible will be the key determinant of our competitiveness and our ability to take advantage of the growth in Asia”.

Findings from IACCM studies12 suggest that, on average, corporations worldwide are losing the equivalent of 9.2% of annual revenue through weaknesses in their contracting process. If we assume that corporations may also conservatively be losing a similar amount of revenue from failures in project delivery, the cumulative foregone revenue quickly adds up.

As a demonstration of the significance of how the IACCM leakage statement is exacerbated when considered in conjunction with the potential value erosion from weaknesses in project management execution the following Table proffers potential losses that are quite staggering, yet avoidable.


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Table 1: Effect of value leakage on annual budgets

Budget/Spend Potential loss (9.2%) from contracting

weaknesses

Potential loss (9.2%) from Project

weakness

Potential Total Loss

(Billion) (Billion) (Billion) (Billion)

2016 US DOD Acquisition USD 178 16 16 33

2015 UK MOD Acquisition GBP 166 15 15 31

2016 Aust DOD Acquisition

AUD 14 1 1 3

Worldwide Infrastructure Investment Forecast (McKinsey)

USD 57,000 5,244 5,244 10,488

Worldwide IT Project spend forecast (Gartner market databook)

USD 3,500 322 322 644

Social Policy Initiatives (OECD Data)Budget/Spend Potential value

leakage (9.2%) from contract weaknesses

Potential value leakage (9.2%)

from project management weaknesses

Potential Total Value

Leakage

(Billion) (Billion) (Billion) (Billion)

European Union (2015) Euro 10,128,781 931,848 931,848 1,863,696

UK (2014) (2015 data not available)

GBP 1,829,086 168,276 168,276 336,552

Australia (2015) AUD 1,640,266 150,904 150,904 301,809

Canada (2015) CAN 1,976,196 181,810 181,810 363,620

United States (2015) USD 17,797,265 1,637,348 1,637,348 3,274,697


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Building big infrastructure projects is always risky, but there are ways to improve the odds of a smooth landing. Infrastructure megaprojects are crucial to the future of cities, states, and individual livelihoods. The problem is that these projects often go off the rails, either with regard to budget or time—or both. Table 1 highlights the importance and positioning of Infrastructure in megaprojects across a range of areas.

Big infrastructure projects can be economically transformative. The Panama Canal for example accounts for a significant share of the country’s GDP. Dubai’s international airport is the world’s busiest, accounting for 21% of Dubai’s employment and 27% GDP. The Hong Kong subway system, the MTR is crucial to keeping this high density society moving and hence the productivity high.

All these megaprojects are examples of successful implementation. They are synonymous with their cities and not only are they operating well but they require expansion. The canal and airport projects are both running late and well above the initial budget; even the hyper efficient MTR has run into delays with some of its projects. McKinsey estimates that the world needs to spend approximately $57 trillion on infrastructure by 2030 to enable the anticipated levels of GDP growth globally. Of that, about two-thirds will be required in developing markets, where there are rising middle classes, population growth, urbanization, and increased economic growth. These countries need infrastructure, but all too often many years will pass and the promised road, bridge, and metro projects still will not have materialized. Many cities in Western countries also need major infrastructure to ensure that the impact on productivity is not negatively impacted in an ongoing manner.

Adapted from Megaprojects: The good, the bad and the better By Nicklas Garemo, Stefan Matzinger, and Robert Palter

Retrieved on 14 December 2016 http://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/megaprojects-the-good-the-bad-and-the-better

IT Change and Performance Improvement, two main reasons why projects are implemented. In 73% of cases, projects are used to implement IT Change initiatives (i.e. package implementation, new technologies, major upgrades, outsourcing). Projects are used for Performance Improvement initiatives in 57% of cases, followed by Software Development (49%), New Product Development (45%), Strategy Deployment (43%), Construction (31%) and Research (15%). It is interesting to note that 43% of the companies already use project management as a tool to achieve their business objectives. According to the latest forecast by Gartner Inc; worldwide IT spending, driven by growth in software and IT services revenue is forecast to reach, $3.5 trillion in 2017, up 2.9 percent from 2016s estimated spending of $3.4 trillion. Brexit and the subsequent negotiations is also a driver for the higher levels of growth in the industry. Without the UK figures the global growth would be a modest 0.2%. This highlights the impact of global political issues on projects and their respective industry.

The bright spot for the IT industry has been the software and IT services segments. Software spending is projected to grow 6 percent in 2016, and it will grow another 7.2 percent in 2017 to total $357 billion. IT services spending is on pace to grow 3.9 percent in 2016 to reach $900 billion, and increase 4.8 percent in 2017 to reach $943 billion.

Public social expenditure is worth more than 20% of GDP on average across the OECD. In recent years Canada, Estonia, Germany, Greece, Hungary, Iceland, Ireland and the United Kingdom have experienced substantial declines in social spending as a percent of GDP. However, in most countries social spending remains at historically high levels. Public spending in some emerging economies is below the OECD average, lowest in India and Indonesia. It is highest in Brazil where pensions and health expenditure are important areas of social spending. In an economic downturn, social spending-to-GDP ratios usually increase as public spending goes up to address greater need for social support, while simultaneously economic growth falters.


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Increasingly we recognise that the mismanagement or failure to manage complex endeavours as Systems of Systems will result in failures for a myriad of reasons and from multiple sources. Some of those sources being more recognisable than others such as:

• the high levels of interdependencies and interactions,

• failure to appropriately identify and engage with all parties,

• lack of maturity or experience in the organisation to manage multi-party contracts or relationships,

• failure to execute effective project/program management practice (fundamentals),

• failure to execute effective systems engineering practice,

• failure to establish accurate system boundaries, and

• the lack of organisational capability (internal and external) in the areas of most importance.

As a result, systemic ways of working are required in addition to the conventional standard managed reductionist analytical approaches. This requires a system level way of viewing and acting across the project lifecycle.

2016 ROUNDTABLE PARTICIPANTS SAID:

“Improvement requires investment and support.”

“How do we get decision makers (leaders) to be invested and invest in working the solutions on a sustained basis? Are the appropriate investments being made by Executives?”

“We know the problems we are trying to solve, we have some answers, we know the theory, we know it works (evidence is mounting), why don’t we do it?”

A REVIEWER SAID:

“A fundamental point here is the issue of change – in requirement, technology, solution, policy, social norms etc. All this is exacerbated by the (typical) duration of complex endeavours and by the number, scope and tempo of decision making within the activity. In 2006 I developed a paper on ‘Wicked Problems’ in which I suggested that an 11th attribute of such a characterisation was time (Rittel and Webber having identified 10 attributes of ‘wickedness’) in both duration (which gives opportunity for change) and tempo (which gives opportunity for delay and uncertainty and hence change). The contract therefore should be a framework in which change is accommodated (neither encouraged nor dismissed) and supported through a series of Systems Engineering processes and products such as ‘baselines’ in which all parties are involved, definitions are agreed and information recorded. Such products accurately reflect the known positions at a point in time and allow for considered action towards the next point. I sense that the type of baseline developed for complex endeavours will be much more extensive than the usual suite currently employed and research is probably required in order to determine the most appropriate type/style/construction etc. This is not a reductionist approach to complexity – rather an extension in scope and style of established practice to accommodate broader requirements and goals.”


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PROJECTS THAT ARE COMPLEX

13 https://iccpm.com/sites/default/files/kcfinder/images/Resources/deeble_c_-_pgcs_2015.pdf

The impact of complexity, without a doubt, has a direct correlation to the success or otherwise of an activity/task/project. Figure 1 below shows that the more complex something is the lower the chance of achieving a successful outcome and the more difficult it is to actually define what success may look like. It also attempts to show the different levels of control accessible in the environment. The higher the level of complexity the less control, and certainty is almost never to be achieved, what we hope to achieve is improvement. Consequently, designing a contract for a long term relationship in such environments poses a substantial challenge.

Figure 1: Complexity and Success Scale – Adapted from AVM (Rtd) Chris Deeble, 2015 Project Governance and Controls Symposium Presentation13

As an executive in any organisation, why would it be important to recognise the need to change the way contracting for outcomes in complex environments is achieved?

First and foremost, contracting and project management practitioners agree that organisations seem to fight against complexity, or simply fail to recognise that they are, in fact, operating in much more complex environments than they have previously experienced. Failure to recognise that something is complex requires a different way of operating. This omission comes at significant expense in terms of lost productivity, lost opportunities, increased risk, and incalculable and sometimes intangible human cost. We know that business as usual approaches do not work in complex programs. Organisations however have set themselves up to fail through policies and procedures that are not fit for purpose. For example, private sector Boards or Government officials (Ministers) demand precise budget and

schedule estimates before committing funds. Such an approach is counter-productive; leading to adversarial negotiations and unrealistic expectations.

Practitioners have tended to wait for executives to make the connection between performance and the need for change. To date they have had difficulty articulating what is occurring and why change is necessary. The current focus is on the individual parts of the system and how they behave and therefore how they can be controlled, rather than the interactions of the parts within the system, and maintaining coherence and direction of the system. As a result, it becomes difficult for both practitioners and executives to fully understand and appreciate how the system is actually behaving, making the recognition of emerging issues very difficult if not impossible. A common response to emergence (when it is identified) is to increase the monitoring and control of the parts rather than focusing holistically at a system level.

Complex and Ambiguous EnvironmentRELATIONSHIPS

Cognitive skillsLearn by doing

Innovation

Controlled Environment

relationshipsBest Practice

Proven Repeatable Processes

Controlled EnvironmentSystems Thinking

Better Practice & ProcessesExpert adviceRelationships

Success

Com

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The capability to recognise emergent issues and understand this way of working was identified by roundtable participants to be generally weak from a systemic viewpoint.

Linear and reductionist ways of thinking cannot resolve or make sense of how different elements or components interact when exposed to a number of influences concurrently. Reductionist approaches use the underlying logic that requires us to break down the parts as if their interaction has no impact. The high degree of relational aspects from multiple parties, stakeholders, and owners mean that interactions and interdependencies are of high importance. Hence systemic ways of working and competency in understanding complexity is necessary. It takes skill and experience to see the complexity and recognise that a different way of working may be appropriate for the context of the environment. In the discipline of managing complex projects (previously referred to as Complex Project Management (CPM)) a core tenet is that complex operating contexts need to be worked on with complexity based management approaches that focus on understanding the interdependencies and systemic nature of the situation/project.

Complexity is the realm of “unknown unknowns” and it is the domain to where a lot of modern business operations have shifted. All too often, managers rely on common leadership approaches that work well in one set of circumstances but fall short in others. Good leadership is not a one-size-fits-all proposition. The operating environment of business today has shifted with globalisation and rapid rates of technological advancement however the expectation of leaders and their way of thinking about the world has not kept pace. The unknown unknowns of complexity can be “invisible” to the poorly initiated – without the skills to recognise emergence and understand how to respond the organisation is likely to be highly reactionary to emergent changes. Without some circuit breaker to recognise the underlying cause for these issues leaders will do the same and get the same poor performance and instability. Complexity management skills are not widely distributed in organisations. Consequently, the support of Executives to champion change is often difficult to achieve.

Increasingly monitoring, tracking, and communicating this complexity can be facilitated through Artificial Intelligence (AI) and Data Science (eg: Deep learning models). We are already seeing these tools come on to the

14 Dr Peter Shergold, AC was previously the Secretary of the Department of Prime Minister and Cabinet, he was commissioned 24 December 2014, to undertake an independent review of government processes for implementing large programs and projects, including the roles of ministers and public servants. http://www.apsc.gov.au/publications-and-media/current-publications/learning-from-failure

market. The improved ability to identify patterns, communicate with stakeholders and play out the impact of decisions will impact how we harness systems more effectively. To capitalise on the progress of capability in the technological space the competence of individuals to interpret and use the information must be improved. The skill set required to do this in a highly automated environment is different from the traditional skill set of managers and leaders. The balance of human dynamics with Business Intelligence Analytics (BIA) is important. The future of technology is radically different from its past.

Looking at this through an organisational behaviour lens (what people do in an organisation and how that behaviour affects performance) we can correlate this discussion with two key insights:

(1) the creation of siloed structures and ways of working precludes the actions necessary to achieve the best possible outcomes for the organisations.

(2) organisations tend to invest in what they perceive to be of most value, from a human capability perspective.

Roundtable participants believe that the functions of project management and contract management seem to be much lower on most organisations priority lists than they should be.

Governments for example appear to be hardwired to value policy makers above implementers, a phenomenon visible in public or civil service institutions around the world, yet one that makes no sense. A policy is a great piece of fiction unless it is implemented, in the majority of cases through a project that uses contracts!

In his 2016 report to the Australian Government. Learning from Failure, Dr Peter Shergold14, AC said “The management of uncertainty should sit at the core of public policy design. Major programs, if they are to be fit for purpose, need to be able to achieve intended outcomes even in adverse circumstances, rather than only delivering effectively in benign conditions. That will be more likely if management experience gained from policy implementation is incorporated into design” (p41)


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“Contracting is transactional, with management focusing its attention on legal and procedural compliance. In contrast, commissioning of service delivery undertaken in a flexible way can be transformational: management can direct its attention to performance.” (p66)

With industry and government investing billions of dollars each year in complex programs, improving project delivery through better contract management has the potential to significantly

15 Competency Standards for Complex Project Managers, Special Attribute 10.4 Focused and Courageous

lift productivity, international competitiveness and inter-generational knowledge and wealth transfer. Small changes, addressed later in this paper, simply require executive support to act as a catalyst that will deliver improved outcomes with minimal resource. The associated risk is one of an individual nature and will require competencies of a complex project manager to be executed on a more regular basis. In this instance Courage 15 is a competency of the utmost significance.

2016 ROUNDTABLE PARTICIPANTS SAID:

“Contracts and contract relationships are contact sports- learn from it.”

“Contractual commitments captured in contracts to last across a longer term”

“Low level of comfort with ambiguity from government and shareholders who want the solution known up front”

A REVIEWER SAID:

For many CEOs the financial bottom line and the impact on that caused by failing projects / programs is an all-consuming mania. Many organisations – particularly prime contractors – place very high regard in understanding, maintaining and improving P3M capability. I sense that it is the ‘contract sits with lawyers’ view that needs to be addressed. Again we are moving to a more integrated management approach removing silos of technical expertise and breaking down barriers to success by demanding that whilst information is undoubtedly power, protectionism through jargon is not successful and sharing and combining is the route forward.


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THE CASE FOR CHANGEThere is a general problem that contract models tend to be based on classical legal theory and a standard template mentality. The UK’s NAO concluded that this is ‘because senior management has not taken contract management seriously enough’16. Consequently, contracts have tended to be seen as instruments of administration, control and core asset protection - not really designed to be of practical use to operational staff or ‘users’. Furthermore, where parties attempt to protect their commercial interests at the expense of capability delivery then adverse or deviant behaviours are far more likely to eventuate. In many organisations, there has been limited thought given to an overall ‘contracting process’. The contract simply emerges during a sales or acquisition lifecycle. Given this lack of attention, there has been little focus on ‘fitness for purpose’, or indeed even discussion over what purpose a contract and contracting process should serve. The issue of integration to deliver strategic outcomes for the organisation is rarely an approach to make improvements.

Procurement Case Studies that demonstrate adverse or deviant behaviour are attached at Annex E.

Good contracting17 is often undermined by the incentives created by current management and measurement systems (e.g. profit centres, negotiated savings, and revenue-based commissions). Cooperation, collaboration and strong communication between those preparing and negotiating the contract and those charged with implementation and delivery is in many cases the exception rather than the norm, especially within customer/client organisations.

Existing frameworks, systems and contracts used to procure standard, or simple, business outcomes are thought to be adequate and sufficient to meet the business need in an efficient and effective manner. This paper does not address the entire procurement system, however some roundtable participants and subject matter experts assert that significant value erosion is also evident in the existing system regardless of the existence of complexity. As with all processes they can be improved to optimise results and increase efficiency.

The creation of template and standard form contracts may be suitable and fit for purpose for standard activities that have relative certainty. Recognition must be made as evidenced through the outcomes of the roundtables that they are not fit for purpose nor designed for use in environments

16 https://www.nao.org.uk/contact-us/project-leadership/17 Crosby, P, (2011) Procurement Strategies enabling success in high-technology mega-projects: Preparatory work for the SKA, www.skatelescope.org/

pages_memos.htm

where complexity (i.e. high degree of volatility, uncertainty, unpredictability and emergence) is prevalent. Whilst the situation may be that the environment is already evidently complex, equally there are those in which events transpire to create greatly increased complexity. This can be in the long term or be specific to a situation.

The ability to recognise changing environments is also a skill that is needed and the contract and project managers need mechanisms to respond appropriately. Ideally the existing systems can be enhanced by generating better standard clauses that are designed to help manage across project lifecycles, change and complexity. There is advantage in encouraging the drafter to firstly think more about how issue x, y, or z could arise and how issues might be best dealt with to reduce value erosion and potentially set the contractual relationship on the right path toward the delivery of better outcomes.

More and more we are being asked to work in environments with increasing complexity, procuring goods and services that have a greater degree of complexity than we have ever seen before, with much more aggressive timeframes for access to the capability. It is rare that you will hear a government announce the approval of a project to deliver goods or services much less complex than what they wanted last time. Therefore, given those conditions, we inevitably should be thinking about the contract mechanisms and mindset that will enable us to deliver the most effective outcomes in highly complex environments. In the main we have a range of approaches that support us to recognise when complexity is present and so the potential for improvement is high. The problem arises when we look to our organisations for a suitable mechanism that is fit for purpose for the environment, and we are confronted with a system that fails to provide a suitable set of tools to enable us to do our work and achieve the outcomes required.

It has been recognised that the tools and processes that are needed to work in complex environments are different to those used to deliver complicated projects, Snowdon’s Cynefin framework at Figure 2 below helps us to understand and explicitly describes this. The findings from IACCM and supported by participants during the roundtables indicates that this is also true for the commercial/contracting function for a complex outcome.


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A Leader’s Framework for Decision Making

Simple – Known• Best practice applied• Clear cause & effect• One obvious solution• Repeating patterns

Complicated – Knowable• Good practice applied• Cause & effect discoverable• More than one right solution• Expert diagnosis required

Complex - Retrospectively knowable• Emergent practices required• Cause & effect understood retrospectively• No clear solution with competing ideas• Collaborative learning and adaptation

Chaotic – Incoherent• High turbulence• No clear cause & effect• Unknowables• Many decisions to make – no time to think

Decision-Approach Framework

sense-categorise-respond

sense-analyse-respondprobe-sense-respond

act-sense-respond

Emergent practices Good practices

Novel practices Best practices

Management by Intuition

Management by Fact

Pattern-based Leadership

Hero Leadership

Figure 2 – Adapted from Snowdon and Boone’s Cynefin Framework

In general, executives are required to be able to point to a metric like return on investment (ROI) or Triple Bottom Line results to agree that some form of change is necessary. Very few, particularly in larger organisations or institutions will embark upon change based on other significant insight without predicable or certain results being guaranteed. Based on that need, the case for change is demonstrated previously in Table 1 and by IACCM in multiple publications. Research has demonstrated the consequences of poor contract management and the subsequent erosion of value to the organisation. These findings are similar for research related to poor portfolio, program and project management execution. The consequences and impact become exponential when both are executed poorly or are not fit for purpose. This is generally the case for failed or failing complex projects. Conversely, the evidence shows that self-aware organisations that do ‘get it’, embed the necessary thinking, decision-making and behaviours in their organisations and reap the 10% productivity gains mentioned previously. Furthermore, these organisations gain competitive advantages with sustainable contracts and the ability to foster more meaningful strategic relationships with suppliers and customers.

Research evidence points to the importance of the contract and underlying commercial judgment in the successful delivery of major projects. The evidence further points to a lack of attention and investment by many organisations in their embedded contract and commercial capabilities. The leaders of the Heathrow Terminal 5 project in the case study at Annex F demonstrated the importance of the contract and underlying commercial judgements in the successful delivery of major projects, particularly applying commercial judgement in regard to the holding, sharing and management of risk.

At an organisational level, to contract most effectively for goods and services in complex environments, the following is needed:

• Neutral, objective data that informs decision making. The adversarial nature of the relationships is frequently born of a conflict of ‘opinion” or ”position” rather than a rational understanding of facts.

• Recognition and a commitment to a “joined up” approach between Project Management and Contract Management functions. These two functions must be fully integrated in a complex environment. Holistic approaches on a best for organisation basis.


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• Better skills and time spent on examining the systemic and emerging issues of the project during the initiation phase. This involves confronting the varied goals that different parties inherently will hold in addition to the goal of project delivery. Success will look like different things to different parties and this needs to be factored in to create shared understanding of the situation and impacts on decision-making. Complex projects often have challenging or vague descriptions of scope, so any time spent in joint sense making is well spent in advance.

• Recognition that “one size does not fit all” and there is no “right answer”. In complex environments there are multiple ways to contract and organisations must be able to access them and, be prepared and willing to change mechanisms whilst the contract (project) is being executed to match the changing environment, actions that may or may not result in a change to the resource profile.

• A shift from adversarial/transactional approaches to collaborative contracting methods and models.

The following points have been identified as being of significant importance for leaders in the current and more importantly future environment:

• The rate of change and number of disruptive events are accelerating and are not likely to settle. “The only real certainty in a complex program is that change is inevitable”.

• There are more stakeholders that have multiple dimensions/agendas.

• As individual stakeholders rise in prominence they drive change. The prominence of each stakeholder shifts over the course of the project and therefore the contract needs to be flexible to account for such movement.

• The use of collaborative technology and solutions is increasing, maturing and becoming more available. Business Information Analytics is critical to creating informed conversations.

• Virtual Reality environments will also play a significant role in facilitating exchanges. The future is upon us.

• Workers are now expected to function globally and locally simultaneously and comfortably.

• The human elements (relationships) are more important and should have more prominence than the Legal Express Terms.

ROUNDTABLE PARTICIPANTS SAID:

“complex contracting is not for the faint of heart. In complex contracting, it is not “if” things go wrong, it is “when” things go wrong”

“Contacts must adequately address the “known unknowns”- anticipated problems”


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RECOMMENDATIONS

• Executives must be encouraged to participate in education, talent management and mentoring programs to better understand complexity and the effect it has on business performance.

• The ability to manage in complex environments must be a core capability for all executives.

• Executives must commit to and support staff to attend education programs that are designed to increase future leader’s capability to operate in complex environments and the effect complexity has on business performance (positive and negative).

• Organisations must differentiate programs and projects based on levels of complexity before considering contracting mechanisms to aid executives in understand when different contracting is required.

• Selection for appointments or promotions must be based on criteria that values Systems Thinking and understanding complexity as well as demonstrating the ability to manage relationships, interdependencies, multidisciplinary teams and whole system performance, and to include the use of selection panels that similarly understands these attributes.

• Share knowledge and build a ‘knowledge base’ to share within the community.

• Increase awareness and courage to experiment with technological tools that support modelling, interpretation, data analysis, real time decision making, with AI (deep learning) capacity being critical going forward. As the emergence of AI solutions (deep learning) targeting complexity management increases, the human capacity to interpret and manage complexity will also increase.


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The benefits logic map below has been developed to to assist leaders and managers to make the case for change.

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COMPETENCY TO LEAD COMPLEX CONTRACTS

ESSENTIAL LEADERSHIP CAPABILITY

18 https://www.anao.gov.au/sites/g/files/net616/f/2014_ANAO%20-%20BPG%20Public%20Sector%20Governance.pdf19 https://www.nao.org.uk/contact-us/project-leadership/

The literature and roundtable discussions clearly demonstrate that effective leadership is vital for project success. The views about the limitations of traditional contracts for complex endeavours were reflected in the assessment of the limitations of traditional leadership styles. Traditional leadership models tend to promote transactional views, aiming to follow the process, and focus on managing the letter of the contract, rather than the business acumen necessary to drive the relationships to deliver the capability or outcomes.

Traditional forms of leadership may have been successful for traditional/complicated (transactional) projects where the leader is expected to drive decision-making and deliver outputs. A different style is needed to cope with the risks and emergence associated with complex endeavours.

Good leadership is the most important competency of both a Project and Contract Manager. It is through leadership that we craft and drive visions, effectively engage with stakeholders, and motivate our teams. In the domain of complex projects, the importance of leadership cannot be understated. Leadership is necessary to deal with emergence, change management, maintain strategic outcomes focus, and work with multiple stakeholders to name just some of the many challenges for complex projects. Leadership is also necessary to establish positive behaviours of the organisation as observed by the Australian National Audit Office (ANAO) Better Practice Guide on Public Sector Governance18:

“Leadership sets the ‘tone at the top’, and is absolutely critical to achieving an organisation-wide commitment to good governance.”

In the domain of relationship management and fostering collaboration, leadership is also of paramount importance as observed by the UK National Audit Office (NAO19):

“Every case study ranked leadership as the most important factor in developing collaborative relationships.”

Leadership alone will not ensure project success; however, an absence of effective leadership will invariably lead to failure. Consider the following comment from the Director of the UK National Health System Information technology program:

“Managing the NHS IT suppliers is like running a team of huskies. When one of the dogs goes lame, it is shot. It is then chopped up and fed to the other dogs. The survivors work harder, not only because they have had a meal, but also because they have seen what will happen should they themselves go lame.”

Unsurprisingly, this leadership style created enormous tension with suppliers and contributed to program failure.

The desired leadership style for complexity is one that balances technical hard skills with human soft skills, and is one that is focussed on building strong and productive relationships through excellent communication. An appropriate leader for a complex environment is one who enables the success of their team by setting the right values and culture, delegating as appropriate, and adapting their leadership style to the current context through situational awareness.

There are challenges associated with developing talent to acquire these traits and behaviours. The issue of organisational maturity and the need to create supportive talent development programs, training, and career pathways are imperative. The organisation must be aware and plan for the growth and development of individual capabilities throughout the lifecycle of the project/contract.

How does a team develop to become an “A-team” in an ever-changing environment? We know that across the project lifecycle (Initiate, Plan, Execute, Monitor, Close) different project skill sets and leadership capabilities are required, and we actively encourage the changing of project staff to meet the changing conditions. However, there has been little or no research or consideration in regard to the skill set and capability of a Contract Manager across the project/contract lifecycle, particularly, when the project becomes more complex as it progresses. This lack of understanding gives the impression that nothing changes in the contract management space over time. We know that not to be true in a complex environment i.e linear (reductionist) approaches do not deal well with non-linear (emergent) problems.


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INDIVIDUAL AND TEAM COMPETENCIESRoundtable participants recognised that a different set of skills and competencies are required for commercial and contract practitioners at the individual and team level to contribute effectively in complex environments.

Competencies identified to manage contracts in complex environments consistently across all jurisdictions are listed in Table 2 below.

Table 2 - Individual and Team Competencies to Manage Contracts in Complex Environments

Individual Competence Team Competence

Technical knowledge and experience i.e. IP, T&C, Liabilities, Indemnities, Warranties, Negotiations contracting models including relational models, legislation, regulations, mediation, arbitration)

Balanced team with hard (technical) and soft (people) skills

Strategic and Systems Thinking (understanding context)

Strategic and Systems Thinking (understanding context)

Complexity Awareness (ability to manage the unpredictable and uncertain)

Complexity Awareness (ability to manage the unpredictable and uncertain)

Critical Thinking (including lateral thinking) Critical Thinking (including lateral thinking)

Analytical Collaborative

Relationship management (ability to influence) Relationship management (ability to influence)

Integrative bargaining (Win/Win) Integrative bargaining (Win/Win)

Interpersonal (Communications, observation, listening, reading people, interacting, manage conflict)

Flexibility/Agility

Leadership (authentic) Creativity

Courage to challenge Best for project orientation

Emotional Intelligence Diversity in team

Resilience Cooperative

Judgement Change and Transformation

Empathy Trust

Change and Transformation Respect

Creativity Positive interactions

Cultural Awareness Strategic alignment

Action orientation Strong Governance

Outcome focus Learning orientation

Value diversity Strong Collaborative Leadership

Awareness Level of other disciplines Interrelationships/interactions to enable productive conversations

Learning orientation Strong communication mechanisms including effective feedback loops

Collaboration Knowledge Management


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Although IACCM have a number of initiatives that recognise individuals as experts in their field, and the organisational maturity model and assessment focuses on processes, there are, as yet, no agreed set of competencies for commercial/contract practitioners at an individual level. The lack of a competency framework creates the perception that any Commercial or Contract Manager is capable of working on any contract regardless of the complexity of the project. This is a misguided perception that may have significant ramifications for the organisation as well as the individual.

Similarly, it became evident, through the roundtable discussions, that an agreed definition of commercial/contract management is fundamentally needed if the function is to truly be considered a profession.

A number of institutional challenges were identified by participants including:

• Poorly defined individual KPIs that do not promote desired behaviours;

• Ineffective accountability approaches and lack of collaboration, even within organisations, limits the capacity to adapt, as the necessary information and authority to make strategic level decisions is not supported by the way of working.

• Leadership is defined in a singular locale rather than enabling effective decision making in adaptive environments. We have long established models based on cybernetics (feedback systems and learning) that are effective and can be more widely used to enable better outcomes. It will require cultural change to make it effective – the models are well developed to create adaptive organisations;

• Contract practices (e.g. service level agreements) are a comfortable context that provide disincentives for individuals to change;

• Asymmetry between the private and public sectors:

- the private sector has strong incentives, some of which drive inappropriate behaviours (for example salespeople are driven to maximise revenues with no consideration of impact)

- the public sector has weaker incentives which tolerate poorer behaviours

• Contract management is separated from the business: Project Managers don’t see the contract and they don’t get to see the opportunities that are in the contract for strategic partnerships in order to invest in the business for the future

• Leaders need to create the right environment, show diversity in the reward system, a fair process and a fair system, not show favour. The rewards need to be meaningful and linked to the human resource system.

RECOMMENDATIONS• Develop individual competency standards for Contract Managers aligned to complexity

characteristics including progression for talent development aligned to agreed and relevant competency standards.

• Organisational maturity & individual competencies to be integrated and mandated when working in a complex environment.

• Executives must be educated and experienced to recognise when an endeavour is complex and apply appropriate techniques and contracting mechanisms to enable the management of the complexity within the bounds of the contract.

• Assess KPIs and develop appropriate measures that reward the necessary and desired behaviours specific to the needs of the project/contract.

• Integrate contract management into the project and develop shared understanding from inception to closure.


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ORGANISATIONAL MATURITY TO COPE WITH COMPLEXITY

20 Cooke-Davies, T. J., & Arzymanowc, A. (2003). The maturity of project management in different industries: An investigation into variations between project management models. International Journal of Project Management, 21, 471–478.

It was argued by participants that contract and project management in complex environments should be seen predominantly through a change management lens. Contracts, objectives, teams, governance, KPIs, etc. should be designed pre-emptive of the need to change. This requires organisational maturity from the client as well as the contractor. Tools to measure the degree of maturity already exist in some areas, but more integrated tools and models are required.

Challenges associated with vertical silos and horizontal barriers common in organisations were acknowledged across all jurisdictions as deficiencies that needed to be addressed to enable success including:

• decisions escalated to levels where decision-makers no longer had the appropriate knowledge to make informed choices,

• insufficient collaboration between functions,

• rigid governance that precludes adaptation and responsiveness,

• punitive environments driving risk-averse behaviours and precluding innovation and learning, and

• poor communications.

ROUNDTABLE PARTICIPANTS SAID:

“Legal boxes, environmental boxes cause inefficiencies and a box checking mentality”

“Failure sometimes is valuable as it can create opportunity - Need a more permissive environment to take risks and make mistakes”.

In many, if not most organisations, Project Management and Contract Management continue to hold low status as compared to other functions. The roles are not considered to be ‘strategic’ and are not treated as if they could or should be. This is an organisational weakness that requires cultural change. The elevation of the functions of project and contract management in delivering strategic business outcomes is of paramount importance to driving better strategic performance in organisations. This is a fundamental shift in thinking that needs to change across organisations, especially at the senior executive leadership level. Unless leaders realise the consequences of

contracts in relation to the delivery of their projects and to the strategic outcomes of the organisation, the current situation will perpetuate or worsen. One thing is certain; it will not and cannot get better unless these fundamental changes are made.

Contract and Project Managers must be given the legitimacy to lead integrated cross-functional teams from the outset to be able to drive outcomes and the required changes to respond to emergent conditions and risk.

An organisational culture and structure (including KPIs) that promote appropriate levels of risk taking (rather than promoting risk avoidance), balanced by healthy organisational learning is a key enabler for the delivery of successful outcomes. This should be supported by an appropriately designed information system to track the right information, looking back at performance, identifying early warning signs, and considering the future through business modelling and simulations. Additionally, it needs to be supported by systemic ways of thinking and making sense of situations, so the managers can manage more effectively in the complex working environment. Managers must be challenged, encouraged and rewarded for extending their thinking and understanding of what is required and how to take a broader, more holistic perspective on what and how they are managing in complex environments.

MATURITY MODELLING Project and contract management maturity models provide a framework to specify an organisation’s competencies. The general premise is that organisations with higher maturity levels are expected to be successful in terms of project effectiveness and efficiency and also have a competitive advantage in the marketplace.20

The maturity concept is increasingly used to map logical ways to improve an organisation’s services and performance. Originally the maturity concept was developed in the software engineering industry to help improve the predictability of results. Significant government funded research into how to evolve and measure an organisation’s effectiveness at developing software resulted in the Software Engineering Institute’s first Capability Maturity Model (SEI CMM). However, we can see


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that using this model to deliver repeatable results is challenging. Obtaining consistent results in project or contract management requires understanding and measuring as many variables as in software engineering. Whilst we may see the single hero Project Manager rise above and beyond to deliver things over the line - this is not a reliable way to deliver successful outcomes.

IACCM CAPABILITY MATURITY MODELIACCM’s approach to Capability Maturity Modelling in the contracting process is designed to support the strategic goals, objectives and drive change in organisations involved in procurement and contracting activities. In today’s fast-moving business environment, contracts and the contracting process must be adaptive, promoting the policies and practices that ensure competitiveness and increase margins. IACCM’s philosophy is clear in the view that contracts are a core asset and therefore the contracting process must also be considered an asset rather than an expensive, non-value added liability and must always drive better business performance.

The Capability Maturity Assessment reconciles the process with business goals and identifies priorities in closing gaps. It offers benchmarked evaluation so that you know the exact size and potential cost of those gaps – or the extent to which you have built competitive edge.

The model uses the following factors to assess capability:

• Leadership – Executive exposure to the concept of commitment management.

• Customer Vendor Experience – Plan and track business relationships.

• Execution & Delivery – Strong focused on results metrics only.

• Solution Requirements Management – Management & segmentation of product/service categories.

• Financial – Link T&Cs to price and cost analysis, as part of strategic review.

• Information Systems / Knowledge Management – use of automation to capture and manage contract and relationship performance.

• Risk Management – implementation of risk management and its impact on business practices.

• Strategy – Policy formation for robust, systemized mapping of strategic and operational goals.

21 Christoph, A.J. & Konrad, S. (2014) Project complexity as an influence factor on the balance of costs and benefits in project management maturity

• People Development – Closing skills gaps and development of team members as trusted advisors.

PROJECT MANAGEMENT MATURITY MODELS (PM3S)There are estimated to be about 30 Project Management maturity models. Most have similarities in their structure and content, inspired by the SEI CMM. Most of the PM3s are based on the concept that organisations advance through a series of five stages to maturity:

1. awareness,

2. repeatable,

3. defined,

4. managed, and

5. optimised (where five represent the highest level).

These five levels define an ordinal scale for measuring the maturity of an organisation’s process and for evaluating its process capability. The logical nature of the levels is designed to help an organisation prioritise its improvement efforts.

The maturity levels are used to assess 7 PM processes:

• Project and Work Management,

• Process Management,

• Supporting Infrastructure,

• People Management,

• Product Engineering and Development,

• Service Delivery and Management,

• Supplier Management, and

• Data Management.

The structures of organisations operating at a low maturity level are rather informal and not well (or not at all) documented, while the structures of organisations operating at higher maturity levels tend to be more formal. The idea of a ‘fit’ between control and flexibility is central. At some point, however, this kind of structure tends to result in fewer benefits and even produce unfavourable effects. This is labelled the ‘inflection point’ in the context of standardisation of project and contract management structures21. The complexity of the operating environment influences the degree to which the level of bureaucracy in the organisation is helpful or limiting.


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PROJECT COMPLEXITY AS AN INFLUENCE FACTOR ON THE BALANCE OF COSTS AND BENEFITS IN PROJECT MANAGEMENT MATURITY MODELLINGChristoph and Konrad case study22 examined the maturity level of three organisations from the automotive and energy industries. Examination of the maturity levels were made as well as qualitative interviews about the influence of complexity on costs and benefit in project management maturity modelling.

Table 3 - Demographic data on three cases of Christoph and Konrad23

Characteristics Case I (A1) Case 2 (E) Case 3 (A2)

Branch Automotive Energy Automotive

Position in value chain 1st tier supplier Plant engineering company

2nd tier supplier

Unit of analysis Org unit part of a larger company

Org unit part of a larger company

Org unit part of a larger company

Type of Projects Product development (component)

Investment (power plant) Product development (component)

Technological uncertainty

Medium tech Medium tech Medium tech

Turnover >Euro 50 m >Euro 50 m >Euro 2 m

Number of employees >250 >250 50

Demographic data on three cases of Christoph and Konrad24

modelling. Procedia Social and Behavioural Sciences 119:162-171. 22 ibid 23 ibid24 ibid25 ibid

Figure 4 - Maturity Levels of the three cases (A1 and A2 Automotive and Energy Sectors with PjM325

The interview data supports the proposition that there is no ideal level of maturity. Although the technological uncertainty for each of the projects was comparatively low the circumstantial aspects of the projects had significant differences and impacts. The complexity of an organisation’s projects was identified a possible determining factor, as several statements from the interviewees pointed in that direction. The larger the project, the larger the number of stakeholders resulted in greater complexity. Longer shared working history of the team and co-location decreased the complexity and need for formalisation.


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The aspects of complexity that were identified in the cases are the following:

• Size of project team

• Common working history of project team

• Geographical dispersion of project team

• Overall company’ s size

• Number of company-internal departments/ units involved in the project

• Number of company-external stakeholders involved

• Geographical distance to project’ s client

• Common working history of company and/or project manager with project’s client

• (Change in) technological uncertainty (certain project as compared to average degree in projects of that organisation)

• Application in the organisation

The ideal level of maturity for an organisation is widely regarded, bearing in mind that maturing the organisation comes at a cost. Striving to increase the maturity level just for the sake of having a higher level is unwise. It is more important to identify the specific actions to be implemented to move the organisation forward, to have a vision and improve the capability of PM with targeted efforts.

The first study to find a direct correlation between performance and project maturity is a research report titled “Project Management Maturity: A Benchmark of Current Best Practices,” based on a study conducted by PM Solutions Research (formerly the Centre for Business Practices). It showed that improving an organisation’s level of project management maturity results in significant performance benefits, especially in customer satisfaction. Crawford highlights that in reaching the desired maturity level, the organisation will have adopted and adapted its culture to be more able to deliver projects26.

A complementary view from Skulmoski on organisational project maturity is to see it as the organisation’s receptivity to project management27. A framework is advocated that knits together competence and maturity to increase project success. This view extends project maturity from focusing predominantly on action. Competence is considered to be a combination of related knowledge, skills, and attitudes that influences performances.

26 Crawford, K.J. (2014) Project Management Maturity Model, Third Edition Auerbach Publications27 Skulmoski G. (2001) Project maturity and competence interface. Cost Engineering 43(6):11–18.

Maturity Modelling is a key program activity to be constantly refreshed (baselined) as the development progresses. It could be an instrumental part of establishing the contract at the start of the endeavour. An important issue for the practitioner in gaining benefit and strategic advantage of this effort to assess maturity is to be clear about what is being measured and purpose for doing so. The maturity of the contract and the project will have different parameters however the approach and attitude to performing this assessment should be integrated and consistent. For example, the conventional parameters (as shown in Figure 4) would be combined with a complexity measurement tool and the information derived from the two models could inform a scoping study prior to contract award. Further this could inform supplier selection and be the initial basis for organisational learning and development.

Additionally, the maturity model is a key tool in developing processes within the organisation and also for selecting suppliers. It helps to make transparent the baseline of processes and competencies across organisations and help to build understanding and cooperation. As discussed, this is likely to change over time and is the basis for ongoing discussion about performance and ways of working together effectively. A precondition to the introduction of a Maturity Model is a long term perspective in developing competence and skills. This may be within as well as between organisations. Management commitment and the use of a standardised PM3 have been major strengths in the maturity assessment so far. It can assist in communication to organisational executives who commonly have little formal training in project and contract management. A cultural shift is required to support PM and CM integration. This needs to be led from and have fundamental buy-in at the top of the organisation.


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LIMITATIONS OF MATURITY MODELSA literature review by Jugdev and Thomas28 summarises some major criticism of PM3s:

• The models are inflexible when a flexible model is required for managing change and improvements;

• The models are typically geared toward identifying problems and raising awareness but not solving problems;

• The models do not account for the rapid pace of change with which firms adopt new technology and change processes, practices, management systems, or policies;

• The model’s five maturity levels do not offer enough deep level of details to measure progress over time;

28 Jugdev, K., & Thomas, J. (2002). Project management maturity models: the silver bullets of competitive advantage? Project Management Journal, 33(4), 4-14.

29 Cooke-Davies, T. J., & Arzymanowc, A. (2003). The maturity of project management in different industries: An investigation into variations between project management models. International Journal of Project Management, 21, 471–478.

30 Pretorius, S. Steyn, H. & Jordaan, J.C. (2012). Project management maturity and project management success in the engineering and construction industries in Southern Africa. South African Journal of Industrial Engineering, 23 (3), 1-12.

31 Grant, K. P. & Pennypacker, J.S. (2006). Project management maturity: an assessment of project management capabilities among and between selected industries. IEEE Transactions on Engineering Management, 53(1), 59-68.

• The models are overly disciplinary, impractical, and overwhelming as methodologies;

• The models focus on the work processes and some ignore the human resource or organisational aspects; and

• The models have some limitations from a theoretical perspective as they are based on software maturity models that lack a theoretical basis.

Experiences using PM3s in project-intensive organisations are lacking, i.e. how to improve their way of PM based on maturity assessment results. Most studies of PM3s are based on overall surveys, assessment of PM maturity in petrochemical and defence industries29, construction and engineering companies30, and in a review by Grant and Pennypacker31 of PM maturity levels among four major industries: professional, scientific and technical services; information; finance and insurance; and manufacturing.

RECOMMENDATIONS• Recognise and elevate the fundamental importance of the functions of project and contract

management in delivering strategic business outcomes.

• Longitudinal research to monitor the evolution of CM and PM maturity – research must focus on increasing the understanding of PM and CM maturity and the development of real-world case studies reporting how an organisation actually derives benefit from the application of maturity models.

• Develop a robust and truly holistic Organisational Maturity Model fit for purpose for contracting in complex environments integrating project management and contract management maturity.

• Contract and Project Managers must be given the legitimacy to lead integrated cross functional teams.

• Enable and develop capability of contract and project managers to lead and work effectively in integrated cross functional teams necessary to be successful in complex environments.

• Develop the appropriate organisational culture characteristics and structures (including KPIs) that promotes appropriate levels of risk taking (rather than promoting risk avoidance), balanced by healthy organisational learning, and resulting ultimately in more successful delivery capability for complex projects.


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ADDRESSING RISK FROM A SYSTEMS PERSPECTIVE

32 Australian Risk Policy Institute (2012) The Risk Policy Model - New Thinking, New Approaches and New Frameworks about Leadership, Decision-Making, Public Policy and Risk available from http://arpi.org.au/wp-content/uploads/sites/3/2013/12/Risk-Policy-Model_2012_-New-Thinking.pdf

In complex endeavours the risks associated with the delivery and its successful completion, such as avoiding a lack of outcomes / benefits / acceptance, affects all parties, not just the customer or supplier, across a range of perspectives including financial, reputational, sustainability etc.

The issue of the allocation of risk between client and contractor/s was discussed frequently during all roundtables. Often, in an effort to protect the interests of shareholders and stakeholders, the customer seeks to pass on or transfer all (or as much as possible) risk to the contractor, and is prepared to pay a premium for that right.

Roundtable participants recognised that risk and the approaches to managing risk are a significant challenge in complex environments. Current contracting practice leads us to seek to transfer risk away from our organisation as much as possible. Risk is not considered at the whole of system level and it is uncommon for all parties to build the risk profile and manage risk collaboratively.

A ROUNDTABLE PARTICIPANT SAID:

If either side has to be “taught a lesson”, you are doomed. This relates to the importance of “polarity management” as a key ingredient to reconcile apparent divergent stakeholder interests. It is not “either yours or mine, and I relish winning”, but “yours AND mine, what is in it for “WE”. In the session, it was referred to as a shared allegiance - also known as sustainably aligned and mutually supported goals. It is also about the golden rule of relationships: NO HARM, by embracing (1) no blame, (2) no secrets, and (3) no surprises

APPLICATION OF RISK POLICYRoundtable participants voiced their collective concern and frustration in regard to the current approach to risk and risk management in complex environments, in particular the lack of any appetite to hold risk. Participants raised issues of increased risk exposure by the necessity to move toward more collaborative and integrated approaches to contract and project management in order to manage complexity in organisations that were already risk averse and unlikely to increase their appetite for risk, hence the push to transfer as much risk as possible through contracts. In the majority of cases the interpretation of how to address risk is left up to the Sponsor, Project Manager and/or Contract Manager through in some cases some overarching guidance from the organisation. Issues arise when the organisation has never considered nor communicated what an appropriate position on risk (in the complex environment) should look like.

The Australian Risk Policy Institute (ARPI) as a global leader in the consideration of risk from a business and policy perspective looked at this problem holistically and developed a “Risk Policy Model”32. Risk policy seeks to challenge leaders in organisations to think about risk significantly differently from what has been done in the past. Firstly, by requiring the organisations to consider risk well in advance of engaging in specific business be that via projects, contracts or any other arrangements and clearly establishing what the organisation is vulnerable to, be that market forces, fluctuations in the financial markets, government decisions, competition, unions, workforce issues, technological advancement, disrupters etc and deciding what their risk appetite is. This is also influenced directly by their ability to protect against those identified vulnerabilities. Secondly, to promulgate and educate on the application of the agreed risk policy position.


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ARPIs Risk Policy has at its core twelve risk policy principles:

1. We must view risk differently and more broadly as being about future impacts, implications and implementation of decisions and non-decisions – and not just about something which might go wrong;

2. Risk must connect with, inform and be an integral component of our highest levels of Leadership, Decision-Making and Public Policy Formulation and Implementation in society, and this must be achieved through introducing Risk Policy;

3. Risk Policy must be accepted as a new leadership and management concept which authorises, informs and accounts for Risk through Risk Governance and Risk Management processes;

4. Our thinking about Risk and Opportunity has to shift from organisation-centric to network-centric thinking and acting – both internally and externally - in the new world of globalisation and instant relationships – reflecting our interconnectedness and interdependencies;

5. The proper starting point from today and into the future is to think about ‘vulnerability’ – well before risks may be identified or considered;

6. We must think critically about whole systems and this means not only appreciating their socio-technical and network natures. We need to understand more fundamentally that systems represent deeper, established patterns of thought about how to see the world and make sense of it;

7. Systemic risk must be recognised as a new form of risk in today’s world. It is often the source of so-called ‘wicked’ problems. New processes must be established to manage systemic risks, with multiple owners and multiple managers often in separate organisations, through collaboration;

8. We therefore need a new way of thinking about ourselves and our proper relations to each other in regard to our systems and Systemic Risk. One way to bring this new thinking into reality involves a ‘New Civics’;

9. In our thinking about and acting upon Risk, we must embrace ‘time’. Our strategic choices about the nature and extent of possible consequences of Risk, and what action we can and should take to deal with Risk, may be directly related to the time provided by early warning and a clear understanding at what point in time a particular Risk applies;

10. We must focus on ‘outcomes’. Decisions are not outcomes: decisions require action to become outcomes. Our most important outcome is protecting critical systems from future failures, which can spread like a contagion and potentially cause catastrophic damage to any other systems connected to them;

11. We have to ‘measure our risks’ in terms of the magnitude of the consequences if we fail to avert some threat, not in terms of the probability of the consequences, or the chance that it might not happen. Our vulnerability, not probability, has to define our Risk; and

12. The power of government to regulate and co-regulate also implies an obligation that it be responsible and responsive. While government might not always succeed, the virtue is to try and say we have done our best.

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ADVANCED RISK MANAGEMENT APPROACHESMoving to a more collaborative and integrated system will require the use of different risk management techniques and approaches. As has been mentioned previously the application of a different way of thinking will provide greater insight and support for decision making, this is also true in the risk management space.

Systemic Risk Management is an applied systems thinking approach to the management of risk in complex environments. It acknowledges that many of the most important risks to success are complex, intangible, interrelated, systemic and emergent. Rather than identifying risks and managing risks one at time, Systemic Risk Management approaches seek to understand all risks at the same time and to find optimised, effective system interventions that deal with risk as a whole. Doing this work in real-time is a major challenge. Leaders need practical tools for finding and investigating the dynamics of complex, interrelated risks and for identifying effective systemic responses.

All project contract environments are inherently complex systems where risks impacting on one party are likely to have flow-on implications, subtle or otherwise, on the other. In this context, the idea of risk transfer through the contract mechanisms becomes problematic especially in large more-complex projects. While one party or the other may seem to be carrying a risk, when this is reviewed from a whole-project-system perspective there are inevitably implications for both parties over time. Systemic Risk Management, applied across a project contract system as a whole, enables risk management conversations that are not limited to one party or the other. It can also recognise and work on risks that emerge not from one party or the other, but from the system as a whole. For this to be effective, the relationship(s) between the contract parties must be collaborative, seeking win-win outcomes.

RECOMMENDATIONS

• Organisations must determine their “Risk Policy” position.

• Risk policy positions should be included in RFT documentation and required for assessment in responses.

• Develop a global repository/library of risks and responses as a knowledge bank to access, that articulates what the risk was, why was it considered a risk, what was done about it and advice on how an appropriate clause could be drafted to address the risk.

• For complex projects, traditional process-based risk management methods must be replaced by systemic risk management approaches, using applied systems thinking to manage risk(s) across whole project systems and seeking to achieve win-win outcomes for all parties.


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GOVERNANCE IN COMPLEX ENVIRONMENTS

33 K. Remington (2011), Leading Complex Projects, Gower Publishing, Surry UK

The governance arrangements necessary to manage in complex environments must also reflect and be able to manage the level of uncertainty, ambiguity and change that inevitably exists. Currently governance structures are extremely static, inflexible, slow and burdensome. Governance in complex environments must reflect and be capable of coping with dynamic and constantly changing situations.

Kaye Remington has identified a number of assumptions33 in traditional governance models that must be challenged when considering and designing a governance framework suitable for a complex environment:

• A single point of accountability for the project can actually be defined.

• It is possible for people governing the project to have a clear idea of what is truly happening at project level at any one point in time.

• Decision-making is thorough and systemic rather than reactionary.

• People governing the project are able to define realistic success criteria.

• An atmosphere of co-operative problem-solving and learning will be inculcated at all levels of the project.

• The people governing the project are able to put aside their own vested interests in favour of the success of the project.

• Key executive stakeholders are managed successfully throughout the project.

• Key executive stakeholders understand that the project is complex and what contributes to the complexity.

• Decision-making by the governance team is mediated by external, impartial, multi-disciplinary advice.

• Transparency and accountability prevails.

• Governing executives respect and consider cultural differences.

• Disputes can be resolved on the basis of internationally acceptable dispute resolution frameworks.

These assumptions and the design of the system in response to addressing the assumptions is an excellent starting point when developing appropriate governance arrangements.

–“is there an app for that?” Answer: No

Technology is a key enabler to more flexible governance of contracts and projects, making information available to empowered managers so they can make decisions when necessary, and provide accurate just-in-time reporting. It is noted that dashboards and models may provide good summaries of the status of contracts and projects, but they must be complemented by more nuanced, qualitative communications that articulate how smoothly, or otherwise, projects are being delivered to provide the appropriate information for leaders to make sense of issues. An over reliance on technology will not support better decision making in complex environments as the need to understand human behaviour in a complex environment is critical. Technology, or big data, is getting much more capable of identifying patterns as they are occurring however it cannot necessarily make sense of the data.

We must adopt systemic thinking approaches to make effective decisions. Technology is important in developing and providing decision support tools, not the making of decisions per se. Decision making in complex environments requires greater discernment and judgement about the situation that will always be unique, this cannot be replicated by a technical algorithm. It is not an either or approach – rather we advocate an “AND” approach of using technology appropriately.

A REVIEWER SAID:

If it has been observed that tech and big data cannot make sense of the patterns, it would seem more likely than not that the blame falls with the representation of the data rather than with a fundamental limit on the performance of big data methodologies. For example: a business may have collected high quality data that could lead to actionable conclusions about their project, but be unable to actually see or observe the trends that exist in their data because of a flawed data representation strategy. There are data scientists who can allow you to check to see if this is the problem you are facing.

The skill set required to do this in a highly automated environment is quite different from the traditional skill set of managers and leaders. The balance of human dynamics with BIA is important. The future of technology is radically different from its past. It is quickly becoming a human capacity exponentiator.


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It is accepted that there are also limitations to agile forms of contracting. For example, without the appropriate KPIs and governance, the “Jelly Triangle” of complex contracts where specifications, schedule, and cost are subject to revisions due to “unknown unknowns”, may lead to situations where “agile” may mean “cost plus materials” and incentives for the contractor to deliver outcomes in an efficient way are diluted. Balance and appropriate use is the key, if the endeavour isn’t complex then traditional and existing contracting mechanisms should be maintained.

The greatest barrier may be industry’s’ reluctance to embark on a commercial endeavour with highly uncertain profit expectations. Accounting standards are very harsh when it comes to contingent assets/liabilities. If the contract is too fluid, then a company cannot ‘book’ the contract value to their balance sheet.

Fundamentally the situations that we are working on are not solvable issues, yet we have been working on them as if they were. This is a key insight that differentiates complexity from traditional views of seeing organisations and management. Ways of thinking that help us to frame the situation more realistically help us to make sense of the situation and orientate the way of working more effectively. One such approach is Polarity Mapping as it is designed to help us work in unsolvable situations where, if focussing too much in either approach gives poor outcomes. Instead, we need to work in an ongoing manner in the polarity (the unsolvable situation) and become aware of what the extremes look like, so that we recognise when our approach is less optimal.

PMI (2014)34 and ICCPM articulate a number of suggested approaches to implement to support better governance of projects in complex environments including but not limited to:

34 PMI (2014) Navigating Complexity: A Practice Guide

• Optimise organisational structures (ensure structures are fit for purpose for the project being executed and be willing to work outside existing structures to get things done);

• Executives must create and nurture conditions that enable fast, innovative and adaptive conditions to enable emergent change to be managed;

• Executives must learn to listen to experts; it is unreasonable to assume that any one individual will have all of the knowledge and experience necessary to make decision and govern projects in complex environments, including in terms of the appropriateness of contracting mechanisms and contract performance. Governance mechanisms must be adapted to enable the seeking of advice from subject matter and/or independent experts.

• Governance particularly for complex endeavours must be adaptable and responsive. Decision making in these situations will always have an element of urgency and will be time sensitive. The principle that not making a decision is a decision and will have unintended and sometimes unknown or unpredictable consequences that themselves have are of a time sensitive nature, must be well understood and accepted.

• Membership of the governance mechanisms must be comfortable with the need to make decisions in the absence of clear facts, in the face of continual turbulence and change (emergence) and be comfortable in the knowledge of not knowing what the impact/consequence of some decisions will be until they are made and the impact emerges.

• Fundamentally governance arrangements must be well understood, easy to navigate, and not overly burdensome, and ideally rely on existing systems and processes as their information sources (governance should not in and of itself create addition resource consumption that has no other purpose, ie additional reporting, dash-boarding etc)

RECOMMENDATIONS

• Industry lead research is required to investigate and develop appropriate dynamic governance frameworks.

• Development of appropriate education resources to build capability in managing risk and governance in complex environments particularly for board level governance mechanisms.


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A HOLISTIC VIEW Complex endeavours often extend beyond the delivery of an individual asset or service. Across all jurisdictions roundtable discussions elicited that contributing to building and maintaining national capabilities vital to national growth and well-being was a strategic consideration when contracting for complex endeavours. When delivering outcomes for complex projects and contracts, whole supply chains, national and global, are involved. Taking a holistic perspective on these relationships is an essential contributor to success.

Relationships between client and contractors extend beyond the scope or life of any individual contract. To deliver the long-term goals that matter to the client, often government and large corporates need to accommodate the interests of all stakeholders within the supply chain so the enterprise is sustainable over the long term. Roundtable participants raised the issues associated with constant changes in personnel and the increased turbulence created due to staff changes. This is reflective of the change perspective that is paramount for complex endeavours – in particular the changes of personality, experience, perspective, understanding, and capability. These are recognised as further adding to the complexity. Joint relationship management and succession planning by all parties is absolutely necessary to mitigating these issues. Balancing at times conflicting objectives and requirements becomes necessary. For example:

• How to maintain competition and probity and at the same time foster collaboration and cooperation?

• How to accommodate cultural differences between organisations that have divergent goals but must work together to deliver outcomes?

• How to understand the constraints and drivers that create the system as we have it – including public perception and political system dynamic to articulate a clear case for change in a system that is clearly not “fit for purpose”

A first approach is to foster dialogue so that all stakeholders have a better understanding of each other. Early dialogue between client and contractors must happen more systematically to enable a shared understanding of what can be achieved to be formed much earlier that it currently is. This means including subcontractors into the dialogue so the impact of decisions at their level are better understood. The use of Early Contractor Involvement practices are a good example of existing mechanisms that could be utilised more often. It would appear that these mechanisms are currently underutilised and more use of them may help to deliver more successful outcomes more often.

Complex contracts usually do not involve the delivery of commodities, so the traditional practices of competitive bidding, which are based on theories of perfect markets, need to be reviewed. Selection processes that extend beyond traditional tenders need to be implemented, so that contractors can select better which endeavours they tender for, thus lowering the system cost of contracting. This means that rules for pre-contract engagement must be reviewed to allow dialogue, but also preserve probity, competition, and the competitive advantages of contractors and subcontractors. It will inevitably mean that the implicit meaning of probity and competition as it currently exists will need to be refined.

Such outcomes are only enabled if supported by common knowledge, but also shared interfaces to foster efficient exchange of information: not all stakeholders in the supply chain use the same technology or software, but it must be possible to define common interfaces to allow efficient means of communication and transfer of information.

Finally, cultural change is required at the enterprise level to foster dialogue and cooperation, without compromising ethics, to enable prudent risk-taking and learning, within agreed boundaries. This extends to the language of contracts that need to be reviewed to enable multi-level cooperation across the supply chain.

The FFG Case Study at Annex G is an exemplar in the application of a holistic view of contracting in a complex environment.


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RECOMMENDATIONS• Design a system and processes that address how to maintain competition and probity and foster

collaboration and cooperation at the same time, must be Government and Industry lead.

• Design a system to accommodate cultural differences between organisations which have divergent goals but must work together to deliver outcomes.

• Recognise the support of holistic approaches including systems thinking and complexity based approaches based on non-linear planning, problem structuring and sense making to project and contract development and management.

• Multi-methodological approaches must be used to improve integration between contract and project management. This includes traditional approaches such as systems engineering and complexity based approaches in balance.

• Greater sense making must be included as a core skill during the design and development of contracts to be aware of emergent outcomes.


ANNEX A – ICCPM/IACCM 2016 ROUNDTABLE DISCUSSION PAPERTOPIC: CONTRACTING FOR SUCCESS IN COMPLEX PROJECTS

INTRODUCTIONSuccessful project outcomes depend on the right forms of contract and supportive contract management. Too often, those in Project Management and those in Contract / Commercial Management experience similar challenges yet do not combine their efforts or resources to drive improvement.

The purpose of the roundtable discussion is to bring the collective wisdom of the participants together, to focus on the topic, with the principal outcome being a clear definition of further action required.

The purpose of this discussion paper is to provide a perspective on Contracting for Success in Complex Projects and to identify key questions that will guide the roundtable discussion.

Research evidence points to the importance of the contract and underlying commercial judgment in the successful delivery of major projects. The evidence further points to a lack of attention and investment by many organisations in their embedded contract and commercial capabilities.

This initiative seeks to confirm the issues that currently prevent contract and project alignment, and to create specific and practical steps that will drive major improvement.

It is well understood that without commercial and contracting functions it is very difficult for a Project Manager to understand the commercial realities of their projects in totality and that the two functions have distinctly different accountabilities and responsibilities. Table 1 below provides an overview of responsibility and accountability.

Project Management

Commercial Management

Jointly Owned

Responsible for Delivery Deal making and commercial risk Success

Responsible for Specification Contract Integrated Package

Responsible for Technical Compliance

Commercial

ComplianceNegotiations and Relationships

Accountable to Operations Function Organisation

Approach is P3M methodology

Policy, Rules and Legal Good Business

Approach is Leadership Corporate Teamwork

Approach must be Communicate Communicate Communicate

There is a general problem that contract models tend to be based on classical legal theory and a standard template mentality. The UK’s NAO (Sept 2014) concluded that this is ‘because senior management has not taken contract management seriously enough’. In consequence, contracts have tended to be seen as instruments of administration, control and core asset protection - not really designed to be of practical use to operational staff or ‘users’. In many organisations, there has been limited thought given to an overall ‘contracting process’. The contract simply emerges during a sales or acquisition lifecycle. Given this lack of attention, there has been little focus on ‘fitness for purpose’, or indeed even discussion over what purpose a contract and contracting process should serve.


‘Good contracting’ is often undermined by the incentives created by current management and measurement systems (e.g. profit centres, negotiated savings, revenue-based commissions). Cooperation, collaboration and strong communication between those preparing and negotiating the contract and those charged with implementation and delivery is in many cases the exception rather than the norm, especially within customer / client organisations.

There is very little data capture regarding what goes wrong in the post-award phase and therefore little root cause analysis of real risks or practical steps to avoid or provide mitigation in future contracts. Contracts rarely offer ‘a framework for business operations’, yet this is what is needed. Their core role in project support should be to provide appropriate guidance and flexibility in performance management and governance, yet mostly they do not do that, or they do not do it in an intelligible way; as a result, most project managers see limited purpose in the contract; they see limited purpose in raising their own contract awareness and skills; and they see the contract as a possible weapon (theirs and the other side’s) to be consigned to a drawer unless or until something goes badly wrong. Overall, contracts are viewed as a necessary but unfortunate imposition, with limited relevance to ultimate project success.

A major problem is that there is no real ‘owner’ of contracts; this is because contracts and projects are individual and transactional, and it isn’t obvious who will actually champion change at a strategic level. Big projects sometimes succeed due to force of personality and the ability of a powerful sponsor to cut through organisational norms.

This initiative will produce a practical roadmap of the journey needed to make project success the norm.

BACKGROUNDIn the ICCPM compendium of working papers that supported the development and release in 2011 of the ICCPM Task Force Report – Complex Project Management – Global Perspectives and the Strategic Agenda to 2025, we said in relation to Commercial Management – Striving for a Win/Win Commercial Outcome:

“The typical corporate response to a crisis frequently drives trading partners apart, rather than uniting them in seeking mutually beneficial solutions. Many contracts can ‘be governed efficiently only if the parties adopt a consciously cooperative attitude’. The nature of a contract – and the time invested in its creation and management – depends on the nature and economic potential of the relationship but too many contracting and legal professionals do not alter their negotiation priorities to reflect this potential value or the extent to which its realization depends on cooperation.

As a result, contracts and the professionals charged with their creation are frequently seen as obstacles to value creation and are viewed by many as an unfortunate pre-requisite to doing business, rather than as a fundamental asset to successful relationships. Management in these organizations appreciates the importance of developing ‘commercial competence’, and ensures appropriate systems and personnel are in place.

The Public Sector challenge is somewhat different from that of the private sector, not least because of the burden imposed by Public Procurement Rules and in particular the need for open competition. This tends to create a rules-driven approach that eliminates opportunities for competitive difference or added-value. Price, rather than quality, becomes the governing factor; and the approach to risk allocation ensures an adversarial and blame-avoiding relationship culture.

Much negotiation appears driven by classical legal theory based on transactions rather than relationships. Classical law assumes self-interest and that economic interest is best served by looking after one’s own interests. This assumption encourages an attitude that approaches negotiation deal by deal, rather than seeking or observing patterns or examining the potential management of risk across relationship portfolios. Therefore, legal provisions lag behind current thinking and still assume the best way to manage risk is to allocate it to someone else and mistake dire punishments for failure for incentives to perform.


The tendency for the law to dominate contractual obligations is not the only factor to undermine the effectiveness of negotiations. Many procurement organizations still believe all relationships can be reduced to individual commodity transactions and so ignore their dependency on relationship quality and governance. The lack of truth in tendering is a significant contributor to poor contractual outcomes. Research has shown that the poor performance of major projects can be linked in part to issues that were knowable, in that information existed, but was not disclosed, at the time of tendering and contract formation. The root causes of what Flyvbjerg termed the “conspiracy of optimism” are not the sole responsibility of one party alone, nor are they simple to address”

The following recommendations were made in the Task Force Report:

• Rec 37 – Develop and adopt frameworks that promote contracting solidarity with strategic partners.

• Rec 38 – Establish systems for capturing and disseminating data derived from the operation of contracts to inform the development of policy and practice.

• Rec 39 – Expand and continue to support CPM Communities of Practice.

• Rec 40 – Institute an approach to contract creation/formation with a view to achieving the long term outcomes sought from the agreement rather than ‘game playing’ to achieve short term goals.

• Rec 41 – Develop and institute relational contracting and risk management methodologies that recognise the iterative and collaborative nature of risk management.

• Rec 42 – Institute arrangements that support the earlier engagement of suppliers in buyers’ project planning.

• Rec 43 – Institute the concept of benefits realisation into organisational management practices.

Further, in 2012 our second roundtable series produced the report - Hitting a Moving Target - Complex Project and Programme Delivery in an Uncertain World. We made the following observations (including recommendations) in relation to commercial and contract management:

Industrial Age socio-politically-derived procurement systems are inappropriate for a data-driven, ‘information’ age and beyond. The difficulty is that those who have the power to change those systems are insufficiently informed – while those who are informed have little power. This is beyond the scope of this report to address, however, we see a strong indication of the need to seek every opportunity for conversation and research into new public/private sector procurement ‘operating systems’ that can facilitate improved project execution and delivery.

One important aspect of this, which demands immediate attention, is the introduction of ‘evolutionary’ contracting models, reliant upon mutual trust and providing a framework for success in the face of inevitable uncertainties rather than emphasising punitive conditions for non-performance. A useful starting point, based on discussion between ICCPM and the International Association for Contract & Commercial Management (IACCM) defines the understanding of a contract as in essence a system to define communication channels and ensure a mutual understanding between all parties in order to support the relationships on which successful trade depends. It must therefore:

• Establish consensus and consent between the trading parties

• Ensure clarity and reduce ambiguity regarding their intent

• Allocate roles and responsibilities related to performance

• Agree mechanisms to underpin trust and confidence in working together

• Document processes and principles related to the management of success or failure the greatest of these is ‘trust’, a principle that is increasingly eroded in a litigious society.

The phrase ‘Good fences make good neighbours’, from the poem ‘Mending Wall’ by Robert Frost, is often cited as the principle on which rigorous contractual conditions, regulation and process compliance are justified. In fact the poem is satire, and contract conditions are no substitute for trust, regulation no substitute for ethics, and process no substitute for common sense. The ‘good fence’ in question in the poem has to be rebuilt every year because it doesn’t stand up to the reality of events, rather like the abovementioned contracts, regulations and processes!


Attention must be paid to the negative effects of massive potential bidding costs in large projects, where the race may very well be won by the one with the deepest risk pocket rather than the supplier with the best solution. It may be that some form of funded bid process, particularly at the Concept and Assessment stages should be applied, and again, this may be a suitable topic for further collaborative research.

Although it appears that as a collective we have been aware of and have had discussions and debates around these issues, it is difficult to find where much progress has been made - perhaps it is because neither the project management nor commercial management professionals see the problem as theirs individually. Certainly neither has complete visibility and/or carriage of the problem regardless of who has contributed to it. However when failure is imminent, or has occurred, collectively we all become responsible and accountable to rectify the situation.

WHAT IS SUCCESS?The ICCPM Research Project 3: Outcomes Paper found the following:

Whilst there are many success factors associated with complex projects, the following recurring themes were identified as crucial to project success:

a) Clearly defined and shared project goals and vision,

b) Suitable Relationship/behavioural management,

c) Prudent risk management and equitable risk allocation,

d) An acquisition and sustainment strategy suited to the project at hand,

e) A robust project management and systems engineering framework, and

f) Leadership and competencies of the team.

Though not exhaustive, these characteristics are most prolific in the complex project literature as key success factors.

The paper concludes with the statement: The complex project success factors are tied to relationship management, collaboration, and the principles of fairness and equity. There is nothing new in these observations. What we have seen though, it the realisation of these principles in novel contract approaches that eschew the traditional arm’s length approach of risk transfer contracting. Pursuit of relational contracting approaches though does not mean that project ‘hygiene’ factors should be ignored. Successful projects still require sound project management principles.

WHAT GOES WRONG FROM A CONTRACTING PERSPECTIVE?IAACM (2015) have determined 10 key factors to explain why contracts are not fit for purpose:

1. Lack of clarity on scope and goals

2. Legal/contract team not involved early enough

3. Failure to engage stakeholders

4. Protracted negotiations

5. Negotiations focus on the wrong terms and risks

6. Contracts lack flexibility, insufficient focus on governance

7. Contracts difficult to use or understand

8. Poor handover from deal team to implementation team

9. Limited use of contract technology

10. Poor post award processes and governance


These factors have relevance for both the project and commercial management functions and cannot be attributed to one or the other, thus to address these factors both project and commercial managers must work hand in hand.

NEXT STEPSRoundtable participants might be asked to consider the following:

• Explore barriers to collaboration (governance, competition law, corporation’s law, organisational momentum etc.)

• Explore opportunities to develop strategies to mitigate or address the barriers to collaboration

• Explore the value proposition of collaborative/relational approaches (how do we sell the message, how to we craft a business case) – how do we make taking alternative approaches more acceptable and lower risk

• How can we tell if we are mature enough to embark on a relational journey (ISO11000 processes or similar)? A key consideration here is that not all contracts should be relational contracts. What would the conditions under which relational contracts would be favourable?

• How do we measure PM and CM maturity to enable relational or new novel contracting mechanism? Current tools are not sufficient.

• How do we craft acquisition and sustainment strategies to drive positive relationships between customer and supplier?

• How do we ensure strong and productive relationships between PM and CM?

• How do we address institutional issues that are critical, for example - If the organization for which the PM works is does not embrace new approaches, success is difficult to achieve? What kind of institutional educational piece needs to be developed to embed new thinking as a result of this work?

• Can we develop a PM/CM tool that might help us to identify key event milestones with both project management and commercial management activities – with joint key event milestones with success criteria for project/commercial staff to mutually achieve at each these key event milestones?

• Will ICCPM’s Complexity Diagnostic Tool help?


ANNEX B – CASE STUDY IN RELATIONAL CONTRACTING

“SPLIT ROCK INCA ALLIANCE”Steve Hein 2009

This case study is an abridged version of a paper written to explore how value was delivered in relation to the Split Rock Inca Alliance and discuss how the relational contracting approach delivered sustainable value over and above alternative approaches.

THE PROJECT IN QUESTION - SPLIT ROCK INCA ALLIANCEThe Split Rock Inca Alliance (SRIA) was the final stage in a program of National Highway projects to upgrade the Barkley Highway between Mount Isa and Camooweal in far north-west Queensland, one of several organisations (including three alliances). To achieve the task there was a requirement to successfully manage the sensitivities and logistical difficulties associated with delivering a large-scale infrastructure project in a remote area (Davies 2006; Myuma 2007; Trim 2008). The SRIA consisted of the Myuma Pty Ltd, Seymour Whyte and DMR as depicted below.

Alliance Partner&

Owner

We plan, manage and deliver Queensland's integrated transport

environment to achieve sustainable transport

solutions for road, rail, air and sea.

Seymour Whyte is a dynamic infrastructure

development company with a 23

year history of providing construction

solutions across Queensland and NSW.

Myuma Pty LtdGroup of not-for-profit

corporations thatrepresent Indjilandji /

Dhidhanu people(traditional owners ofthe Camooweal region

of the BarklyTablelands)

Alliance Contract

AMT

ALT

ALT – Alliance Leadership TeamTop level cover, decisions and project managementAMT - Alliance Management TeamLow level management, day-to-day work, conflict resolution

Alliance Partner Alliance Partner

Representation of Split Rock Inca Alliance (SRIA) (Adapted from Bell, 2005)

ALT & AMT accept responsibility for performance of contract

The project was delivered for Queensland Department of Transport and Main Roads (DMR) and construction posed high complexity and numerous risks, as detailed below:

• Remoteness – of the site and the need to provide camping facilities. Construction was at times more than 150km away from Mt Isa introducing restraints in regard to materials as well as normal living conditions. This also restricted availability of labour (skills and quantity) – requiring full scale base-camps to be built.

• Weather – timing of construction in relation to the wet seasons due to flooding, and working during rainfall is hazardous. The commencement and cessation of the wet season is unpredictable and during construction cyclones caused some delay. There is also an imperative to complete work in a single cycle as demobilisation is very costly.


• Cultural significance – cultural heritage management concerning maintenance of local land in original condition, requiring at one time the laying of geo-textile materiel so land could be restored to original condition. There were overlapping native title claims of the Kalkadoon and Indjilandji-Dhidhanu peoples, and the highway also follows traditional tracks and therefore there is an abundance of artefacts.

• Other considerations:

- Sourcing and suitability of natural local gravels for road construction

- Sourcing of construction water of the desired quality and quantity

- Provision of commercial opportunities for indigenous enterprises

- Achieving a value for money outcome which would meet the funding agreement with the federal government

- Indigenous employment/training opportunity

These complexities and risks required a contracting methodology that could manage them and ensure the project provided sustainable value.

THE RELATIONSHIP ADOPTEDThe construction industry is one that requires a great deal of trust between participants due to the high uncertainty in industry, and with collaboration and teamwork crucial since sharing up to date information reduces delays, errors and rework (Rowlinson and Cheung 2004).

DMR chose to pursue an Alliance contracting model reliant upon relational contracting as its basis. Alliancing provides a collaborative environment allowing participants to adapt their behaviour to project objectives, exposing risk normally ‘hidden’ by traditional contract relationships (Rowlinson and Cheung 2008). The alliance was weighted towards relational issues to manage risk, with owners and non-owners working ‘shoulder to shoulder’ to enable flexibility (Augustine and Cooper 2009; Davies 2006), and was also considered to:

• Be the best delivery mechanism to deal with the complexities surrounding the project;

• Have the ability to achieve exceptional targets set out in a range of non-cost key result areas, including development of sustainable local indigenous enterprises;

• Be the best way to manage particular risks associated with the project; and

• Be able to address the wide range of critical project objectives.

To aid its’ relational contracting methodology the SRIA had three critical elements (environment, process and people) effectively integrated as per Figure 1 (Lendrum 2003). Prominent were the ‘core’ principles including a ‘no blame’ culture, decisions made for the betterment of the project, transparency and accountability, team commitment and the full support of senior managers to ensure credibility and legitimacy (Westerman 2003; Rowlinson and Cheung 2008; Bresnen and Marshall 2000).


Environment• Culture•Strategy•Structure

Process•Structure & Flexibility•Reproducible•Supported

People• Partnering/alliance

managers•Partnering and other teams

•Individuals

Figure 1 – Critical Element of Alliance SRIA (Adapted from Lendrum, 2003)

Environment sets the boundaries as determined by the culture, strategy and structure (Beliefs, values) –SRIA Charter and Structure Process is how relationships

are developed and managed, balances structure and flexibility and enables reproducibility

Unconditional support of senior managementThe right people (individuals and teams) – Partnering and alliancing managers

Inclusion of ALL stakeholdersDefined contractual requirements

A key aspects was the culture, relative to both management of risk and also performance measurement

The SRIA agreed up front on a common definition and thus a common understanding of what strategic partnering and alliancing meant for the partner organisations, introducing a Charter35 (Davies 2006; Lendrum 2003). The charter was invaluable as in the event of issues, concerns or opportunities arising, the SRIA could fall back on the Charter for clarification (Lendrum 2003).

The relationships in the alliance, although planned, did not just happen. They were more of a development over time as suggested by Lendrum (2003). Figure 2 shows how the alliance relationships developed during the project lifecycle.

35 Split Rock Inca Alliance Charter, 02-04 February 2006

Pre-Project -------------------------- Project Life – Time Scale ------------------------ December 2006

Figure 2 – Growth Curve Alliance Development SRIA (Adapted from Lendrum, 2006)

Pre Contract Award• Workforce and materials• Liaison with community and Government• Strong leadership required• Relationships begin to form

Full Implementation• Workforce trained/employed • Long terms relationships established• Innovation and problem solving• Higher level benefits

Medium Term• Common vision entrenched • Joint processes in place• Moving towards paradigm shift• Base level benefits


PERFORMANCE MEASUREMENT A key performance indicator of partnership success is the development of joint business strategies or recognition of relationships in strategic documents. Organisations have a strong culture when managers share consistent values and methods of doing business (strategy) and are aligned with their goals (Kotter and Heskett 1992). The SRIA shared vision, common goals and jointly agreed performance indicators were essential to accountability (Lendrum 2003).

Reward for performance was based upon growing the culture of the alliance as well as meeting traditional cost/scope contractual obligations, with a remuneration model suited to an alliance (Davies 2006). This ensured that behaviour of all parties related to a ‘project first’ culture where contract performance, stakeholder relationships and conflict resolution were incorporated into painshare/gainshare for key result areas (Ross 2006; Rowlinson and Cheung 2008; Davies 2006).

DELIVERING VALUEThe value consideration for the owners, important to this type of project, is if capital works have been delivered at the best price and in accordance with the business case, however in the case of Government there is an interest in achieving social, environmental, economic and other objectives (Vic 2009). The SRIA’s collaborative and innovative approach minimised risk and successfully managed the sensitivities and logistical difficulties, for example indigenous knowledge contributed to innovative solutions in the management of scarce water and gravel resources (Whyte 2010). The project as part of a larger Alliance Program was included as a winner of seven awards (Whyte 2010), including:

• Winner 2007 Queensland CCF Earth Awards Category 4 (project value between $20 million and $75 million)

• Winner 2007 Queensland Engineers Australia Excellence Award Project Management

• Winner 2007 Queensland Government Reconciliation Award for Business, “Partnership Award” & “Premier’s Award”

• Winner 2007 Australian Government “Australian Training Initiative Award”

The move away from traditional contracting and use of relational contracting as part of the alliance aided the project objectives by imbuing trust, sharing risk, creating cooperation and in doing so provide mutual benefit for all parties (Rowlinson and Cheung 2008; Davies 2008; Davies 2006). Technology, innovative practices and collaboration with local Aboriginal groups contributed to the success of the project which was completed below cost and time targets (Myuma 2007; Trim 2008). According to Davies (2006) substantial improvement was demonstrated against traditional ‘business as usual’ contracts, with the project delivering a saving of 15% or $4.7M and achieving completion four weeks ahead of schedule (Trim 2008).

Lendrum (2003) describes six key elements for the construction industry, that when aligned, assist projects in providing value. Table 1 indicates that the SRIA performed well for each element, in main due to the inherent strength of relationships - internally and externally.


THE ADVANTAGES OF THE APPROACH

“The Project Management category award was the second major award recieved by the Split Rock Inca Alliance this week. The project also recieved a Premier’s Innovation in Skilling award at the 2007 Queensland Training Awards on Thursday night. The Split Rock Inca Alliance was made up of Main Roads, Seymour Whyte Constructions Pty Ltd and Myuma Pty Ltd, representing the Indjilandji-Dhidhanu people.”(Pitt, 2007)

According to Trim (2008), in contrast to traditional price-based contracts, the adoption of an alliance methodology allowed the organisations involved to work collaboratively, to reduce and manage risks, achieve real time and budgetary savings and deliver positive outcomes for all stakeholders. DMR was both an alliance partner and the project owner and as the project owner, their social objectives could be prioritised and addressed without compromising the normal time, cost and quality drivers associated with a traditional contract (Trim 2008).

The SRIA had an Alliance Leadership Team operating ‘under the auspices of a pure alliance model’ (Davies 2006) and an Alliance Management Team that met regularly to resolve project issues. The relationships were based upon mutual trust and acceptance that risk could be managed and allocated appropriately. This allowed the alliance to operate flexibly and achieve high performance through the ‘relationship based gainshare/painshare mechanism’ (see Figure 3) related directly to the performance measures and compensation and can be subjectively related to the ‘dollar’ and ‘schedule’ value achieved by the SRIA.


Traditional approaches to contract management often lead to adversarial relationships, resulting in reduced project outcomes (ACA 1999; Rowlinson and Cheung 2008), however relational contracting in the right circumstances provides more successful outcomes. For example, methods for managing risk in traditional contracting relate to risk transfer to the contractor, creating additional cost and reducing trust and project performance. Relational contracting in the SRIA increased performance by ‘managing’ risk through sharing it amongst the alliance partners, requiring trust between parties in order to compete against threats (Rowlinson and Cheung 2008; Davies, O’Meara and Zolin 2010).

Cooperation was gained through a combination of formal mechanisms and trust – noting formal mechanisms cannot substitute for trust (Augustine and Cooper 2009). The SRIA exemplified an atmosphere of trust ensuring alignment of goals, reducing monitoring and formal controls, and in doing so reducing tension (Rowlinson and Cheung 2008; Davies 2006; Davies, O’Meara and Zolin 2010). There appeared a willingness to rely on other parties without much ability to monitor or control their behaviour (Mayer, Davis and Schoorman 1995).

Alternate methods of project delivery delay contractor involvement until the latter stages of implementation, usually resulting in increased cost where change is required. Davies (2006) identifies that under a traditional contract there is likelihood that deviation from specification might be met with distrust, but that in an alliance (provided it reduces cost) deviation is more acceptable – citing that “deviations were common on the SRIA” (Davies 2006, 12).

The benefits of relational contracting are both base level and higher level. There are longer term sustainable outcomes including the environment, community and project costs as when people are treated as partners they become more open and receptive to new ideas, allowing a better interface between organisational elements (Jacobs 2000; Westerman 2003). Alliances have the advantage of driving sustainability by making environmental and social aspects of projects integral, as opposed to traditional methods that, in the main, leave these issues on the peripheral. Figure 4 provides some analysis of how this was achieved for the SRIA.


CONCLUSION

“People get more satisfaction working on an alliance and consequently are more productive and innovative” Barclay Mowlem, 2003

As suggested by Ross and Purcell (2005), alliancing may not be the best option all the time and if selected for the wrong reasons will not deliver value for money, however when applied under the right circumstances it is a means for overcoming adversity and producing great results. Alliances do not succeed simply because they are alliances (Davies 2008). The SRIA exceeded the business as usual performance outcomes of traditional contracting, achieving value through risk management and innovation.

“Having people than can work together is the single most important factor in a leading project team” Air Commodore A.O. Augustin, 2010


REFERENCESACA. 1999. Relationship Contracting: Optimising Project Outcomes: Australian Constructors Association.

Augustin, A. 2010. Presentation on Super Hornet Project. Canberra, 29 April 2010.

Augustine, M. S. and C. D. Cooper. 2009. Getting the most from strategic partnering: A Tale of Two Alliances. Organizational Dynamics 38 (1):37-51.

Bresnen, M. and N. Marshall. 2000. Motivation, commitment and the use of incentives in partnerships and alliances. Construction Management & Economics 18 (5):587-598.

Davies, J. 2006. Split Rock Inca Alliance. Brisbane: Griffith University.

Davies, J., C. O’Meara and R. Zolin. 2010. GSN521 Managing Contract Relationships - Study Guide. Brisbane: Queensland University of Technology.

Davies, J. P. 2008. Alliance Contracts and Public Sector Governance, Griffith Law School, Griffith University, Brisbane.

Edwards, R. 2007. Early Contractor Involvement (ECI) Contracts in the South Australian Transport Infrastructure Construction Industry. South Australia: Department of Transport Energy and Infrastructure (DTEI).

Jacobs, J. 2000. Contracting must change! Chemical Engineering Progress Dec 2000 (96):12.

Kotter, J. P. and J. L. Heskett. 1992. Corporate Culture and Performance. New York: The Free Press.

Lendrum, T. 2003. The Strategic Partnering Handbook. Fourth ed. North Ryde, NSW: McGraw-Hill Australia Ltd.

Mayer, R., J. Davis and F. Schoorman. 1995. An integrative model of organizational trust. Academy of Management Review 20 (709-734).

Mowlem, B. 2003. Interview on Alliance Contracting.

Myuma. 2007. THE MYUMA STORY. Paper read at Australian Training Awards.

Ross, J. 2006. “Project Alliancing Practitioner’s Guide”, edited by D. o. T. a. Finance. Melbourne: Department of Treasury and Finance.

Ross, J. and J. Purcell. 2005. Alliancing is not a universal panacea. Engineers Australia July 2005:25.

Rowlinson, S. and F. Y. K. Cheung. 2004. A Review of the Concepts and Definitions of the Various Forms of Relational Contracting. In International Symposium of the CIB W92 on Procurement Systems. Chennai, India.

Rowlinson, S. and Y. Cheung. 2008. Alliancing in Australia - A Long Term JV? In Third International Conference of the Cooperative Research Centre (CRC) for Construction Innovation - Clients Driving Innovation: Benefiting from Innovation. Gold Coast, Australia.

Trim, P. 2008. Barkley Highway Upgrade - Split Rock Inca Alliance. Queensland Roads 5 (March 2008).

Vic, D. F. 2009. In Pursuit of Additional Value: A benchmarking study into alliancing in the Australian Public Sector. Melbourne: Department of Treasury and Finance, Victoria.

Westerman, J. 2003. Alliance Contracting and Sustainability. Australian Journal of Multi-disciplinary Engineering 1 (1):57-63.

Whyte, S. 2010. Seymour Whyte - Homepage: Split Rock Inca Alliance. http://www.seymourwhyte.com.au/Projects/NorthernQueensland/BarkleyHighwayUpgradeSplitRockIncaAlliance/tabid/116/Default.aspx (accessed 24 October 2010).


ANNEX C – CASE STUDY – VISUAL CONTRACTS

CONTRACT UNDERSTANDING AND USABILITY TEST (A CASE STUDY INTO VISUAL CONTRACTS)

Stefania Passera MA, PhD Candidate, Aalto University School of Science, Helsinki, Finland , Excerpt from original report provided by IACCM 20 Dec 2016

During May 2014, 124 IACCM members from 24 countries participated in a study aimed at assessing whether utilizing visualisations in contracts would affect their understandability and usability. The participants were asked to answer a number of comprehension questions about a given contract, which was randomly provided either in a text-only, traditional version or in a visually enhanced version, where the same text was accompanied by explanatory diagrams.

The participants using the visual version of the contract could, in average, reply correctly to more questions and more quickly. The differences in accuracy and speed between the two groups are both statistically significant, thus providing supporting evidence that the visual display of contractual information has a positive effect on comprehension.

We have been asking the two groups to subjectively assess the difficulty of using their assigned contract version, before (expected difficulty) and after (effective difficulty) the comprehension task. The “before task” measure was taken to demonstrate that the two groups did not differ in their expectations or preconceptions about the task difficulty, based on their previous experiences with contracts. While there is no difference between the expected and effective difficulty experienced by the group working with the traditional text-only contract, the group working with the visual contract experienced less difficulty than expected. This suggests that the visual version of the contract provides a better user experience than traditional contracts.

A very interesting result of this study emerged by statistically analysing the interactions between different variables: visual contracts can help non-native speakers in understanding the contract as accurately as native speakers. We know that nowadays English is the principal business lingua franca, and we use it in its infinite local variants, more or less skilfully. Very often, both contracting parties rely on English, even though none of the negotiators and the contract managers are English native speakers.

Visual communication, apparently, can help us avoiding the pitfalls of spoken and written English (and legalese). As expected, native speakers display a more accurate understanding than non-native speakers when reading a traditional textual contract. However, the comprehension accuracy of the two groups is statistically equal when using a visual contract. Moreover, even native speakers are more accurate in the comprehension tasks when using a visual contract, making even stronger the case for the adoption of communication means beyond the textual.

Contract visualisations could avoid misunderstandings and enhance clear communication not only in international contracts, but even in domestic ones.

Last but not least, it emerges from the statistical analysis that cognitive style, level of education and having a background in law have no effect whatsoever in comprehension speed and accuracy. This is to say that even verbalisers, highly educated people and jurists (who should be very skilled in processing textual information and legalese) perform better with a visual contract!

Comic Contracts have been used with success in the agricultural industry in county’s like South Africa where levels of literacy are not consistent helping farmers and workers navigate employment contracts with greater efficiency and less anxiety. The extract below is a demonstration of the pay and conditions terms used.


ANNEX D – CASE STUDY – COMIC CONTRACT HELPING VULNERABLE PEOPLE UNDERSTAND THEIR CONTRACTS

In South Africa, business owners are required to provide contracts of employment for their employees. But what must be done if the employees are not “contract literate”. Many employees, especially those working in the agricultural sector are not literate in English, the language in which contracts are normally provided. The law says that in such cases, the employer must ex-plain the agreement to the employee.

This is a very unsatisfactory solution. Employees, desperate for work, must be aware of this right, must be willing to tell the employer they cannot read and must risk asking the employer to spend time explaining the contract while there is long row of applicants behind him or her? Let’s assume that the employee does ask, and the employer does explain it truthfully, where does it leave the employee 6 months later when he or she has a question about how to ask for leave or if the payment is correct? Where employees are bound to terms which they did not understand, cannot access to inform their obligations and their rights, and cannot use to hold their employers accountable, misunderstanding and conflict in the workplace should come as no surprise.

It was in this context that Robert de Rooy, a South African lawyer developed the idea of Comic Contracts based on the old saying that: “A picture is worth a thousand words”. Pictures are a universal language, which is easier to understand and easier to remember than text.

Comic Contracts are legally binding contracts where the parties are represented by the characters, where the pictures capture the content of the agreement and the parties sign the document. There is no overriding text. The comic is the contract.

Comic Contracts have been specially designed to address the needs of vulnerable employees, particularly those who either cannot read well or who have difficulties understanding the language in which the contract is written. This is not a problem limited to developing countries like South Africa. In nearly every country there are people who cannot read well or at all, people who are economic migrants or refugees, or speakers of minority languages. The purpose is not to benefit one contract party over another. The purpose is to serve the relationship between them, to enable clear communication and to empower the parties involved to understand what they expect from each other and what they are committing to. Illustrated contracts however does have the effect of making it harder to include terms in the agreement that are unfair or oppressive to the undersigning party because it’s just so obvious to see and its uncomfortable for the party presenting the contract.

The first ever Comic Contracts were implemented by Indigo Fruit (Pty) Ltd in May 2016. It’s a farming business in the Limpopo province of South Africa. It’s an area with high unemployment and low literacy levels. The company is a producer of a popular seedless variety of mandarin, known as Clemengold™. More than 200 fruit pickers were given Comic Contracts, which was received and signed with delight. For the employer, it also reduced the induction time for new workers from 4 hours to 40 minutes. Abs van Rooyen, the CEO of ANB Investments, which owns Indigo Farming, said: “We are really excited about the transparency this contract brings to our employee relations. It creates a more equitable situation, which


can only be the start of a more ‘honest’ relationship with our employees. I believe that workers can only commit fully to the content of a contract if they understand what they are signing.”

Kate Hlongo, who has worked as a picker and is now a compliance administrator for Indigo Farmings, said that she had only positive feedback from the workers. “Everyone loved the new contracts and no one found them conde-scending. The pictures are clear and easy to understand. When people sign, they remember and know what they signed because the pictures explained it to them. Before we would go line by line and try to explain and the people would still not fully understand.”

Since the initial contract was signed, the South African Wine Industry Ethical Trading Association (WIETA) has commissioned a comic contract for general workers on Wine Farms, Indigo has ordered another contract for their pack-house workers. We are attending to various other enquiries, the level of interest being a bit unexpected.

Comic Contracts challenges the assumption that only text can capture the terms of a contract. Many people ask whether a contract based on pictures can be legally binding. The short answer is ‘yes’. A contract is just a way of capturing the terms of an agreement. We have just become so used to doing this through text on paper. But there is no reason why another format or medium cannot do the same thing, even better sometimes. People also ask whether pictures are not more ambiguous. Yes, if we are looking at a painting of Salvador Dali or Picasso, our interpretations will differ. But when we look at the safety instructions in the back of an airplane seat, we all know exactly what to do. Just like text agreements, there can be ambiguities, but well developed agreements, just like text agreements, should eliminate such problems. On the other hand, text agreements often contain clauses which contradict each other. When the documents are long and detailed, it’s hard to pick up. Creating illustrated agreements show up such contradictions immediately because they are show much more transparent and easy to read.

Comic Contracts will not make sense in, for example, a business to business supply agreement, or a merger or acquisition agreement, but as we live in a market economy, and you cannot participate in the market economy without contracts, the aim of Comic Contracts is to develop a suite of illustrated con-tracts which vulnerable people need to live. In other words, employment contracts, rental agreements, loan agreements, basic insurance contracts and sale agreements.

Contracts which are not readable by vulnerable people perpetuates the power imbalance between the powerful and the vulnerable. Instead of expecting the vulnerable party to “uplift” themselves by asking for explanations or learning to read or finding resources to help them understand their agreement and their rights, the more powerful party, usually companies and corporations, should make the effort to meet the vulnerable party in their circumstances. They have the resources to do so, the costs and effort is relatively insignificant. But it means the world to the vulnerable party to be able to in-dependently access the information of the contract and make informed decisions. I believe that the cost and effort will be more than compensated by the goodwill that will be established in the relationship underpinned by such a contract.

For this innovation on contracting, Robert de Rooy was awarded the 2016 I-novation Award, Program of Visionary Change, by the International Association of Contracts and Contract Management (IACCM) prize, in San Diego, USA, in October 2016.


ANNEX E – PROCUREMENT CASE STUDIES DEMONSTRATING DEVIANT BEHAVIOUR Compilation by Dr John Davies, Principal Parallax Project Management

BP MACONDO PROJECT

36 Professor Robert Bea “Understanding the Macondo Well Failures” 37 Tang and Nelson ‘Managing New Product Development and Supply Chain Risks: The Boeing 787 Case’ (2009)38 http://spectrum.ieee.org/podcast/at-work/innovation/are-boeings-battery-difficulties-part-of-a-much-bigger-problem39 Ibid

The BP Macondo Project failed spectacularly with the resultant oil spill in the Gulf of Mexico causing loss of life, Billions in damage, and catastrophic reputational damage. This project involved very high risks yet eschewed the foundational concepts of relational contracting. The customer/supplier relationships were poor, there was little or no collaboration, emphasis was placed on a transfer of both cost and schedule outcomes (no gain/pain share), and there was an overarching illusion of risk transfer. The shift in Industry focus from collaboration and a safety culture was usurped by cost and schedule control as illustrated by Professor Robert Bea:

“The previous collaborative enterprise turned into much more severe and demanding enterprises. Industrial cost-cutting combined with degradation in cooperation and collaboration with service industry contractors and subcontractors became industry norms”36

This case study illustrates that an unhealthy emphasis on cost control and cutting, coupled with inappropriate risk transfer is unlikely to lead to project success and the driving of the ‘right’ behaviours.

BOEING DREAMLINER SUPPLIER CHAIN MANAGEMENTThe Boeing Dreamliner is a complex aircraft using novel technologies. Despite facing schedule delays that delayed introduction into service by three and a half years, and a $10billion increase in development cost; the Dreamliner suffered from quality control and design failures from battery fires that caused grounding of the fleet, significant remediation costs, and reputational damage. Boeing adopted a novel supply chain system that devolved developmental risk and resulted in loss of control37:

“In Boeing’s case, when they decided to outsource the design, as well as the integration of the modules to the tier 1 suppliers, they really didn’t have a clear structure, communication strategy, coordination plan with the tier 1 structures, especially when they are located in different countries”.38

Furthermore, Boeing adopted a risk transfer approach whereby suppliers would not get paid until a final product was complete:

“…for the 787 program, Boeing was thinking they’d maybe want to reduce costs. So as a result, they want to share the risk with the suppliers in the following way: They issued a risk-sharing contract such that none of the suppliers would get paid until all the suppliers finished the task. So put in other words, the suppliers would not get paid for the development costs and other costs until they finished and assembled the first plane that was delivered to All Nippon Airways, which happened last year.”39

These approaches resulted in deviant behaviours whereby suppliers would not deliver on time as they had no incentive to do so. Furthermore, Boeing lost control of quality with developmental work being conducted at levels too low in the supply chain. This case study illustrates how a holistic approach to supply chain management must be undertaken to ensure quality is driven into products where appropriate and the risk/reward structures are aligned to desired end states.


QUEENSLAND HEALTH PAYROLL PROJECTThe Queensland Health Payroll system was a $98million project to migrate payroll functions for all health employees in the state. The implementation was an unmitigated disaster requiring over 1000 employees to manually enter payroll data. Remediation of the projects is estimated to Cost $1.2 Billion over the next eight years. The Queensland Government initiated a Commission of inquiry which makes the following comment:

“The replacement of the QH payroll system must take a place in the front rank of failures in public administration in this country. It may be the worst”40

The project failures stemmed from very poor communication between customers and suppliers and poor project management practices. This case study illustrates that whilst a relational contract was not adopted, even if it were, the project would likely have failed as a result of poor project management, a cavalier approach to risk management and poor governance. The case study will demonstrate that good relationship management may be necessary but is not sufficient to deliver successful projects.

JP2070 LIGHTWEIGHT TORPEDOThe Australian Defence Force Lightweight Torpedo acquisition and integration project sought to procure a new weapon system and integrate it onto five platforms. The project suffered significant schedule delays and was only able to integrate the weapon onto two platforms. The sustainment costs for the capability were also significantly higher than anticipated, adding considerably to the cost of ownership of the capability. This was a high-risk project involving complex systems integration. The project team recognised these risks and adopted an alliance with the torpedo vendor to manage the risks. At first instance, this appears to embrace the foundational concepts of relational contracting with a project alliance agreement using no blame, joint working, gain/pain share, and mutual objects. As several Australian National Audit Office reports41 illustrate, there was an inappropriate application of the foundational concepts that led to project failure. A review of this case study illustrates that simply applying a relationship contract framework is insufficient. More specifically, relationship contracting should be applied to procurement phases that warranty such strategies and conflicts of duty must be avoided.

40 Queensland health Payroll System Commission of Inquiry: http://www.healthpayrollinquiry.qld.gov.au/?a=20720341 http://www.anao.gov.au/~/media/Files/Audit%20Reports/2012%202013/Audit%20Report%2026/2012-13%20Audit%20Report%20No%2026.pdf http://www.anao.gov.au/~/media/Uploads/Documents/2009%2010_audit_report_37.pdf


ANNEX F CASE STUDY – HEATHROW TERMINAL 5 (Source: https://sfuheathrowcase.wordpress.com/)

T5 is a state-of-the-art facility dedicated entirely to BA. It was is designed to handle 35 million passengers a year and built with a budget of GPB 4.3 Billion. Involving over 60 contractors, the project consisted of 16 major separate projects and 147 separate sub-projects. For example, the project included not only the terminal, but a new transit system, a rail station, and even required a river system to be diverted. The excavation alone uncovered over 80,000 archaeological finds at the dig site! (London Heathrow Terminal 5, 2010).

Due to the large and complex nature of the project, BAA chose to take what is considered to be a unique contracting approach to this project. They structured the contracts with their vendors such that BAA held all of the (financial and liable) risk, which was intended to ensure the contractors would focus their energy to being on-time and on-budget. To accomplish this, BAA had contractors’ risk payments pooled together, which was then used as incentive: If the contractors finished on time and on budget, they would be rewarded with a share from the pool; if there were cost overruns, contractors would lose out on their potential bonuses. This strategy also encouraged the vendors to work together to solve problems instead of just finger-pointing, as it meant that they all benefited from collaborating and completing their respective projects. Another approach BAA took with the contractual arrangement was to require an ‘open-book’ approach with the vendors to ensure that all expenditures were being accounted for fairly (Airport-technology.com, n.d). According to BAA, 80-85% of the project deliverables were completed on time at T5, compared to only about 60% in the general construction industry, so they feel their innovative approach has worked very well (Blue Skies Thinking, 2005)

Another reason for high confidence was that the entire building and all its systems were fully designed and modelled electronically. From the building to the baggage systems to piping and wiring routing, every component of the terminal was modelled. This allowed the designers to find issues before construction started, thus avoiding costly rework and delays.

T5 by the numbers:

• Over 350,000 Square meters of floor area

• 112 Shops and stores

• Over 500 advertising billboards

• Over 60,000 people involved

• Over 400,000 hours of software engineering involved

• 162 different IT systems

• 175 elevators

• 18km of conveyor belt for baggage handling

Original Project Cost – £4.2bn Final Cost - £4.2bn - Zero claims


ANNEX G – CASE STUDY – ADELAIDE CLASS GUIDED MISSILE FRIGATE (FFG) Capability Acquisition and Sustainment Group, Department of Defence (Australia) – This program was awarded the 2016 IACCM Innovation Award – CAPT Greg Laxton, RAN

OVERVIEWThe FFG Enterprise exists to provide Navy with materially seaworthy FFG guided missile frigates on time, every time until they are withdrawn from service.

The innovative and collaborative approach adopted by the FFG Enterprise has reaped significant benefits for the sustainment of the FFGs. Since it was stood up in late 2014 we have completed eight of eight maintenance periods on time or early, with improved availability to the Navy and reduced expenditure of maintenance funds. The FFG Enterprise has created a safe environment in which the partners collaborate, increasing trust, reducing transactional costs and fostering agility.

The FFG Enterprise framework captures many best practice collaborative contracting attributes, including joint goals linked to Enterprise outcomes, transparency through early warning processes and joint communications, performance based contracting incorporating price and non-price key performance indices, joint decision making with the collaborative development of Contract Change Proposals (CCPs), and shared business to business systems and processes. The collaborative attributes espoused by the FFG Enterprise were underpinned by extensive research from the International Association of Contract and Commercial Management (IACCM) into what constitutes world’s best practice in relational contracting.

The efforts of the FFG Enterprise were recently recognised with an international Innovation Award. IACCM honoured the FFG Enterprise with the 2016 Operational Improvement Award. This award recognises the world’s best practice relational contracting that the FFG Enterprise has adopted through our collaboration and the outstanding results it has achieved.


THE FFG ENTERPRISEThe FFG Enterprise comprises the Navy, the Capability, Acquisition and Sustainment Group (CASG), Thales Australia and BAE Systems working together to sustain the Navy’s Adelaide Class FFG guided missile frigates.

Despite these warships being the oldest major surface combatants in the RAN’s fleet, today they are in outstanding materiel condition and are the most affordable in the inventory. They are now regarded as very reliable, lethal and are highly valued by the Navy. This was not always the case - indeed the FFGs were plagued with availability and capability challenges merely a few years ago. We were constantly failing to deliver these ships when we said we would, and trust was consequently low between all the parties involved.

The Guided Missile Frigate (FFG) Systems Program Office (SPO) is a CASG (formerly DMO) organisation responsible to Navy for the sustainment of the Adelaide class FFG frigates. Prior to 2014, FFG SPO acquitted this responsibility through in-house planning and life-cycle management activities, while operating a more traditional supplier engagement model and contractual relationship. Maintenance activities were contracted on a non-recurring per-event tendering basis with maintenance work segregated from ship repair. This operating model made it difficult to align and leverage the capabilities of all stakeholders and often led to sub-optimal performance and output. This ultimately resulted in escalated costs, reduced availability of ships, and poor supplier relationship management.

Building upon the lessons learned from the long term maintenance contract put in place for the ANZAC Frigates and research from IACCM, the FFG Enterprise partners recognised that a more collaborative approach between the Commonwealth and industry offered the potential to significantly increase the value for money proposition for the delivery of services – reducing overhead and costs whilst simultaneously improving fleet availability. FFG SPO and industry embarked upon collaborative contracting arrangements and governance frameworks to support the common goal of delivering, ‘materially seaworthy FFGs to meet the Navy mission on time, every time’.

This new collaborative FFG supplier management operating model was christened the FFG Enterprise and in August 2014 began delivering sustainment activities to meet the outputs demanded by Navy; including:

materiel availability – the provision of the FFG capability for RAN use, at the agreed specification and configuration baseline, which is seaworthy and available when we agreed it would be;

sustainment efficiency – both the use of funds available and the actions to improve cost-effective use of those funds; and

materiel confidence – actions to ensure the FFG capability will remain available at its agreed rate of performance specification through to its withdrawal from service. This outcome provides Navy with confidence their ships are reliable and lethal.

The FFG Enterprise represents a fundamental shift in how the Commonwealth sustains military capability and how Australian industry approaches collaborative development of a total asset management framework in order to generate value for all stakeholders.

THE CHARTERThe FFG Enterprise is underwritten by the FFG Enterprise Charter and its activities are underpinned by leadership and good governance. The Charter is in effect a simple outcomes focused relational contract sitting atop the three complex performance based contracts that already existed. The Charter was developed in conjunction with IACCM, who bought significant research to bear to the task. The Charter is a collaboratively written document, with a mission, vision, and eight attributes we believe to be true of a highly collaborative best practice organisation.

instilling the common purpose – an undertaking for all members of the FFG Enterprise to cascade mutual Enterprise objectives with a clear line of sight to achieving the FFG Enterprise mission;


optimising relationship performance – an undertaking for the FFG Enterprise governing structure to foster an environment of recognition, proactive dispute prevention and team retention;

championing problem solving – an undertaking for all members of the FFG Enterprise to be empowered to work collaboratively to openly and honestly raise, discuss, record and resolve problems; and wherever possible ‘solve tomorrow’s problems today’;

instilling a ‘no blame’ culture – an undertaking for all FFG Enterprise members to deliver solutions as ‘one team’ while being accountable for their actions as the team acts, learns, and improves as individuals and an Enterprise;

fostering joint working – an undertaking for the FFG Enterprise to achieve a collaborative culture through integration that streamlines policies and processes;

enhancing communication – an undertaking for all members of the FFG Enterprise to communicate openly and effectively though proactive, honest, and regular interactions;

promoting continuous improvement – an undertaking for the FFG Enterprise to encourage identification and implementation of improvements through all levels of the Enterprise; and

embracing gain sharing arrangements – an undertaking for the FFG Enterprise to collectively recognise individual and group success and share in mutual benefits.

BEST PRACTICESThe FFG Enterprise framework captures many best practice collaborative contracting attributes including:

• Joint goals linked to Enterprise outcomes – industry partners have become active and integral parts of the life-cycle management of the capability; indeed, leading many of the efficiencies subsequently generated.

• Transparency through early warning processes and joint communication plans – the FFG Enterprise Governance Board (FEGB) provides an Enterprise level assurance function. Unlike other governance boards within Defence, the FEGB includes contractors as board members, enabling unprecedented influence and representation. This has allowed full representation in the strategic management level decision making sphere, contributing to more informed and risk based decisions on capability and life-cycle management.

• Performance based contracting incorporating price and non-price key performance indices – the FEGB has established performance measures to assess the health of the FFG Enterprise and its alignment to the Charter, driving a culture of ‘Best For Program’. These measures recognise the importance of contractual obligations to deliver output, while encouraging and rewarding a collaborative approach to improve the material state of FFGs.

• Joint decision making with the collaborative development of Contract Change Proposals (CCPs) – the FFG Enterprise has created an integrated workforce focused on building relationships and enabling personnel to collaborate and identify opportunities to improve the performance of the Enterprise. Staff within all stakeholders understand the strategic objectives, and are empowered to seize initiatives and positively influence the organisation.

• Shared business to business systems and processes – the industry members of the FFG Enterprise are commercial competitors with no binding agreements directly between them. To overcome this paucity of inter–organisation contracts, Business To Business (B2B) processes were developed to ensure that responsibilities, and interfaces, for each organisation were defined and capabilities aligned.

CULTURE AND BEHAVIOURS In addition to implementing a commercial framework to foster collaboration, FFG SPO and its industry partners have pursued activities to align each stakeholder’s culture and behaviours, and develop trust. By way of example, FFG Enterprise personnel have undertaken common training (the highly valued IACCM Supplier Relationship Management (SRM) training) to enable the alignment of FFG Enterprise-wide efforts in supplier performance management and, in turn, improve business outcomes for Navy. The training results in successful participants being awarded formal certification through IACCM, and also ensures


common understanding of the desired intent, outcomes, and collaborative behaviours that underpin the FFG Enterprise. In addition IACCM conducted several workshops over the first 18 months of the Enterprise, facilitating improvements and offering a third party expert assessment of the Enterprise’s health.

The FFG Enterprise has seen these soft skills result in measurable ‘hard’ outcomes, including a joint submission from the FFG SPO and Thales Australia (the GMC FFG Enterprise industry partner) placing two of our staff second in the world for the 2016 IACCM Excellence in Contract Management Awards. In addition, a 2015 submission to the IACCM Innovation Awards was recognised with an honourable mention, essentially placing us forth against finalists Dell, Microsoft and National Grid (the winner). This accolade for an organisation that was less than a year old, encouraged us to strive for international recognition in 2016.

From a cultural point of view, the FFG Enterprise Charter is very significant. It is effectively the compass for the behaviour of all the players in the FFG Enterprise. By having such a compass, and by fostering a collaborative and high trust environment, people started to challenge and innovate, questioning the logic behind statements such as ‘we have always done it that way’. And the higher intent, the reason we exist, is clearly described in the mission ‘materially seaworthy FFGs on time every time’.

CONCLUSION The FFG Enterprise has created a safe environment for collaboration. In the short time since its inception, the FFG Enterprise has achieved cultural and relational dividends, a significant reduction in sustainment costs, and a marked increase in the availability of Australia’s primary Naval Air Warfare Asset to conduct operations.

The FFG Enterprise operating model has enabled maximum utilisation and alignment of existing capabilities across stakeholders, created a robust assurance framework, empowered the workforce to self-generate a learning culture and continuous improvement ethic, and focused efforts on the outcome and delivery of capability. Commonwealth resources have been refocused towards providing effective governance, and transactional overheads that previously formed barriers between contractors and the ship have been removed with all organisations now focused on output.

The model is simple and it works. But it requires constant vigilance to ensure our corporate and individual behaviours match the intent of the FFG Enterprise. To make the FFG Enterprise the success it has been we have need to put in place leaders worth following, have ensured our work is worth doing, and have created a culture worth contributing to. Galvanising our entire workforce towards our mission has been instrumental, and good communications have been essential. Creating a culture that fosters curiosity, innovation and challenges the status quo has been key to continuously improving. Creating an environment that tolerates mistakes and does not play the ‘blame game’ has been integral to our success. In short, putting into practice the IACCM research and suggested best practices has produced demonstrable benefits for all parties involved, despite operating in a complex and volatile environment with challenging levels of uncertainly and ambiguity.

The FFG Enterprise model is simple and it has achieved outstanding results – but it is also challenging and hard work. It is certainly not ‘set and forget’. We commend the concept of relational contracting to you as something that can and should be implemented widely, even over existing adversarial commercial arrangements, and we are happy to share our experiences and the lessons we have learned.

A suggested starting point for developing something similar is the white paper Unpacking Relational Contracts jointly penned by Tim Cummins and Jim Bergman of IACCM, David Frydlinger of LINDHAL and Kate Vitasek of the University of Tennessee. We wish we had access to this paper several years ago. It provides an excellent roadmap for putting in place winning relational contracting practices and would have led us to where we eventually arrived in a much more structured and deliberate manner.


ANNEX H – METHODOLOGY FOR ROUNDTABLES

DISCUSSION PAPERA discussion paper was developed by ICCPM that built on an existing research project lead by Dr John Davies and Dr Andrew Jacopino and released in December 2015.

The discussion paper was provided to all participants before the roundtables and posed a number of questions and suggestions that participants could reflect on and use in discussion.

WORKSHOP PROCESSThe conduct of the workshops followed a similar schedule as follows:

• Introduction to the topic (10 minutes)

• Facilitated break-out groups

• Plenary feedback (30 minutes)

• Facilitated break-out groups

• Plenary feedback (30 minutes)

• Summation & Wrap Up – Moderator lead

• Where to from here and next steps – IACCM and ICCPM

• Closing comments by Event Host

The UK and Perth Roundtables had 3 facilitated breakout sessions and plenary feedback session

DATA COLLECTION, CAPTURE AND PROCESSINGAll group sessions were facilitated by experienced facilitators and were recorded by a scribe. Facilitator and scribed were sourced from ICCPM, IAACM and sponsors.

Each Facilitator was allocated a particular group (pre-determined) and a specific question to be discussed. The facilitators role was to ensure each person was able to contribute to the discussion, try to avoid group think, push the groups boundaries, and work with the group to allocate a speaker whose role was to debrief the rest of the groups during the feedback/plenary sessions. Facilitators were asked to contribute to the summation at the end of the day in terms of the major points from both sessions and what they felt were key takeaways from the day. Facilitators were provided with flip chart paper, markers, post it notes to support facilitation.

Scribes were asked to take note of any key points, as much commentary about the discussion that enabled the key point to be understood as was necessary without any attribution, and detail of any suggested innovations, tools, systems, ideas etc to address it. Scribes were invited, should they wish, to contribute to the discussion, however were to ensure that what was recorded was an accurate representation of the discussion, the facilitator were asked to validate the output at various stages during the day. Scribers were provided a template to complete that was particular to the question they were allocated.

Data from each roundtable was consolidated, grouped and themed by ICCPM staff and provided back the participants for the specific roundtable they attended. The consolidated data from all roundtable was used to inform the development of the final paper.


QUESTIONS

The range of questions addressed by the groups included the following:

• Identify and explore the unique contracting requirements that will enable the procurement of complex goods or services to be successful. This very much means commercial best practices for dealing with complex contracting and how they apply under which conditions (sole source, competition etc).

• Identify technological, business system and contractual requirements for effective management of integrated extended supply chains (clients, prime contractors, sub-contractors).

• We need to move away from the paradigm that makes us focus on specifications and requirements to a paradigm that focuses on the problem that needs to be solved and the outcomes that need to be achieved. How do we reframe the conversation space to a framework for human engagement (the behaviours) for the successful delivery of products, services and innovation?

• What is the purpose of a contract and what do contracts for the unpredictable look like? (consider contract management competency) How do you design contracts to take advantage of disruption?

• How do we make mutual benefit/gain share the driver of our complex contracts?

• How do we maintain focus on the outcomes in complex contracting?

• Identify the roles and governance structures necessary for complex contract management.

• Identify strategies, models, methods and tools to better measure progress and performance of complex contracts.

• What are the attributes of an adaptive governance framework to enable early contractor engagement and relationships and co creation within the bounds of prescribed probity? And how does the governance approach need to change throughout the life of the project?

• How do we create living, breathing contract documents? How can we get people to embrace the concept in complex contracting?

• How can we develop the Contracting Frameworks and mechanisms to support the implementation of Good/Best Practise Risk Management Methods?

• How can we create incentives that recognise and reward the achievement of Risk Mitigation, and therefore improved predictability of project outcome? What changes would be necessary to make complex contracts governable?

• Identify organisational cross functional readiness and maturity that is required for managing contracting complexity.

• How to build a culture of collaboration and overcome barriers? “What reward systems are needed to encourage the right cultural change?

• What changes do we need to make to facilitate the use of more agile and adaptive approaches?

• What are the skills and competencies needed to be an effective contract manager of complex contracts? What behaviours are necessary and how do we embed them? What reward systems do we need to encourage the right cultural change? How do we create the virus and spread success?

• What does leadership mean in the complex contracts space? What are the attributes of a competent leader and how can we encourage the right leadership culture?

• What are the team competencies required to adequately manage complex contracts to success


ANNEX I – OTTAWA, CANADA 19 MAY 2016 Hosted by Telfer Centre for Executive Leadership

KEY THEMESOrganisational capability supported by individual competency

• IACCM Organisational Maturity Model alignment to complexity

• Develop case for individual competency requirement for contract managers aligned to complexity characteristics

• Develop competency based progression for talent development aligned to complexity

• Develop guiding standards for contract managers to include complexity

WORK SMARTER NOT HARDER• Reflective approach to how we do contract management aligned to complex endeavours

• Making the case to invest in tools: Technology like apps, Data mining, Decision Support Systems, Integrated Transparent Supply Chains.

• Develop fit for purpose contracting structures to support complex endeavours

RELATIONSHIPS• Shift from blaming to learning together

• Paradigm shift to a systems perspective

• Enterprise view of projects

REWARD SYSTEMSHow do we move from a fragmented/distributed approach to reward and accountability to a holistic view of the whole of life (contract and project) with appropriate consequences?

• Governance/Contracts

• Maturity

• Culture

• Competence/Education/Certification

MAKING THE CASE TO INVEST• We know the problems we are trying to solve, we have some answers, we know the theory, we know it

works (evidence is mounting), why don’t we do it?

• Org behaviour fights against change to manage complexity at significant expense and lost productivity that is highly visible.


ATTENDEES# Name Surname Organisation

1 Andy Akrouche Strategic Relationship Solutions Inc.

2 Erin Barkel Finance Canada

3 Tony Battista CDAI

4 Stephen Bobyn Lockheed Martin

5 Raymond Bourret ADGA

6 Eric Bramwell Department of National Defence

7 Lisa Campbell PSPC

8 Rosemary Chapdelaine Lockheed Martin

9 Francois Chiocchio University of Ottawa

10 Karen Corkery ISED

11 Tim Cummins IACCM

12 Troy Crosby Department of National Defence

13 Doug Dempster Telfer School of Management

14 Robin Dubeau PSPC

15 Pierre Dupont Accenture

16 Mac Evans Former Head of CSA

17 Ross Fetterly Department of National Defence

18 Andre Fillion Department of National Defence

19 Pat Finn Department of National Defence

20 Mariette Fyfe-Fortin University of Ottawa

21 Megan Gordon Telfer School of Management

22 Sharon Griffin Accenture

23 Gloria Hache PSPC

24 Paula Harris Accenture

25 Daniel Hebert Public Works and Government Services

26 Deb Hein ICCPM

27 Lavagnon Ika University of Ottawa

28 Jake Jacobson Babcock Canada

29 Heather Kemp de Escalante PSPC

30 Andy Kikites Metrolinx

31 Sandra Labbe PSPC

32 Steve Landrey Babcock Defence & Security International

33 Mike Lionais Treasury Board

34 Ron Lloyd Department of National Defence

35 Ian Mack Department of National Defence

36 Michael Miles University of Ottawa

37 Suzanne Nickerson KPMG

38 Mark Nicol Raytheon

39 Patrick O’Reilly Nexen

40 Genevieve O’Sullivan Insignis O’Sullivan Management Consulting Inc

41 Rob Pattison Infrastructure ON

42 Sarah Pike Calian


43 Ian Poulter Department of National Defence

44 Dan Ross Telfer School of Management

45 Louis Saucier Department of National Defence

46 Jean-Francois Seguin KPMG

47 Nick Seiersen IACCM

48 Bill Somerville Nexen

49 Nandini Srikantiah Telfer School of Management

50 Tony Thatcher SNC Lavalin

51 Janet Thornsteinson CADSI

52 John Turner Department of National Defence

53 Stephane Tywoniak ICCPM Academic-in-Residence

54 Peter Weltman Parliamentary Budget Office

55 Kelly Williams General Dynamics Mission Systems

56 Mercedes Zanon Telfer School of Management


ANNEX J – SYDNEY, AUSTRALIA 22 JULY 2016 Hosted by NSW Roads and Maritime Services

CONTRACTING ENVIRONMENT AND CAPABILITIES• Define Success – What criteria = Value Vs Financial (Benefits Realisation)

• Intent Vs Success – feedback loops & learning, Why Vs How/What. What is the effect we are looking for?

• How/when do we capture expectations in the contract?

• Narrow definition of capability and infrastructure (take Technology out of the equation)

• Immature whole of life concept, transition from Acquisition Only to Asset Management (Acquisition AND Sustainment, Buy AND Maintain)

• Collaboration, engagement with suppliers, how do we manage collaboration and competition, can we find alternatives to competitive tendering, is ECI the only way to establish best initial conditions for success? Can we develop alternatives?

• Refining definition of Probity towards transparency & openness, away from secrecy and risk aversion

• Iterative planning Vs contractual terms can they work in support of each other

• Collaboration in a protected IP environment, is this possible?

• How do we make open innovation work for everybody?

• What does an informed purchaser look like?

• Business problem not technical problems need business solutions with flexibility not engineering solutions (linear).

• Incremental, Just in Time Agreements and overarching Head of Agreement will enable better project delivery.

• Agree an off-ramp process

• How to manage codified and tacit knowledge (IP)

ROLES AND GOVERNANCE • Leadership and devolved decision making

• One size does not fit all

• Interdependent contractors, interactivity with complexity, recognising it does exist – Integration of enterprise.

• Need to deal better with complexity - Need to explore fit for purpose contract mechanisms that will be sustainable into the future?

• How to achieve integration?

- Alternatives to the Prime Contractor Model? (PPPs, Alliances, other possibilities)

- What are the management approaches need to support successful implementation? (worldviews, paradigms, complexity theory)

• How to manage vertical alignment of governance = Portfolio – Program – Project

• Using appropriate technology to manage privacy and security of information


• Establish the right governance to enable collaboration using shared technology solutions i.e. cloud enabled shared schedule management systems or risk management systems

• Decision making should be made at appropriate levels aligned with level of responsibility, flow down and enable decision makers

• Uncertainty reduction comes at a price

• Aligning contract review to staged project planning and milestone achievement

• Need to educate all up the chain (Ministers/Boards/CEOs etc) that uncertainty is now the norm and we need to be able to contract for that with confidence

• Governance should never remain static, must be adapted to align with project stages/phases

LEGAL/COMMERCIAL MANAGEMENT• Integration of legal and commercial views is imperative to success (lawyers with/without commercial

attitude/experience/worldview)

• Risk management Vs Cost of litigation

• Selecting the right supplier within the terms that we are willing to accept (align values/beliefs/culture)

• Engineering elegance OR Client needs (culture issue)

• Who is the customer? What are their needs?

• Digitisation and automation of data/reporting and/or monitoring outcomes/benefits for client.

• Integrating technology platforms across supply chain

- Heterogeneous capabilities needed to enable collaboration

• Designing iterative tender/contracting processes to better support decision making in a complex environment

• Digitisation of legal/contract drafting (robot lawyers), is it disruptive to forming sustainable positive relationships?

• Address potential failure through the concept of project/contract reset, replanning is not a sign of failure

• Need to distinguish between tangible and intangible outcomes within a contract, with potential

different frameworks to manage within.


RELATIONSHIPS• Trust and understanding an absolute requirement

• Collaborative contracting with sophisticated stakeholder engagement and relationship management will enable success

• Co-creation of outcomes and contract terms

• No blame culture, OK to try and fail within the bounds of delegations (based on level of complexity) provided that learning occurs

• +/- Consequences are proportionate to actions

• Paradigm shift - Ok for industry to make a profit

• Framework/mechanisms built into contracts to manage uncertainty/unpredictability

• Shift to a genuine good faith paradigm (best for enterprise, program or project mindset)

• Ecosystem of stakeholders

• Managing IP appropriately to recognise value and support innovation?

• Shared risks & rewards

- Flow down to subcontractors

PERFORMANCE MEASUREMENT• Siloed Organisations

- Separation between contract & delivery

- Separation between acquisition & sustainment

• Alternative way to manage contract variations to enable flexibility

• Who owns the contract? So who is being measured?

• Contract Management Capabilities? Are we mature enough organisationally and individually?

- Competency Standards for contracting and contract management

- Organisational maturity & individual competency in the commercial space

• Contract management & relationship management skills must be developed

• Shared understanding of aims across stakeholders to better address uncertainty, mindset shift

• How can we develop fit for purpose contract mechanisms that will be sustainable into the future?

• Review processes

- Managing emergence impossible when we have fixed KPI’s and evolving scope

- What are the appropriate control/monitoring processes & structures? How can we develop fit for purpose contract mechanisms that will be sustainable into the future?

- Move from ticking boxes to minimise risk, to outcomes focussed contracting

• Prepare to broaden scope of work through conversation and ongoing dialogue designed to surface risk and opportunities, including discussion around not doing a piece of work and what the consequences of that might be.


ATTENDEESName Surname Organisation

Scott Alden Holding Redlich

Cathy Baljak ICCPM

James Bawtree AIPM

Ann-Marie Boumerhe McCullough Robertson

Laurie Bowman Synchrony

Yvonne Butler AIPM

Antoinette Carley TAFE NSW

Ian Clark CASG

Georgina Cox Hewlett Packard Enterprise

Tim Cummins IACCM

Malcolm Dunn Strategic Agility

Brianna Edwards AIPM

Greg Fackender Endstate

David Fishburn NSW Roads & Maritime Services

Goran Gelic McCullough Robertson

Jennifer Goddard IACCM

Mark Grodzicky UXC Limited

Richard Hawtin Raytheon

Deborah Hein ICCPM

Diane Hope ICCPM

Sally Hughes IACCM

Bizhan Jamshidnezhad APIC

Rochelle Kirk NSW Roads & Maritime Services

Greg Laxton CASG

Sue Leslie Endstate

Subrata Majumder CASG

Brett Nan Tie Brooke Global

Peter Nicholas NSW Department of Justice

Shalendra Ranasinghe NSW Roads & Maritime Services

Phil Reid Wired

Joanne Staugas NSW Roads & Maritime Services

Dale Tuckey NSW Department of Justice

Jennie Vickers IACCM

Vincent Wall Brooke


ANNEX K – CANBERRA, AUSTRALIA 28 JULY 2016 Hosted by Brooke

FRONT-END ENGAGEMENT / RISK MANAGEMENT / AMBIGUITY• Early engagement with industry to work through issues

• Be more comfortable with ambiguity

• Need more proactive risk management

GOVERNANCE • Contract rigidity –need more flexibility

• Contract as living document – change mindset

• Contract language –move away from adversarial to collaborative language to drive behavioural change - Contract language innovation – investigate moving to visual contract to facilitate engagement

• Technology integration an enabler of collaboration

COLLABORATION / TRUST / POWER• Engage with stakeholders to build trust

• Reframe probity discussion to focus on transparency

• Long term view

• Flexibility in work practices to enable opportunity identification as a result of emergence

• Team building and partner evaluation

• IP recognition to enable collaboration whilst recognising competitiveness

COMPLIANCE• Remove/reduce threats in contracts: Focus on outcomes not process

INDIVIDUAL COMPETENCE / LEADERSHIP• Importance of soft skills, empathy, communication

• Leadership to model behaviours

• Development pathways, mentoring

• Leadership training and education

ORGANISATIONAL MATURITY• Ability to think LT about relationship beyond contract

• Change management

• Culture and behaviours

• Diversity benefits

• Outcomes focused contracts

• Learning from other models (emergency management)



1 Brett Ackroyd Brooke

2 Anthony Allen Brooke

3 Mike Baker ATO

4 Cathy Baljak ICCPM

5 Victoria Bergman Dept. Foreign Affairs and Trade

6 Tony Borgo Thales Australia

7 Mee-Yeong Bushby CSC Australia

8 Sonia Cain BAE Systems Australia

9 Tony Charge ARPI

10 Nick Crossley AIPM

11 Lester Doecke Brooke

12 Erin Evans ICCPM

13 Graham Eveille Eveille Consulting

14 Michael Frith CASG

15 Peter Griffin Independent Consultant

16 Deborah Hein ICCPM

17 Chris Hilder CASG

18 Diane Hope ICCPM

19 Daniel Kopunic RPDE

20 Andrew Makin Thales Australia

21 Tony Marceddo Northrop Grumman

22 Oscar Metcalfe Crawford School at ANU

23 Paul O’Drival CASG

24 David Parkinson Cordelta

25 Jamie Pratt Telstra

26 Tom Reynolds Kellogg Brown & Root

27 David Roulston ACT Government/AIPM

28 Julie Summerfield VFocus Pty Ltd

29 David Swan Brooke

30 Peter Terwee CASG

31 Michelle Toscan CSC Australia

32 Stephane Tywoniak ICCPM

33 Jennie Vickers IACCM

34 Christine Wall Brooke

35 Andrew Waye Jacobs

36 Claire Willette ARPI


ANNEX L – PERTH, AUSTRALIA 4 AUGUST 2016 Hosted by CSIRO

GOVERNANCE• Delegation of decision-making at the right level

• Greater risk tolerance

• Adaptable frameworks / living documents

• Overcome silos

• ‘Relationship Guardian’

• Building capability to support mature governance

COLLABORATION / ENGAGEMENT• Vertical and horizontal engagement

• Build trust and transparency

• Team building – physical co-location to engage

• Benefit of cultural diversity – but need to pay attention to build trust

• Building communities of practice to share ideas and connect stakeholders / build teams

• Business development / contracts / project management to collaborate

INCENTIVES AND PERFORMANCE• How to drive value through the supply chain

• Have right incentives in contract

• Outcomes and relationships focused – not focused on individual specifications

INDIVIDUAL COMPETENCE / LEADERSHIP• Have flexibility and learn from experience

• Leadership in contract management and project management – not afraid to make decisions

• Model desired behaviours

• Training and development of leaders: education, coaching, mentoring



1 Kathryn Abbott WA Department of Finance

2 Gregg Bohan Thales Australia

3 Phil Crosby CSIRO

4 John Gallacher JDG Services Pty Ltd

5 Gandhi Gandhi Gandhi and Shaw

6 Phil Harlow AIPM

7 Silvana Hayes BGC Contracting Pty Ltd.

8 George Heald CSIRO


10 Stephen Koh WA Department of Finance

11 Chantelle Lee CSIRO

12 Lincoln Morton ToxFree

13 Claire Negus Roy Hill

14 Francis Norman Ulfire Pty Ltd

15 Martine Peasley AIPM

16 Dinesh Poojary Eni Australia Limited

17 David Shaw Gandhi and Shaw




ANNEX M – MELBOURNE, AUSTRALIA 18 AUGUST 2016 Sponsored by Brooke and hosted by Corrs Chambers Westgarth

CONTRACTS THAT ALLOW FOR FLEXIBILITY• The contracts don’t necessarily match new way

of working for example prototype and then build

• Lack of flexibility and agreement, because things are complex and change, often suppliers will stick to the letter of the contract

• Design commercial solution too early, therefore disconnect between supplier and customer

• The contracts don’t necessarily match new way of working for example prototype and then build

• History of contract, every time there is a failure there is a new clause inserted into the contract

• Ideal scenario for commercial legal best practice. If parties could work out and allocate risk up front that would make it easier

COMPLEX PROJECTS - MODEL CONTRACTS DON’T WORK• New approach should be understand the journey

• What everyone has learned, is that traditional big bang approach is problematic.

• If you have good trust you can do anything.

• How do you build trust in the relationship/contract?

• Have the right people in the conversation at the right time.

• If you don’t have the right people involved in building the contract then that decreases trust

• Strategies going into negotiations should be what behaviours we want to see long term managing contract. Need:

- Transparency

- People who are involved building trust should be involved after in contract management.

- Don’t hand off from negotiation team to other team and then pass off to people who have to manage the contract with ‘bad blood’.

POTENTIAL MODELS• Model with no template contract – bespoke

• Only includes commercial principles and values that parties agree to up-front.

• Instruct lawyers to give effect to principle terms

• Include a mechanism to resolve “unknowables” as they occur within the contract

• Agree a code of conduct or values statement that is best for project and outcomes focussed

• Overarching head of agreement with just in time contracts negotiated on occurrence

• The world might be ready for this


ROLES AND GOVERNANCE• Start with the relationship

• Delegation of decision-making at the right level

• Greater risk tolerance

• Adaptable frameworks / living documents

• Overcome silos

• Building capability to support mature governance

• Flex commercial mode to address risk and complexity

• Be comfortable with the unknown / Delegate without a culture of blame

INCENTIVES AND PERFORMANCE• How to drive value through the supply chain

• Have right incentives in contract

• Outcomes and relationships focused – not focused on individual specifications

• Appropriate warning systems to support governance



1 Chivonne Algeo Monash University

2 Sophie Andrew Brooke

3 Donna Ashton CASG

4 Tim Cairns National Australia Bank

5 John Cassat CASG

6 Phil Catania Corrs, Chambers, Westgarth

7 Melanie Escalona Lockheed Martin Australia

8 Bruce Everett Brooke

9 Shirley Foon Hewlett Packard Enterprise

10 Vince Gamberale RMIT

11 Stefanie Givoye Telstra

12 Jennifer Goddard IACCM

13 Stephen Grey Broadleaf Capital International


15 Diane Hope ICCPM

16 Lee Houlson BAE Systems Australia

17 Cyril Jankoff The Risk Doctor

18 Mark Lambert South East Water

19 Chris Latcham AIPM / KPMG

20 Iain Macrae National Australia Bank

21 Iain McLaren ANZ

22 Jen McLean CASG

23 Robert McMartin Thales

24 Rob Oldfield Telstra

25 Theonie Scott Corrs Chambers Westgarth

26 Chris Smith Boeing

27 Ian Sutherland CH2M HILL

28 TBA TBA TBA

29 Ian Thompson Thompson GCS


31 Thomai Veginis Telstra


33 Sinead Williams Australian Taxation Office


ANNEX N – WASHINGTON, USA 15 SEPTEMBER 2016 Hosted by Institute for Public-Private Partnerships

KEY THEMES

MATURITY IS NECESSARY FOR NONLINEAR EXECUTION • Define ready and mature as it relates to different organisations and honestly assess against aspiration.

• Ability to reconcile perspective and views of various persons.

• Aligning people and skills with customer requirements, being honest about evaluating gaps and subsequently correcting.

• Improvement requires investment and support.

• Leadership in contracting and procurement inclined to transactional views need to move to strategic understanding and approach

• Lack of defined and understood contracting process is an incredible impediment.

INNOVATIVE INTEGRATED CHANGE MANAGEMENT TEAMS • Contracting for the Relationship.

• Risk Sharing.

• Value based.

• Active integration.

• Enable joint planning for outcomes and shared understanding of effects required and needs

• Constantly Revisiting and Resetting Endgame / outcome

CULTURAL ALIGNMENT• Better understanding client outcomes/Contractor Constraints/Methods/limitations

• Culture will either enable or inhibit effort to achieve

• Efficiency vs effectiveness

• Organic vs Prescriptive. Objective vs subjective (human nature/organic)

• Win/win relationship

• Align and Prioritize Skill with Need

• Listen to answer not just respond

STREAMLINING THE ACQUISITION MODEL• Business system as a technical solution

• Integrated systems that communicate with each other to minimize data inaccuracies

• Sharing risks and reward across the supply chain

• Reduced terms and conditions, establishing and building trust, stimulating relationships



1 Jose Arrieta Department of Treasury

2 Jim Bergman IACCM

3 Jim Blades Millennium Challenge Corp

4 Grant Book HPE

5 Paul Branch BT

6 Brian Collins Business Executives for National Security

7 David Cornell Serco

8 Tim Cummins IACCM

9 Julie Dunlap ICCPM

10 Monique Ewing Serco

11 Deb Hein ICCPM

12 Lee Hwh Serco

13 Susan Maybaumwisniewski Business Executives for National Security

14 Myla Miller IBM

15 Liviu Nedelescu Avansys Solutions LLC.

16 Fred Payne Serco

17 Mark Rivers Serco

18 Carol Savage IBM

19 Nick Seiersen IACCM

20 Ryan Staley Serco

21 Patti Toohey CSC

22 Maree Weir CASG

23 Anthony Williamson CASG

24 Jeff Worley ICCPM


ANNEX O – LONDON, UNITED KINGDOM 23 SEPTEMBER 2016 Hosted by University College London

KEY THEMES

PROJECT MANAGING THE COMMERCIAL ASPECTS • No unique things. Accept the change is the norm, things aren’t fixed you can’t have certainty,

need agility.

• Don’t know the output at the start

• Need set of behaviour to operate, need people piece, relationships and behavioural attributes.

• Not linear process. It is recursive, iterative in nature. Left shifting all time not just at the beginning

• Does the nature of the contract match the risk responsibility

• No ‘one size’ fits all; through a supply chain, Match the contract terms to each suppliers circumstances Manage second tier relationships e.g. between suppliers

• Good supply chain analysis facilitated design of appropriate relationship contracts

• What is a contract – it’s not just T&C contract is the whole thing

• No WHY in contracts – may be in the tender docs but not necessarily carried through to execution/implementation / What is the process for contracting?

COMMERCIALLY MANAGING THE PROJECT ASPECTS • Continuity of membership of the teams from all parties.

• Formalise RACI on all roles not just hard elements but the soft as well.

• Framework – Tools to measure where we are, looks at the rate of convergence or divergence of requirements, measure of behaviour (correlate with delivery of benefits)

• What is governance – holistic, decision centric, people centric.

• Need for clarity and consistency is important, need an agreed approach.

• RACI for the whole program is key

• Transparency / Building Trust Early

• Involvement of stakeholders in process creates ownership and accountability

• Requires incentives for collaboration and teamwork

TEAM WORKING FOR SUCCESS• Integrated delivery team, covers everything prime, suppliers, client teams, customers rand users,

range of discipline. Broad church but not huge, smaller then what you have now with more capability

• Team that you put together is greater than the sum of its parts = Success

• Use of KPI’s around relationship / Coherence in organisational construct

• We all know we build better relationships through trust, but we can’t quite let ourselves be vulnerable by trusting other parties

• Burning platform or vision

• Listening skills - leadership


# Name Surname Organisation

1 Dimitris Antoniadis UK Power Networks

2 Tim Banfield The Nichols Group

3 Stephen Beeching Cobham Aerospace

4 Peder Berg Ministry of Finance, Norway

5 Leandro Bolzan de Rezende Brazilian Army and University of Manchester

6 Dan Brandenburger UK Dept for Environment, Food and Rural Affairs

7 Chris Breen Pinsent Mason LLP

8 Neil Carey NAO

9 Karen Cherrill Kingsfield Consulting

10 Barbara Chomika Arcadis

11 John Chrastek Jacobs UK Ltd

12 Cath Convery ELS

13 Tim Cummins IACCM

14 Darren Dalcher Hertfordshire Business School

15 Andrew Daw Harmonic Ltd

16 Deborah Feakins Marlowe Consulting

17 Peter Fielder BAE Systems

18 Adrian Furner Kommercialize Ltd

19 Tony Graham ICCPM


21 Simon Henley ICCPM

22 Patrick Hoverstadt Fractal

23 David Howe Vodafone

24 Sally Hughes IACCM

25 Lesley Kane Marshall Aerospace

26 Lucy Loh Fractal

27 Steve Ludlow Henley Business School

28 Susanne Madsen Programme Director and

29 Robert Marcus Jurit LLP Solicitors

30 Mary McKinlay ICCPM

31 Alistair McPherson SKA Organisation Limited

32 Peter Morris University College London

33 Stephen Munford CASG

34 Jonathan Norman Taylor & Francis Publishing

35 Violet Okpere Shell

36 Greg Parry Vodafone

37 Susan Pritchard University College London

38 Tom Taylor Buro Four/APM VP/Dashdot

39 Phil Thomas UK Department of Health


41 Alex Walsh Sellafield

42 Simon Wittridge Sellafield

ATTENDEES


ANNEX P – SUMMARY OF RECOMMENDATIONS

CONTRACTING FOR SUCCESS IN A COMPLEX PROJECT• Executives must recognise the need to implement adaptable and dynamic contracting approaches

supported by education programs for everyone expected to execute including project and commercial (contract and legal) practitioners.

• Executives must value trust and collaboration between client and contactor/s as a foundation to move from managing the contract to managing the relationship. Greater collaboration between parties is absolutely necessary to work in adaptive and uncertain environments. Organisational culture including governance must be addressed to enable this to occur safely.

• Organisations must design and develop guidance on mechanisms such as those suggested to enable living/breathing documents to be used.

• Develop of a global repository (database/library) of express terms that have been successfully deployed to manage complexity in contracts

A BURNING PLATFORM – THE BUSINESS CASE TO INVEST• Executives must be encouraged to participate in education, talent management and mentoring

programs to better understand complexity and the effect it has on business performance.

• The ability to manage in complex environments must be a core capability for all executives.

• Executives must commit to and support staff to attend education programs that are designed to increase future leader’s capability to operate in complex environments and the effect complexity has on business performance (positive and negative).

• Organisations must differentiate programs and projects based on levels of complexity before considering contracting mechanisms to aid executives in understand when different contracting is required.

• Selection for appointments or promotions must be based on criteria that values Systems Thinking and understanding complexity as well as demonstrating the ability to manage relationships, interdependencies, multidisciplinary teams and whole system performance, and to include the use of selection panels that similarly understands these attributes.

• Share knowledge and build a ‘knowledge base’ to share within the community.

• Increase awareness and courage to experiment with technological tools that support modelling, interpretation, data analysis, real time decision making, with AI (deep learning) capacity being critical going forward. As the emergence of AI solutions (deep learning) targeting complexity management increases, the human capacity to interpret and manage complexity will also increase.

COMPETENCE TO LEAD COMPLEX PROJECTS• Develop individual competency standards for Contract Managers aligned to complexity characteristics

including progression for talent development aligned to agreed and relevant competency standards.

• Organisational maturity & individual competencies to be integrated and mandated when working in a complex environment.

• Executives must be educated and experienced to recognise when an endeavour is complex and apply appropriate techniques and contracting mechanisms to enable the management of the complexity within the bounds of the contract.

• Assess KPIs and develop appropriate measures that reward the necessary and desired behaviours specific to the needs of the project/contract.

• Integrate contract management into the project and develop shared understanding from inception to closure.


ORGANISATIONAL MATURITY TO COPE WITH COMPLEXITY• Recognise and elevate the fundamental importance of the functions of project and contract

management in delivering strategic business outcomes.

• Longitudinal research to monitor the evolution of CM and PM maturity – research must focus on increasing the understanding of PM and CM maturity and the development of real-world case studies reporting how an organisation actually derives benefit from the application of maturity models.

• Develop a robust and truly holistic Organisational Maturity Model fit for purpose for contracting in complex environments integrating project management and contract management maturity.

• Contract and Project Managers must be given the legitimacy to lead integrated cross functional teams.

• Enable and develop capability of contract and project managers to lead and work effectively in integrated cross functional teams necessary to be successful in complex environments.

• Research and develop the appropriate organisational culture characteristics and structures (including KPIs) that promotes appropriate levels of risk taking (rather than promoting risk avoidance), balanced by healthy organisational learning, and resulting ultimately in more successful delivery capability for complex projects.

ADDRESSING RISK FROM A SYSTEMS PERSPECTIVE• Organisations must determine their “Risk Policy” position.

• Risk policy positions should be included in RFT documentation and required for assessment in responses.

• Develop a global repository/library of risks and responses as a knowledge bank to access, that articulates what the risk was, why was it considered a risk, what was done about it and advice on how an appropriate clause could be drafted to address the risk.

• For complex projects, traditional process-based risk management methods must be replaced by systemic risk management approaches, using applied systems thinking to manage risk(s) across whole project systems and seeking to achieve win-win outcomes for all parties.

GOVERNANCE IN COMPLEX ENVIRONMENT• Industry lead research is required to investigate and develop appropriate dynamic

governance frameworks.

• Development of appropriate education resources to build capability in managing risk and governance in complex environments particularly for board level governance mechanisms.

A HOLISTIC VIEW• Design a system and processes that address how to maintain competition and probity and foster

collaboration and cooperation at the same time, must be Government and Industry lead.

• Design a system to accommodate cultural differences between organisations which have divergent goals but must work together to deliver outcomes.

• Recognise the support of holistic approaches including systems thinking and complexity based approaches based on non-linear planning, problem structuring and sense making to project and contract development and management.

• Multi-methodological approaches must be used to improve integration between contract and project management. This includes traditional approaches such as systems engineering and complexity based approaches in balance.

• Greater sense making must be included as a core skill during the design and development of contracts to be aware of emergent outcomes.


BIBLIOGRAPHYAndersen, E.S. & Jessen, S.A. (2002) Project Maturity in Organisations. Intl J of Project Management 21:

457-461.

Australian Contractors Association, ‘Relationship Contracting, Optimising Project Outcomes’ (1999) ch 5;

Australian Government Department of Infrastructure and transport (2011) ‘National Alliance Contracting Guidelines Guide to Alliance Contracting’ p 32;

Australian Risk Policy Institute (2012) The Risk Policy Model - New Thinking, New Approaches and New Frameworks about Leadership, Decision-Making, Public Policy and Risk available from http://arpi.org.au/wp-content/uploads/sites/3/2013/12/Risk-Policy-Model_2012_-New-Thinking.pdf

BS 11000 ‘Collaborative Business Implementation Guide’ (2013) p3;

Business Council of Australia, Pipeline or Pipe Dream? Securing Australia’s Investment Future, 2012

Christoph, A.J. & Konrad, S. (2014) Project complexity as an influence factor on the balance of costs and benefits in project management maturity modelling. Procedia Social and Behavioural Sciences 119:162-171.

Cooke-Davies, T. J., & Arzymanowc, A. (2003). The maturity of project management in different industries: An investigation into variations between project management models. International Journal of Project Management, 21, 471–478.

Commonwealth of Australia (2014) Competency Standards for Complex Project Managers

Crawford, K.J. (2014) Project Management Maturity Model, Third Edition Auerbach Publications

Crosby, P, (2011) Procurement Strategies enabling success in high-technology mega-projects: Preparatory work for the SKA, www.skatelescope.org/pages_memos.htm

Defence Policy Procurement Manual p 1.2-3; Arthur McInnis, ‘Relational Contracting under the New Engineering Contract: A Model, Framework and Analysis’ (paper presented to the Society of Construction Law, UK September 2003);

Grant, K. P. & Pennypacker, J.S. (2006). Project management maturity: an assessment of project management capabilities among and between selected industries. IEEE Transactions on Engineering Management, 53(1), 59-68.

IACCM, (2012) ‘ROI of Contracting Management, February 2012 cited in IACCM, ‘The Future of Contracting’

ICCPM (2014) Submission to the Productivity Commission Public Inquiry into Public Infrastructure,

Independent Project Analysis Inc. (2012), The Performance of Australian Industrial Projects, Prepared for the Business Council of Australia, 2012

Jacopino, A and Davies, j “Deploying Performance-Based Contracts for Outcomes” Presentation to 2015 IACCM Australasia Forum (Brisbane (2015) available at https://iccpm.com/sites/default/files/kcfinder/images/Resources/2015_iaccm_performance_based_contracting.pdf

Jugdev, K., & Thomas, J. (2002). Project management maturity models: the silver bullets of competitive advantage? Project Management Journal, 33(4), 4-14.

Lendrum, T (2011) ‘Building High erformance Business Relationships’ (2011);

Megaprojects: The good, the bad and the better By Nicklas Garemo, Stefan Matzinger, and Robert Palter Retrieved on 14 December 2016 http://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/megaprojects-the-good-the-bad-and-the-better

PMI (2014) Navigating Complexity: A Practice Guide

Project Management International LinkedIn Group


Pretorius, S. Steyn, H. & Jordaan, J.C. (2012). Project management maturity and project management success in the engineering and construction industries in Southern Africa. South African Journal of Industrial Engineering, 23 (3), 1-12.

Queensland Government Chief Procurement Office ‘Better Procurement Guide: Relational Procurement Options - Alliance and Early Contractor Involvement ‘ (2008) [10.1];

Remington, K (2011), Leading Complex Projects, Gower Publishing, Surry UK

Shergold, P (2015) AC, http://www.apsc.gov.au/publications-and-media/current-publications/learning- from-failure

Skulmoski G. (2001) Project maturity and competence interface. Cost Engineering 43(6):11–18.

Snowden, D and Boone, M (2007), Leadership Framework for Decision Making, Harvard Business Review

State of Flux ‘Supplier Relationship Management Research Report 2012: Voice of the Supplier - A Step Closer to Mutual Benefit’ (2012)

The Law Handbook (2016), http://www.lawhandbook.org.au/07_01_01_what_is_a_contract

Tichy, N.M. and Cohen, E.B. (1997), The Leadership Engine: How Winning Companies Build Leaders at Every Level, Harper Business, London

http://www.australiandefence.com.au/news/air-underpinning-operations-air-force-engineering-capability

https://iccpm.com/sites/default/files/kcfinder/images/Resources/deeble_c_-_pgcs_2015.pdf

https://www.anao.gov.au/sites/g/files/net616/f/2014_ANAO%20-%20BPG%20Public%20Sector%20Governance.pdf

https://www.nao.org.uk/contact-us/project-leadership/


Solving complexbusiness problemswith confidence

The world is becoming more complex, interdependent and unpredictable. In the face of disruptive technologies, innovation and the accelerated pace of change, organisations need to challenge the status quo and think differently about solving complex business problems. Brooke was formed by experienced business executives around a common vision: to help organisations overcome their most complex business challenges through evidence‑based, real‑world solutions. We draw on robust data from our research partner, Brooke Institute, turning insights into actions to deliver results faster, and with greater impact.

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Complex contracts and important supplier relationships

Large projects or portfolios

Driving fundamental change

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We HelpExecutives turn to us when conventional approaches fail. We help Executives who are responsible for

Projects ¯ Recovery

Project resets; Project acceleration; Project value management

¯ Assurance Project health checks, audits and diagnostics; Project and portfolio reporting; Project and portfolio risk analysis

¯ Capability Program and project offices; Program and project governance

¯ Delivery Solution design and implementation; Operating model design and implementation; Project and program management

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Conflict resolution; Value and risk optimisation; Leakage control

¯ Assurance Contract health checks, audits and diagnostics; Contract metrics and measurement; Contract risk analysis

¯ Capability Collaborative contract management; Contract selection and alignment; Managing performance‑based contracts

¯ Delivery Contract negotiations; Commercial management

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