Avoiding Contract Disputes

Project managers who have been certified as Project Manager Professionals (PMP®) are familiar with the various types of contracts. They know that the type of contract to use depends not only on the products and services being purchased, but also on the level of risk they and the seller are willing to assume. What they may not always be aware of is that even the best contract does not guarantee that disputes will not arise.

Well-defined requirements are an obvious way of avoiding those possible conflicts. If the contract clearly defines what is expected, both parties will be in agreement regarding what the deliverables will be. However, well-defined requirements are not always a reality in the world of project management. Some sellers (your sales team) may underbid a proposal with the expectation that the inevitable changes orders from the customer will allow them to recover the profit margin they are losing in order to get the business. Even when projects are bid well and there is a firm, well-defined agreement as to the project scope, changes may arise which both parties must address. These, and any number of other, unique scenarios can become possible areas of dispute.

So what can the project manager do? Approach the project with a mindset that the customer is a partner, not an adversary. If both the seller (you) and buyer (your customer) are invested in the success of the project, disagreements that arise can be easily and amicably resolved. If each side is too focused on their own interests, small disagreements can evolve into major conflicts and derail a project.

When disagreements arise, work to resolve them in a way that both parties come out as winners. Even when the contract supports your position, negotiate. While you may feel that you would be proven right in a court of law, the damage to the relationship, and the obvious stalemate of the project while the case is being resolved, will impact the ultimate success of the project. While there may be situations when pursuing a legal option is all that is left, it should be a last resort.

The best way to avoid possible conflicts is to be fair when negotiating the contract. For example if the contract has penalties, make sure it includes bonuses as well. Both parties need to feel they have an equal chance to win and lose. Even with a fixed price contract, it may be better to renegotiate then to have the buyer (your customer) walk away from the project because they feel they have more to lose by completing the project than by walking away.

Also, beware of the bid that feels too good to be true. If your sales team is not presenting a competitive bid, it may mean that your buyer does not fully understand what is required to complete the work of the project. Once they become aware that they are overpaying, they will be likely to try to renegotiate, or walk away.