Before You Sign the Design Services Contract ...
Wednesday, August 2, 2017 1:30 PM - 3:00 PM (Eastern Time (US & Canada))
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This online class carries 1.5 PDHs (Professional Development Hours).
Curriculum Track: Project Management and Project Delivery
Member Organization: National Events
Faculty: Howard Birnberg, Executive Director, Association for Project Management
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Unfortunately, in the rush or excitement to begin a new project, many engineers and architects fail to adequately evaluate the challenge ahead and objectively examine the cost/benefit of the work. Failure to evaluate your own capabilities may damage your reputation, hurt your bottom line, lead to poor service, and lead to low morale among your project managers and staff.
- Understand the importance of knowing your firm's capabilities and services
- Learn the importance of understanding your firm's costs of doing business
- Evaluate your firm's methods of planning a project's scope of services
- Recognize the need to effectively control scope creep
- Examine your firm's methods of project budgeting
A contract is the baseline understanding for the project and the project manager is heavily involved in determining the contents of this document. The PM is primarily responsible for the project scope of services, schedule and design budget. These items are typically outlined in the contract for engineering or architectural services.
Factors to consider before signing a design services contract include:
- evaluate your marketing objectives/potential client targets
- consider your ability to provide the services potential clients require
- evaluate your experiences working with similar clients
- specialization may enhance performance/cost control through knowledge gained by your staff in working on past similar projects
- you may choose to decline (or not seek) a project based upon past experience,inexperience with the project or client type, current/projected workloads, etc.
Seeking and obtaining design work for which your firm is not well suited can be a costly experience both financially and emotionally and may damage your firm’s reputation. For example, a design firm that has never worked for a federal agency needs to learn a great deal about the federal contracting process. Your firm may be technically qualified, but not well versed in the financial issues involved in federal contacting. For the project manager, this can require a costly education. To successfully evaluate your ability to complete a contract requires understanding a number of financial issues, including:
- know your own costs and cost structure
- know your own cost of doing business such as multipliers/overhead rates/profit targets
- knowing your own costs allows a project manager and firm to determine if they canmake money doing the project or provide the necessary level of service
No manufacturer of a product would offer an item for sale without knowing the full cost of the component parts, or the costs of assembly, marketing, overhead, distribution, service, etc. Unfortunately, many engineering and architectural firms regularly offer services without an understanding of their cost of doing business as reflected in their project multiplier. As a result, no matter the form of the fee quote to a client (fixed fee, percent of construction, lump sum, square footage, time card, etc.) the project manager has no confidence that the underlying information they are using for project budgeting is accurate. The result can be a project meeting the job labor budget, but still not achieving target profits.
SCOPE OF SERVICES
Also required is a well written scope of services. Your firm must develop standardized forms and systems for the preparation of a project scope of services. The actual scope of services may come from several sources, including:
- provided by your client;
- the design firm develops its own; or
- a third party (such as a construction manager, program manager, etc.) develops it.
A scope of services provides a contractual listing of the service obligations of the design firm. Items that are unclear or open for interpretation may create circumstances where the engineer or architect is not adequately compensated for their work.
PROJECT DESIGN BUDGETS
- It is also vital to completely prepare a project budget. This project budgeting process:
- allows the project manager to obtain a “buy-in” from technical/design staff regarding scope/schedule/budget;
- requires the project manager to think through who will work on the project and when;
- allows the project manager to reexamine the proposed scope of services; and
- requires forward pricing fee estimates on long-term contracts/projects to compensate for overhead increases, staff raises, inflation, etc.
The project manager leads the effort to prepare a complete project budget. Typically, they turn to the technical staff to prepare their portion of the budget. It is the PM who requires the technical staff to justify their budgets, finalizes the budget, presents it to the client and negotiates any necessary changes. A poorly prepared budget may result in a substantial financial loss on a project.
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