A contract is the baseline understanding for a project, and the project manager is heavily involved in determining the contents of this document. The project manager is primarily responsible for the project scope of services, schedule, and design budget. These items typically are outlined in the contract for engineering or architectural services.
Factors to consider before signing a design services contract include:
- marketing objectives/potential client targets;
- ability to provide the services potential clients require;
- experiences working with similar clients;
- specialization that may enhance performance/cost control through knowledge gained by staff in working on past similar projects
- declining (or not seeking) a project based upon past experience; and
- 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 knowing your firm’s:
- costs and cost structure, and
- cost of doing business, such as multipliers/overhead rates/profit targets.
Knowing costs allows a project manager and firm to determine if they can make 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 used 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
A well written scope of services also is required. Your firm must develop standardized forms and systems for preparation of a project scope of services. The scope of services may be developed by your client, the design firm, or a third party, such as a construction manager, program manager, etc.
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. The project budgeting process:
- allows the project manager to obtain a “buy-in” from technical/design staff regarding scope, schedule, and 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 project manager 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.
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 project managers and staff.
Howard Birnberg is executive director of the Association for Project Managers. He may be reached at 312-664-2300 or email@example.com.