The document discusses contracting best practices for large, complex IT projects undertaken by state governments. It outlines both "not so good" practices like rushed procurement processes and sole source contracts, as well as "smart" practices and best practices. These include establishing clear deliverables and milestones, payment schedules correlated to vendor costs, dedicated contract managers, and change control processes. The presentation provides guidance for setting up contracts that balance project needs with financial compliance in complex government IT projects.

1. MESC 2014 Presentation
Tim Masse, Principal, BerryDunn
Bill Brown, Principal, BerryDunn
Contracting Best Practices
berrydunn.com | GAIN CONTROL

2. • What if….
• “Not So Good” Practices
• “Smart” Practices and Best
Practices
2
Discussion Overview

3. • … all the states were mandated to undertake 60-70 new
large-scale projects all at once with the exact same go-live
dates?
• … minimum funding for the projects was $5B, with many
of the projects ranging in costs from $50M to $300M?
• … must build systems that largely have never been built
before for state governments?
• … must build necessary systems and implement them in
12 to 18 months on average?
3
What if

4. 4
“Not So Good” Practices

5. 5
Requests for Proposals (RFP)
• The RFP document typically becomes the foundation
for, and part of the final contract along with vendor
response and written communications
• Inadequate RFPs typically leads to bad contracts
• RFPs not being used
• Rushed procurements, contract development, and
review processes due to mandated deadlines

6. Project Management vs. Contract Management
6
• Lack of project funding results in Project Manager
serving as Contract Manager
• Combined project management and contract
management processes and personnel reduces project
controls and “checks and balances”
• Contract management is a discipline, good project
managers aren’t necessarily good contract managers
• Contract negotiation skills and experience are needed

7. • Greater reliance on sole source contracts to meet
mandated legislative deadlines. Sole source contracts
traditionally have been established for “emergency”
procurements
• Project and system requirements are often not well
specified
• Typically does not provide best value to the state compared
to competitive procurements
• Generally does not support federal Code of Federal
Regulations (CFRs) for system procurements
7
Sole Source Contracts

8. 8
Waterfall vs. Agile
Software Development Life Cycle (SDLC)
• Traditional waterfall SDLC based projects typically tie
payments to completion of major project phases;
requirements, design, development, testing, training
• Agile SDLC combines phases into software release
“sprints” based on predetermined dates or duration
• Payments tied to “sprint” completion is challenging when
percent of functions delivered in each sprint is unknown
until it is completed

9. 9
Pre-qualification Contracts and SOWs
• States establish blanket contracts to streamline and
expedite IT procurements
• Allows agencies to more quickly request a statement of
work (SOW) from select number of prequalified firms
• SOWs too often lack detail and specificity in requirements
which can cause problems later in project life cycle

10. 10
Accounting and Reporting Complexity
• Multiple funding sources for a project
• Complexity is unavoidable, but is a constant challenge
to project reporting
• Risks of overly complex or simplistic reporting process
• Obtaining data, summarizing information and reporting
results

11. 11
Project (Dis)Incentives
Vendors not being paid in approximate
correlation with their costs start losing resources
and may perform worse
Adversarial relationship with vendor, not a
partner

12. 12
“Smart” Practices & Best Practices

13. 13
Deliverables and Milestones
• Deliverables should not be the same as Milestones
• In large scale projects deliverables should roll into
milestones, and milestone payments are made when all
associated deliverables are accepted
• Smaller projects can tie payments directly to
acceptance of deliverables. Depending on project
duration, 10 deliverables or less

14. 14
Approving Invoices
• Establish milestone and payment schedule that
correlates with vendor project costs
• Plan for, and require project hold back
• Hold backs range from 5% to 25%
• Establish invoice format and process up front in RFP
• Performance bonds, penalty provisions, service levels

15. 15
Financial Management
• Determine financial reporting needs as early as possible,
so that data collection procedures can be designed
accordingly
• Determine key metrics and level of detail for each level of
financial reporting, with focus on decision makers needs.
• Distinguish reporting needs for compliance from those for
decision making

16. 16
Cost Allocation
• Determine granularity required for compliance and
funding purposes, leaving flexibility to adapt to project
changes
• Align cost allocation methodology with existing project
progress measurements and metrics
• Give explicit consideration to balancing the risk of
insufficient justification with that of burdensome
complexity in the design

17. 17
Contract Terms & Conditions and RFPs
• Put required contract terms and conditions into RFP
• Provide for question and response process
• Update terms and conditions to final and require all
RFP respondents to comply with final version
• Utilize federal CFRs for contract management
processes in your projects
• Provide timely and adequate contract review process
by involving and communicating with reviewers early

18. 18
Dedicated Contract Managers
• Dedicate a Contract Manager to your projects. Request
funding for both state and vendor Contract Management staff
• Contract Managers do not necessarily need to be full-time on
the project
• Contract Managers are usually not legal experts, therefore,
ensure you provide your Contract Manager with adequate
and timely legal support
• Not CPAs either, ensure Contract Manager has adequate
financial management and cost allocation support

19. 19
Integrate Contract Manager into Projects
Contract Manager
meet regularly with
PMs and CMs
Contract Manager
works with Project
Change Control
Process
Project Manager
should send
approvals for
Deliverables
Contract Manager
should send
approvals for
Milestones

20. 20
Scalability
• Create contracting practices that make sense
for the contract size
• PMOs typically scale project management
methodologies based on project size
• Establish scalable contracting practices for
$1M, $10M, $50M, $100M+ projects for
example

21. 21
Change Control
• Reserve minimum of 10% contingency fund for project
change orders, scale based on nature of project
• Establish effective change control project processes from
project inception
• Spec out, review, and approve change orders in two to six
weeks
• Establish policy up front for “work at risk”

22. THANK YOU - QUESTIONS
22
Bill Brown, CPA, CFE, MAFF
Principal, BerryDunn
bbrown@berrydunn.com
Tim Masse, MBA
Principal, BerryDunn
tmasse@berrydunn.com