Surgeon General's Warning: The following is a long and boring essay on contracts in general and the ISO 9001 requirements for contract review in particular. Unless the reader cares about making money, the reader is advised to use their time reading Dilbert instead.4.3.2 Review Before submission of a tender, or at the acceptance of a contract or order (statement of requirement), the tender, contract, or order shall be reviewed by the supplier to ensure that:
Why before and not after? The customer might accept the offer and then where would we be if we failed to provide? It may be a legally binding document. Not every customer is the government and not every contract is a "best efforts," cost plus fixed fee deal. In the case of an "off-the-shelf" product, we should know before hand if the product is likely to satisfy potential customers. Who will pay our salaries if customers don't buy our products?
What does the standard mean by review? The review is meant to ascertain, to the extent feasible, if the contract can be satisfied to the mutual benefit of both parties. The result of this review must have credibility. Fixing problems after the fact is always much more expensive than avoiding them at the start.
What kind of review process is necessary? If we can review the contract satisfactorily by feeding it into a HAL 9000 and it determines whether or not everything is fine, that's OK. Whatever it takes to make sure that we can perform on the contract is fine. However, we have to have a fall back strategy for when the HAL 9000 is broken. This generally means using people to review the contract.
Should more than one individual be involved? When I look down from my plane at the Pioneer valley I gain a perspective I do not get from driving on the roads below. When I am driving on the roads below, I still see that view from above and everything is different. It's a matter of perspective. We all have different viewpoints. We each have unique knowledge and experience to bring to any effort.
Some people know more about legalities. Others are better at estimating costs. Still others may know if certain aspects of the work will be particularly difficult for our company. One of the things that any contract review procedure should specify is who should be involved. This will certainly vary depending on the type of product and contract.
The intelligence of a team exceeds the intelligence of the individuals in the team.What happens if we don't perform on a contract besides being sued or not being paid? If we can figure out what went wrong, then we have a chance of not making the same mistake again. If we have a documented procedure and we followed it, the procedure can be checked to see where it failed. If the procedure was not documented or was not followed, then we may end up grasping at straws trying to figure out what went wrong.Senge, The Fifth Discipline: The Art and Practice of the Learning Organization, Doubleday, 1980.
Our procedures are our "institutional memory". Our contract review procedures should require a wrap-up review for the purpose of learning what went right and what went wrong. We should incorporate what we have learned into our procedures. In summary, if our procedures are our corporate memory then reviewing the performance of our procedures is the way the company learns.
The ISO 9001 standard places specific requirements on contract reviews:
a) [to ensure that] the requirements are adequately defined and documented; [...]
In other words, it helps if we know what it is we are supposed to do.
If we are contracting for some work, we need to be sure we understand what the work is that we are going to be doing. If the contract is vague or ambiguous than the customer may be vague or ambiguous about paying us when we complete the work we thought they wanted. It is essential that the contract be reviewed by all interested parties and that they be able to comment on it. Only then do we have a chance of finding out if there are differences in our understanding. Our contract review procedures should formalize this process.
Of course, not everything can be nailed down at the start. Consequently, reviews should be held during the course of development to formally record any discrepancies between the contract and the product. These discrepancies may require the contract to be re-negotiated. Our contracting procedure should include requirements for us to consider this possibility when we are initially reviewing the contract.
In the case of an "off-the-shelf" product, when that product is first conceived, it is essential that the developers (supplier) understand exactly what the marketing department (customers) are asking them to build. And, it's best if the marketing department knows before the advertising goes out if the product can be built to satisfy their requirements. The marketing department better have some good reasons for the things they make requirements. Wouldn't you, as a developer, feel better knowing that marketing had a quality process for determining what product should be made?
b) [to ensure that] any differences between the contract or accepted order requirements and those in the tender are resolved;
In other words, it helps if we and the customer agree on what it is we are supposed to do.
Apparently [IBM] decided to have some parts manufactured in Japan as a trial project. In the specification they set out that the limit of defective parts would be acceptable at three units per 10,000. When the delivery came in there was an accompanying letter. "We Japanese have hard time understanding North American business practices. But the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases."It is absolutely essential that there be excellent communication between the supplier and the customer; otherwise, there will be no way the supplier can satisfy the customer. We may make the best damn doohickey in the U.S. of A. But, if the customer wanted a thingamajig, they are not going to be happy. It is essential that our contract review procedures provide a mechanism for asking the customer for clarification and to effectively utilize the customer's responses.Toronto Sun
(Did you know that doohickey and thingamajig are in the Word thesaurus - now that's quality; it was a delightful surprise to me. Did you know that thingamajig is in the Word dictionary but doohickey is not - someone failed to communicate.)
In the case of an "off-the-shelf" product, we need to make sure that the customers know what they are buying. We have a contract with them. This contract is created by our advertising.
Changes to the product may require additional market testing. This should be done before any advertising. Therefore, marketing needs to be informed of any changes. Likewise, marketing should obtain development's agreement before promising customers anything new. These are contract re-negotiations.
c) [to ensure that] the supplier has the capability to meet the contract or accepted order requirements.
In other words, it helps if we know before we start that we can actually satisfy the contract.
What good does it do anyone if we get paid $5,000,000 for a product that cost us $6,000,000 to develop? "We lose a little on every contract, but we make it up in volume." Try bringing that business plan to a venture capitalist.
To avoid losing money or defaulting on a contract, it is essential that we estimate, to the best of our ability, what the development cost will be. We need to use past contracts and compare estimates to actuals. Then, we need to determine where and why the estimates were off. For example, we need to know how long it actually does take us on average to find employees with particular skills. Our contract review procedures should require us to obtain and use this type of information.
Crosby, Quality is Free: The Art of Making Quality Certain, Mentor, 1980.