Contracts are vital in any professional relationship as they create a legal basis and define the terms and conditions of the transactions. They are the foundation of business transactions with well-defined roles that facilitate efficient trading. Contractual parties include employees, dealers, creditors and customers (Sakharam, 2018). Contract enactment is a critical aspect of the procurement process. It is the process of actively managing contract implementation to ensure the efficient and effective delivery of the contracted outputs and outcomes. The activities are classified into upstream activities and downstream activities. Downstream activities are carried out following the award of the contract, while upstream activities are those carried out during the procurement planning, contractor selection phase and choice of contract. Successful contract management involves ensuring that all stakeholders’ needs are met, and the potential risks are effectively managed. Proper contract management significantly lowers the potential of risk and assists a business to protect itself from the renewal of unwanted services (Muhammad et al., 2019). As in other professions, ethics are an important aspect of the human activities of contract management (Project Management Institute, 2006). Implementation of ethical standards communicates to both the internal and external stakeholders the contracting organization’s goals and beliefs. This paper focuses on ethical practices and their significance in contract management.
Contract Ethics
The practice of ethics in business is a highly discussed topic in both corporate and academic circles. The term “Ethics” is derived from the Greek word ‘ethos’ which means the fundamental orientation of human beings towards life (Sroka & Lorinczy, 2015). Businesses are now more motivated to embrace ethics following public scandals that have financially hurt businesses. Ethics can be defined as the “systematic attempt to make sense of individual, group, organizational, professional, social, market and global moral experience in such a way as to determine the desirable, prioritized ends that are worth pursuing, the right rules and obligations that ought to govern human conduct, the virtuous intentions and character traits that deserve development in life and act accordingly” (PMI, 2006). They are the moral values within which an organization or institution conducts their business and shapes the contractual relationship between its employees, suppliers, clients or third parties. Ethical decision-making should feature the moral agent to ensure that a certain set of values feature in it. The structures in organizations are created by human beings who are subject to moral criticism since they can act immorally or unjustly.
Delegate your assignment to our experts and they will do the rest.
The ethical standards of a business entity are judged by the behavior of its employees while dealing with other contract stakeholders. Ethics are important in undertaking any procurement procedure to ensure a flawless and sustainable supply process. Contract management involves interaction with several stakeholders, which requires a basis of mutual trust and respect. It is very important to set up ethical practices at the beginning of the contract, although unethical behavior is often discovered when the job is done. Adopting ethical and transparent practices enables the business to be conducted fairly, reasonably and with integrity (Sengbeh II, 2015). Ethical practices encompass honesty, fairness, respect, trust, consistency, probity, integrity and diligence. Any stakeholder relationship within a contract, the entities voluntarily agree to the code of ethics set up by the social contract theory to act in morally acceptable behavior. The significance of ethics cannot be overstated
During times of fundamental change, there is a struggle to remain in a highly competitive market which influences business decisions. During contract management, contractors tend to make profit-oriented decisions to get the cheapest deal with very little considerations of ethical practices (Julia, 2019). Adoption of ethical practices increases the chances of sustainability and survival in the fast-changing technological business age. Ethical contracting ensures that the contract is legal and is sustainable for all parties and the planet. All decisions taken regarding the project comply with the law, do not harm the stakeholders and consider environmental aspects. A contract that is managed based on ethical standards not only focuses on profits but also ensures fair treatment of bidders, offerors, and contractors. According to Nuseir and Ghandour some of the common ethical missteps are:
Pre-determined bids and contract winners
Low bidding to cut corners or make contract changes during the contract period
Kickbacks
Using substandard materials
Compromising on the safety
Taking shortcuts to meet deadlines or budgets
Team members having personal interest that influences their decisions and their objectivity in the evaluation, monitoring, realization, and reporting of project activities.
Exaggerating pay-offs of project proposals
Covering for team members
The Importance of Ethical Practices in Contract Management
Ethical practices are significant in contract management practice and sustainability. Responsibility, respect, fairness and honesty have been highlighted throughout the Project Management Institute Code of Ethics as the most significant practices. Others include avoidance of conflict of interest, transparency, integrity and confidentiality (Abouzeid, 2019). The significance of the principle of ethics was not “apparent “until individuals and organizations began researching to find ways that ethical behavior can be integrated into a contract (Buys & Schalkwyk, 2015). The internal and external contractual stakeholders have been pressuring organizations to support ethical practices to ensure all procedures aim towards the common good and benefit. Ethical practices affect the decision making during the project period and the organizational culture of the project team.
Responsibility
Project managers have the responsibility of upholding the expectations of the contract stakeholders to effectively manage the project team and fulfill the deliverables of the project (Burrows, 2021). The PMI Code of ethics defines responsibility as the “duty to take ownership for the decisions we make or fail to make, the actions we take or fail to take, and the consequences that result from them” (Project Management Institute, 2006). Every project manager is expected to protect public and environmental safety, protect proprietary and confidential information, regulations and legal requirements, bribery, fraud, and corruption. Failure to act responsibly increases the risk of being scrutinized and hurting a company’s reputation. All contract managers should strive to attain the highest professional standard of job performance and exercise diligence when carrying out the contract’s deliverables. Ethical behavior helps eradicates illegal practices as it ensures that unethical entities are not engaged in the contract. Undertaking due diligence on suppliers helps reveal unethical practices such as forced labor, fraud, human rights abuse and corruption. It also gives contract managers control over the project budget and curbs prevalent illegal behaviors such as theft and bribery. Ethical practices also allow the project managers to easily identify and mitigate potential safety and environmental concerns that would result from the project. In addition, they ensure that environmental and social factors related to the contract are not affected negatively (Helgadóttir, 2008). Contracts managed ethically are innovative and allow for positive social change while still achieving their business goals. Contract management involves constant decision-making, which determines the success or failure of a project. Ethics help contract managers evaluate alternatives fairly and make all considerations that would enable them to make justifiable decisions.
Implementing a contract ethically uplifts the contract management profession and raises future standards (Sakharam, 2018). Project leaders who set the foundation for ethical practices encourage other employees and stakeholders to operate according to the code of conduct. Their juniors adjust to the path set by the project leaders and model the behavior to their colleagues and future contractual engagements.
Data Protection and Confidentiality
According to subsection 2.2.5 of the PMI Code of Ethics, proprietary or confidential information provided for the contract should be protected (PMI, 2006). Management of contracts entails dealing with internal organizational data, confidential customer data and proprietary technologies. The project team is expected to take the necessary steps to protect this data and all the confidential information encountered during the project unless granted permission by the customer, client or employer to release the information. The involvement of a skilled project team is important in preventing any security breaches and leaks during the contract management period. Team members are also expected to protect and respect and recognize the intellectual property rights of others.
Transparency
Transparency in the context of ethical contract management practice refers to the ability of all contract stakeholders to ensure openness in the procedures, timescales, expectations and requirements of the contract. Contract managers should accurately update stakeholders on project progress to assess financial results and the productivity of the contract. For example, all potential suppliers should be adequately debriefed on the procurement process, the award criteria, and why the unsuccessful bidders have not been awarded the tender (Sroka, & Lőrinczy, 2015). Transparency also includes fully disclosing any professional or business-related conflicts or potential conflict of interests on time. Contract management also involves the control over project budget and expenses, which should be constantly monitored. Common illegal practices in the project management sector, such as fraud, corruption, theft, and bribery, can be curbed through accountable and transparent financial audits. All contracts should undergo the necessary audits to ensure transparency and regulatory compliance.
Transparency is critical in the procurement cycle as it ensures fair and equitable treatment for potential suppliers. It also promotes purposeful interactions between the clients, the supplying entity and all project employees. The ethical norms ensure that contract managers can be held accountable by the public (Nuseir & Ghandour, 2019). Proper planning and management of a contract ensure that the funds allocated to the contract are properly used, and value for money is achieved. The funds allocated to a project are used for the common good of the internal and external stakeholders. A contract manager who communicates transparently on the contract's goals and objectives can distinguish the strengths and talents of the team members, which improves their effectiveness.
Respect
Respect is an important behavioral trait that all contract stakeholders should demonstrate. A project manager is expected to cultivate and maintain respectful relationships with the organization, team members, clients, customers, and other contractual parties. Respect can be defined as the duty to demonstrate a high regard for ourselves, others and the resources entrusted to us. The resources include money, people, reputation, the safety of others and environmental resources (Sengbeh II, 2015). The creation of respectful relationships is determined by considering the cultural customs of all parties, proper negotiation skills and leadership.
Contract management based on respect creates long term business relationships. Organizations are more appealing to stakeholders as opposed to those without inbuilt ethical professional practices. Implementation of ethics improves the efficiency of procurement processes and improves both customer and public relations. Parties in a contract that engage in unethical practices are likely to face extra scrutiny from the government or exclude lucrative bids. Also, unsatisfactory contract management practices are damaging to public relations once they become known. If the public finds a company’s dealings questionable, the organization will likely lose millions to boycotts and bad press (Nuseir & Ghandour, 2019). Demonstrating trust and respect is the basis of long-term professional relationships free of tension and conflicts with all contractual stakeholders. The stakeholders are more encouraged to work together in a respectful environment, increasing the chances of project success. The team members also become more committed to achieving project goals in an environment that appreciates their input
Conflict of interest
All parties in the contract should avoid engaging in any transactions that might conflict or appear to conflict with the proper delivery of the contract’s obligations because of financial interest, family relationship, or any other circumstances. An example of a conflict of interest case is the project manager has a personal relationship with potential suppliers or a partnering entity (Nuseir & Ghandour, 2019). The project manager should be transparent with the project stakeholders in case of such a conflict. An ethically negotiated contract strikes a balance between the benefits to the supplier and purchaser.
Integrity
Integrity is judged based on the behavior of a person. Contract officials with integrity dedicate themselves to prioritize the interests of the contract deliverables and subordinate their private interests to avoid conflict of interest. Team members must demonstrate the basic qualities of impartiality, fairness, honesty and truthfulness in their behavior (Sengbeh II, 2015). Conducting business with integrity is important to a company’s profitability and stability in the marketplace. ‘Good ethics is good business is a viable business strategy as customers and clients are increasingly concerned about social issues and the impact of projects on people and the environment. Their concerns often influence the support they offer to contract management. Clients, employees and customers trust and support companies with inbuilt ethical structure (Nuseir & Ghandour, 2019). Upholding high standards of integrity in business transactions and ensuring all team members adhere to them enables the company to merit the loyalty and confidence of its existing and potential customer base.
Fairness and impartiality
Fairness is the conduct of making decisions that are objective and free of prejudice, especially in political or religious disputes. It involves the use of expert judgment, organizational process assets and enterprise environmental factors. All contractual parties’ personal views and convictions should remain inviolate. Cases of impartiality harm the efficient implementation of the contract and interfere with the policies and procedures for conducting the transaction (Sroka & Lorinczy, 2015). Contract managers have to make justifiable decisions with a strong basis that holds up to scrutiny. Unfair decisions have adverse consequences on organizational culture, which negatively affects business. It is also important for team members to absolve themselves from decisions where there is a possibility of conflict of interest. Contract managers may have personal relationships with the bidders, translating to discrimination against other potential suppliers. All persons with disabilities, women and youth, should be accorded the same opportunities as their counterparts based on their credentials (Sroka & Lorinczy, 2015). Treated and compensating all parties justly throughout the contract period is likely to contribute to project success.
Conclusion
The main aim of contract management is to meet its stakeholder’s expectations while working within the specified budgets. However, contracts need to be expedited with high levels of moral character. The enforcement of ethical practices assists in avoiding the pitfalls of inefficient contract management and eventual poor service delivery. Unethical conducts while managing contracts leads to the loss of public funds annually. The promise to act in a manner that benefits the public's well-being is now recognized as an essential ingredient of contract administration. The codes and values hold the systems together and minimize the possibility of negligent conduct and assist legal compliance.
References
Abouzeid, E. (2019, August 23). The significance of ethics in procurement and supply operations . B2e Media Ltd. https://www.b2e-media.com/the-significance-of-ethics-in-procurement-and-supply-operations
Buys, F., & Schalkwyk, T. van. (2016). The relevance of ethical conduct in creating a competitive advantage for entry-level emerging contractors. Acta Structilia , 22 (2), 81-109. Retrieved from https://www.ajol.info/index.php/actas/article/view/129806
Helgadóttir, H. (2008). The ethical dimension of project management. International Journal of Project Management , 26 (7), 743-748. https://doi.org/10.1016/j.ijproman.2007.11.002
Julia, C. (2019). Avoiding misconduct through ethical contracting in project management. PM World Journal , 8 (5). Retrieved 24 June 2021, from.
Muhammad, K., Saoula, O., Issa, M., & Ahmed, U. (2019). Contract management and performance characteristics: An empirical and managerial implication for Indonesia. Management Science Letters , 1289-1298. https://doi.org/10.5267/j.msl.2019.4.012
Nuseir, M., & Ghandour, A. (2019). Ethical issues in modern business management. International Journal of Procurement Management , 12 (5), 592. https://doi.org/10.1504/ijpm.2019.102153
Project Management Institute. (2006). Code of ethics & professional conduct. Retrieved June 23, 2021, from https://www.pmi.org/about/ethics/code
Sakharam, C. (2018). The role of ethics in project management, contract and procurement management: A critical study. International Journal of Current Research , 10 (11).
Sengbeh, II, A. (2015). Ethical procurement practices and supply chain performance of Kenyan Energy Sector (Masters Degree). University of Nairobi.
Sroka, W., & Lőrinczy, M. (2015). The Perception of Ethics in Business: Analysis of Research Results. Procedia Economics and Finance , 34 , 156-163. https://doi.org/10.1016/s2212-5671(15)01614-7
