Commercial Management E-Book

David Lowe

• Herausgeber: John Wiley & Sons
• Kategorie: Wissenschaft und neue Technologien
• Sprache: Englisch

Seitenzahl: 1210

Veröffentlichungsjahr: 2013

Beschreibung

Commercial Management: theory and practice defines the role of commercial management within project-oriented organisations, providing a framework for and helping to develop a critical understanding of the factors that influence commercial management practice. It also identifies generic aspects of this practice and provides a theoretical foundation to these activities, by reference to existing and emergent theories and concepts, as well as to relevant management best practice.

The book is structured into four parts: Part 1 Introduction – Commercial Management in Project Environments explores the nature of commercial practice within project-oriented organisations at the buyer-seller interface. It presents a Commercial Management framework, which illustrates the multiple interactions and connections between the purchaser‘s procurement cycle and a supplier‘s bidding and implementation cycles. Additionally, it outlines the principle activities undertaken by the commercial function, identifies the skills and abilities that support these activities and reviews the theories and concepts that underpin commercial practice. Finally, it identifies areas of commonality of practice with other functions found within project-oriented organisations, plus sources of potential conflict and misunderstanding.

Part 2 – Elements of Commercial Theory and Practice covers commercial leadership; exploring strategy; risk and uncertainty management; financial decision-making; and key legal issues. Part 3 – Approaches to Commercial Practice addresses best practice management; and commercial and contracting strategies and tactics. Finally, Part 4 – Case Studies offers two extended case studies: Football Stadia (the Millennium Stadium, Cardiff; the Emirates Stadium, Islington; and Wembley Stadium, London); and Heathrow Terminal 5.

The book provides a one-stop-shop to the many topics that underpin commercial management practice from both a demand (buy-side) and a supply (sell-side) perspective. It will help develop an understanding of the issues influencing commercial management: leadership, strategy, risk, financial, legal, best practice management and commercial and contracting strategy and tactics.

This book’s companion website is at http://www.wiley.com/go/lowecommercialmanagement and offers invaluable resources for both students and lecturers:

• PowerPoint slides for lecturers on each chapter

• Sample exam questions for students to practice

• Weblinks to key journals and relevant professional bodies

Leseprobe

Contents

About the Author

About the Contributors

Acknowledgements

Preface

Abbreviations

Part 1: Introduction

Introduction: Commercial Management

Introduction

What is commercial management?

Context

Overview of book

Summary

Endnotes

References

Chapter 1: Commercial Management in Project-Oriented Organisations

Introduction

What is commercial management?

Purpose of the commercial function

Commercial management framework

The components of commercial management

Management, leadership and communityship

Commercial management professional bodies and associations

Developing the commercial function

Summary

Endnotes

References

Part 2: Elements of Commercial Practice and Theory

Chapter 2: Commercial Leadership

Introduction

Some issues in leadership

Trends in the leadership literature

Towards a new conceptual framework of leadership

Summary and implications for the commercial management function

Endnotes

References

Chapter 3: Exploring Strategy

Introduction

Understanding key change drivers

Exploring competitive advantage

Corporate level strategy

Business and/or corporate level strategy

The resource-based view of the firm

Conclusion

Endnotes

References

Chapter 4: Perspectives on Managing Risk and Uncertainty

Introduction

Risk

Perspectives of risk

Risk management: Origins and development

Projects and risk

Project risk management: Process, tools and techniques

Summary

Endnotes

References

Chapter 5: Financial Decisions

Introduction

The nature and purpose of financial information

The distinction between financial accounting and management accounting information

The nature of the financial reporting environment

Presentation of financial statements

Management accounting for planning, control and decision making

Cost determination and cost behaviour

Cost-volume-profit analysis

Performance measurement

Cash-flow management

Capital investment decisions

Conclusion

References

Chapter 6: Legal Issues in Contracting

Introduction

Contractual issues

Contract strategy and type

Roles, relationships and responsibilities

Time, payment and change provisions

Remedies for breach of contract

Bonds, guarantees and insurances

Claims

Dispute resolution

Flexibility, clarity and simplicity

Collaboration

Procurement/acquisition regulations

Competition and antitrust legislation

International trade law

Intellectual property and freedom of information

Insolvency

Employment rights on the transfer of an undertaking

Conclusion

Endnotes

References

Part 3: Approaches to Commercial Practice

Chapter 7: Best-Practice Management

Introduction

Project success or failure

Governance issues

Best management practice and process improvement

PRINCE2®

Managing Successful Programmes (MSP®)

Portfolio management (MOP®)

Portfolio, Programme and Project Management Maturity Model (P3M3®)

Management of Risk (M_O_R®)

Management of Value (MOV®)

Support for PRINCE2®, MSP® , MOP®, M_O_R®, etc.

Procurement best practice

Best-practice contract management

The OGC Gateway™ Process

Summary

Endnotes

References

Chapter 8: Commercial Strategies and Tactics

Introduction

Overview of the transaction process

Part A: Intent

Introduction

Requirement identification

Requirement specification

Solution selection

Opportunity identification and development

Opportunity development

Part B: Deal Creation

Introduction

Asset/service procurement

Award

Summary

Part C: Execution

Introduction

Post-award delivery and maintenance of assets and services

Contract management

Asset disposal/service termination

Epilogue

Endnotes

References

Part 4: Case Studies

Case Study A: Football Stadia

Introduction

The Millennium Stadium, Cardiff

Acknowledgements

Endnotes

References and sources

The Emirates Stadium, Islington, London

Acknowledgements

References and sources

Wembley Stadium, London

Acknowledgements

Endnotes

References and sources

Appendix A

Appendix B

Case Study B: Terminal 5 (T5) Heathrow

Introduction

Acknowledgements

Endnotes

References and sources

Appendix A

Appendix B

Index

This edition first published 2013© 2013 David Lowe

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Library of Congress Cataloging-in-Publication Data

Commercial management : theory and practice / David Lowe.p. cm.Includes bibliographical references and index.

ISBN 978-1-4051-2468-3 (pbk.)1. Purchasing. 2. Industrial procurement. 3. Contracting out. 4. Public contracts. 5. Project management. I. Lowe, David HF5437.C59 2013 658–dc23

2012037468

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Cover design by Andy MageeCover image courtesy of rosevita (www.morguefile.com)

To Ruth, with loveand to the memory ofJosephine Alice Lowe 1934–2009

    This book’s companion website is at www.wiley.com/go/lowecommercialmanagement and offers invaluable resources for both students and lecturers:•   PowerPoint slides for lectures on each chapter•   sample exam questions for you to practise•   weblinks (for each chapter and for the whole book) to key journals, and to relevant academic and ­professional bodies

About the Author

Dr David LoweManchester Business School

David Lowe is a Senior Lecturer in Commercial Management in the Executive Education Centre of Manchester Business School. He is Programme Director for the blended learning MSc in International Commercial and Contract Management and for several executive education programmes in commercial and contract management. Clients include Rolls-Royce, BAE Systems, Thales, BT, the National Skills Academy Nuclear, and the Foundation Trust Network (NHS).

David is a Fellow of the Royal Institution of Chartered Surveyors, a Fellow of the Higher Education Academy and an academic adviser to the International Association for Contract and Commercial Management (IACCM). His consultancy work includes benchmarking the engineering and project ­management provision of an international pharmaceutical company.

His teaching interests include: commercial management, commercial strategies and tactics, and contract management. Similarly, his research interests focus on commercial and contract management within the context of project-based industries, ranging from ICT/telecommunications to aerospace and defence. Completed research projects include: an investigation of the cost of different procurement systems and the development of a predictive model; a project to assist medium-sized construction companies develop strategic partnerships and diversify into new business opportunities offered by public and private sector clients; and an investigation into the function of commercial management in the telecommunications and construction industries. His PhD, completed at UMIST, investigated the development of professional expertise through experiential learning.

His book contributions include: ‘Contract management’ in The Wiley Guide to Managing Projects(Wiley, 2004), andCommercial Management of Projects: Defining the Discipline (Blackwell Publishing, 2006) which he edited with Roine Leiringer. The latter is the first book to establish a theoretical framework for ­commercial management.

About the Contributors

Edward DaviesVisiting Fellow, Manchester Business School/Senior Consultant, Hill DickinsonEdward Davies specialises in the legal and commercial aspects of major infrastructure and engineering projects, with 25 years’ experience in this field. He has been involved in some of the largest and most important projects in the north-west of England including the second runway at Manchester Airport, United Utilities’ multibillion pound procurement programmes and Peel’s £500 million waste-to-energy project at Ince Marshes in Cheshire. Further afield, his international experience includes working in conjunction with CH2M Hill as part of the Panama Canal Authority’s commercial management team for the $5 billion Panama Canal Expansion Project. Prior to joining Hill Dickinson, Edward was a partner at Pinsent Masons for over 20 years and was one of the founding partners of the firm’s Manchester office in 1989.

Edward lectures extensively on all aspects of engineering and construction. He is a Visiting Fellow at Manchester Business School and lectures on the MSc in International Commercial and Contract Management and MBA courses.

He is also a mediator trained by the American Arbitration Association and CEDR.

Edward wrote the chapter on drafting construction contracts in Management of Procurement publi­shed by Thomas Telford (edited by Denise Bower). He also co-edited Dispute Resolution and Conflict Management in Construction – An International Review published by E&F Spon.

In the 2011/2012 edition of the Chambers Guide to the Legal Profession in the UK Edward was rated in the top category of leading construction lawyers in the north-west of England for the 16th consecutive year.Dr Eunice MaytorenaLecturer in Construction Project Management, Manchester Business SchoolEunice Maytorena is a lecturer in construction project management at Manchester Business School. She completed her PhD degree at the Bartlett School of Graduate Studies (UCL) in 2003. An architect by training, her work experience includes architectural design and consultancy, research in various aspects of the built environment and lecturing in project management. She has taught on undergraduate, masters and executive MBS programmes. Eunice has worked on several research projects investigating risk perceptions and risk management in project forms of organisations.Irene RoeleSenior Fellow in Management, Manchester Business SchoolIrene Roele has worked in management, learning and development for over 25 years. For the last four years she has worked for Manchester Business School’s Executive Education Centre as an organisational strategy consultant, researcher and educator primarily in the private sector. She helps individuals and organisations make constructive links between ’thinking’, ’planning’ and ’doing’ – in other words, between theory and practice and between policy and action. Her specialism is in developing strategic thinking skills.

At MBS, Irene takes a leading role in designing and delivering a variety of bespoke executive education and strategy consulting interventions. She regularly runs strategic thinking workshops for a number of ­clients across the private and public sectors. Current work involves facilitating group and individual coaching for senior leadership teams to support their strategy engagement.

Irene has extensive experience developing and delivering specialist strategy modules on graduate accredited development programmes for MBS, including the MSc in Commercial Management – current clients include Rolls-Royce, BAE Systems, Thales and the Foundation Trust Network (NHS).

Prior to MBS, Irene worked at London Metropolitan University in the City of London for 10 years. There she gained extensive experience in postgraduate executive education, including curriculum design, course management and delivery. She was programme leader for the MSc in Financial Service Regulation and Compliance Management, subject leader in Strategy on four executive Masters programmes and module leader for the Chartered Institute of Marketing Postgraduate Diploma. The role included design and delivery of bespoke programmes for various organisations including Standard & Poors, Royal Bank of Scotland, Ernst and Young, BMI General Healthcare Group, the National Trainers Federation and Croydon Social Services.

Irene has a BA (honours) from the European Business School, London and an MA in Marketing from Kingston University. Her research interest is in how boards strategise – that is, in exploring the board’s involvement in the strategy-making process.Dr Anne StaffordSenior Lecturer, Manchester Business SchoolAnne Stafford is a Senior Lecturer at Manchester Business School. Anne worked as a management ­accountant from 1985 to 1990, during which time she qualified as an accountant with the ACCA. In 1990 she was appointed as a Senior Lecturer at the University of Central England, subsequently becoming a Principal Lecturer in 1993. She taught financial accounting and reporting extensively to a wide range of students, including undergraduate, postgraduate, professional and post-experience programmes. She was Programme Director of the university’s ACCA programmes from 1993 to 1999.

In 1999 Anne took a career break and worked part time as a lecturer for UMIST while completing her PhD at the University of Warwick. She was appointed to her current post within the Business School in 2004. Anne’s current teaching and research interests lie in the area of financial reporting, corporate governance and business analysis.Dr Maria-Christina StafylarakisSenior Fellow in Leadership, Manchester Business SchoolMaria-Christina Stafylarakis is a Senior Lecturer and Director of Programme Quality in Executive Education at Manchester Business School. She has designed and delivered several bespoke executive programmes and has acted as a dedicated programme director for Halliwells, UNITAS, Sita UK, UKTI and PZ Cussons.

Prior to joining MBS, Maria held teaching posts at Hull Business School and at Lancaster University where she lectured on diverse topics such as equal opportunities and diversity, organisational learning/learning organisations, managing change, organisation development, human resource management and development, leadership and qualitative research methods.

She is an AIM scholar (Advanced Institute of Management) and has also worked on various research projects. She has also worked as a training practitioner in Greece with clients such as Ford and SEAT, and has HRD consultancy experience in Vietnam.

Maria has a Masters in Human Resource Development (HRD) from the Institute for Development Policy and Management in Manchester and a PhD from Manchester Business School. Her PhD focused on ­leadership in the context of learning organisations

Acknowledgements

Author’s acknowledgments

I would like to thank Ruth, my wife, for her love, patience and understanding during the long process of writing and editing this book. Similarly, I’d like to express my gratitude to Madeleine Metcalfe, Senior Commissioning Editor, at Wiley-Blackwell, for her encouragement, forbearance and faith that a manuscript would finally be delivered.

The book would never have been completed without the participation of Edward Davies, Eunice Maytorena, Irene Roele, Anne Stafford and Maria-Christina Stafylarakis. Thank you all for your chapter con­tributions, for the many exchanges and the debate we’ve had over the book’s content, and for your inputs to the development of the commercial management programmes at Manchester Business School (MBS).

Several people have helped in the preparation of the manuscript: Lesley Gilchrist formatted the draft chapters; Vicki Mansfield drew Figure A.1; and Janine May has protected me from the realities of the ‘day job’, enabling me to eventually complete the project – thank you.

I would also like to thank the following colleagues at the University of Manchester: Graham Winch, Mark Winter, Eunice Maytorena and Nuno Gil (members of the Projects and Programmes affinity group at MBS) and Peter Fenn and Margaret Emsley (from the School of Mechanical, Aerospace and Civil Engineering) for their support and encouragement over the years, and Janine May, Emma Farnworth and Helen Jennings for their administrative support and good humour!

I would also like to thank the numerous students and delegates who have participated in the various ‘commercial management’ programmes and modules, and the representatives of the sponsoring organisations that have supported and helped develop these programmes. In particular I would like to thank Shan Morris for allowing me to ’plunder’ her MSc dissertation on Insolvency in Construction: The Collapse of Laing Construction plc to produce the case study on the Millennium Stadium, Cardiff.

Finally, special thanks are due to Peter Fenn, without whom neither this book nor the commercial programmes that spawned it would have transpired, to Mark Winter for our many discussions on the nature of commercial management, and to Irene Roele for championing the cause of commercial management with MBS’s Executive Development Centre.Publisher’s acknowledgements

We are grateful for permission to reproduce the following copyright material:

Table 6.3: EU procurement directives and the corresponding UK regulations, reprinted from European & UK Procurement Regulations, © Millstream Associates Ltd (2012); Table 8.2: Example of an approach to procurement route evaluation, reprinted from Achieving Excellence Guide 6 – Procurement and Con­tractStrategies, Office of Government Commerce © Crown Copyright (2007). Contains public sector information licensed under the Open Government Licence v1.0 www.nationalarchives.gov.uk/doc/open-government-licence/open-government-licence.htm; Table A.6: Cost breakdown and Table A.7: Break­down of funding, reprinted from English National Stadium Review: Final Report October 2002, The Stationery Office, © Crown Copyright (2002). Contains public sector information licensed under the Open Government Licence v1.0 www.nationalarchives.gov.uk/doc/open-government-licence/open-government-licence.htm; Box 5.1: Extract from Vinci Annual Report 2011, reprinted from the Vinci 2011 Annual Report, Copyright (2011), with permission from Vinci, Paris, France; Box 5.3: Balfour Beatty balance sheet, Box 5.4: Balfour Beatty plc group income statement, Box 5.5: Balfour Beatty plc group statement of comprehensive Income, and Box 5.6: Balfour Beatty cash flow statements, reprinted from the Balfour Beatty Report and Accounts 2010, Copyright (2010), Balfour Beatty plc, London; Box 6.8: EU procurement thresholds, reprinted from European Union (EU) Public Procurement, Intellectual Property Office © Crown Copyright (2012). Contains public sector information licensed under the Open Government Licence v1.0 www.nationalarchives.gov.uk/doc/open-government-licence/open-government-licence.htm; and Box B.2: The underlying assumptions of BAA’s contracting approach contrasted with conventional principles (T5 ­contracting assumptions), reprinted from Heathrow’s T5 History in the Making, Sharon Doherty © 2008 John Wiley & Sons Ltd.

Image ‘Cardiff Millennium Stadium, May 2006’ p 382 courtesy of Epaunov72; Image ‘Stitched photo of the Emirates Stadium’ p 399 courtesy of Ed g2s; Image ‘Wembley under construction, January 2006’ p 410 courtesy of ProhibitOnions at the wikipedia project; and Image ‘View of the south side of the new terminal 5, July 2006’ p 455 courtesy of Henrik Romby.

Photographs in Part 4: Case Studies of the Cardiff Millennium Stadium and Terminal 5 (T5) Heathrow are both licensed under the GNU Free Documentation License.

In some cases we have been unable to trace the owners of copyright material, and we would appreciate any information that would enable us to do so.

Preface

Definitions of Commercial Management:

‘The management of contractual and commercial issues relating to projects, from project inception to completion’ Lowe and Leiringer (2005, 2006)‘The identification and development of business opportunities and the profitable management ofprojects and contracts, from inception to completion.’ International Association for Contract andCommercial Management (IACCM)/The Institute of Commercial Management (ICM) (IACCM, ND)

Commercial exists as a distinct management role in many organisations, particularly those emanatingfrom the UK, although it is becoming more accepted globally as a valuable business activity. In particular,commercial is increasingly viewed as a dynamic capability within project-oriented organisations.

The impact of globalisation, servitisation and collaboration on business-to-business (b2b) exchanges (economic transactions) has been the formulation and management of complex interfirm contracts, agreementsand relationships across the ensuing value networks. The commercial function is primarily responsible forthe design, negotiation, award and management of these b2b transactions.

The aim of this book is to provide a framework for understanding commercial practice within projectorientedorganisations. Additionally, it seeks to identify generic aspects of this practice, to provide atheoretical foundation to and common vocabulary for these activities (by reference to existing and emergenttheories and concepts, for example, transactional cost economics and relational contracting), and toexamine relevant management best practice.

The book is divided into four parts:

Part 1: Introduction

Commercial Management in Project-orientated Organisations:

explores the nature of commercial practice within project environments at the buyer–seller interface, and introduces a commercialmanagement framework

Part 2: Elements of Commercial Practice and Theory

Commercial Leadership

: explores key themes and concepts from the leadership literature. It reviews established approaches to the study of leadership, for example, trait, style and contingency theories; examines contemporary theories, such as transformational and dispersed leadership; and exploresleadership in relation to learning. The chapter concludes with the exposition of a conceptual framework

Exploring Strategy:

focuses on the orientation aspect of strategy, its aim being to assist commercialpractitioners, identify the strategic agenda, define a clear sense of purpose and appreciate the needfor a guiding policy for the firm in creating value and clearly articulate its core value-proposition

Perspectives on Managing Risk and Uncertainty:

provides an introduction to contemporary project risk management, evaluates various perspectives on risk and presents an overview of the project riskmanagement process and its commonly used tools and techniques

Financial Decisions:

provides an introduction to financial decision making. Its aim is to equip commercial practitioners with the knowledge and ability they need to appreciate the financial informationissued by their own organisation, partners, suppliers and customers, and their role in generatingthis data

Legal Issues in Contracting:

seeks to develop an appreciation of some of the key legal issues that influence commercial practice. It provides a selective overview of contract provisions and procedures,together with an international perspective on the legalisation and regulations that affect b

2

b exchangeswithin a project and programmes environment

Part 3: Approaches to Commercial Practice

Best-Practice Management:

identifies and outlines ‘best practice’ in managing projects andprogrammes. Topics covered include governance issues associated with the Turnbull recommendations;the OGC Gateway Process; the use of process protocols, such as PRINCE2, MSP, MoP and MoV;and guidance on best practice in procurement and contract management

Commercial Strategies and Tactics:

examines commercial practice across the project life cycle from both the supply and demand perspectives, identifying the interrelationship between the demand-sideprocurement process (cycle) and the supply-side bidding and implementation cycles. The chapterexplores how purchasers can articulate their requirements for new asset and services effectively, andthen manage the process of asset/service definition and delivery. From the supply side, it addresseshow suppliers can identify potential opportunities effectively, develop and communicate their proposalsfor the supply of asset and services, manage the deal creation stage, and ensure that commitmentsmade are delivery profitably. It is subdivided into three sections: Part A– Intent; Part B – Deal Creation; Part C – Execution

Part 4: Case Studies:

Two extended case studies are provided:

Case Study A: Football Stadia

: comprising the Millennium Stadium, Cardiff; the Emirates Stadium, London;and Wembley Stadium, London

Case Study B: Terminal 5 (T5) Heathrow

The book is informed by experience gained through developing and delivering undergraduate, postgraduate and executive education programmes in commercial management and research into commercial practice in a variety of industry sectors, including construction, ICT, aerospace and defence. Specifically, it draws on research undertaken at the University of Manchester in support of the MSc in CommercialManagement (now renamed the MSc in International Commercial and Contract Management), an MBA forCommercial Executives, and the BSc in Commercial Management and Quantity Surveying. It also builds onCommercial Management of Projects: Defining the Discipline by Lowe with Leiringer (2006).

The intended audiences for this book are:

Postgraduate students on MSc commercial, contract and project management, quantity surveying andsupply chain management/procurement programmes, and those taking specialist modules on MBAprogrammes

Final-level undergraduate students on quantity surveying, construction management, project managementand supply chain management programmes

Abbreviations

4Ps

Public Private Partnerships Programme

ABA

American Bar Association

ACA

Aircraft Carrier Alliance

ACA

Association of Consulting Architects

ACCA

Association of Chartered Certified Accountants

AEC

Achieving Excellence in Construction

AHP

Analytical hierarchy process

AICPA

American Institute of Certified Public Accountants

AMA

American Marketing Association

ANN

Artificial neural networks

APM

Association for Project Management

ARR

Accounting rate of return

ASB

Accounting Standards Board (UK)

ASIC

Australian Securities and Investments Commission

b

2

b

Business-to-business

b

2

g

Business to government

BA

British Airways plc

BAA

British Airports Authority Ltd

BATNA

Best alternative to a negotiated agreement

BCIS

Building Cost Information Service

BERR

Department for Business, Enterprise and Regulatory Reform

BIM

Building information modelling

BIS

Department for Business, Innovation and Skills

BoK

Body of knowledge

BOO

Build–own–operate

BOOT

Build–own–operate–transfer

BPO

Business process outsourcing

BSF

Building Schools for the Future

BSI

British Standards Institution

C&S

Civil and structural

CAA

Civil Aviation Authority

CAT

Competition Appeal Tribunal

CBA

Canadian Bar Association

CBUK

Cleveland Bridge UK Ltd

CC

Competition Commission

CCC

Cardiff County Council

CCT

Compulsory competitive tendering

CCTA

Central Computer and Telecommunications Agency

CA

Confidentiality agreement

CDA

Confidentiality-disclosure agreement

CE

Constructing Excellence

CEDR

Centre for Effective Dispute Resolution

CFR

Cost and freight

CIB

Construction Industry Board

CIF

Cost insurance and freight

CII

Construction Industry Institute of the United States of America

CIM

Chartered Institute of Marketing

CIMA

Chartered Institute of Management Accountants

CIP

Carriage and insurance paid to

CIPFA

Chartered Institute of Public Finance and Accountancy

CIPP

Continuous improvement of the project process

CIPS

Chartered Institute of Purchasing & Supply

CLC

Colnbrook Logistics Centre

CLM

Contract life cycle management

CMM

Capability maturity model/commercial management maturity

CoE

Centres of excellence

CoPS

Complex products and services/systems

CPT

Carriage paid to

CRFC

Cardiff Rugby Football Club

CRM

Customer relationship management

CRO

Chief risk officer

CSCMP

Council of Supply Chain Management Professionals

CSFB

Credit Suisse First Boston

DAP

Delivered at place

DARS

Defense Acquisition Regulations System

DAT

Delivered at terminal

DCF

Defence commercial function

DCMS

Department for Culture, Media and Sport

DDP

Delivered duty paid

DFARS

Defense Federal Acquisition Regulation Supplement

DFBO

Design-fund-build-operate

DoD

Department of Defense

DoH

Department of Health

DRO

Debt relief order

EC

European Commission

ECC

(NEC) Engineering and Construction Contract

ECM

Enterprise contract management

EFA

Education Funding Agency

EI

Emotional intelligence

EIRM

European Institute of Risk Management

ENSDC

English National Stadium Development Company Ltd

ENST

English National Stadium Trust

EPC

Engineering, procurement and construction

ERG

Efficiency and Reform Group

ERM

Enterprise risk management

ETO

Economic, technical or organisational

EU

European Union/expected utility

EXW

Ex works

FA

Football Association

FAR

Federal Acquisition Regulations

FARS

Federal Acquisition Regulations System

FAS

Free alongside ship

FASB

Financial Accounting Standards Board

FCA

Free carrier

FIDIC

Fédération Internationale des Ingénieurs-Conseils

FM

Facilities management

FOB

Free on board

FRC

Financial Reporting Council

FV

Future value

GMP

Guaranteed maximum price

GPA

Government Procurement Agreement

HCC

Heathrow Consolidation Centre

HS&E

Health, safety and environment

IACCM

International Association for Contract and Commercial Management

IASB

International Accounting Standards Board

IBA

International Bar Association

ICAEW

Institute of Chartered Accountants in England and Wales

ICAI

Institute of Chartered Accountants in Ireland

ICAS

Institute of Chartered Accountants of Scotland

ICC

International Chamber of Commerce

ICE

Institution of Civil Engineers

ICM

Institute of Commercial Management

IFAC

International Federation of Accountants

IFPSM

International Federation of Purchasing and Supply Management

IFRSs

International Financial Reporting Standards

IIF

Incident and injury free

Incoterms

®

International Commercial terms

IRM

Institute of Risk Management

IP

Intellectual property

IPMA

®

International Project Management Association

IPO

Intellectual Property Office

IPR

Intellectual property rights

IPT

Integrated project teams

IRM

Institute of Risk Management

IRR

Internal rate of return

ISM

Institute for Supply Management™

IST

Integrated supply team

ITIL

®

IT Infrastructure Library

ITT

Invitation to tender

IVAs

Individual voluntary arrangements

JCT

Joint Contracts Tribunal

JV

Joint venture

KPIs

Key performance indicators

KSM

Key supplier management

L&A

Liquidated and ascertained (damages)

LDA

London Development Agency

LFA

Lottery Funding Agreement

LU

London Underground

M&E

Mechanical and electrical

M_o_R

®

Management of Risk

MAPE

Mean absolute percentage error

MBTI

Myers–Briggs Type Indicator

MEAT

Most economically advantageous tender

MOD

Ministry of Defence

MoP

TM

Management of Portfolios

MoV

®

Management of Value

MPA

Major Project Authority

MS

Millennium Stadium

MSP

®

Managing Successful Programmes

MVL

Members’ voluntary liquidation

NAO

National Audit Office

NATS

National Air Traffic Services

NCMA

National Contract Management Association

NDAs

Non-disclosure agreements

NEC

New Engineering Contract

NGN

Next generation networks

NHS

National Health Service

NJCC

National Joint Consultative Committee for Building

NPS

National Procurement Strategy

NPV

Net present value

NRM

New Rules of Measurement

OBK

O’Brien Krietzberg

OFT

Office of Fair Trading

OGC

Office of Government Commerce

OH

Occupational health

OJEC

Official Journal of the European Community

OPM3

Organisational Project Management Maturity Model

P&L

Profit and loss

P3M3

®

Portfolio, Programme and Project Management Maturity Model

P3O

®

Portfolio, Programme and Project Offices

PATNA

Probable alternative to a negotiated agreement

PCM

Partnered category management

PCP

Procuring complex performance

PEP

Project execution plan

PERT

Programme evaluation and review technique

PESTEL

Political, economic, social, technological, environmental and legal

PFI

Public Finance Initiative

PfS

Partnerships for Schools

PI

Performance indicator

PID

Project initiation document

plc

Public limited company

PMI

Project Management Institute

PMM

Project management maturity

PMO

Project management office

PPE

Property, plant and equipment

PPP

Public-private partnerships

PRINCE2

®

Projects in Controlled Environments

PRM

Project risk management

PSC

Project-specific criteria

PSCPs

Principal supply chain partners

PUK

Partnerships UK

PV

Present value

RBS

Risk breakdown structures

RBV

Resource-based view

RFP

Request for proposal

RFQ

Request for quotation

RFT

Request for tender

RICS

Royal Institution of Chartered Surveyors

RM

Relationship Management

RMIA

Risk Management Institution of Australasia Limited

ROA

Return on assets

ROCE

Return on capital employed

ROI

Return on investment

RPI

Retail Prices Index

RR

Risk registers

SBU

Strategic business unit

SCM

Supply chain management

SDR

Strategic Defence Review

SEC

Specialist engineering contractors/US Securities and Exchange Commission

SEI

Software Engineering Institute

SEU

Subjective expected utility

SIBET

Soft issues bid evaluation tool

SLA

Service-level agreement

SMART

Specific, measurable, agreed, realistic and timely

SPI

Smart Procurement Initiative

SRA

Solicitors Regulation Authority

SRM

Supplier relationship management

SRO

Senior responsible owner

SSM

Soft systems methodology

T5

Terminal 5, Heathrow

TA

Teaming agreement

TCE

Transaction cost economics

TfL

Transport for London

TRIPS

Trade-Related Aspects of Intellectual Property Rights Agreement

TUPE

Transfer of an Undertaking (Protection of Employment)

UCAS

Universities and Colleges Admissions Service (UK)

UCC

Universal Copyright Convention

UNCITRAL

United Nations Commission on International Trade Law

VaR

Value-at-risk

VfM

Value for money

VGPB

Victorian Government Purchasing Board

WATNA

Worst alternative to a negotiated agreement

WDF

World Duty Free

WestLB

Westdeutsche Landesbank

WIPO

World Intellectual Property Organization

WNSL

Wembley National Stadium Limited

WRU

Welsh Rugby Union

WTO

World Trade Organisation

Part 1

Introduction

IntroductionCommercial Management      Chapter 1Commercial Management in Project-Oriented Organisations

Introduction

Commercial Management

Learning outcomes

After reading this introduction you will be able to:

Define the terms ‘commercial management’ and ‘commercial manager’Identify common activities undertaken by commercial managers (practitioners)Describe the position of ‘commercial’ within global, project-oriented organisations

Additionally, this introduction seeks to provide an overview of the format and context of the book.

Introduction

Commercial exists as a distinct management role in many organisations, particularly those originating from the UK, although it is becoming more accepted globally as a valuable business activity. Despite this, while a basic internet search will generate numerous job advertisements for commercial managers, executives and directors, academic management literature is decidedly quiet on the subject. Building upon the previous publication Commercial Management of Projects: Defining the Discipline (Lowe with Leiringer, 2006), this text seeks to redress the situation by defining and describing in a normative way, precisely what ‘commercial actors’ (practitioners, managers, specialists, executives, etc.) actually do. It also provides a framework for the application of the principles and underpinning theory that support effective commercial practice.