Why Some Projects Fail Due to Change of Contract: Understanding the Pitfalls

Projects are constantly changing, with many people involved and shifting goals. As a result, contracts often need to be updated during the project. While these changes can be necessary, they can also create complications that may lead to failure. Project managers, contractors, and stakeholders must understand how and why contract changes can cause projects to fail.

1. Disruption of the Project Baseline

One major reason projects fail due to contract changes is the disruption of the project baseline—the original plan for scope, cost, and schedule. When contracts are altered, it can confuse the project's goals.

• Scope Changes: Altering the scope can add complexity and unexpected work, confusing the team and causing delays or misalignment.
• Schedule Delays: If new deadlines aren’t properly accounted for, the team may struggle with unrealistic timelines, leading to stress and poor performance.
• Budget Overruns: Contract changes can increase costs, and without proper management, this can cause the project to go over budget and become financially unfeasible.

2. Stakeholder Misalignment

Contract changes can alter expectations or deliverables, and if not properly communicated, they can cause misalignment among stakeholders.

• Client Expectations: If clients' changing expectations aren't shared with the team, the final result may not meet their needs, leading to dissatisfaction or delays.
• Team Confusion: Shifts in priorities or methods can confuse the team if not properly explained, causing mistakes and inefficiency.
• Supplier Issues: If third-party suppliers aren’t informed about contract changes, they may struggle to adjust, leading to delays or quality problems.

3. Poor Change Management Process

Effective change management is essential when handling contract changes. Without it, projects often fail, causing delays, risks, and loss of stakeholder confidence.

• Lack of Impact Assessment: Rushed changes without assessing their impact on scope, cost, or timeline can lead to underestimating the resources needed, resulting in delays or budget overruns.
• Inadequate Documentation: Failure to properly document changes can cause confusion, disputes, and errors as the team may revert to outdated contract terms.
• Lack of Governance: Without formal approval from a governance body like a Change Control Board (CCB), contract changes may be made arbitrarily, creating disorder in the project.

4. Increased Complexity and Risk

Every contract change adds complexity to the project, increasing the risks involved.

• Cascading Effects: Changes in one area, like scope, can impact the schedule, budget, and resource needs, making management difficult, especially in large projects.
• Risk Management Failures: If new risks from contract changes aren’t properly addressed, the project can face unexpected delays and costs, leading to loss of control.
• Team Burnout: Greater complexity and tighter budgets or extended deadlines can overwork the team, leading to mistakes, reduced productivity, and higher turnover, endangering project success.

5. Contractual Disputes and Legal Issues

A contract is a legal document, and changes must be agreed upon by all parties. If not, disputes and legal challenges may arise.

• Ambiguity: Vague contract changes can cause disagreements over deliverables, deadlines, or payments, stalling the project.
• Non-Compliance: Changes that violate legal requirements can result in penalties, lawsuits, or project shutdowns.
• Contract Termination: Major changes can lead one party to withdraw, leaving the project unfinished.

6. Resistance to Change

Even necessary contract changes can face resistance from stakeholders, potentially leading to project failure.

• Internal Resistance: Teams under pressure may resist changes that disrupt their work, resulting in poor implementation or rejection of new contract terms.
• Cultural Resistance: In some organizations, changes may be resisted due to fears of higher costs or concerns about reliability, making stakeholders hesitant to renegotiate terms.

While changes to the contract are often necessary in the course of a project, poor management of these changes can lead to project failure.

Finally, Project Managers must implement a structured approach to contract changes to avoid these pitfalls, ensuring thorough impact analysis, clear communication, proper documentation, and strong governance. When managed effectively, contract changes can be an opportunity to steer the project towards success rather than failure.