Is Contract Management Misunderstood?

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Author: Mike Robertson

In this article we look at Contract Management, its associated business value, the challenges and future outlook.

There are two common issues raised from both the buy-side and the sell-side, contract ownership and communication.

Ownership can have a direct impact on communication flow and, in situations where there is little or no continuity of information, it can result in disputes and impact bottom line profits. For example if the price negotiated in the pre-contract phase is not clearly communicated into the delivery phase it might result in incorrect payments to the supplier and impact relationships. Poor information flow between the deal team and the implementation team is one of the main items raised by IACCM members as a top pitfall for contract failure. Lack of clarity on who owns the contract at any specific point in its journey can exasperate the issue of timely data flow.

It is not just the lack of information flow between pre and post-contract that can be a concern. In contracts that are delivered across many years, the probability of personnel moving away from the contract and replaced with another increases. Each time someone is replaced the chance of information getting lost/miscommunicated increases.

A key challenge raised time and again is the transfer of ownership
and the flow of information.

Business Value
All organisations require their contracts to be managed in both the pre and post-contract award phases, maximising the financial benefit to the organisation whilst managing risk and exposure.

From a sell side perspective a number of organisations have identified benefit from establishing the role of the Contract Manager and are advocates of the function. For example the contract manager enables the sales person to focus on the commercial and relationship aspects, whilst the contract manager focuses on negotiating the terms and conditions. This means one contract manager can support multiple sales personnel, driving benefits such as reducing the cost of sales training and providing consistent approaches to contract negotiations.

The Future
IACCM states there is on average 9.2% erosion in contract value that might be mitigated through improved “contract management”. In response we have seen some areas of industry call for extending the role of the Contract Manager, from pre-contract award into post-contract award. The principle being the function could provide the end to end ownership of the contract and ensure suitable communication takes place where required.

From a buy side perspective procurement’s function is still heavily interwoven with the ownership of the contract in both the pre and post-contract phases. The added value that might be achieved with the creation of a separate Contract Manager role is still under debate. There are those who believe it might provide the “missing link” between pre and post contract award and there are those who oppose the proposed separation stating it duplicates roles and/or causes confusion.

Though the challenge of accurate information flow might be alleviated to some degree through the use of technology, it requires harmony in the pre and post contract phases in utilising the technology as the information repository.

If we will see the global expansion of the Contract Manager from pre-contract to post-contract award is still up for debate. Contract Management and the Contract Manager are not necessarily one and the same, many roles can be associated with Contract Management.

Who undertakes the activities is less important than ensuring they are undertaken, it requires clear ownership and information passed through to those responsible for the contracts ongoing management.

Contract Management is a team event,
the challenge is to make sure it occurs!

 

Author: Mike.robertson@podprocurement.com
Mike is CEO of POD Procurement and created The POD Model because he believed “there had to be a better way”. The POD Model is a next generation contract model designed to encourage collaboration whilst reducing business risks and its Free to use. Mike and his team work with organisations to maximise business value from contracts, drive cultural change and implement The POD Model.

About Author

Procurement and Supply Australasia (PASA) is the leading provider of information and education to procurement and supply professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, awards, plus various community and network building activities. PASA is a trading name of BTTB Marketing, for many years recognised as the leading producer of conferences and events for the procurement profession in Australia and New Zealand. Whether producing under the BTTB, CIPSA Conferences or now PASA brands over the last ten years, our events have consistently led the market in terms of both educational and networking opportunities.

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