Defining The Contracting Lifecycle

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Author: Tim Cummins

Many organizations do not have a well-defined, end-to-end contracting process. Frequently, contract-related activities appear as sub-elements in other processes – for example, in Product Lifecycle Management, Procurement or Project Management.

Activities are therefore often ‘functionalized’ and this leads to a lack of cohesion and poor data flows. Ultimately, it means that no one has an overview of who is really responsible for producing a complete contract, nor how well the contracting process is performing.

Fragmentation carries a cost

This fragmentation is inevitably reflected in many of the automation products, since their development has been guided by functional users and driven by what they see as operational reality. The IACCM Automation Report in 2017 reflected the consequences of this perspective – a high level of dissatisfaction with performance, in particular due to the challenges of gaining user adoption. From conversations with many contract management technology providers, I understand their frustration in trying to assist their clients. All too often, software is being implemented to support a poorly defined process, with little analysis of user needs and limited appreciation of the true potential ‘return on investment’.

Where do contracts come from?

I realise that one of the issues here is the absence of an authoritative and over-arching view of the entire Contracting Lifecycle. As a result, there are multiple versions, using a variety of terminologies and with varying degrees of completeness. Most focus on the transactional phase and ignore the more strategic aspects – for example, where exactly do contracts come from? How and where are decisions made regarding individual terms or the commercial policies that affect them? Who defines and monitors the connection between customer contracts and required sub-contracts? It often seems that contracting is rather like the ancient mystery of childbirth – delivered by the stork!

It is time that we start to operate with a consistent view of the contracting lifecycle and therefore I am publishing the following overview. This will be discussed across the IACCM member community and I welcome comments and suggestions. The purpose is to have  common reference point and the reason is that the growing importance of contracting demands a more coherent and consistent understanding of how it operates. Based on this, we will also be better able to support the development of automation and to measure value delivered.

Defining a contracting lifecycle

I have broken the lifecycle into two major phases, one related to the oversight of the process itself, the other related to transactional activity. Clearly, there will be variations in the steps required depending on the nature of the agreement (for example, a commodity purchase is unlikely to involve any drafting or negotiation) and a fully detailed procedure will require inclusion of activities such as signature or storage.

Contracting Lifecycle: Operational Phase

  • Define – oversee development and define responsibilities and authorities within the contracting process
  • Develop – establish standard clauses / options and templates based on policies, practices and market strategies / requirements
  • Maintain – monitor issues, undertake research, propose improvements, update process or standards for shifts in internal or external conditions
  • Equip – ensure suitable tools, training for those performing activities within process
  • Analyze – undertake regular reporting on effectiveness of process in supporting business goals and priorities

Contracting Lifecycle: Transactional Phase

  • Evaluate – identify contract model required to support specific bid or proposal OR review counter-party proposed terms for acceptability (determine go / no-go)
  • Approve – evaluate non-standards and interdependencies (e.g. subcontractors, related contracts, resources); engage stakeholders required for review and approval
  • Draft – prepare required transactional documents or variations to standard
  • Negotiate – establish strategy, fall-backs, trade off; seek to reach consensus (go / no-go); redraft as required;
  • Implement – communicate signed agreement and obligations to all affected parties
  • Manage – oversee and report on performance; handle claims, disputes; negotiate and record changes
  • Close – manage termination or renewal, identify continuing obligations

Comments, suggestions, improvements – all are welcome. The important thing is that we develop and agree a standard.

Read more from Tim Cummins on the Committment Matters website.

Tim Cummins is CEO of the International Association for Contract & Commercial Management (IACCM), a non-profit organization that he founded in 1999. Read more here.

 

 

 

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