Contract management should be a smooth process. Ask the supplier to do something, they do it, everybody gets what they want. If only life was that simple. The reality is that contract management doesn’t always go according to plan and often the effectiveness of the contract is killed off because of poor contract management. These so-called ‘contract killers’ can exist throughout the contract management process.
The role of contract management is not simply to check that the product or service is being delivered. The role is more integrative than that. Contract management involves management skills, communication skills and relationship skills. These skills need to work in harmony to avoid the contract killers. Contract killers can include the following:
Poor contract development.
Problems can arise even before the contract has been signed: Poorly worded conditions, ambiguous terms, badly designed specifications. The need for clear and concise information means that the killing can start very early. This is a silent contract killer, you won’t know the contract management has gone wrong until it’s too late.
Poor contract administration.
A lack of contractual procedures or poorly constructed procedures can cause havoc. Maintenance and control of versions can see several versions being used simultaneously. Payment procedures and agreements that are not adhered to can lead to delivery being denied due to unpaid bills. The first the buyer hears about this is when the customer is let down. Cash needs to flow through the supply chain just the same as materials and products: in the right direction to the right place at the right time.
Poor performance management.
The signing of the contract is not the end of contract management but the beginning. Effective Service Level Agreements (SLA’s) and Key Performance Indicators (KPI’s) can only work if they are specific, measurable, achievable, relevant, timed and aligned to the goals of each party. But these measures are worthless if they are not monitored regularly with action being taken where they fall below and acceptable level. Apathy is a contract killer.
Poor relationship management.
The contract provides the ‘what’ the relationship provides the ‘how’. Without a working relationship the contract will die of its own accord. This contract killer involves deprivation of contact, communication and co-operation. In some respects contract management is more about how we treat people than how we treat the contract.
Poor renewal or termination management.
Termination may happen for several reasons; the contract has been performed as expected, the contract has not been performed as expected, or the contract has been passed to another supplier. Where the contract has ended and the buyer is satisfied there needs to be a cordial ending to the agreement to ensure the buyer can make use of the supplier in the future. Where the contract has ended because of a dispute the buyer needs to ensure that conflict is avoided and a principled approach is taken to resolve the issues. Where the contract ends and the supplier is replaced the buyer needs to ensure that there is a panned approach to the transition that avoids disruption.
These contract killers will always be out there. The role of the buyer in contract management is to avoid them at all costs. The only way to do this is to audit the contract management process to weed out any failures or inefficiencies. From the initial writing of the contract, through measuring performance and ending the agreement, contract management requires a focused approach to the activities involved.
If you want to find out about managing procurement contracts, why not study for a CIPS Diploma in Procurement and Supply. For more information about the procurement courses from The Oxford College of Procurement and Supply, get in touch with one of our course advisors on +44 (0)1865 515255 or email email@example.com.