How to avoid haemorrhaging cash through holistic contract management
November 09, 2015
Many organisations are struggling to improve their contract management processes at the pace they would like to. However, organisations are generally grasping the need to improve alignment on scope, to ensure that governance and performance criteria are effective and to select partners who can support successful outcomes in their contracts. This is achieved through effective commercial disciplines formulated at the procurement stage, right through to the contract management stage.
Put simply, contract management enables contractors to meet their contractual obligations at an agreed cost and quality. However, circumstances change over the life of the contract, so it also involves managing changes and variations in scope, terms and prices. To date, as my previous blogs have covered, there has been less of a focus on contract management across the entire project lifecycle. Having myself worked closely on both procurement and contract management projects of late, I feel that there are closely defined links between the two processes which I will now discuss.
What is the direct link between procurement and contract management? What is the benefit of adopting “best practice” at procurement stage, transferred right through to contract management processes? Essentially, both procurement and contract management should be adopted under a holistic approach. The most effective approach is planning and organising procurement and contract management methodologies together, even if they involve different staff. It is advantageous to include all relevant staff from the planning stage, through to contract award, then during the contract period to the point when the contract is due to end, re-tendered or procured. The advantage of this approach is that the contract will benefit from continuity throughout, with individuals being fully informed and educated on the contract from start to finish.
The foundations of good contract management are typically laid during the procurement process including specification, setting of service level agreements and KPI’s. In the procurement stage, the approach is determined, roles and responsibilities are defined and, where possible, contract managers are involved at an early stage. Having this focus at the contract management stage will consequently help the project reap the rewards through the delivery of benefits. There will have been a clear, concise direction applied and a holistic approach with all key members aware of key roles and responsibilities. Additionally effective processes will have been adopted. So the performance of the contract will be improved from pre-award considerations. An effective procurement process will ensure that the procured value of the contract is realised throughout the contract life cycle, supported by effective contract management practices thereafter.
Effective contract management requires that the key performance indicators (KPI) have been agreed jointly with the provider before the contract is finalised. These must be clearly linked to the service outcomes stated in the contract and agreed by all of the stakeholders. So the importance of a purposeful and effective procurement process is key to establishing the direction of the contract from the very beginning. They work hand in hand, each reliant on the other, with an effective procurement stage setting the foundations for contract management methodologies to be adopted. In order to maximise the benefits from procurement and contract management together, clear leadership needs to be provided with the support of contract management. As the old adage goes… “Start as you mean to go on”.
How has your whole contract lifecycle view saved your organisation money? What knowledge leakage have you experienced during a contract? Share your experiences and thoughts below or schedule a meeting to find out how you can retain value throughout a contract.