Simple rules for top-notch contract management

Posted by / September 11th, 2014 / No responses

Here is a post to get you thinking about contract management. At a high level the rules are very simple. But as with many things in life, the devil is in the detail so don’t be disheartened at the thought of how difficult it may feel to get this embedded in your business. The key is to start with the basics and allow sufficient time for new processes to take effect, before adding more layers and keep the systems under review.

Rule 1: The success of contract management starts in the procurement (or negotiation) phase

I can’t stress enough the importance of making sure that you are preparing for how you will manage the contract, at the point in time when you are purchasing/procuring your goods and services and negotiating the contract. Any “hard outputs” need to be negotiated and documented in the contract itself, such as service levels/KPIs. You can include tailored reporting processes or deliverables, monitoring requirements, key personnel requests or admin dependencies. It also means that you are forcing your operational team members to think about issues which may arise. The majority of contract disputes could have been avoided by spending more time during negotiations thinking carefully about how the contract will operate in practice. Get your Commercial Team focussed on this during the procurement phase, under the guise of establishing best practice contract management within the contract.
Its also interesting to note that the relationship established between the parties during the procurement/negotiation phase tends to carry through into contract management. So by establishing good strong relationships where the parties think through eventualities and take time to negotiate workable terms together will set the tone and foundations for collaborative working once you move into contract management. No-one likes to talk about “what happens when things go wrong” but if you bite the bullet during this early phase, you are mitigating the risk of bigger bullets further down the line.

If you can, try and keep the same personnel involved in both phases so that there is continuity of relationships. Appoint the Contract Manager during the procurement phase and keep him/her leading on the negotiations with a smooth transition through into post-signature and contract management world.

Rule 2: Have a level of contract management appropriate to the importance of the contract

This is a tricky one to get right. One size doesn’t fit all and within any business, different contracts will need different levels of contract management. This is not necessarily linked to the monetary value of the contract (for example a high value goods contract may be very straightforward, requiring only monitoring of deliverables and “widget” quality, whilst a lower value but high profile partnering contract may require close attention to ensure that both parties are keeping to commitments and monitoring issues such as IP or external PR).

On a case by case basis you need to assess the potential benefits of contract management, the risks associated with the delivery, the potential value of the contract longer term, and set a framework with resource allocated.

Having said that, the basics stay the same which leads us to Rule 3.

Rule 3: Get the basics in place

Each Contract should have the following in place:
– an appointed Contract Manager
– Executive summary (to provide high level information at a glance)
– Compliance Matrix (mapping out the obligations within the contract including frequency and triggers or remedies if not complied with)
– Contract Change Summary (to record any changes which take place during the life of the contract)
– Risks and Issues Log (to monitor the risks and issues which arise and to be used as a reporting tool)

Once the basics are in place, they mustn’t just sit on the proverbial shelf. The Contract Manager needs to be tasked to keep these up to date and use them as tools. What is the point of the Risks and Issues Log if no-one proactively looks at it? The Contract Change Summary is critical – we should expect and manage change in contracts, so keep on top of it and expect the unexpected.

Rule 4: Get key information from Suppliers and keep it up-to-date

There’s a temptation with contract management to do one of two things. Either request reams and reams of information which then sits in a warehouse gathering dust. Or ask for pitifully small amounts of information which is meaningless and allows the Supplier to worm its way out of obligations. Your Contract Manager should have a clear view of what information is required pertinent that a particular contract, and build a good relationship of trust and collaboration with the Supplier to obtain the information at the right time. Of course, if Rule 1 has been applied then you have a great head start with this – but it’s never too late to sit down with your Suppliers and do a review of the relationship. What’s working well, what’s working not so well, how can processes and relationship be improved? Implement a contract change to record the new agreed processes and away you go….

Rule 5: make sure you have good in-house resource to manage your outsourcing and your contracts

The right personalities to reflect the ethos of your business is essential in all areas, but in contract management this also means they must proactive, diligent, good attention to detail and able to build strong collaborative relationships. Problems will always arise and it is how they are dealt with and by whom which can make the big difference between early resolution and full blown litigation. Often a Contract Manager role requires a broad skillset, because as the Rules above indicate you want that person to be involved in “cradle to grave” process. Personality is key, and a willingness to solve problems and learn on the job can go a long way, since you can always obtain external assistance to train and develop your resource in the detail of contract management itself.

Rule 6: Lessons identified….

I dislike the concept of “Lessons learnt” – it seems to be the norm in business to ask a team to list all the “lessons learnt” following a project and then instantly the document is forgotten and they go and make all the exact same mistakes again.

I prefer to talk about “lessons identified” and allow the team to recognise that it takes time to fix things which aren’t working so well. This absolutely applies to contract management processes. You can’t expect to apply a new regime overnight and suddenly all your problems are magically resolved. Apply the Rules above but then be realistic about which problems will be resolved first and keep the new processes under constant review. Your business is unique and it needs a unique contract management regime. Your Commercial Lead needs to take ownership for “Lessons identified” in this area and continuously look at what is working well and what needs fixing and have in place a plan for improvement. Some things can be implemented quickly and have immediate effect, whilst other processes need a slower uptake and a gradual impact but longer term value. Involve your resource in the design of contract management process as they are closer to the relationships and will have really good ideas as to how to fix endemic problems.

The above Rules are by no means exhaustive but they give you an idea of what would be included in a Serenwood review as we looked at your existing contract management regime and made recommendations for improvement. Each business is different, which is what makes it exciting to have an opportunity to tailor a regime specific to your needs.