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A. Whose responsibility is it?

So, you’re at the end of a procurement process and ready to award a contract to the successful bidder. It’s been a long procedure and you’re already thinking about the next project. But what happens to the contract now?

Depending on the organisation, there may be a contract management team waiting in the wings for the next contract to land in their lap.

Too often though, organisations commit substantial resources

to procure a contract and neglect to put sufficient resources into contract management, seeing it perhaps as an unnecessary overhead.

But times are changing: organisations are recognising the value that contract management can add. Much more than just administration, contract management involves ensuring contractual obligations are met, services are delivered efficiently and commercial risks are identified and managed.

Relationship management is also key; encouraging a co-operative and trusted relationship with the service provider can really help if the going gets tough, as it will at some point in a long-term contract (see relationship management, page 15).

Whether a contract requires dedicated contract management depends on a number of criteria, such as:

• Contract value;
• Contract length;
• Complexity of services;
• Level of risk.

A relatively low-risk supply-only contract would benefit from the attentions of a contract manager at the start (or ideally a few weeks before the contract is signed) to implement core contract management processes, produce a contract summary if required and assess the risks and/or opportunities that may require action in the future. After that, monthly or even quarterly contract management reviews may be sufficient, with a focus on risk management and contractual compliance matters such as price increases and management information. Framework contracts for purchase of goods may fall in this category, requiring minimum contract management as long as the supplier is performing adequately.

For more involved contracting arrangements, such as contracts for service, detailed performance management regimes, a reasonable level of expected change, ongoing obligations on either party such as disaster recovery testing or benchmarking, or performance slippage or disputes, you should really be thinking about dedicated and skilled contract management. 

On the face of it, the skills required for contract management may seem similar to those of procurement professionals, and it may be tempting to ask the procurement team to stay on and manage the contract. For a straightforward project this can be a sensible solution if procurement has the capacity to take on the additional work. This approach can be very much process-driven once the contract management processes have been established.

For more complex contracts, the skills required can be quite different from procurement. While there is a core administrative element to contract management, a good contract manager will be naturally inclined to dig into every nook and cranny, looking at things from different angles to identify risks, solutions and opportunities that others may not see. Their work may require them to build relationships with every area of the business, from finance and IT to project managers and operational users. Being able to capitalise on this central position in the business is what makes the contract manager different.

Most importantly, the contract manager should have strong commercial awareness, an inquisitive probing approach and an inclination to assume the worst in order to flush out risk. However, to really add value, the contract manager should not only identify possible downfalls but also come up with creative solutions to enable work to go ahead, albeit with less risk.

B. Contract manager duties

A good place is to read the contract all the way through a couple of times. If the lawyer has prepared a contract summary, all the better, otherwise try to get some time with the lawyer to understand the possible pitfalls, difficult negotiation points, and their view of the commercial and contractual risk in the deal. Then read the contract again.

A useful, if laborious, way of becoming more familiar with the contract is to develop a tool for tracking contract obligations and deliverables. This can be an Excel spreadsheet with the following suggested headings:

Contract document (eg, “main terms” or “schedule 1”);

Contract section (eg, “business continuity”);

Contract reference (eg, “para 1.1”);

Title (eg, “prepare draft business continuity plan”);

Description (eg, “Supplier shall provide a draft business continuity plan for review by the parties”);

Due date (eg, the date the first draft is due);

Responsible party (eg, “supplier”);

Frequency (eg, “one-off”); and

Status (eg, “in progress”)

Go through the whole contract carefully and note every instance where there is a requirement, a deliverable or a specific obligation (look for “The Supplier shall....” and “Both parties will ensure that...”). You could add sub-categories to filter all obligations relating to invoicing, for example, regardless of where they are in the contract. You can sort the spreadsheet by “Due date” to plan forthcoming requirements or use it as a checklist to ensure the supplier complies with their obligations.

Core contract management processes include the change control process, dispute resolution, performance management, managing contractual documentation, and contractual/commercial risk management. The contract manager is responsible for all these processes.

A distinction may be made between contract change control and “operational” change control, which is not necessarily best managed by the contract manager but can include an interface into the contract change control. The contract will usually contain high-level procedures, for example the change control procedure, and the contract management process should sit underneath this procedure to detail the internal steps, sign-off requirements and implementation plans. 

Another important function for the contract manager is providing contract guidance and education. This can be a detailed summary of key terms, risks and opportunities produced for senior managers (restricted distribution). Or it could be a users’ guide to the services being delivered under the contract so users understand what they should get and what to do if they don’t. Contract changes may affect the services, so consider a standard communication template to inform users of relevant changes.

One final point is about access to the contract itself. People will come up with all sorts of reasons as to why they should have a copy, and there may be no apparent harm in letting them see it. However, a wise contract manager will limit access to those who need it. Keep a log of who has a hard copy and only send electronic copies in PDF. Otherwise you may be swamped by “lay contract managers” interpreting and quoting the contract without the necessary context and understanding. Remember also that their copy of the contract will be out of date as soon as the first change control note is agreed. This, and the administration required to keep on top of this, is enough reason to limit access in the first place.

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