27 June 2023

Contract management: what is it (and what is it not)?


In my previous contribution, I addressed the significantly increased environmental dynamics and hence complexity of contract management. In my upcoming contributions, I will discuss how contract managers can address these challenges by following a series of steps.

Before we proceed, I would like to examine the scope of contract management first. I have noticed that there is often a debate regarding where contract management processes begin and end. Is procurement part of contract management, or is it the other way around? What is the role of contract managers during the procurement phase, and what is the role of the buyer during the contract execution phase?

An increasingly common classification found in (international) literature is as follows:

  • The pre-award contract management phase
    • The post-award contract management phase

This classification originates from the Anglosphere where the emphasis is primarily on pre-award contract management (i.e. procurement processes). This classification encompasses all activities required to sign an agreement. This includes activities such as needs definition, market assessment, specification and condition drafting, issuing and soliciting quotations, evaluating proposals, and negotiating prices and contract terms. This phase is mainly led by specialized buyers and/or legal professionals who utilize specific procurement software, supported by business and staff professionals such as process and project managers, legal experts, and finance personnel.

Following this phase, contract managers take the lead in subsequent activities. A suitable description of contract managers’ responsibilities during the execution phase is as follows: “Achieving the intended objectives of the contract by proactively ensuring compliance with all responsibilities, obligations, procedures, agreements, conditions, and rates stipulated in the contract, resolving any ambiguities, inconsistencies, and gaps, managing all risks associated with the contract, and facilitating desired changes to the contract” (Source: ©CATS CM).

Therefore, these are two distinct processes, each requiring specific knowledge, experience, and competencies. While buyers assume the lead in the pre-award phase, contract managers take charge of the post-award contract management process. However, it is important that contract management is adequately represented with sufficient authority in the pre-award phase. As part of the needs definition, organizations must have a clear understanding of the intended contract objectives and how the contract and stakeholders (including the supplier) will be managed after signing. Additionally, there should be a clear understanding of how governance will be established and how compliance will be ensured. Furthermore, during the pre-award phase, contract managers should take necessary preparatory steps to facilitate a smooth transition to the new contract. This may involve creating a contract implementation plan or establishing communication structures. These requirements and activities are crucial for creating and maintaining a level playing field. Failure to address them adequately can strengthen suppliers’ (power) positions in relation to clients and increase dependency.

The post-award phase begins after the pre-award phase has ended and requires a more collaborative approach, aligned with the Rhineland (European) model, based on concepts of cooperation, consensus, social justice, and serving the interests of multiple stakeholders. This involves collaboration with all stakeholders, including suppliers. Moreover, suppliers establish their own contract management processes on their end. Just as suppliers need to be aware of an organization’s goals and contractual objectives, contract managers must have a clear understanding of suppliers’ objectives. This insight helps explain parties’ behaviors and leads to overall better decision-making.

A valuable instrument to ensure the success of this collaboration is the cyclical application of the Deming principle (Plan-Do-Check-Act). Through a continuous flow of information exchange with all relevant stakeholders (contact owners, process owners, legal, finance, suppliers, etc.), performance is measured, risks are assessed, and findings are evaluated. Discussing the internal and external dynamics, such as policy changes, role transitions, amended legislation, and the emergence of new technologies is important. By sharing this information, transparency is achieved, and transparency then fosters trust. This in turn provides an opportunity to implement process improvements, introduce new KPIs, or refine existing ones. Additionally, measures can be taken to mitigate existing risks. This is in contrast to the pre-award phase, where the Deming principle is primarily applied towards the end of the process in preparation for the next procurement process.

It is immensely helpful to structure pre-award contract management according to a recognized methodology, such as ©CATS CM. This ensures that stakeholders utilize a consistent terminology and that contract management processes are structured and predictable.

Another critical requirement for successfully establishing a thorough post-award contract management process is the use of appropriate tools. Contract management tools enable the capture and management of contracts, thereby providing insight into essential contractual information such as deadlines, terms, and responsibilities. Routine tasks are automated, such as reminders for contract renewals and approaching deadlines, and visibility is provided into contract performance and risks. Additional data can be imported, enriched, and analyzed.

Contract managers is the focal point around which the post-award contract management process revolves. Stakeholders are involved in the process, and information is shared and collectively analyzed. This leads to improvements in decision-making and higher quality. Moreover, higher quality – at the same or lower costs – always results in increased value and improved decision-making.

In my next contribution, I will delve into the first step for successful (post-award) contract management: The preparation.

Vincent Brouwer
Managing Partner AddVue

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Click on me to chat via Whatsapp or send an email to vincent.brouwer@addvue.com.

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