The Shifting Role Of Contract Management

Contract management is an area of increasing executive focus. This blog has highlighted many reasons why the global networked economy is pushing organizations to create more robust frameworks for defining and managing their trading relationships – and the key vehicle for this is the contracting process.

But understanding the need and driving the change are two distinct issues – and my correspondence in recent weeks has illustrated that many organizations are struggling to define the new role, contribution and capabilities of a 21st century contracts manager.

These calls for help have come from both public sector and commercial giants; they have been international in their nature; and they represent both buy side and sell side. It is an area in which IACCM has been alone in building a definitive picture, methods and process outlines.  Most enquiries come with an outline – either provided by the company itself, or perhaps by virtue of a consultant they have employed. I thought it might be interesting to record some of the deficiencies that appear common to these definitions.

One common (though not universal) omission in traditional views of contract management is any significant activity in bid preparation and negotiation, which raises questions over where ‘the contract’ comes from.  Other key areas frequently missing are the broader context of the overarching contracting strategy and the more holistic feedback of results into a learning loop; and the need for more proactive insights to evolving market and business conditions to anticipate the need for – or opportunities from – change.

In essence, the models I receive are reactive. They do not call for any wider inputs or outlook than the specifics of each individual contract. While the contract management activities include areas like risk and change, they contain no concept of what these mean in practice, in particular how a contracts manager might be proactive in identification of opportunities or in reducing risk probabilities.

Some critical questions that any designer of modern CM procedures should be asking are:

1. at deal inception, who is evaluating and advising on the offering and relationship structure and ensuring that the terms selected and negotiated operate in support of this and the desired outcomes? Without this, many contracts set a framework that is in direct opposition to the stated goals – in the words of one executive I spoke with recently: “We believe that we can collaborate in spite of the contract”. Any model must address this need for alignment and who will be ensuring consistency between organizational needs and contract terms.
2. there is frequently no mention of any sort of measurement – how does the CM know what success is? What exactly represents ‘good’ contract management? Some of these factors may be specific to the deal, but many are not. For example, should they be measured on added value achieved; or percentage achievement of milestones; or success in hitting deadlines; or controlling frequency of claims / disputes?

When I receive these review requests, one thing I need to know is how other organisational roles have been described, but history suggests that neither Procurement, Sales, Legal nor Project Management are competent to fulfill the above tasks – and arguably it is not their job. They are all key contributors to the relationship framework and have real interest in its outcome – but that does not make them expert in its overall formation or structure. If you make CM purely administrative, you cannot expect – or attract – people who are capable of acting more strategically. And at a time when these contracts have such complexity, strategic significance and requirement for constant update and change, it is innately risky to make the CM role so tactical.

Organizations need to map overall tasks and then define the ‘optimum’ lead / mandatory contributor / reviewer / approver analysis to the ‘functions’ involved in the deal. Without this, it will be hard to say whether all key tasks have been understood and adequately addressed. Typically, we find gaps that go a long way to explaining why so many trading relationships fail to achieve their potential.