Skip to content

The Role Of A Contract Manager – Revisited

April 14, 2009

It is less than a year since I wrote a role description for a contract manager (and within this term I include commercial management). The article attracted a high level of interest and is still frequently referenced. So in view of the dramatic shift in economic conditions, I thought I should revisit this topic and answer two questions:

  1. Has the importance of the role changed?
  2. Have the tasks or contribution of a typical contract manager been impacted by the dramatic shift in economic and business conditions?

The Importance Of The Role

The original article highlighted the extent to which a global networked economy had elevated the role of contract management within high-performance organizations. It emphasized the extent to which increasing complexity was demanding greater discipline in the formation and management of trading relationships – and how the contracting process is a key mechanism for ensuring such discipline.

Some businesses have developed their contracting competence without investing in dedicated contract managers, but for many others (especially those in high value / high risk business-to-business markets) there has been steady growth in the numbers and quality of the contracts staff.

A key aspect of the role of a contract manager (as opposed to a contract administrator) should be to ensure that commitments sought or given are ethical, achievable and in compliance with organizational policy. Therefore recent economic events – and the collapse of trust in standards of corporate governance –  implicitly make the role more important.

In addition, contract skills have been much in demand as a result of the need to renegotiate many existing relationships and improve the standards of governance over others. The US administration has not been alone in highlighting the challenge of building sufficient contract management skills to 0versee the barrage of new capital projects being funded by the public purse, as well as ensuring the success of those already underway.

And as I argued in the original article, high value contract management is about more than just compliance and transactional oversight. It is also about ethics, integrity, the management of reputational and regulatory risk, and ensuring on-going competitiveness. So the role of a contract manager has been made substantially more important – and more strategic – as a result of the economic crisis. In particular, there is a need to ensure that business opportunities are not stifled by risk-aversion; and that contracts achieve positive economic outcomes.

Changing Tasks & Contribution

Investment in contract management is increasing – and this seems likely to continue, both in terms of automation and people. As mentioned above, the expectations of executive management are lkely to increase. They need contract managers who can deliver results and keep the business out of trouble. Hence the need for balance between compliance and innovation.

To the extent that new regulation occurs, contract managers will be expected to understand it and ensure that it is respected. But many business leaders will be hoping that they can run with a system of self-regulation – and this places even more emphasis on the role of the contract manager. In order to remain competitive, businesses must remain flexible; the rules, practices and procedures must make both ethical and economic sense.

The original article highlighted that high-performance contracts groups undertake both a strategic and operational role. They are involved in setting, managing and changing the policies, practices and procedures that determine contract terms. Today’s environment is accelerating that need and also making the job far more attractive – and visible.  With that visibility come increased demands and expectations for performance and value – which in turn means measurements.

The recent G20 meeting offered us a sense of the importance of the contract management role and some of the parameters that will surround its performance. In their final communique, they set out future principles of governance for the financial services sector, including the following:

 “Staff engaged in financial and risk control must be independent, have appropriate authority, and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial and risk management ….”

So in answer to the question on changing tasks and contribution, it is my belief that we will see some shift in the emphasis of tasks performed (and in particular earlier and more selective involvement) and considerable changes in the contribution and its measurement. Contract Management will be targetted with the tasks of protecting reputation risks through ethical contracting and relationship practices; yet at the same time with the need to ensure competitiveness through innovative terms and adaptive processes. It will increasingly be a life-cycle role, which means establishing the right contractual framework and then overseeing its successful management and delivery of expected results.

The G20 emphasis on ‘separation of duties’ is also likely to be reflected in many organizational debates, with stronger pressure for contracts and commercial staff to be immunized from the pressures of business unit performance and deal-based bonus schemes. It will be essential to ensure they have strong market awareness, without succumbing to the short-term demands of individual transactions. Modern technologies should enable this balance, especially with the creation of ‘centers of excellence’ equipped with the right applications, analytical skills, authority and accountability.

I have highlighted the types of measurement that should apply to contract management in previous articles, but they include things like cycle time reduction, the percentage of deals enabled through e-commerce; the economic value of term alternatives and innovations, the reduction in claims and disputes. Good contracting is fundamental to any healthy 21st century business – and it requires a new breed of contract managers who are commited to professionalism.

So perhaps the biggest change (and arguably a dependency for success) is the need for Contract Managers to recognize that they can no longer flourish as talented individuals, but must adopt the behaviors of a profession – a consistent body of knowledge, shared tools and methods, a commitment to continuous improvement through research, benchmarking and pooled experiences and development of learning sources that enable a career path.

The demand is there and it is growing; the challenge right now is to increase the quantity and quality of supply and to establish leaders who welcome accountability for results. 

32 Comments
  1. Tim,

    One might restate your last point to say not that contract managers can no longer flourish as talented individuals, but rather that individual talent needs to be focused on building a holistic organizational contracting competency, differentiating itself through leadership and innovation rather than as journeyman forms artisans!

  2. sunil abrol permalink

    It may be good idea to supplement the role with Skills and competencies of a contracts manager.
    I will be happy to contribute .

  3. Joseph Chandran Michael permalink

    Tim,

    It’s about C-level perception. A strong C-level who understand benefits of effective contract management, will support a structured contract management in both pre and post arenas.

    Some organizations have also mixed understanding of the legal function vs contract management. If the organization invests in a full fledge legal team, then contract management’s role will be somewhat diminished.

    In the above scenario, contract management may be adding very good value to ensure post compliances and commitment management is at its best, but if C-levels have no deep understanding and are driven by sales and bottom line, the value add seen from Contract Management has been frequently misunderstood.

    Commitment management is not seen with great visibility as Sales that secures XXY Dollars in Revenue. The argument would be for Contract Management to translate their post contract and pre contract achivements and contributions, making it visible to C-Levels and educating their effectiveness and contribution. But this will only sell, if there are key leaders that have the appreciation for good contract management and governance.

    BR// Joseph

    • Joseph,
      Of course the C-level perception is key, and as an association IACCM devotes extensive time to researching and promoting the contribution of çont5racting excellence’. But in the end, your final paragraph is key – C-levels will not come looking for us, we must demonstrate to them why we matter and what we contribute. Defining our role more clearly is therefore just a start. We have to then explain the contribution that this role will make to the business if it is better and more consistently embedded. And our research shows that the contribution CAN BE very significant – we are seeing 5 – 7% bottom line impact – but progress depends on us having functional leaders (or powerful advocates such as the General Counsel or CFO) who are prepared to promote the competency and drive the improvements needed to turn CM from a transactional support group to a strategic and operational capability.

  4. Joginder Yadav permalink

    Hi, I think there is going to be a good level of debate before the issue of independence settles. Most organisations tend to have the CM function run separately from legal which lends itself to infuence by the business side. While there as some drawbacks to having CM report to legal due to often narrow scope that legal oversees on commercial and other operational matters, legal is certainly in a better position to ensure independence to the CM function. I personally think the legal function also needs to adapt in the way it looks at its role – I in fact like to think that a lawyer in a corporation should be less a legal counsel and more a business counsel. The complex legal stuff can be farmed out to the specialist law firms, right!! I have seen very average lawyers doing well inhouse due to their business acumen and better understanding of the commercial and operational aspects of transactions and the company system at large.

    Also, I agree with your view that a CM cannnot expect to flourish simply as a talented individual. In these times, the importance of teamwork and other non-legal capabilities that a CM (or even lawyers and other professionals) are expected to bring to bear to inhouse roles cannot be understated.

    Cheers, Joginder

  5. Pat Hanlon permalink

    Tim
    Two excellent articles and some very perceptive observations from contributors. My background is as a Contracts Manager (CM)on EPCM contracts and I see the role as that of running a business i.e. the project is the business. Too often CM’s in the past were running projects not businesses. The old mindset just doesn’t meet the expectations of increasingly demanding clients who routinely insist on and are themselves subject to performance measurement.

    The role in my view is developing becoming more hard-nosed

  6. Catherine Smith permalink

    Speaking from a Commercial Manager perspective and working in the Middle East, I have seen a tremendous push by Companies over the past six months or so months to recruit skilled Contracts Managers. This is moreover due to the current economic climate and the inevitable contractual disputes arising regarding the lack of liquidity and resultant non-payment of invoices by Customers. Existing Contracts are certainly now being reviewed with eagle eyes to seek ‘get out’ Clauses, especially with regards to ‘Paid as when Paid’ type statements.
    My Company, for instance, never had any ‘Contracts type’ people over the thirty or so years it has been in operation out here in the Middle East, but the current financial crisis has ‘woken them up’ and has made them recognise the need to recruit a ‘Regional Commercial Manager’ (that’s where I fit in!) to primarily (1) help them out of the current difficulties being experienced with their existing contracts; (2) to set-up a Commercial function within the Company and instil robust, formalised and efficient Processes and Procedures; (3) to understand the Country’s Laws within which the Company operates ie. Commercial Civil Codes; and(4) to create and negotiate future Contracts, taking into account these Laws to ultimately safeguard the Companys’ best interests.
    Indeed, Companies are certainly learning a great deal of lessons from this economic crisis as regards the way Contracts have been negotiated in the past etc. and I therefore anticipate a definite increase in Commercial / Contracts Managers being taken on in the future. Furthermore, I believe they will have much more encompassing roles to play right from pre-bid stage through to Contract close-out, and ‘allowed’ to become key contributors to the business itself.

    Catherine Smith

    • Well said Catherine. I come from a background of Internal Audit in the banking industry, managing both the Operational Audit and the IT Audit functions. This has given me a detailed understanding of a company’s way of operating and of the importance of policies and procedures to designing their system of internal controls – read performance management. Combine this with leading the Sarbanes Oxley compliance team for several years and being the company’s risk manager has given me an unusual perspective for understanding the need to balance risk, compliance, finance and operations. As a CM, I bring this mix of knowledge and experience, that in-house attorneys do not have, to review, write, and negotiate better contracts (hopefully) that have this delicate balance of priorities. I believe that CMs must have this broad business perspective to deal with today’s issues, as you state. I am not sure how one would go about developing a training program to create this mix of skills in future CMs, but I believe looking at Auditors and Risk Managers as potential CMs could be fruitful. Thanks for your insightful comments.

      Theodore Schlagel CM,RM,CISA

  7. bob henry permalink

    I’d like to restate the comment I made to Tim’s excellent article. CM organizations have historically been viewed as a roadblock by sales. The CM’s mission is to “balance the need to close a contract on a timely basis while also minimizing the company’s risk”. This can be a competitive advantage if done right. Often it can take longer to negotiate a contract then to make the sale to the user community. This gives the competition time to “steal” the business and adds to the frustration of the customer-“your company is too difficult to deal with”.

    I am not minimizing the need for all of the other functions of a CM; ie, risk management, policy compliance, commitment management, etc., but a mission statement of this type is an important element in establishing the right mind-set within a CM group and with company stakeholders. The key is to take the leadership role in achieving the mission!

    Granted the mission statement is more from the standpoint of the market than an internal one, but this is what matters to executive management at the end of the day.

  8. martyn jansen permalink

    I feel that the main value of the role in practice is to develop sufficiently understand the employing company’s products and services so as to create practical contracts and contract admin processes ie “innovative and adaptive processes” – contracts and systems that help generate revenue as well as managing risks

  9. Gavin Herman permalink

    Regarding the 2 articles there is nothing I would disagree with. However, and I think the G20 communique touched on this regarding relationship practices..and life cycle role…, I think the role of vendor management needs greater emphasis as this could also be part of a wider contract management definition. Within the organisation I am working at it is recognised that an improvement in the vendor management capability, and by that I am including supplier performance measurement and supplier relationship management, is paramount to getting the best out of the contract over its life-cycle. This is not limited to someone with a contract manager title, which will quite frankly always mean different things to different people and will likely include the administration of the contract which may be a procurement activity. In fact anyone interracting with vendors is doing some form of vendor management and it’s these people, in the business, who need the skills, processes and tools to get maximum value from the relationship. Whilst ownership of a relationship is a complex subject in itself it’s hard to argue that the budget holder isn’t the driving force here and so equiping them with commercial and relationship type skills, complemented by a contracts manager as part of the team if applicable, is one possible solution. The importance of vendor management has been recognised by making it a profession in its own right, alongside other more established professions such as programme, project and portfolio management. In doing so, a license to work including communities of practice will be a key feature in addition to the more conventional training curriculum to address VM skills and competency needs according to the specific nature of what tends to be part of someone’s role.

    • Gavin
      Thanks for these observations. As you know, I agree with your thoughts on the neeed to develop relationship and performance management and that this has many aspects distinct from contract management. I believe that there needs to be an ‘owner’ of contracting competency and their role includes the need to determine how contracts expertise is deployed and executed. That must embrace the need to provide training and tools to others (project managers, relationship managers etc) to do an effective job. It should not be based on the assumption that there must be thousands of contract managers!

  10. Mike Wall permalink

    Interesting articles and debate and agree it will continue I’m sure depending on were in the world you operate from. In the company I work for we are in the process of increasing the skills required so that they are no longer contract managers but managers of the whole procurement supply chain process to include supplier relationships. Most employees involved in this process are actively being trained through CIPS or their equivalent. The role today reports through the CFO’s department but liaises closely with legal and business i.e. they lead the team effort. Hence the role or job description continues to evolve and more so now in relation to due diligence that is becoming more of an issue and this requires more specialised skills.

    • Mike
      Thanks for outlining this interesting development to provide a more holistic supply chain role. This consolidation of activities is certainly something that our work must address. You are of course right that this demands more and better training – and I am sure CIPS will contribute to that. However, I am glad to say that when it comes to commercial / contract management, most are selecting IACCM – and in fact we are delighted to be starting a program with your company next month!

  11. Zhibek Khairullina permalink

    Read both articles. I would like to note that I have very generic knowledge in contracting area, as I play the role of a sponsor group that needs contracts for services to be formulated and executed. That`s why it`s very interesting to read the debates and to know other people`s observations and experience in the Contract Management.
    In our organization, we have Contracts and Strategic Procurement Manager, who has a number of Category Managers assigned to specific departments or sponsor groups. The Contracts and Strategic Procurement Manager is responsible for formulation of contracts for services, Category Management, Strategic Supply agreements.
    Category Management is a process designed to maximize value to the company by segmenting spend into similar service and material categories that are managed as a business.
    The key components of Category Management are:
    • Category Planning
    • Strategic Sourcing
    • Supplier Management

    For all non-standard contracts and depending on their specificity, involvement of Legal, Tax, Treasury, Accounts Payable, Internal Control Group is required, and shall incorporate the comments / changes as suggested by the respective departments.

  12. This is very useful topic that needs to be kept up to date. The tone of the articles emphasise compliance but the role also encompasses strong business influencing skills such as an affective contract manager serving as a key escalation point and providing judgment/assistance in identifying project issues and risks. They act as a trusted advisor to the project team and their opinion is actively sought and valued by senior project team members/company officers.

  13. Brian L permalink

    Tim,

    Two very good articles. I agree that at the end of the day it will come down to Contract Mgrs. showing C-Level execs the true value of the position and the impact that COULD be made to the bottom-line.

  14. Andy Ellis permalink

    Your questions are timely, as is your call through the IACCM for the CM “community” to build a consensus on a definition of the role and purpose of contract and commercial management. After almost 20 years as a CM professional in various industries I find it interesting that, irrespective of the dramatic shift in economic conditions, many of the issues facing the profession are as perennial as the grass.
    I agree that the role of CM has been rendered more important, and more strategic, as a result of the current crisis; but (….ah, there is always a but!) how lasting will this new-found interest prove? The danger is that the apparently Damascene conversion undergone in some quarters about the benefits of effective CM is likely to be lip service rather than a conversion to the true faith.
    There has always been a tension in CM between, on the one hand ensuring good governance, corporate compliance and ethics, and on the other hand adding value to the business, helping to achieve positive economic outcomes and avoiding the label of “sales avoidance”. Effective CM can and should play an important role in helping repair the collapse of trust in standards of corporate governance. It is therefore even more important that the CM function is both positioned in the right place within the organisational network, and is seen as an asset helping to deliver measurable improvements in process flows and the bottom-line.
    It is, or should be, a truism of CM that whilst it may be difficult to quantify the precise cost benefit of effective, timely and pragmatic contracts and commercial support, the potential costs attendant on the lack of such support can be frighteningly large. This applies whether the provision of advice results in an approach to contractual risk which is either too cautious, or too cavalier. Whilst the current economic melt down may have focused more attention on the CM function, it remains to be seen whether this sudden amour propre will be sustained as economic conditions improve.
    As to whether the tasks or contribution of a typical contract manager been impacted by the dramatic shift in economic and business conditions, again I would agree that they have. What I remain to be convinced about is not the final destination, but the path CM professionals as individuals, and the CM function as a whole, should take to get there.
    “Professionalization” of the CM function has much to recommend it. Adopting the behaviours of a profession as advocated by Tim Cummins is one route. I would go as far as to say it is probably the wave of the future. However, the days of the talented individual are not numbered. CM as a function within the corporate sphere remains so diffuse that one is tempted in the search for direction to use the old Irish proverb: “Well, if I was going there, I wouldn’t be starting from here…!”.
    Whilst I don’t disagree with many of the aims of professionalization, I wonder if the current economic crisis will come to be seen in retrospect as a false start in the race for the sunny uplands of CM heaven? In too many organisations CM is still not seen as central to the corporate mission. It will continue to be a hard sell in many companies to ensure that a robust CM function, one which is immunised from the pressures of business unit performance in a “separation of duties” sense, yet pragmatic in its approach to competitiveness and risk, is necessary, still less a dependency for success.
    Many of us will be familiar with debates such as whether the costs of CM should be an indirect cost to overhead, or directed to specific projects; how to measure the direct benefits of CM, or how to quantify savings. These issues have often been symptomatic of the view that CM is a road block to be surmounted, driven around or tunnelled under. An increase in “the quantity and quality of supply and to establish leaders who welcome accountability for results” and enabling a career path by “adopting the behaviours of a profession” are certainly laudable aims. These aims should not however blind us to the very real challenges which remain, nor can we assume that the opportunities presented by the current concern with improving corporate governance and accountability will be sustained for long enough, or have enough teeth, to boost the perceived value of CM within enough companies.

    • Andy, great addition to the discussion. Regarding your question about how long the interest will last, I guess the point is really how effective can we be at exploiting the interest? If we really are valuable professionals, we will not leave it to the whims of others to value or dismiss us. We will grasp the opportunity of visiblity to define what and who we are.

      I think you are depicting exactly the problem. Contracts and Commercial professionals have always basked in the moments of recognition and somehow assumed they would last for ever, rather than understanding that fame is momentary unless you work to be sure that your profession becomes indispensable.

      I do hope we can mature to the point where we work together to define the role and value, then take accountability for its delivery. If we do not, then we deserve whatever our fate may be!

  15. Dave Ruddiman permalink

    Tim,

    Good articles. In the present econimic climate, in the Oil & Gas sector I see two main roles that Contract Managers are being asked to address.

    1) Driving service delivery via KPIs, risk/reward structures etc to achieve “best value”.

    2) Lowering the unit cost of supply.

    There is a definite tension between the two. The first tends to require relationship management skills aimed towards medium to longer term relationship building, the second is focussed on short-term bottom line impact.

    It’s a real challenge to walk the tightrope between the competing demands of Project Managers/Production interests who are largely interested in getting the job done on time and the Accountants who want it all done by the cheapest method possible.

    One side may want to strengthen relationships with key service providers to ensure continuity service, the other simply looks at the short term financial “savings” and sees the current recession purely as an opportunity to drive down input costs.

    It’s a tricky one!

    Regards

    Dave Ruddiman

  16. Tim,

    Very Good articles. I do not however think that the role of contract managers have been standardized- it still varies from one company to the other. Depending on the company, some contract managers still perform supplier management role as well as contract auditing. They also carry out due dilligence on potential contractors/suppliers. At times they do a bit of legal work on extant regulations affecting the contracting parties, the work scope as well as impact of legislation on cross border transactions (here the contract manager is usually required to have legal background). Contract managers also develop Templates (terms and conditions) for goods or services where there are no company precedents or redraft generic templates to reflect internal requirements.

    At the end of the day it boils down to the company and how it has categorised the role of a contract manager. It will be good to articulate in the follow up article, the skills a contract manager should posses.

    • Bede
      Thankyou – and yes, your observations are correct (and of course confirmed by the many responses above, plus those of others who wrote to me direct).

      My goal in writing this description has been to solicit input from around the world and across industries, so that we can perhaps start to develop more universal understanding of what the CM role should be. Variations will never disappear – after all, long-established functions such as Legal or Finance do not perform identical roles in every country or company. But we can at least establish the typical boundaries and the range of roles / tasks that a contract manager might reasonably be expectd to be able to perform.

      Without this agreement on the range of capability, we cannot of course define the core skills and knowledge needed to perform the role. If we are unclear what it is that someone is to do, how can we prepare them for doing it? And how can others measure how effective we are?

      This discussion has enabled great progress since I think there is a strong core of agreement on the central activities; we will need to determine whether a number of others are typically within scope, or perhaps either specialisms or specific industry / company variants.

  17. Scott Olsen permalink

    Tim,
    Both articles are excellent. I read them from my perspective – which is the corporate legal department. I rely heavily on Contracts Management as I cannot review every single contract in our company and so I must rely on Contracts to sift through the risks and come to me with significant issues for my review and company position. In our company, their roles are not limited, but rather are expanded as we rely on them to be the “frontline troops” in protecting the company’s interests and then come to legal for significant risks and issues.

    One other major areas I think Contracts Management is vital is in subcontract management. Some companies have a separate department for this role, but others must rely on contract managers to let procurement know what terms must be flowed down from the prime contract to subtier suppliers in order to protect the company’s interests. Thank you for your tireless efforts in advocating the roles of contract management.

  18. Tim

    I spent most of my corproate career in procuremnt and project management so I recognised many of the issues you raise. Iguess from the perspective I have now whilst appreciatingthe need for rigor and displine inthe manageemnt of contracts I believe the role has significantly changed from what I often refer to as ‘Contracting for failure’. So often over the years I have found myself bogged down in contract negotiations that focused on what to do and who to blame when things go wrong.Whereas if I think back to those real successes they grew out of the eforts put in to build relationships that woudl drive success.

    With an increase in outsorucing , alliances, partnerships and collaborative working we need to expand th efocus no only to the roles and responsibilities but also to the skills necessary to develop the glue between organsiations to deliver outcomes not just contract compliance. This may often be seen by many as a soft appraoch but believe me its harder than people think to get a win-win when you are in effect ‘syncronised swimming with sharks’. it was this challeneg that drove me to write and gain adoption of the worlds first standard for collabroative working published by the British Standards Institution (PAS 11000).

    If organsiations begin to recognise the risks they run of having poor relationships within integrated delivery programmes, the vunerablity that extended supply chains incur, the frailty of integrated operations and the fact the too often these interfaces are being managed solely against conventional contract management the the value of contract managers will grow.

    I certainly believe your efforts amongst many other to raise the profile are worth while but I also think if focused some attention on what most take for granted the the relationships risks would underpin all your efforts.

  19. Mike Carter permalink

    Job descritions is important but also the governance on how contracts managers are involved in the business decision process. Contracts Managers are often side lined by Sales etc and their advise is ignored or view as usefull but not critical in the decision making process. The Governance arround the Contracts Managers role is critical to business performance.

  20. we need clear key roles and responsibilities of contract manager as well as seperated

Trackbacks & Pingbacks

  1. The Role Of A Contract Manager « Commitment Matters
  2. This Year’s Top Ten « Commitment Matters
  3. The Core Of Contract Management: The Discipline Makes Progress « Commitment Matters
  4. Commitment Matters Blog: 2010 in review « Commitment Matters
  5. The Role Of A Contract Manager « Commitment Matters

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: