Who Owns Contract Management?

Over on the IACCM message board, a member has asked the question: “I am an attorney in the legal department who supports the Contracts Management Group who report to a business/procurement manager. I am trying to find out if most companies have the contracts group separate from the legal group, or if the contracts group is a part of the legal group. And, if the contracts group does not report up through the legal management chain, how do you handle contract negotiations, administration and management with the group?”

Of course, this is not a new question – but it does seem to be rearing its head with greater frequency right now. As I have observed in various articles recently, business conditions are placing real strains on the contracting process in most organizations. On the one hand, there is pressure for greater control and compliance; on the other, there is the need for increasing agility and the ability to remain flexible. And of course, there is the vivid memory of the recession and the scramble to renegotiate contracts, which bruised many and left others feeling exposed when they discovered the types of agreements they had in place (assuming, of course, that they could even find the relevant contracts!)

These factors have alerted executives to the weaknesses in their contracting process. It has caused internal frictions over control and ‘who is the blame?’ There is debate over the reasonableness of terms and conditions and about the time it takes to make decisions or reach agreement (internally and externally). None of these characteristics is acceptable in fast-moving market conditions.

But what change is wise? The problem is that contracts require balance. They must enable internal business goals and objectives while at the same time responding to the needs and expectations of customers and suppliers. They are instruments of governance that are designed to secure economic benefit. With so many stakeholders having a legitimate interest, they can rapidly become a battle-ground for control, with the most powerful function simply seeking to impose its will. On the other hand, few stakeholders are in fact equipped to represent the holistic needs of all affected parties – so often they turn to legal because no one else wants to carry the baby.

So how should an organization decide where contract management ought to belong? Here are a few ideas – and I will welcome additional comments:

1. Give thought to the nature of your business and the scope of the contract management role. For example, contract management in a commodity business is very different from the role in a high value project business. Maybe your company has a mix of contract types – in which case it may bneed a mix of organizational answers.
2. Who is willing to take accountability for the quality of the contracting process? Make sure that you have assembled the criteria that represent ‘success’ and then determine who is willing and able to commit to its delivery. For example, is the aim to be ‘easier to do business with’. Is it about increasing the quality and outcome from negotiation? Is it about shorter cycle times? I s it about greater business control? Is it about increased competitiveness? Without broad agreement about what you want to achieve, there will be continued arguments and failure.
3. Who has the right skills today, or is prepared to invest in their development (and associated tools and systems)? Contracting is complex and in today’s markets it must remain a focus area. If the prospective owner wants to grab control because they think they will have a quieter life, or can suppress workload, they should think again. Contracting is set to remain a dynamic discipline, as more and more deals and relationships require active life-cycle management. 

In my experience, world-class contracting depends far more on the integrity and quality of the process than it does on who owns it. So my recommendation is to first focus on ensuring the process supports the goals and relationship needs of the business. Then from this process, the primary skill and knowledge requirements will become evident and potential organizational alignment more obvious. At the very least, whoever steps forward for ownership then has a clear understanding of what they are taking on.

Finally, just because someone owns the resources does not mean they should necessarily own the process. Today’s best performing contract processes operate with a degree of shared ownership where the ‘owner’ is really the first among equals and consults widely and regularly with other key business groups and functions to ensure that contract management continues to meet the needs of the business.