The Neglected Element of Contract Management

On LinkedIn, IACCM member Satender Sharma has posed a question about relationship management, which he describes as ‘the neglected element’ of contract management activity.

Satender suggests that contract management activities can be broadly grouped into three areas, which he describes as follows:

• Service Delivery Management, ensures that the service is being delivered as
agreed, to the required level of performance and quality.

• Relationship Management, keeps the relationship between the two parties 
open and constructive, aiming to identify & resolve issues / problems in more pragmatic manner through dialogue.

• Contract Administration, handles the formal governance of the contract 
and changes to the contract documentation.

I agree with Satender’s observation that Relationship Management is core to good contract management and that it tends to be overlooked.

In the pressure to close the contract, ‘what happens next’ is typically of lesser importance. As a result, most contracts do not establish an effective framework for managing the relationship. This includes lack of relevant terms and conditions to establish the relational structure and failure to adequately define or engage the resources that will be responsible for on-going performance. In the case of contract management, there may not even be resources to assign (this is especially true on the client or customer side).

The situation is not helped by confusion over who is really responsible for relationship management and how this might differ at a generic level (eg account management) versus a situational or contract level. On the sell-side, it is typically the Sales organization that ‘owns’ relationships, yet there is rarely a serious effort to make Sales proficient in contract and performance management. On the buy-side, it is typically the business unit – yet they too have not been trained for this role and often a contract or supply relationship will span multiple business units, resulting in confusion and inconsistency.

To my mind, the connection between contract management and relationship management is critical to good performance and it is the failure to build an integrated approach that leads to many value shortfalls. It is not that there must be a single owner of these two areas; it is more that they must be integrated and complementary. Contracts must be written to reflect and support good relationships; relationship management must work from the contract and use it to ensure continued clarity and appropriate governance.

Today, as Satender points out, that is not happening.