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Contract Management & Financial Services

April 9, 2012

In the wake of the 2008 collapse in financial services, I observed the connection with poor contract management. The crisis arose because of high risk commercial offerings and failures to oversee the risks inherent to contract portfolios (such as mortgages).

Even since the collapse, there have been further instances of weaknesses in contract management, ranging from the absence of adequate controls over dealmakers to the debacle over housing repossessions where the relevant contracts had been lost.

Given these problems, one might have expected urgent action to improve contract management capabilities. At last, it is clear that the industry has awoken to the need and is taking steps to better define its contracting processes and controls and to recruit contract management staff.

There are new factors driving action, in particular the growing pressures from regulators. Investment banking faces a period of continuous change, demanding far greater oversight for existing contracts and regular amendments to ensure compliance. Supply management is also a focus, with regulators demanding that the industry accepts direct risk for the performance of its suppliers, specifically in areas such as outsourcing.

Despite the wish to build contracting capability, the industry is not finding it an easy path. They struggle to grasp that risk aversion is not the same as risk management and to design effective processes. In addition, with no history of contract management, they lack the internal staff to perform the role – and are finding that the market is not overflowing with the right talent.

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