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Contract Management: Focus less on ownership, more on capability

May 29, 2012

A frequent question about contracts is ‘who should own them?’

More specifically, that question really means ‘who should own what?’ Because in general, different groups in an organisation want control over bits of activity. And they usually want only those bits that suit them and only when it suits them. They certainly don’t want to be viewed as responsible for the overall quality or outcomes from contracts.

Hence, Legal may insist on retaining full control over certain clauses – but not ‘the business terms’ or schedules. Engineering or project management may lay claim to service levels or statements of work. Finance will of course demand ownership of price and payment terms, while Sales or Product Development might say it must have scope, requirement definition and negotiations authority.

In such an environment, there is clearly a very real danger of an uncoordinated and poorly constructed output. Rather like building a house, it needs an overall design and a master plan within which the various trades (electricians, plumbers, bricklayers etc) can work. It also needs some form of quality control and inspection to ensure the finished product meets necessary standards.

The real issue with contracting is coherent capability. The problem with most organisations – and the reason for poor performance – is a lack of coherence and a failure in quality control.

For example, front end requirement-gathering or responsibility for negotiation are frequently grey areas over who does what. In a highly collaborative organisation, that may not matter much of the time. But in an environment where there are less cooperative practices, issues and opportunities will inevitably be missed because of the absence of relevant knowledge or expertise at key points in the design or construction.

Post-award is another area fraught with difficulties. It is still quite common for those who took the contract to the point of signature to then disappear. The business unit, Sales, Operations – someone else picks up responsibility for overseeing performance. But do they have expertise, do they have the necessary understanding, not only to implement what was agreed, but also to actively manage it? And given the weaknesses in construction, what they are given is often not what they need, or is incomplete, or has included responsibilities they cannot perform.

In an organisation that operates off highly standardised contracts, none of this matters. But for those where negotiation is necessary, it means continuous risk of failure and inevitable value leakage (operational costs and revenue).

The key phases when contracts expertise must be applied are in the initial design (do we know what is required to meet the need or opportunity?); in the event of major rework (circumstances or understandings altered, we need to re-design); and in quality assurance and hand-over (do those who must now implement have the necessary understanding and capabilities?). If you do no more than focus your efforts on achieving excellence in those three areas, you will certainly see an improvement in business results.

But don’t try to start the debate with questions of ownership, or you will most likely go nowhere. This is about skills, capabilities and process – and how they get built and deployed.

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