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Managing contract performance

November 15, 2012

There are times when my conversations yield recurrent themes and during the last few days, performance management has been a recurrent topic.

It began with a study I was asked to review, which yielded insight to the current state of contract performance oversight by Procurement. The results confimed that for a majority of organizations, performance management is more about conducting a post-mortem than it is about generating better results. While some large corporations may have invested in a more pro-active approach, they appear to be the exception. In most cases, Procurement is not even involved in performance oversight unless they are called in or unless it is part of a contract close-out process. In both cases, interest only seems to arise when things are badly wrong and someone needs to be blamed.

This experience led me to pay added attention when people started talking about ‘obligation management tools’. Strangely enough, this term occured several times this week during meetings in Germany and Switzerland. As complexity grows, as the frequency of change increases, and as long-term outcomes become a point of greater focus, the importance of capturing, monitoring and amending ‘obligations’ becomes ever-more significant. In addition, effective obligation management requires clarity over roles and responsibilities; it isn’t enough just to know what needs to be done, it is also critical to know who is responsible for doing it – and that is one of the key weaknesses that emerged in the performance management report I mentioned earlier. Far too often, the allocation of tasks is far from clear – convenient when it comes to handing out blame, but not good if you actually want to succeed.

Of course, if we have reliable obligation management systems, we can be more effective in overseeing performance. So this has set me onto a search for effective obligation management tools or systems and I will comment on those in a future blog. But another link in the chain of obligations and performance is the corollary of poor management – claims and disputes. And this was another topic that kept arising. In several presentations I attended, there was emphasis on the growing importance of good claim and dispute procedures. In these hard economic times, it seems that companies are paying increased attention to their contractual rights and obligations, at least when it comes to making money or cutting costs. So they have become more robust in their readiness to issue or fight claims. Of course, one might argue that it would be smarter (and long term more cost effective) to invest in improved obligation and performance management rather than engaging in battles over what went wrong.

  1. Tim, when thinking about “obligation management systems” you might want to look at the emergence of “Interface Management” systems in large industrial construction projects. I believe they represent a fine example of systems that manage performance and reduce risk with extraordinary clarity of roles and responsibilities and control of the gaps between contracts in very complex projects.

  2. Tim, I couldn’t agree more. After having been responsible for managing dynamic complex sourcing agreements for a global operating bank I have started my own business in supporting companies in managing their sourcing arrangements. We believe that collaboration, transparency and responsiveness are essential to successfully managing contract performance. Not only from an operational point of view but also from a compliancy perspective. Without effective tooling it is simply impossible to keep track every obligation, change, risk, issue and payment.
    As you we started to look for effective tooling but were disappointed not to fine anything usefull.
    It set us on a path to develop our own sourcing governance system that we now use in our practice.
    Let me know if you like to learn more.

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