Ten Tips to Safeguard Contract Value
Many organizations struggle to measure the value of contract and commercial management. That is often because they don’t ask the right questions or look in the right places.
IACCM has undertaken extensive research to understand the contribution from contract and commercial management. It takes two forms: one is the potential for value-add (e.g. through contract growth, commercial innovation, competitive differentiation of commercial terms). The other is through safeguarding against value-loss – that is failure to achieve expected revenue or margin, or to achieve anticipated cost reductions or savings. The latter is much easier to measure than the former, but it demands that organizations undertake some form of contract audit in order to identify recurrent issues that are leading to ‘value leakage’.
Based on IACCM’s analysis (and supported by a number of audits), here are the Top Ten weaknesses in the contracting process – the things you should be checking and safeguarding if you want to deliver better results. You can listen to a more detailed explanation in this podcast, or contact IACCM for a soon to be published white paper that describes best practices in these areas.
- Ensure that bid evaluation criteria reflect business need and priorities, including adequately validated technical and commercial requirements
- Select contract model and terms that match business goals and drive the right relationship / behaviours
- Avoid commencement of work without contract – or ensure appropriate controls are in place
- Watch out for over-commitment – incorrect estimates of contract value, overstatement of capabilities
- Check that key terms have been included, based on risk analysis and reference to relevant contract templates / models
- Validate scope / Statement of Work – is it complete, is it realistic, can it be fully defined?
- Harmonise contract content – avoid conflicts from poorly drafted appendices, statements of work, service level agreements etc .
- Address weaknesses in post-award contract management: ensure obligations are actively managed, review controls over change management, adequate performance criteria and / defined performance management regime, appropriate performance metrics.
- Review financial controls – e.g. drafting or management of payment schedules, enforcing price escalation or reduction terms, controls over discounting / goodwill
- Ensure thorough warranty management