Tackling hidden costs through improved contract management

One of the biggest problems with contract management is imprecision in its definition. What exactly is its purpose; where does it begin and end; who is responsible for its overall performance? It is an activity where the answer to these questions varies not only between companies, but between functions and individuals within a company. It is therefore inevitable that there can be confusion, overlaps – and in many cases, areas that simply aren’t tackled since they are either no-one’s (or everyone’s) job.

A leading example of this is communication. Time and again, when IACCM is asked to assist members with improving their contract management, we find poor communications lying at the heart of problems. This can – and usually does – take a variety of forms. It may be the inadequate data flows generated from technology. It could be a failure to engage with stakeholders or to keep them informed. It might be poor handover from the pre-award team to those responsible for performance. It is frequently the complicated wording and structure of the contract itself, leaving 88% of business people complaining in a recent survey that ‘contracts are difficult or impossible to understand’.

Each of these issues reflects the observation in the opening paragraph – roles and responsibilities are frequently unclear, therefore the problems are not addressed.

But the issue with communication goes much deeper because it is also about the ways we communicate. Ensuring contract performance is critical to any organization, yet in many there is little thought given to the methods by which this can best be achieved. Our cost-cutting world has typically assumed that the best model for business operations is in many cases remote. Indeed, with many project teams and supply networks now scattered across time zones, physical meeting and co-location are often impossible. Pressure on travel budgets has ruled out even occasional physical meetings. Technology for contract management is frequently limited because no one is clear about the investment case. As a result, people often rely on email – which is increasingly recognised as a major source of confusion, misunderstanding and inefficiency.

Contract management desperately needs a complete overhaul of its associated communications strategy. As IACCM dives deeper into its analysis of the causes of value erosion, it is clear that inappropriate forms of communication lie at the heart of many problems. There are numerous examples – here are just two:

• Suppliers were regularly failing to meet regulatory standards on health, safety and hygiene. This was leading to high levels of staff turnover at those suppliers and resulting in poor quality and productivity. Contract terms were amended, introducing more detailed clauses and more onerous penalties. There was no measurable improvement in performance – until someone realised that the contracts were the problem. No one could understand them. Through redesign, the contract became a means of effective communication, rather than a weapon to punish non-compliance.
• In a recent workshop assessing performance on a $16bn project, it became evident that working relationships between the many parties were strained. Goals were often unclear and there was a tendency to allocate blame for problems, rather than to fix them. It became obvious that communications across this interdependent ‘virtual’ enterprise were poor. There was heavy reliance on email because no one had alternative contact information – there wasn’t even a shared database of phone numbers. Physical meetings were rare; use of alternative communication techniques had not been explored. A team was established to define communication protocols and to ensure clarity over the behaviours expected from program participants, regardless of which organization they represented. Performance and morale are showing steady improvement.

Communication lies at the heart of human behavior. That means it also lies at the heart of contract performance. So why isn’t establishing and defining communication practices and protocol a fundamental element of a contract manager’s role?