For the last 8 months or so there has been an interesting forum discussion on the LinkedIn Group – IACCM Contract and Commercial Management, the subject title being “What is Contract Management”. Here follows a consolidated overview of the opinions shared in that thread.
History of Contracts
An interesting starting point was offered in the history of contracts; that essentially they are some of the oldest written records in history and hence provide us with a prolific document set, e.g. The 10 Commandments, the Magna Carta, The Geneva Convention, marriage. So contracts have been around a long time and form some of the most fundamental relationships between people. Now everybody at some point in their lives will manage a contract, which means it should surely be quite simple to state what contract management is. Almost 90 responses on the thread and counting!!!
A Contract is a Tool Within an Overall Process
The discussion defines the contract as a tool to achieve a specific outcome and encapsulates the requirements of all parties to achieve this. It sits within an overall strategy to maximize the best results for the organisation based upon building the best relation with the other contracting party. It defines:
- The requirements for the goal that needs to be achieved
- The time frame and governance framework for it to be done within (e.g. start and end date, safety, quality, milestone reviews)
- The payment schedules that will apply both in compliant and non-compliant circumstances.
A contract manager should first and foremost understand the schedules, rights and obligations within a contract, because its management defines the relationship between the contracting parties. It ensures that all signatories are successful in discharging their respective scope of work so that the full benefits of the contract’s outcome materialize, while maintaining commercial responsibility and upholding accountability.
The largest majority of contributors recognize that one fundamental aspect of Contract Management is risk management and its mitigation; risk examples being operational, financial, safety, corporate social responsibility. It caters for the limiting of liabilities through formal documentation of all agreements or disagreements and inclusions, exclusions or deviations. Essentially contract management is a risk management tool that creates an environment for value added services from contracting parties to be recognized.
The risk management aspect is tackled within contract management for the following purposes;
- Minimize litigation
- Ensure terms and conditions are recorded
- Maintain a consistency in the contract language used
- Ensure that the formalized rules and regulations of the contract allow for any rights and obligations due to be fulfilled unambiguously
- Ensure that all signatory parties meet and deliver on their obligations within the confines of the contract
- That no party is unduly benefited
A number of contributors did however add that part of the risk role of the contract management role was to deal with the mistakes and failures of everyone else, or as one neat summary observed “the only one who will board a sinking ship and try to pump out the water to right it”. Often this will have occurred because money (the beating heart of most contracts) can be simply lost through unformulated compliance. As a result there needs to also be an agreed and formal method for contract change that does not compromise ethics or business practices and still allows for win-win solutions to be delivered.
Commercial Management & Contract Administration
One aspect that was clear from the views expressed was that contract management is separate from commercial management and contract administration, but that the demarcation is blurred. Commercial Management was generally considered to focus on opportunity realization for a relationship and contract management is a subset of that. Indeed commercial management may over-rule on the specifics of a contractual issue if there is greater benefit within the longer term context of the contracting parties’ relationship. A commercial manager will develop added value by exploiting the benefits of the relationship and its supporting contracts.
Contract administration is viewed as a subset of contract management. Indeed one contributor suggests that it can be “summarized as the process of systematically and efficiently managing and maintaining the standards of the contract execution”. So contract administration is the means by which compliance is assured within the project lifecycle. This is achieved by;
- Liaison role with stakeholders
- Taking feeds from service delivery managers
- Allowing the PM to get on with the job of being the PM
- Supporting operational management of service delivery by monitoring performance
Whilst there was an overwhelming response based on contracts in a project management framework, service contracts were mentioned much less, contract management is viewed as one methodology by which negotiated savings are realised and new opportunities are developed. It may not be a hands-on, daily role for each contract, but does lend itself to being the arbitrator who ensures that all parties do that to which they have committed and fix problems when they occur.
As for my own view? Contract management enables a fair price to be paid for a good service.
About Martin Chalkley
Martin is a specialist in optimising IT costs and IT Sourcing Strategy. Martin has driven collaborative relationships with IT and Telco Vendors and is co-author of the IACCM course on Supplier Relationship Management.Martin is the owner at Consultandomi Ltd, SRM Programme Manager at the IACCM and an Associate Consultant at Gartner.