CONTRACT MANAGEMENT

CONTRACT MANAGEMENT | ADVANTAGES AND DISADVANTAGES

Contract management is an on-going process throughout the contract life. Things don’t just take off positively in contracts after the parties have signed the dotted lines. Think about it, what if circumstances change in the contract? What if supplier performance falls short? How do you know that contract terms are in need of adjusting? You need to know how to manage the contract

Contract management can be defined as the activities of a buyer before, during and after a contract is signed, to ensure that all the parties to the contract understand and fulfill their contractual obligations.

Activities relating to contracts management can be grouped into two phases, that is, the pre-contract award/renewal phase and the post-contract management phase. Effective management of both phases is crucial, there is no way you get to benefit from the suppliers achievement of the key performance indicators (KPIs) when you were not keen during the negotiation phase of the contract. In short a failure in managing the pre-contract award/renewal phase will simply result in your wastage of time and effort while trying to correct omission during the post-contract management.

Dangers in failing to manage contracts

Failing to properly manage your contract will lead to the following adverse outcomes

1. Changes in contract can be detected late and that will result in to decisions being made at the wrong time or not being made at all, which won’t be good for the business
2. Both the buying organization and the supplier want to have the ability to control the contract, basically power. As the buying organization, if you don’t control performance of the contract, leaving it with the supplier, the supplier may not have your interest at heart and that may mean unbalanced decisions that do not serve the your organization’s interest
3. Unchecked misunderstanding between the buying organization and the supplier could mean failure to meet contractual obligations and responsibilities
4. With the rise of issues as a result of misunderstandings and disagreements, the relationship between the supplier and the buyer may be damaged
5. Progress may be slow and as such in ability to move forward with the contract
6. The intended benefits and value from the contract may not be realized and what this will also lead to is missing out on future opportunities to improve on performance and value for money

Reasons for contract management

1. Improved risk management since you are always on the lookout for uncertainties as you develop and manage the contract
2. The supplier’s commitment and compliance is not left to chance
3. Incentives and momentum for ongoing relationship development and performance
4. Efficient contract administration and performance will mean better value for money