CONTRACT MANAGEMENT CYCLE

Relationships that companies have with the parties the deal with, say suppliers in this case, are often summarized by contracts

Success in managing contracts will therefore mean:

1. Increase in revenue
2. Decrease in cost

Contract management in procurement is an ongoing process that ensures suppliers and buyers stick to their agreed contractual obligations as well as negotiating any future changes that need to take place.

#1 PLANNING AND SCOPING

You have to know what the contract will cover, what it will achieve and if possible aspects that won’t be covered by the contract

You have to be precise about what performance criteria will be used to ensure that the contractor, as well as your own organization, meets their obligations.

#2 WHO ARE THE STAKE HOLDERS

Stakeholders, in this case are people who can affect or be affected by whatever happens in the contract

You may end up with a situation where project manager, finance manager, all end up having contact with the contract holder. Should this happen it is important that those 3 work together internally less their actions end up compromising the contract.

#3 HOW THE CONTRACT WILL BE ADMINISTRATED

Things like dates when decisions will be made, necessary reports, activities, notices or termination or exit will require proper monitoring

In the event of amendments in an existing contract you have to know how such will be logged and communicated

#4 LOOK INTO RELATIONSHIPS ELEMENTS

Contract managers should be very particular about their roles as well as the roles of those involved in the contract since, as pointed out earlier, this is a relationship and if poorly managed the effect will be reflected in the delivery.

Dispute resolution mechanism and remedies should be properly spelt out.

There should be a clear mechanism of feedback from suppliers on the client’s performance, this will aid in early recognition of potential issue that can be resolved.

#5 THINK ABOUT PERFORMANCE MANAGEMENT

You need to have a framework that details:

• All service level agreements (SLAs)
• Key performance indicators, a detailed criteria of how such performance will be measured
• You also have to know how liquidated damages will be set up against breach of contract or service failure

As part of performance review you should have an objective outline of the contract milestone and show how your suppliers’ performance will be measured against them

#6 PAYMENT AND INCENTIVES

Of course payment and incentives terms are things that will be negotiated during the representation stage of the contract, so that is not really the issue here.

What matters here is for you to know what will happen if such are not fulfilled. In short it will be a breach of contract

Find out who has the authority to ensure payments are on time otherwise don’t negotiate payment terms if you don’t have such an authority

#7 ADAPTING TO CONTRACTUAL CHANGES

As the contract progresses things could change, government or legislative policies, some disruptive technology comes along, or even a change in your profit dependencies. All these will mean that you have to adapt to a new or altered criteria

It matters less whether the change is outside or within your control. Remember you have an ongoing contractual obligation  

#8 EXIT AND TERMINATION

While termination of a contract isn’t what you think of when getting into one, you must have a vision of what you want to achieve in the end of the project.

Whatever you are contracting for should be finished on time, within the budget and to the satisfaction of the stakeholders involved.

You will need to have a sign-off procedure agreed in advance, for instance, which goods will be tied to a final payment.

#9 ASSETS MANAGEMENT

Over time assessment will be carried out on whether the business requirements have changed, and whether the agreement is still required and fit for purpose.

Lessons learnt from the process and how these can be incorporated to improve the process next time should be captured.

And the cycle begins…