What is Contract management?
Contract management is not just about the administration function relating to an existing contract , in reality it is much more complex process, which can help achieve value for money and innovation The chartered Institute of purchasing and supply defines contract management as "the activity of a buyer before, during and after a contract is signed, to ensure that all parties to the contract understand and fulfil their contractual obligations".
This explains, to some extent why many organisations have placed such importance on improving their contract management. By looking at the contract management as a beginning to end process, it highlights that the earlier elements (upstream ) activities are not just the beginning of the process but that will impact on the later downstream elements. For example having a well negotiated contract , with carefully thought out clauses, will mean that the contract should ran more smoothly with less intervention during the contract period and less likelihood of disputes.
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The Importance of contract management
Contracts can be simple commercial agreements, to complex projects. Organisations need to ensure that they select the right suppliers and select an appropriate contract strategy to secure the critical goods and services it needs. They will also be looking for suppliers that will give value for money but also added value to help them gain competitive advantage through innovation or cost reduction.
Complex supply chain, global sourcing, outsourcing, off shoring and partnership sourcing, can all lead to vulnerabilities which to some extent can be mitigated by sound contract and risk management.
Results of poor contract management
Poor contract management can lead to poor quality, inadequate service, and end user dissatisfaction. It can also lead to substantial losses due to disputes, both in terms of delays but also the cost of dispute resolution. Organisations also need to ensure that they do not suffer reputational damage because they have failed to considered social or ethical issues in their contra
The benefits of a robust contract management approach
That not only should the contract seek to mitigate or eliminate risks, but should look to maximise the rewards to both the buyer and the suppler. By working together to reduce costs and seek out innovation both parties will have the opportunity to benefit from the contract.