Procurement organizations are often responsible for contract management, but this seems to be one of the most inconsistently applied mandates in the realm of purchasing. Exactly what does contract management mean and what should procurement organizations be doing?
Contract management can roughly be broken into four primary activities:
- Contract authoring and negotiation
- Administering individual contracts to incorporate changes and revisions as appropriate
- Tracking and managing compliance to contract terms
- Administering an overall database of contracts
Those procurement organizations that have responsibility for contract management tend to do a pretty good job with the first two items, but are significantly less effective in the last two. Ask any procurement leader if he or she has a contract database and the answer will be yes, but ask for a definitive confidence level in expiration dates, options, committed value, how many suppliers are complying with contract terms and at what level, and you may be met with furtive glances and broad, generalized statements. Furthermore, even for processes where procurement organizations are able to bring a high degree of value, such contract negotiation or administration of individual high-impact contracts, experience shows an extremely high degree of variability in cycle times, outcomes and end user satisfaction.
The typical source of this problem is a lack of process control for contract management and administration. Therefore, contracting and individual contract administration results are largely determined by the talent and experience of the individual. In the cases of managing compliance and overall administration, input variation creates an inconsistent and ultimately corrupt database. The end result of these problems include lacks of credibility for procurement data, inconsistent service levels to internal clients, and all too frequently, justification to simply bypass procurement for contract management.
Procurement leaders looking to get this right can leverage a number of best practices. Here a few to get started:
Utilize a simple high-level process for each of the contract management processes. The high-level process will avoid over-engineering and accommodate a broad set of situations in a way that will minimize exceptions and not be over burdensome. Work towards a high level of process compliance to drive organizational discipline and control. Refine processes as necessary over time. This will become easier as the company gets used to the initial high-level processes.
Implement a contract intake case tracker and workflow tool. Ideally this should be based on a Web form which can be completed directly by the requester or recorded by procurement based on a phone call or an in-person request. This will create a time-tagged record to which relevant documentation and notes can be attached.
Integrate any dedicated legal resources into the workflow so that you can measure volumes, activities and cycle times. What gets measured gets fixed.
Invest in a single dedicated resource or team to input all contracts into the contract database and manage the database. This is the only way to enforce and control consistent data standards.
These practices will get you started on the path to solving the contract management problem. Of course, a good partner can bring these and other best practices to you out of the box.
What are some other practices that work in your organization?