Best Practice Contract Management Frameworks
Is your organisation’s Contract Management strategy stuck in the past? Is it treated as an administrative task, where the contract is signed and then put in a filing cabinet, only looked at again when something goes wrong?
Unfortunately, this is the reality for many organisations who use a Contract Management process just enough to make it worthwhile spending time and resources on it, but fail to tap into the strategic potential of the activity. It comes from a failure to see the true benefits of best practice Contract Management, leaving many trailing behind competitors who take this step.
However, there are two key factors that can move Contract Management from this traditional, transactional mindset, to something that aligns with organisational strategic objectives, and also make a tangible contribution to Return on Investment (ROI).
- Insight: A greater understanding of another party’s goals
- Practicality: Being reasonable and pragmatic about current and future situations.
But first, we need to challenge the status quo.
Turning Chaos into Order
Contract Management Chaos: Everyone managing contracts in their own way. This can be using contracts as a stick to wield, or as a way of underlining superiority by finding loopholes to make the contract work in their favour.
Traditional methods of Contract Management, much like the traditional methods of Supplier Management, assume an adversarial approach to both contracts and relationships. Here, contracts are used as a way of ensuring fairness and equilibrium in the agreement – ensuring that no one party could take advantage of the other.
It is a mindset that overlooks mutual benefit and win-win opportunities, putting measures in place to deal with any transgressions or if the relationship breaks down. It is the mindset of Contract Management Chaos.
Contract Management Order: Putting processes in place to ensure agreements are fair and above board. Trust and openness are built in, but the key being there is a tangible benefit for both parties.
It’s important to recognise that turning chaos into order doesn’t mean creating a process-heavy straightjacket for Procurement professionals. Procurement has earned greater responsibility for strategically managing the supply chain, segmenting suppliers and identifying viable strategic relationships.
What an ordered Contract Management strategy brings is a situation that fosters mutually beneficial agreements. Neither party is focused on ‘winning’ or how to make greater profits. Alternatively, both parties work together towards agreed outcomes and the creation of a lasting partnership. And while this certainly isn’t a straightforward step to take, there are tools that can assist with it.
Driving Optimal Results
A key tool available to Procurement is a Contract Management Framework. There are a number of organisations that have created frameworks, with many made freely available and shared across the profession. The foundation of any framework sits in four key areas:
- Strategy – covering Strategic Relationship Management, market engagement, and planning and governance;
- Structure & Resources – internal factors including people, administration, and relationships;
- Development – of both external (suppliers) and internal (contract) resources;
- Delivery – what is needed in the administration of a contract, including performance management and payment.
As has been said previously, a good practice Contract Management framework should help to drive optimal results in supplier relationships, rather than inhibiting collaborative working or creating adversarial responses. It will take time to get the approach right for your organisation, but there is considerable payoff when you do.
The Faculty Roundtable Members
If you’re a Faculty Roundtable member who is interested in finding out more, join my final masterclass on 25th June.
‘Contract Management: Best Practice Contract Management Framework’ will explore the nuances of strategic management and equip you with the knowledge and tools needed to revolutionise your organisation’s approach to contracts, including:
- Community Insight: Gain a comprehensive understanding of your contract management community, fostering collaboration and knowledge exchange.
- Capacity and Capability Alignment: Learn to tailor contract management practices to your organisation’s capacity and capability, ensuring practical and effective outcomes.
- ROI-Centric Planning: Develop a steadfast approach to achieving a return on investment, fostering success for both individuals and the organisation.
This article was written by Dr Sara Cullen, Founder and Managing Director, The Cullen Group.
