CONTRACT MANAGEMENT: OWNERSHIP, ACCOUNTABILITY, AND BEYOND

To manage your contract risks on a continuous basis, you will benefit greatly from a framework that supports the management of your contracts end-to-end. in some countries and cultures, contract management is a well- developed discipline and profession. in others, it is not. in some businesses, the contracting process is well-documented, including identification of the participants in the process and the steps to be taken. in others, it is not.

As stated in Chapter 3, many business people still see contracting as a series of unconnected steps rather than a process. They lack a holistic view and proper contract management, leading to risky gaps in the contracting process.

Where does your business stand with respect to contract management? You may want to do a quick pulse check. A key control in any process is clear ownership of that process. If you examine your organization charts, manuals, job descriptions, approval matrices, and guidelines for authority, can you locate the person to whom the contracting process is assigned? Do you find a single owner or several owners designated by functional responsibility? Are their accountabilities well- defined?

Do you find any owner(s) at all? If not, you are not alone. Many companies are lacking in this respect, or in some of the other aspects of the Top Ten Best Practices in Commercial Contracting identified by the International Association for Contract and Commercial Management (IACCM).

The first item on the list of best practices (Table 6.4) is, unsurprisingly, ownership and accountability for the contracting process. For successful contracting and risk management, somebody must take ownership and ensure alignment and adherence, along with overseeing successful handover from one team to another and managing change. Somebody must be in charge to ensure that the interests of the different units, functions and professionals are aligned. Somebody should establish contracting strategy and make sure that the people involved know why, when, how, and by whom proposals, purchase orders, and contracts are to be initiated, reviewed, and monitored. The responsibilities and accountabilities must be clear.

Table 6.4 IACCM top ten best practices in commercial contracting19

1.

Ownership and accountability for the contracting process

2.

Terms and structure audit and update

3.

Integration with Product Lifecycle Management (PLM)

4.

Portfolio risk management

5.

Supply/value chain focus

6.

Electronic contracting strategy

7.

Self-help skills assessment and development tools

8.

Strategically aligned measurements and reporting

9.

Proactive change management

10.

Differentiation and sources of value: awareness and marketing

Contract management has been defined as "the planning, monitoring and control of all aspects of the contract and the motivation of all those involved ... to achieve the contract objectives on time and to the specified cost, quality and performance.”[1] [2] According to Tim Cummins, the CEO of the IACCM, the role of contract management is threefold: to secure economic value, to provide a framework for the allocation and management of risk, and to oversee the performance of commitments that reflect a positive brand image.[3] As is obvious from these statements, contract management, project management, and risk management are intertwined, and the success of one is very much dependent on the success of the others.

From a contract risk management perspective, the pre-contract phase is often the most important of all phases of the process. The better the tools, controls, and practices available at the front end of the process, before contract commitments are made, the easier it is to build contract risk management into the process. Ideally all risks inherent in a deal or relationship will be examined prior to making a contract—or better still, before making an order or submitting a proposal (or, in procurement, before issuing a request for proposals or order). A supplier should make its bid/no bid decision based on an evaluation of risks in relation to the rewards and opportunities the deal presents. A buyer should make its supplier selection based on, first, which supplier is most likely to succeed and, second, the price and other terms. Both the supplier and the buyer share an interest in developing the terms of their relationship in a manner most likely to bring mutual success and benefits to both.

The fifth item on the list of IACCM Top Ten Best Practices in Commercial Contracting also highlights the importance of contract management and accountability—supply-chain (or value-chain) focus. Many businesses are still struggling to reach a more integrated management across the organization, including sell-side and buy-side commitments and contracts. Effective contract (and contract risk) management requires an alignment of requirements, responsibilities and risks throughout the chain. As already noted, sometimes the most knowledgeable party is better off educating and supporting the others—making it easy for them to succeed—rather than forcing them to make contractual promises they are unable to keep.

Just as the best practices adopted by other areas in a company usually incorporate the latest technology, technology also has the potential to transform the way contracts are created and managed. Today everyone has access to comprehensive commercial off-the-shelf automated forms, templates, clause libraries, and Web-based self-service solutions for request- for-proposal and proposal preparation and contract creation. Businesses can move from manual drafting to automated contract assembly, and develop and use their own computer- based drafting systems.[4]

Comprehensive contract lifecycle management solutions exist that are designed to simplify the management of the contracting process. A Google search using terms such as "automated document assembly,” "contract lifecycle management,” "contract management solutions,” and "enterprise contract management” produces hundreds of thousands of results. White papers and webcasts abound on implementing and selecting such solutions. And there are technology tools in the market that can convert project and contract documents to an easier-to-read format.[5] As technology tools develop and are implemented, businesses will obtain better visibility into their contract portfolio, including the risks and opportunities that these contain, making it easier to manage them.

  • [1] Cummins, T. (2006) Best practices in commercial contracting. key initiativesthat are driving competitive advantage. In P. Wahlgren and C. Magnusson Sjoberg(Eds.), A Proactive Approach. Scandinavian Studies in Law, Volume 49. Stockholm:Stockholm Institute for Scandinavian Law, pp. 131-47, 143-5, available at http://www.scandinavianlaw.se/pdf/49-8.pdf. See also the related IACCM Top Ten Best Practices inCommercial Contracting - 2006 Status Report, available (for IACCM members) at http://www.iaccm.com/library/?id=1135.
  • [2] IACCM (2011) Contract and Commercial Management. The Operational Guide.Zaltbommel: Van Haren Publishing, p. 617.
  • [3] Cummins, T. (2012) The role of contract management. Commitment MattersBlog, January 19, available at http://contract-matters.com/2012/01/19/the-role-of-contract-management.
  • [4] For computer-based drafting, see, for example, Quinn, B.C. and Adams, K.A.(2007) Transitioning your contract process from the artistic to the industrial. ACCDocket, December, 61-72, available at http://adamsdrafting.com/downloads/Quinn. Adams.ACCDocket.Dec07.pdf.
  • [5] See, for example, McNair, D. (2005a) Contractual risk identification, assessmentand management system for the owner. Contract Management in Practice, 2(9), November/December, 136-40, available (for IACCM members) at http://www.iaccm.com/library/?id=890, and McNair, D. (2005b) Contractual risk identification, assessment andmanagement system for the contractor. Contract Management in Practice, 2(10), December2005/January 2006, 156-61, available at http://www.iaccm.com/members/library/files/CMP_2_10.pdf.
 
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