Effective Contract Management and Administration

The National Association of State Procurement Officials (NASPO) recently released its annual report – “Top 10 Priorities for State Procurement 2020” – based on input from state CPO’s. In a series highlighting the priorities in greater detail, we will explore how you can achieve several priorities for your agency.

In a previous article we focused on Continuous Process Improvement (CPI) and we will now turn our attention to the hot topic of Effective Contract Management and Administration.

As with those of the personal variety, long lasting and mutually beneficial contractual relationships sometimes require a degree of compromise, patience, and empathy. The best results are achieved when your suppliers feel like equal partners rather than subordinates, but as the customer, it is crucial that you maintain control. So how can you ensure that an effective relationship is achieved?

According to IACCM (The International Association for Contract & Commercial Management), Contract management is a discipline that supports commercial management through the preparation, negotiation, implementation and oversight of legally enforceable performance commitments and risk positions, both outbound (to the market) and inbound (from the market). Ultimately, contract management covers the entire contracting process, from the pre-solicitation activities through to contract closeout. Effective contract management can lead to lower operational costs, increased user agency satisfaction, and efficiency in delivering services to taxpayers.

The process
The aim of contract management is to ensure that your suppliers live up to the agreement and, more broadly, to achieve maximum value in your expenditure by continuously seeking further savings and added value. This has to be an ongoing effort throughout the contract lifecycle, involving consistent monitoring and reporting of Key Performance Indicators (KPI) as well as regular reviews, coordination, and negotiation with suppliers.

Achieving this requires a great deal of administration using tools to scale visibility and optimize the process, which can easily become overwhelming when you’re managing hundreds or thousands of contracts. With the need to maintain supplier and contract directories as well as monitoring and reporting on timelines and KPIs, organizations with large supplier bases and multiple concurrent contracts need to be on the ball if true value for money is to be achieved.

Doing additional work up front can really reduce risk and save time and money in the long run –by reducing the possibility of having to carry out a “rebid”. For example, well-written contracts, with clear specifications and scope of work, minimizes the number of costly legal disputes and delays in service an agency has with contractors. They also save public agencies money when the scope and terms of a contract are clearly defined, including establishing baselines for cost and quantity. Chartering good communication between the central procurement department and customer agencies before, during, and after the contract has been awarded and signed is pivotal to the success of a contract.

It’s also important to consider, one area where maturity varies can be the integration of contracts with Purchase-to-Pay (P2P) processes. When organizations are struggling in this area, buyers cannot see approved contracts easily. However, when P2P integration is achieved, purchasers will make use of pre-negotiated agreements set up by the Procurement department to capture savings.

The relationship
Ensuring operational efficiency and being able to exploit opportunities to achieve more value requires a consistent process of engagement and negotiation with your suppliers. This is especially important when assessing contract risks and monitoring after the contract has been awarded. Building personal rapport with your point(s) of contact is key: mutual respect is crucial in creating and maintaining robust and rewarding relationships.

If a contractor has failed in some way to meet your expectations or their responsibilities, you do of course need to share constructive feedback.  However, you need to avoid letting difficult conversations undermine the broader relationship. Failure is usually a team effort and tensions between individuals do not benefit either party. Having procedures in place to resolve contract disputes and claims removes any ill-feeling among colleagues and suppliers.