Contract Management is often thought to be the last step in the Procurement life cycle but instead it is both the beginning and end of the procurement cycle and it provides a constant feedback loop.
The following article discusses the various steps of contract management and its role in procurement efficiency.
But first a definition of efficiency. Efficiency involves achieving intended results while minimizing time, resources and effort. It is about doing things optimally or maximizing time and resource use. Effectiveness is about achieving goals being it cost, delivery or any stated procurement goal.
Contract Management is not a ‘one and done’ but a continuous process that if structured correctly can lead to strong supplier relationships and better procurement outcomes.
Contract Management Elements
Contract Management is both transactional and strategic. The former includes tracking metrics and the latter deciding what to do with the information to make fact-based decisions. Contract Management contributes to procurement efficiency as it helps, but does not always guarantee, contract compliance, reduced costs and improved vendor performance.. For a more complete description of Contract Management process click here
Clear Language
Clear and precise contract terms and conditions are important in contract management. Avoiding ambiguous language or overly complex clauses ensures that both parties understand their rights and obligations, which minimizes potential disputes and misunderstandings. Clearly defining the scope of work, delivery timelines, payment terms, and dispute resolution process, the contract becomes an essential tool for managing risks and ensuring successful outcomes.
Compliance
Including performance metrics and penalties for non-compliance promotes accountability and incentivizes suppliers to meet their obligations. Penalties for non-compliance should not be the default but rather the last step in a progressive performance approach. Going straight to penalties establishes an adversarial rather than a cooperative relationship which is key in long term contracts.
It is best to determine every inevitability prior to signing or posting a contract. One of the greatest sources of contract disputes is how to handle price increase requests where there is no clear contract language. The best method is an evidence-based approach showing the underlying cause of the price increase.
A recent public sector case was a vendor who requested an increase in the delivered fuel price – not because of an increase in the fuel price but because of the increase in the cost of the fuel barrel. As there was no price increase mechanism it was decided to base the price increase on the cost of steel, which is the key component in fuel barrels. A mutually agreed steel price index was found and a percentage price increase was negotiated based on the steel price.
Communication
Including the proforma contract in the RFx document minimizes any dispute upon signing. The bidder has the opportunity and the obligation to review the proposed contract before submitting a bid. Any disagreement or misunderstanding can be clarified during the procurement question and answer period.
Including the proforma contract in the RFx document minimizes any dispute upon signing. The bidder has the opportunity and the obligation to review the proposed contract before submitting a bid. Any disagreement or misunderstanding can be clarified during the procurement question and answer period.
Clear, timely and regular communication between all parties helps to ensure that expectations, requirements, and deliverables are understood. Regular conversation aids problem-solving and decision-making processes to address issues and find optimal solutions. These meetings contribute to procurement efficiency as the outcome can be used to improve future procurements.
Automation
Contract management software can improve procurement efficiency through automating contract generation and approval. Using AI for checking invoices eliminates a repetitive manual process allowing procurement to focus on value-add activities such as contract spend analysis. This may reduce the number of suppliers, where feasible, allowing for economies of scale due to increased volumes and lower admin costs. It frees up time for developing proactive strategic supplier relationships.
A transactional contract management activity is to establish procurement contract templates to include standard terms and conditions, payment terms and dispute resolution mechanisms, which can be tailored to specific types of procurements. Implementing standardized contract templates enhances efficiency, saves time, and improves overall contract management practices by reducing errors and eliminating rework.
Coupled with this is a digital centralized contract repository for storing and organizing contracts. The direct benefit is version contract and contract retrieval. This avoids wasting time looking for the current signed contract or replicating errors by using the wrong contract template or even referring to an expired contract.
Automated expiry and renewal alerts reminders are an important component of contract management. Frequently crucial contract renewal dates are missed resulting in an automatic contract rollover, an unplanned price increase or termination. Automatic alerts should be established for six or three months and are easy to set up using contract management software.
Supplier Development
A robust contract management process includes ongoing supplier development. This includes researching and meeting potential vendors to understand their capability and capacity for future business. A supplier analysis may indicate a lack of viable suppliers necessitating sole source contracts, leveraging other public sector contracts or issuing a joint RFx to attract more vendors.
It is the writer’s opinion that supplier development is the most important strategic component of contract management and key to category management. A robust supplier development function sets the stage for successful procurement as the technical evaluation criteria can be tailored to the market. It avoids establishing technical criteria that are neither realistic nor achievable and may result in a failed procurement.
Summary
A robust contract management process contributes to procurement efficiency by reducing waste, maximizing the use of resources and saving money, It is a continuous process and an integral part of the procurement life cycle.
Public Procurement In Canada:
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Procurement services in Canada encompass a wide range of activities, all aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certificationor a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Certified procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement in Canada is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country as a whole. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management coursesto ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by Graham Allen
Graham Allen is a retired public sector Category Manager. He is a UBC Sauder School of Business graduate is a NISCL -. Certified Supply Chain Leader. Hobbies include white water canoeing, hiking, travelling and current events:
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.