Contract Management is an essential element of the procurement lifecycle as it helps to mitigate risks, ensure compliance and achieve desired outcomes. It is a structured approach to overseeing contracts from initiation to execution and leads to either termination or renewal. It is an important process whether one is managing a low value short term single vendor agreement or a complex multi-vendor long term contact.
Drafting the contract is the first step and it is important to ‘get it right’ so that the requirements are clear, concise and comprehensive. The key contract elements are to clearly state the rights and responsibilities of all parties, the performance timeline, the deliverables, payment terms, and penalties for non-compliance. This is easier said than done and clear writing is important. Contract drafting does require a lawyer but sometimes the contract is so one sided that others are not willing to entertain it. Therefore, the contact needs to protect the interests of the offering party but not to the extent of being unfair.
Many contacts are written in ‘legalese’ making them hard to understand let alone interpret in the event of a dispute. Once drafted the contract needs to be reviewed. A good practice is to ask one or two ‘non procurement professionals’ to review the contract to see if it makes sense. This is a good test as sometimes one becomes so focussed on the contract they lose sight of the big picture. Finally, legal needs to sign off on the contract.
The contract drafter needs to be clear on what is being procured and hence the penalties and insurance requirements need to align with the deliverables. A good example is insurance requirements which can cause procurement contracts to fail. The primary insurance types are Commercial General Liability (CGL), Auto and Errors & Omission and their stated limits. Sometimes, the stated insurance dollar limits are too high given the actual risk and can exclude qualified bidders. It is best to work with your insurance person to review the limits.
Another issue is Cyber Insurance which is expensive and not always easily obtained. However, it is only required when a supplier will be working on a control panel or is accessing a company’s electronics. Equipment suppliers do not require Cyber Insurance but equipment installers do not. Therefore, make sure the contract insurance terms align with the deliverables.
Including the contract or the form of agreement in the bid document allows bidders to understand the proposed contract and decide if they want to submit a bid. A common error is to continually reuse the same contract for all types of procurement. IT and construction are distinct businesses and require separate contracts and bid forms.
Another common error is for bidders is to reject or attempt to modify the contract after it has been awarded. Under contract A/B the bid document is an offer and the bidder is accepting the offer by submitting a compliant bid. Trying to renegotiate a contract after it has accepted and awarded can lead to a host of issues for both parties. The following link provides a humourous look at contract acceptance gone wrong Texting thumbs-up emoji in response to a question costs Sask. farmer $82K in contract case | CBC News
The Q&A period is the time for a potential bidder to raise any contract issues. The issuer can decide to accept the proposed change byway of an addendum or leave the contract as tendered.
At times bidders have attempted to renegotiate the proposed contract once their bid has been accepted. In the case where there is no second complaint bid the issuer can be forced to deal w the requested amendment. Sometimes the request is minimal and other times substantial. In the latter the writer has been required to issue a letter to the bidder restating that a valid contract exists and that the bidder will be held accountable for all additional costs for non-performance. As can be imagined this delays the contract award and can impact operations.
Once the contract has been awarded the next stage is performance management to regularly track and measure performance for contract compliance. The KPIs should be included in the contract and it best to limit them to five or six. In this case less is more and it allows both parties to focus on the important contract elements. For long term new contracts, it is best to review monthly and then move to quarterly as performance stabilizes and both parties become familiar with each other.
Effective contract management is like ‘the canary in the coal mine’ as it helps prevent small issues developing into serious issues. It is important to include the dispute resolution process and the non-performance penalties in the contract. A common error is to include the KPIs and then ignore performance monitoring until there is a serious contract issue. Early and consistent monitoring helps to keep a contract on track. Many times, there are contract performance issues but either there is no documentation or documentation begins late in the process. A best practice is to document, document, document. The following links provides more information on the Federal Government’s contract management process Contract Management – Buyandsell.gc.ca and Manage the Contract – Buyandsell.gc.ca
Many contracts contain an ‘option to extend at the buyer’s option’ and performance management is an effective tool to determining if one wants to exercise the extension. In some cases, poor contract performance can lead to early contract termination or the decision to not exercise an extension. A robust contract performance management process will support the decision to extend or not to extend the contract.
Contract management is foundational to an effective procurement process.
It is essential to ensure that agreements are executed successfully and that risks are minimized. By following these nine steps—planning, drafting, negotiating, reviewing, executing, monitoring, amending, resolving disputes, and closing—you can ensure that contracts deliver their desired outcomes for all parties involved. Good contract management not only helps mitigate risks but also fosters better business relationships and improved organizational performance.
Public Procurement In Canada:
Certified procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through procurement webinars, the landscape for public procurement offers many opportunities to explore.
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 certification or 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 courses to 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 recently retired from Supply Ontario where he managed the entire procurement life cycle for a number of vendors and individual ministry procurements. His hobbies include white water canoeing, hiking, traveling and reading.
Procurement Courses
For Individuals
- PSPP: Procurement program for individual
- CMP: Contract Management Program – Essentials for Individuals
For Teams
- PSPP: Procurement program for Team
- CMP Contract Management Program – Essentials for Teams
- Webinars: Webinars for my Team
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.
Mike Hatfield says:
Good Article. Thank you.
Two important points to successful contracts are: involving your internal subject-matter experts when developing your requirements and continuous improvement of your contracts and related processes.
In addition to risk transfer (like cyber insurance), your organization may have specific controls around equipment which gets added into your facilities to run contractor-supplied equipment like a building automation system. If you don’t consider these requirements when developing a specification, you are creating risk for your organization that contract-based risk mitigations can’t prevent.
Resolving objections to contract terms during the procurement process is an important point. Taking the time to review those objections with respect to future competitions, either during award where they may surface or during debrief with unsuccessful proponents, to ensure that your contract clauses are clear and are not creating unacceptable risk to the supply base that prevents them from bidding is important. Relying on a sample draft contract that is never updated may result in making your organization undesirable as client.