Contract Management – an opportunity for procurement or more trouble than it’s worth?

Clearing out my study the other day was a somewhat depressing experience. Not just because of the huge quantities of papers I’ve collected over the years, and my wavering around whether to ditch many years’ worth of Supply Management magazines – will I ever need them again? Will they become valuable collector’s items one day? I still bitterly regret throwing out in the early 90s several hundred copies of the New Musical Express from the late 70s through the 80s, then discovering a few years later they were worth at least a fiver a copy...

But the real downer was realising how true "plus ça change, plus c'est la même chose" is when it comes to procurement.  Are things really progressing? Are we more skilled and effective as a profession than we were ten years ago?

As I went through this material, this really hit me. Here’s a really leading edge presentation from a conference – painting a vision of e-procurement, supplier networks and collaboration that looks bang up to date. But the footer gives the game away – May 2001. The vision hasn’t moved on at all – and 95% of organisations are still miles away from turning it into reality. (Peter Loughlin at Purchasing Insight has a similar question in his recent blog on that topic incidentally).

Then I came across a box full of material all around contract and supplier management. A strategic supplier programme I helped to introduce to the Department of Education in 2002. A review with a financial services firm shortly after that.  Some supporting papers for various projects I did with OGC and Treasury over the years in central Government.  Reports from other experts  like Future Purchasing, guidance published by various organisations that I got my hands on to inform the work I was doing.

Then a major piece of work I did with the National Audit Office in 2007 – which led to some output I’m still proud of today.

But if you asked 100 CPOs today – is your organisation better at contract and supplier management then it was ten years ago – I wonder how many could truly say “yes”?  And in how many of them would we see the procurement function having a clearly defined role in the contract and supplier management process, across all the key third party contracts in the business?

Indeed, there’s still a procurement school of thought that says “contract management is nothing to do with us”.  Some of that comes from the fact that procurement can’t possibly take the lead on managing every major contract in their organisation - inevitably other functions or business lines will own at least some key contracts. So some procurement people think that if they can’t lead it all, it’s better to let others just get on with it.

Even our Institute has been uncertain how to approach or embrace contract management. CIPS isn’t comfortable with other functions – and non-qualified people – “doing procurement”, so I think that’s been a point of conflict. CIPS may feel that if we bring contract managers into the  professional family, next thing you know there’ll be lots of non-professionals not just managing post-contract, but wanting to let contracts themselves!

However, there are very strong arguments for procurement taking a lead here in terms of owning the overall responsibility for contract and supplier management in their organisations. That doesn’t mean doing everything ourselves; but it does mean taking a lead in certain key areas. And we’ll explain why we think this is so important in part 2.

Voices (7)

  1. TimBya:

    I have to agree that contract management is everything to do with procurement and its always included in my definition of the function. Our organisation has moved a long way from “Let ’em and forget ’em” and although we did contract management before, we used your NAO framework to formalise a number of areas and re-emphasise its importance.

    I see procurement’s role is to manage the supplier relationship, manage all commercial aspects of contracts management and ensure that the internal departments are managing performance (service delivery against SLAs). We also oversee VFM initiatives, improving sustainability etc and I sit on or chair a strategic overview meeting with all our major suppliers.

    In short – procurement must ensure that the benefits foreseen at the outset are being delivered or hopefully improved during the life of the contract. To supppport this, we have also invested time on commercial training for business staff involved in managing the services.

  2. Mary Wildsmith:

    I agree entirely with Daren, particularly the difference in the roles of contract management and performance management. If all parties are joined up about the importance of both, and all fulfil their roles, there is a good chance of success. The best situation is where the good work done during negotiation in agreeing the governance rules, change processes, SLAs, risk management processes etc carry right through the life of the agreement, driven by contract managers who know their contract thoroughly and manage the supplier robustly.

  3. Phoenix:

    I agree entirely with Daren. But Peter is it really a fact that “procurement can’t possibly take the lead on every major contract in their organisation”? If you ask me, we should be leading on every major contract, leaving (if absolutely necessary) some of the minor ones to the amateurs.

    Any CPO should, in my opinion, be responsible for managing all key commercial relationships, including all major outsourcings, partnerships, PFIs, what have you. Look at your average large local authority. Usually there’ll be a series of these commercial relationships that are critical to service outcomes: outsourced care homes, highways maintenance, IT, schools joint ventures and the like. All high value, all critical and all very political – especially if something goes wrong.

    Traditionally these contracts would be managed by service managers – with specialisms in social services, highways, IT and so on. And of course, they are vital in providing the ‘intelligent client’. But they’re not trained in the key disciplines required to manage these relationships – performance management, negotiation, risk management, cost management and contract law. If the CPO can’t provide this, then s/he should at least be setting the framework – ensuring there’s proper investment in training, proper contract and relationship management processes, proper reporting and management of risk.

    How often do major contracts fail, not because the contractor is incompetent, but because the relationship isn’t managed effectively? Or because a commercial approach isn’t embedded into the process?

    The key, to my mind, lies in risk management. Scan any large organisation’s corporate risk register and the risk of failure of any of its major commercial relationships probably doesn’t appear. If these risks – and their potential impact politically, financially, hell even the human cost – were properly understood then management wouldn’t hesitate to invest properly in contract management.

    It’s certainly far too important to be left to the amateurs…

  4. bitter and twisted:

    Basically, what matters is that the procurement bod what done the deal has to be made to suffer if the contract doesnt work. Whether they have to manage the wretched thing , or get regular stakeholder beatings, is horses for courses.

  5. Daren Murphy:

    I subscribe to the view that Contract Management is everything to do with procurement and CIPS should be claiming it as our own. However, I see a clear distinction between Contract Management (including activities such as change control, benchmarking, commercial dispute resolution) and Service Management (including, for example, performance monitoring, variations to quantities, continuous improvement, operational dispute resolution, DR and BCP testing). Except where combined as part of a Category Management approach, I generally treat these as distinct roles, and like to include a dedicated Schedule to describe and allocate these roles. I find this forces the business to think about how it wants to manage the contract early in the process, overcomes the land grabs and power plays, and helps to ensure that a formal regime is implemented.

    However, there are also important areas where Procurement / Contract Managers and the business need to collaborate, which I badge under SRM e.g. those activities that require both operational and commercial input, such as strategic oversight, gain share and value enhancement, market and supplier development, supplier integration, etc.

    I was interviewed by a very high profile procurement person last year and was astonished to hear him say that Contract Management was not part of his team’s remit, and they were simply handing contracts over to (non-procurement) Contract Managers to run with. It seemed like a classic case of not wanting to be held accountable for the end result failing (and if you knew who it was and what his role was you’d probably understand his reasoning). Regardless, I was surprised and disappointed that he felt his job was done when the contract was signed.

  6. RJ:

    There’s a very strong argument for Procurement teams taking on contract and supplier relationship management roles particularly in the case of framework agreements where the relationship has to be managed across a diverse range of stakeholders, business units and/or geographies. The case is less strong for major projects where the responsibility has to lie, in my view, with the budgetholder.

    However, whether the skills required to source a supplier and negotiate a deal are likely to be possessed by the same individuals as those who then manage a complex business relationship over several years is a completely different programme.

    I recall a process change and training programme that I led in 1996 on this very subject… oh sorry, that’s the other (depressing) theme of this blog!

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