Contract Management – why procurement needs to take a lead

I wrote today's post before we got all the excellent readers' comments on our piece on contract management last week. We'll come back to those comments later - but I haven't referenced them in this post.

We started discussing contract and supplier management the other day, when we suggested that procurement should look to take the lead within their organisations in this area. (And note I’m going to focus here on contract management and what we might see as operational supplier management. We’ll leave “strategic supplier management” or “strategic relationship management - SRM” for another day).

Why do we think that is a good idea for procurement to look to lead in this area?

Firstly, contract management is simply very important – in pretty much every organisation. With our inter-connected, outsourced, collaborative world, getting what we’ve contracted for out of our most critical suppliers, and managing them in a positive manner, is usually an essential success factor for the client organisation.

And if procurement doesn’t take overall ownership of this, who will? Who will own the over-arching governance of contract and supplier management, who will look at capability, processes, and systems on an organisational wide basis? It's OK for line management or other fictions to lead on management of individual contracts, we accept, but surely someone needs to own the overall responsibilities?

But ultimately, the most important reasons for procurement leadership and involvement (and I’m not arguing we can DO everything ourselves) is simple.  We can’t say that we’ve been successful in procurement until the contract has been actually delivered – not just signed.

Success must mean that the goods or services we purchased were appropriate, and the supplier performance, price, quality, service were as we contracted for in the first place. So we’d argue that it would be rash and risky for procurement to leave this key determinant of our own success purely in the hands of others.

Consider this – I don’t think many experienced procurement people would disagree with this analysis. Of course it’s simplified and generic, but it is broadly true.

Good contract  + good contract management = Successful outcome

Good contract + lousy contract management = Unsuccessful outcome

Bad contract + good contract management = (At least reasonably) successful outcome

Bad contract  + lousy contract management = Unsuccessful outcome

What this says is that bad contract management can mess up even the best contract, and good contract management can recover an initially poor contract or supplier. So arguably, the competence shown through the contract management phase is more important even than the initial procurement.

So, we’re arguing that good contract management is an absolutely necessary condition for a successful outcome from that contract. It is therefore a condition for successful procurement performance.

That should convince everyone that it is procurement’s own interest to take contract management seriously. But as we said, procurement can’t manage every contract fully and unilaterally in a hands on manner. We have to find ways of agreeing "who does what", with the business or other functions who have a legitimate interest in supplier and contract performance. So that’s one of the key issues we need to address.

Another key issue is how we prioritise and allocate resources to contract management.  How much effort and resource should we be putting into each case?  And then, what exactly should we be doing in terms of contract and supplier management?

We're intending to cover contract and supplier management fairly extensively over the next few weeks, so we'll come back to these and other key issues shortly.

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Voices (2)

  1. Maarten Koens:

    I fully agree with your point that the procurement specialist should not only be involved during sourcing and contract awarding but also during project execution.
    In many cases, contracts are established for outsourcing parts of a larger project. In these cases the project manager or a project team member will be responsible for monitoring & controlling the execution of the contract. In my opinion there should be a clear division of roles & responsibilities between the project manager and his team on the one hand and the procurement specialist on the other hand.
    I would say that:
    • During sourcing & contract awarding the procurement specialist should be part of the project team reporting to the project manager. Sourcing & contracting is a project task that should be estimated and scheduled and be part of the project costs.
    • During contract execution the project manager or the delegated team member should be responsible for monitoring & controlling contract execution while the procurement specialist acts as an advisor to the project manager that is only used when contract issues or even disputes occur or in case early closure of contract is initiated.

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