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THE IMOPRTANCE OF
THE CONTRACT MANAGEMENT PHASE
The contract management phase of the procurement life cycle often receives the least management attention and effort (at least until something goes wrong). However, if we take a typical two-year procurement project and look at the elapsed time and expenditure by phase, a fairly clear picture is painted of the importance of the contract management phase and the need for both parties to devote appropriate effort and resource.
The importance of this phase is further reinforced when we consider that this is the phase where the output of the procurement project occurs – the delivery of the required goods or services.
From the supplier’s perspective, this phase is also important because it is its performance in this phase that will often be the basis on which future business will be won or lost. Not only its performance in terms of delivering the required goods or services in full, on time and to specification, but also its performance in terms of the relationship E-tradelink builds with the channel partners and the added value it delivers.
Relationship Management
Relationship management at E-tradelink is focused on keeping the relationship between the two parties open and constructive, resolving or easing tensions and identifying problems early.
From the company perspective, one of the key elements in relationship management is deciding on the appropriate type of relationship based on where the category and the contract sit in its Portfolio Analysis and where it sits in the Supplier Positioning Analysis
In most services-based contracts, the relationship model tends to lie somewhere on a continuum between a traditional arm’s-length arrangement and a full partnership arrangement:
• Traditional arm’s-length arrangement:
The customer orders and the supplier supplies. There is little need for the supplier to understand the customer, its strategic direction and business objectives. There is little opportunity for the E-tradelink to add any value over and above supplying the ordered goods or services in full, on time and to specification. Some supply channels falls into this category. This is sometimes described as a transactional
relationship
• Partnership arrangement
Both parties fully understand each other’s business and communicate openly. There is an absence of “game playing” or “manipulative” behaviour. Adding value is an essential element of the relationship. In a true partnership arrangement
there is generally shared risk and reward. For a partnership arrangement to work successfully, there must be a degree of cultural alignment and some convergence in goals within the context of the relationship. There must also be a commitment to the relationship at all levels within both the buying agency and the supplier’s organisations.
Open communication, information sharing and trust are key
elements It is important for both parties to understand and agree the appropriate type of relationship model for the particular contract, recognising it will not be the same for all agreements. A lack of understanding and agreement on the type of relationship model can often result in frustration through the respective parties’ expectations not being met.
When establishing a relationship management model towards the partnership end of the continuum, the following factors should be considered:
• the need to ensure that the relationship is championed at senior levels in both organisations
• recognising that the attitudes and actions of senior management will set the tone of the relationship. The “message” comes from the top
• ensuring that governance arrangements are equitable and relationships are peer to peer. If not, imbalances will occur
• there should be a place for long-term strategic issues to be considered as well as the more day-to-day service delivery aspects. These are best separated to avoid urgent and pressing matters constantly swamping the longer view
• roles and responsibilities should be clear and staff involved in managing the relationship need to be suitably empowered
• escalation routes should be understood and used properly – encourage an approach that seeks to resolve problems early and without escalating up the management chain unnecessarily
Contract Administration
Contract administration covers the formal governance of the contract and changes to the contract document.
It is concerned with the mechanics of the relationship between the buying channel partner and the supplier.
This includes the development and implementation of procedures covering the administrative and clerical activities.
Good contract administration is important for the successful management of any contract. Contract administration also requires appropriate resourcing, and as part of the contract management planning both the channel partner and the supplier need to consider the level of resourcing required for the particular contract.
Procedures should be in place for the management of the main contract management activities.
These may include
• contract variations, including change control
• cost monitoring
• ordering procedures, e.g. ordering of product and services
• payment procedures
• management reporting
These procedures are normally documented in the contract management plan.
| Ensuring consistency with contract As part of agreeing these procedures with Equity Tradelink Company , it is important to ensure the processes are consistent with the contractual terms e.g. only in writing, approved at a certain level, and only agreed once they have been captured in a contract variation. While this is important for all contract management activities, it is particularly applicable to the management of change control and contract variations, and particularly in development projects, where there are frequently a large number of changes. |
THE CONTRACT MANAGEMENT PLAN
While the written contract is a record of each party’s obligations, it is not designed as a management document for the contract.
This is the role of the contract management plan.
A well developed contract management plan allows the contract to “stay in the bottom drawer”.
The contract management plan is usually formalised following contract negotiation, however it is a living document and will continue to be updated throughout the life of the contract. In some procurements the contract management plan includes transition activities, however in larger projects, or where transition is a significant or particularly
critical activity, a separate transition plan will be developed.
You E-tradelink contract will work through your management plan that might include:
• a summary by date of milestones and deliverables, including contract review and lead time for any re-tender or renewal
• key individuals and their responsibilities (both the channel partner and the supplier), e.g.
the contract manager, governance board
• a schedule of risks that have been identified and are being monitored and managed
• reporting. For example, the frequency and content of the supplier’s reporting, or the content, frequency and distribution of any internal reporting e.g. monthly
reporting to the senior management team on key service statistics
• meeting schedules and any standard agenda items
• processes around how some of the contractual obligations are to be achieved e.g. how a regular survey of staff satisfaction is to be carried out
• procedures for the management of any specific activities in the contract, for example how a service credits programme will be administered
• contract variations. Details of the approval process and approval authorities for each party (including delegations)
• details of any ordering procedures e.g. ordering of OEM, ODM product lines
• payment procedures e.g. the level of detail to be provided on invoices (e.g. asset numbers) and the format for any electronic invoices.