Why is Contract Management Often Overlooked?
Updated: Nov 21, 2022
Contract management is the process of maintaining compliance with the terms and conditions of a negotiated contract. In the execution of contracts, specific performance expectations may not be met and these deficiencies may not be caught by the Owner; or if they are caught, not be serious enough to justify legal action. Nevertheless, deficiencies can add up and cost a company a significant amount of money and headaches.
Contract management is often neglected because it is not considered exciting work. Many supply chain professionals would rather focus on the front end of the strategic sourcing process such as research and analysis, networking, drafting the perfect contract and negotiating multi-million dollar deals. However, the best negotiated contract doesn’t mean much if it cannot be executed well.
Another oversight in contract management is focusing too much on the contractor or vendor. Contractors usually have an incentive to be successful in the performance of their contract because they would like to continue their business with you and maintain a good market reputation. This alignment can be further reinforced with performance-based compensation based on meeting milestones and performance metrics or penalties for missed targets. On the other hand, from my personal experience, internal stakeholders may not have alignment with the contract (one might prefer quality and specifications while another on budget and schedule). If you don’t have complete buy-in from internal stakeholders on the choice of vendor, having a successful contract will be unlikely. Most contracts are not executed in isolation by the contractor but rather by both parties. Make sure to involve all stakeholders in the preparation and award of the contract and continually follow up with them as you would with the contractor throughout the duration of the contract to ensure the contractor is supported appropriately.
Contract management is continually being develop and is a function on its own. Increasingly, companies have a dedicated contract management department to handle this function. The World Commerce & Contracting association (formally known as IACCM, International Association for Contract and Commercial Management) is a good place to start looking into a contract management career.