Most of the time the term Contract Management is misunderstood for Managing Contract. Our observations on why these two are different,
- Most organization consider signature of contract (new, renewal or change) as end of the contract management process. Signature of agreed terms and conditions on a document is birth of a contract and starting point for activities of managing contract.
- Contract Management needs project management approach from initiation to signature. Managing contract is an ongoing process which includes post signature activities.
- Contract Management mostly considers confidentiality, availability and Integrity of the contract document. The contract management process also ensures that both parties are aligned on roles and responsibilities. Managing contract considers executing the contents of these contract documents
- Contract Management teams need summary of contract or list of key terms to ensure consistency during contract change and renewal. To manage a contract, we need break appropriate clause into actionable task i.e. Deliverable and Obligation (DnO) including Milestones. Managing contract includes real time tracking, reporting and closure of the issues and actions arising out of these DnO.
- Contract Management process includes the primary focus from legal, finance and contract management teams with inputs from other functions. A well-managed contract includes contract management, performance management, financial management, risk and compliance management with focus on these disciplines based on phases of the deal.
- Contract management activities cost approx. 0.10 – 0.25% on the other hand managing contract may need investment of 0.25 – 3.00% of contract value. The value leakage during contract management is minimum with a medium to long term impact. On the other hand lack of governance may result in value leakage from 5 – 25% of the contract value.
Contract Management is one of the very important aspect of managing contracts as it provides safeguards to organizational interest or in case things go wrong. Managing contract minimizes ongoing value leakage from the outsourcing deals and has greater impact on the overall cost of outsourcing.
Great observations Chetan. I would go on further to note that Managing Relationships is what really drives value. Unfortunately, often, those in the position to manage relationships do not have a thorough understanding of the underlying contracts – which only makes the value leakage problem worse.
Very simple way of differentiating procurement vs managing contracts . The contracted(perceived) value vs received (delivered) value is always a gap and most of the organizations do not pay attention to it. Managing contracts includes a degree of service delivery , operations and project management bonding to prevent value leakage.