The usefulness and value of contract management sometimes takes a while for this realisation to dawn within organisations. Then all acquired insights fall into place: we do definitely need contract management. Where to start? Implementing contract management involves specific actions. How do you get from zero to proactive contract management in six steps?
To get off to a good start, the following steps are crucial:
- Determine the process ownership
- Draft a policy
- Take stock off and classify the existing contracts
- Define the contract management process
- Appoint officers and train them
- Position contract management within the organisation
One doesn’t need to carry out these implementation actions in this specific order. It is however important to carry out all the actions. How does one go about this? I will explain these six steps on the basis of the CATS CM contract management method.
1. Determine the process ownership
Who’s going to set up contract management in your organisation? One of the first steps is the importance of appointing the process owner. This person must of course not only be given the role of process owner, but also the related authorities and the necessary time. This is not a task one can do on the side. The process owner is responsible for setting up, managing and continuously improving the process.
2. Determine the policy
Individual contract managers are well able to achieve important results with their contracts without a recorded policy. But you of course want to get the best results. As such, the process owner must definitely draft a policy. Determining the policy for contracts and contract management is a crucial condition for the optimal execution of contract management. What has to be recorded in the policy?
- Which type of contracts the organisation wishes to conclude
- Rules for the assignment of contract ownership
- Rules for determining the contract governance
- Treatment of exceptions
- Required reports
- Measuring performance within contracts
- Measuring the effectiveness and efficiency of the contract management process
- Supporting information systems
- Work method with regards to improvements.
3. Take stock off and classify the existing contracts
Taking stock of contracts, keeping information up-to-date and available is a necessary administrative task, summarised in the term ‘contract administration’. We can deduce that many organisations are engaged in contract administration from the growing range of software packages in this field. The classification of contracts is an important step in the implementation of contract management. You start by determining criteria which together indicate what the importance of a contract is within the organisation. On this basis, contracts can be sorted and the intensity of contract management can be determined. Not every contract after all requires the same amount of attention. Take a look at the following matrix.
The difference between the three levels is the degree of planning and the frequency with which the contract manager carries out his activities. You can find the basis for the activities in the so-called ‘Essentials’ of the CATS CM method.
4. Define the contract management process
How do we work and which roles do we recognise? The process owner describes the contract management process of your organisation. This makes it clear to everyone what is expected from whom in terms of tasks, authorities and responsibilities. The contract management process according to CATS CM looks as follows within the contract lifecycle:
5. Appoint officers and train them
Who is the contract manager and what does he or she do? A clear job description clarifies tasks, responsibilities and powers. Once the position has been described and the contract manager(s) is/are hired or appointed, the next logical step is training. Training allows the contract manager to realise his responsibilities and also provides input for improvements.
6. Position contract management within the organisation
Incorporating the designated responsibilities in the process is crucial for successful contract management. Unambiguous and positioned correctly within the organisation. What has to be ‘positioned’?
- The process ownership: who is the process owner? (Step 1)
- The contract ownership: who is the owner of a contract on behalf of the organisation? This is the person who is authorised to settle the obligations with the counterparty, solve contractual issues and to approve contractual modifications. This person is often also responsible for the budget, but this is not necessarily the case.
- The contract manager. Who is given this role? Is this a person determining the needs, a purchaser or someone with a different position? Or is it established as a new position?
- Contract administration. Where does the responsibility lie for the registration of all data related to the contract?
These six steps will give you a solid basis for carrying out contract management. Are you getting to work with the tools provided? Good luck!