Contract management is the broad set of activities undertaken to facilitate achievement of the goals or purpose of a contract. Ideally, all of the goals or purpose can and will be achieved. That should always be the intention and the target of contract management, but not the promise. Murphy’s Law never sleeps.
Every contract rated as key or important should be monitored over its lifetime to check its progress towards its goals in terms of speed and direction. It may need to be tweaked or nudged occasionally to counter, deal with or recover from internal or external disturbances.
There can be many moving parts in a contract. They might be pre-specified mandatory activities that need to be performed according to a timetable, or if certain situations occur or don’t occur.
Other activities might not be specified but optionally performed periodically during the contract’s term, to provide support for achieving the contract’s purpose.
Thorough planning is the primary enabler for success in any contract management efforts. It’s a proven way of defining the full scope of required and recommended activities, of staying focussed on the goals and objectives, of anticipating trouble and allowing for it, and being clear about what to do next in the absence of any disturbances.
In this article, we’ll discuss:
- The benefits of planning for contract management
- The complications of contract complexity
- When a contract management plan is needed
- What a contract management plan covers
- How to develop a contract management plan
- When to activate the contract management plan
- Adapting the contract management plan
The benefits of planning for contract management
Just about every contract is date-driven in one way or another.
Stated activities may need to be performed:
- By a specific date, such as the end of every calendar quarter, or no later than a set period before or after some other key date
- At specific intervals, like the anniversary of the commencement date.
Unstated but critical mandatory, lead-in and follow-up activities may be needed to support the activities expressly stated in a contract. For example, in order to notify a supplier, before the deadline date for automatic renewal, that the contract will not be renewed, the decision about whether or not to renew needs to have been considered and settled no later than that deadline date.
Development of the contract management plan allows both identification of stated activities and derivation of unstated activities, their key dates and performance responsibilities.
Such a plan provides a compact way of making visible what needs to be done, by when and by whom.
The plan also facilitates tracking of the completion of activities against the timetable, highlighting any potential delay trouble spots, and time buffers provided by early activity completion.
Socialisation of the plan with key contract stakeholders is strongly recommended as it allows upfront checking for impracticality and any other defects.
Having a considered plan, working the plan and watching progress against schedule is a classic, well-proven risk avoidance measure. Ad hoc, seat-of-the-pants, reactive measures are pretty much undesirable, but can deliver in situations where ‘whoa!’ is the natural reaction.
If smooth adherence to the plan is disrupted in some fashion, the plan itself provides a guide to what subsequent activities might be affected as a consequence. Mitigating activities can then be prepared and scheduled with the aim of getting everything back on track as quickly as possible.
Changes to the plan can be triggered by amendments to the contract, volatility of the operating environment, new regulations and many other causes. It’s important that such causal factors and their consequences for the plan are promptly recognised and implemented.
Existence of the contract management plan is enormously helpful when responsibility for the associated contract changes hands, especially when there Is no opportunity for a formal handover.
The complications of contract complexity
There’s no doubt that every contract lies somewhere on a complexity continuum ranging from minuscule to mega.
Contract complexity can arise from a combination of several factors like:
- The novelty of the subject matter and any technical language used
- The readability of the terms and conditions
- The interdependencies between the contract’s component elements
- The number of express and implied obligations, and their conditionality
- The approaches needed to comply with obligations
- The total word count.
While size mightn’t matter, it can make a difference. Consider the contrast in contract comprehensibility between 10 pages of terms and conditions for a software licence agreement and 500 pages of definitions, terms and conditions and the statement of works for an IT outsourcing contract.
Put simply, the more words there are in a contract and its related documents, the more time-consuming it is to read and the more difficult it is to obtain the detailed level of understanding needed to effectively manage the contract.
This is because a contract doesn’t necessarily flow in a logical, coherent, end-to-end manner. More typically, it contains a series of standalone groups of related clauses containing forward and backward referential jumps to individual clauses in other groups. These clause interrelationships can make it hard to follow what little flow might be present in a contract.
Complexity can be exacerbated by the contract’s risk profile and potential need for additional unstated mitigative activities, as well as the high flux state of the environment it has to operate within and respond to.
Complexity can be a factor in underachievement of the contract’s goals, benefits realisation and value for money. It can contribute to operational difficulties, dissatisfied stakeholders and increased costs.
As a general rule, the greater the complexity of a contract, the more it:
- Needs to be managed. This is because increasing complexity increases entropy, the level of disorder in a system. Increasing disorder leads to chaos, which leads to unpredictability. Managing complexity through understanding it helps to impose order and increase predictability.
- Takes to be managed. Understanding the contract’s complexity to the point where it can be adequately and usefully documented is a big job and there aren’t many shortcuts available. This effort is required to make the contract manageable. The number of independent, interdependent and dependent activities to be dealt with at any point in time may require considerable and constant micro-planning, resource shuffling and calendar management, particularly when internal and external stakeholders are involved.
This is typically where the benefits of a contract management solution can be felt most keenly. A combination of automation and machine-learning can help to reduce the quantity and duration of tasks and ensure the contracts are managed effectively.
In many organisations it’s typical for a Contract Manager to have responsibility for quite a number of contracts. it’s also common in larger organisations for a very complex contract to be the sole responsibility of a Contract Manager.
When a contract management plan is needed
Complex or not, every key and important contract should be operated under the auspices of its own unique contract management plan, except when it has a very short term or is low risk, low value or very straightforward.
Any contract that is not considered key or important but meets the bar for classification as complex should have its status reviewed if it has, say, a relatively high annual value or other attributes warranting management of its complexity.
The upfront effort put into development of a contract management plan will easily pay for itself many times over, particularly when there’s a change of Contract Manager before the contract ends, or if things go off the rails for some reason.
A key benefit of the anticipation embodied in a plan is preparedness, and that can make the difference between sinking and swimming if the ship hits the sand.
What a contract management plan covers
There can be a wide range of activities needed in the performance of a contract. Some of these activities and their timing could be stated in the contract or in applicable legislation, or be agreed between the parties in terms of administrative processes. Other activities will need to be derived from good practice, existing processes and the like, and their timing and frequency estimated.
These and other related activities that might be covered in a contract management plan can span a range of categories, including:
- Benefits realisation assessment: regular checking if the benefits expected from the contract are being received
- Business continuity planning: identifying, planning and testing responses to a range of emergency situations of varying likelihood and impact.
- Calendar management: assigning and balancing activity start and end dates and times so as to not overload anyone with more activities than are reasonably achievable in any period; automating reminders for activity owners
- Contract change management: requesting, formulating and implementing amendments to the contract
- Dispute management: identifying, resolving and preventing contract-related disputes
- Issue management: identifying, resolving and preventing contract-related issues before they become disputes
- Obligations management: checking for compliance with contract, organisational and external obligations; remediating non-compliance and reporting compliance levels
- Operating environment change management: identifying, assessing and addressing contract-related implications of changes occurring in the operational environment
- Payment management: reviewing supplier invoices, confirming or challenging the numbers; capitalising on opportunities for obtaining discounted pricing
- Performance management: checking supplier performance with agreed KPIs, service delivery milestones or quality levels; validating supplier-provided performance numbers; dealing with any performance failures; reporting summarised statistics
- Project management: detailed planning and monitoring of contract-related activities; adjusting activity sequencing and schedules as necessary; reporting progress against plan
- Resource Levelling: balancing the demand for participants in contract management activities with the available supply by adjusting activity start and end dates
- Risk management: regular identification, assessment, mitigation and review of internal and external contract risks
- Stakeholder engagement: collaborating with and obtaining assistance from key contract users in respect of certain contract management activities
- Supplier relationship management: preparing for and conducting regular meetings with suppliers to review performance, account for change, minimise issues and maximise value
- Transition in-out management: implementing a new contract and disengaging from an existing one
- Value for money assessment: regular checking if the desired return is delivered on the cost of the contract
- Unresolved matters resolution: addressing any matters that can only be finalised after execution of the contract
Implicit in all these activities is the identification, collection, validation, storage, manipulation and assessment of relevant internal and external information, and reporting it to the various interested parties. Time should be allowed for such information management when setting activity start dates in the contract management plan.
How to develop a contract management plan
Determination of whether or not a contract will exhibit complexity should become apparent during development of its requirements specification.
This is where the purpose of the contract, its scope, scale and duration, its risk profile, operating methods and responsibilities plus many other aspects are laid out for discussion, deliberation, debate and decision-making.
These activities require close involvement with key stakeholders. They need to reveal details of all organisational and regulatory requirements applicable to the parties and the contract subject matter. Particulars like value, term, criticality and other aspects need to be raised and agreed.
Where the contract is clearly going to be key or important, and especially when complexity is expected, specific rights and obligations related to management of the operational contract need to be formulated for inclusion in the contract.
The activity categories presented above can be used as a guide, and the contract management elements and plans created for other contracts can be very helpful even when the subject matter is dissimilar. However, the people involved, the actual activities needed, the timing and dependencies will necessarily need to be figured out for the specifics of the new contract itself.
With the proposed thinking about a contract management plan in hand, discussions about the new contract with potential suppliers or partners will inevitably lead to refinements due to cost, practicality and reality.
In this sense, elements of the contract management plan are simply another item on the agenda for negotiating the terms and conditions of the new contract.
Bear in mind though that the plan is not intended or required to be immutable. It’s review and refreshment or replacement should be expressly allowed so it can be kept relevant for the circumstances, however often that might be.
During its development leading up to the execution of the new contract, and its implementation following execution, all the elements of the plan should ideally be recorded in:
- A project planning system. This will show the sequencing of activities, their dependencies, start and end dates and ownership, plus progress against targets
- The events management function of any Contract Management System in use. This can be useful if the function can alert the owners of activities about the approach of key dates for those activities.
When to activate the contract management plan
Implementation of a new contract normally commences immediately after the contract has been signed by all parties.
Activation of any contract management plan established for the contract is a key element of this stage. That’s because certain activities are likely to be required immediately following contract execution, such as lodging electronic versions of the signed contract documents in a centralised repository, creating a contract summary for Contract Managers and key stakeholders, and preparing various business and technical systems for dealing with contract transactions and events.
Some of those first activities might involve finalising aspects of the contract management plan in conjunction with the Contract Managers who now have responsibility for those management efforts.
Adapting the contract management plan
Whether due to changing circumstances or requirements, lessons learned or good advice, a request or complaint from an internal stakeholder or external third party, the outcomes of a periodic review of ongoing relevance, or recognition of overkill, there can be plenty of triggers driving the need for some level of modification to elements of the contract management plan.
Alternatively or additionally, new technologies may be available that can simplify certain activities, consolidate others, or allow the introduction of new or replacement activities that reduce the physical effort required.
Timing, frequency, dependencies, ownership, the approach used or any other attribute of an activity, or a complete activity in its own right, might be the target of a change.
It’s always a good idea to document all changes made to the contract management plan, along with the rationale behind each change. This sort of lessons-learned mapping adds to organisational memory, and when used properly, can prevent repetition of the same issues with each new contract.
This is important. It’s often the case that the people involved in developing and negotiating a contract, including its manageability aspects and the fundamentals of its management plan, have no role in implementing or managing that contract according to that plan over any part of its operational life.
This lack of operational exposure to the contract management plan can conceal its underlying problems from the plan’s original authors. If these aren’t detected during contract implementation, they probably will be during contract operation. Obviously, this sort of groundhog-day problem is undesirable, so any feedback about plan issues to the original authors should help to minimise its recurrence.
Having a contract management plan for contracts that warrant active management is really a no-brainer. Of course, that plan has to be thorough and cover all the activities needed to be effective, particularly if the related contract meets any internal definition of complex.
Working to the plan simplifies management of the contract. There should be no guesswork about who should do what, when or how.
Solutions like Gatekeeper are available to prompt the relevant people about the approach of scheduled activities, and to register the commencement and completion of those activities. Any divergence from the schedule should be readily apparent, allowing rapid attention to the matter.
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Development of a contract management plan for your key and important contracts really does pay dividends for the effort expended in setting it up. It allows a focus on doing what needs to be done rather than figuring that out on the fly, probably too little and too late.
A contract management plan is a definite stressbuster, possibly a life-preserver, and just plain good business sense. Trying to manage a key or important contract without one is short-sighted and risky, both organisationally and personally.
However true it may be, being ‘too busy’ mightn’t cut it as an excuse if something crucial doesn’t get done when it needed to be. It might well be the case that you’re only allowed to make the same mistake once. Don’t find out the hard way.
If you would like more information about how to develop your contract management plans, or how contract management solutions can assist with those activities, then contact us today.