In theory contract management should be straightforward, yet it is frequently misunderstood. Here, CEO at procurement consultancy Positive Purchasing, Jonathan O’Brien, shares his advice on getting the most out of supplier contracts.
If we engage a supplier to work for us we have a contract with them, whether formalised or not. All we need to do is manage them to this contract and what we have agreed between us.
Then, if the supplier does not perform, we have legal remedies open to us. Sounds easy right? In theory, contract management should be straightforward, yet it is frequently misunderstood, under-provided for or regarded as a clerical activity.
Moreover, if a supplier fails to perform to a contract, can’t we simply take them to court? This is correct in principle, but there are often vast differences between the legalities of a contract and the practicalities of enforcing it. Good contract management can make all the difference to the value businesses secure from any given supplier relationship.
The problem with poor contract management
Failing to consider or attend to contract management can have a significant impact on a business. Even if a supplier is meeting their basic contractual obligations, there is a world of difference between a supplier doing just enough to comply versus delivering outstanding results.
Without attention or focus, suppliers can easily under-perform. Poor communication can drive poor results and if relationships and interaction between entities is not great then motivation to achieve can be in short supply.
What exactly is contract management?
When we refer to a ‘contract’, it is easy to think of a big document full of legal stuff created or overseen by lawyers. While this may be the case, contract management embraces any way we make a contract (or multiple contracts) with a supplier, whether by means of a purchase order, a framework or master agreement, an oral instruction to do or supply something – or establish a contract through custom and practice.
Contract management covers all aspects of managing a relationship with a supplier in relation to a specific contract we have mutually agreed. It is more about managing our relationship with the supplier than the contract itself.
Rather than being something we apply to a single contract or supplier relationship, whatever the size of our business, we need to adopt organisation-wide approaches if contract management is going to ensure we secure the value we want and need from our key business relationships
Good contract management begins with contract planning. Carry on reading for top tips on how to develop strong contracts.
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