Contract Management: Streamlining Business Agreements for Success

Essentials of Contract Management

Contract management is often underestimated, with time and energy going into the initial procurement process. However, no matter how good a procurement exercise, without effective contract management, it will unlikely be a success! This article is looking specifically at the documentation, software, tools and agreement side of contract management.

Contract Management Overview

Contract management covers the entire lifecycle of an agreement. It starts with planning and ends when the contract expires. You'll need to create, implement, and review contracts carefully to provide it with a framework for success. A great contract manager will maximise the benefits of a supplier through relationships building, but they need a great set of tools. The foundation of this is the contract or agreement.

Even when you have the best agreement - if those involved in contract management do not understand, it loses much of its value.

The process includes several key steps:

1. Planning
2. Writing the contract
3. Negotiating terms
4. Signing and approving
5. Tracking performance
6. Handling changes
7. Closing the contract

Good contract management helps you avoid risks and get the most value from your agreements. It's important to have clear processes in place. This will keep things organised as your business grows.

Roles and Responsibilities of a Contract Manager

As a contract manager, you'll play a vital role in overseeing agreements. Your main job is to make sure both sides follow the contract terms.

Key responsibilities include:

• Understanding the contract's scope and pricing
• Monitoring service levels and deadlines
• Applying best practices and legal principles
• Working with other teams like legal and operations

You'll need to be detail-oriented and have good communication skills. It's also helpful to know about the industry and relevant laws.

For complex contracts, you might lead a team. This could involve delegating tasks and coordinating with different departments. Your goal is to ensure the contract benefits your company and maintains good relationships with partners.

Practical Tips for Public Sector Organisations on Negotiating Contract Terms with Suppliers

1. Preparation is Key:

• Understand your needs: Before you start negotiating, be crystal clear about what you need from the contract. For example, if you're buying IT equipment, specify the exact models, quantities, and delivery dates.
• Do your homework: Research the market to understand typical prices and terms. This will help you assess the supplier's offer and negotiate effectively.
• Set clear objectives: Determine your ideal outcome, your "must-haves," and your "walk-away" point. This will keep your negotiation focused.

2. Effective Negotiation Techniques:

• Make an ambitious but justifiable opening offer. This sets a positive tone for the negotiation.
• If the supplier's offer is unacceptable, express your disappointment firmly and clearly. This can encourage them to improve their offer.
• Offer concessions only in exchange for something of value in return. This ensures a balanced and mutually beneficial agreement.
• Take your time to consider offers and make counter-offers. Avoid being pressured into a quick decision.

3. Communication and Collaboration:

• Pay close attention to what the supplier is saying and try to understand their perspective.
• Ask questions to clarify any points you're unsure about and probe for information that can help your negotiation.
• Maintain a professional and respectful demeanor throughout the negotiation to help foster a collaborative atmosphere.

4. Contractual Considerations:

• Make sure the contract terms are clear, concise, and unambiguous. Avoid any language that could lead to misinterpretations.
• Define specific performance standards and include penalties for non-compliance to protect your organisation's interests.
• Include clauses that allow for adjustments to the contract in response to changing circumstances to prevent future disputes or the need for renegotiation.

5. Use Existing Resources:

• Consider using existing framework agreements to access pre-approved suppliers and competitive pricing.
• Invest in a procurement options appraisal to identify suitable bidders and assess different procurement routes.

Steps of the Contract Lifecycle

The contract lifecycle has six main steps:

1. Creation
2. Approval
3. Negotiation
4. Execution
5. Management
6. Renewal or Expiration

Each stage is important for a smooth contract process. Contract lifecycle management (CLM) software can help track these steps.

Contract Creation and Approval

You start by drafting the contract. This involves writing out terms and conditions. You will likely use pre-agreed templates to speed up this process.

Once drafted, the contract needs approval. Different people in your organisation might need to review it. This could include legal teams, finance departments, or executives, depending on the risk involved. Creating a pre-defined set of rules for this authorisation is key and ensures an efficient process.

CLM software can then streamline approvals further. It lets you set up workflows and track who needs to sign off on each part.

Contract Negotiation

After approval, you'll often need to negotiate with the other party. This stage can involve back-and-forth discussions about terms.

You might adjust pricing, timelines, or other details. It's important to keep track of all changes during this phase.

Good negotiation skills can lead to better deals for your business.

Contract Execution

Once both parties agree, it's time to sign the contract. This makes it legally binding.

Many businesses now use e-signatures for faster execution. This is especially useful for remote deals. CLM software often includes e-signature features. This can speed up the process and reduce paperwork.

Contract Renewal and Expiration

Contracts have end dates. As these approach, you need to decide whether to renew, renegotiate, or let the contract expire. CLM systems can send alerts about upcoming expiry dates. This helps you avoid missing important deadlines.

For renewals, you might want to review the contract's performance. Did both parties meet their obligations? Are there areas for improvement?

If you decide not to renew, make sure you follow proper termination procedures. This can help avoid legal issues later on.

Contract Management Software Options for UK Public Sector Organisations

Here's a quick overview of some contract management software solutions that are being used by public sector organisations:

1. Sirion Labs offers an AI-powered contract management platform that helps organisations streamline their contract lifecycle processes. Their solution includes features such as contract authoring, performance management, invoice auditing, and risk management. Sirion Labs has experience working with public sector clients, including government agencies and local authorities.
2. ContractPodAi provides a comprehensive contract management solution that covers the entire contract lifecycle, from creation to renewal. Their platform includes AI-powered contract review, automated workflows, and real-time collaboration features. ContractPodAi has worked with various public sector organisations, helping them improve procurement processes and ensure compliance.
3. Thinkproject CEMAR is a cloud-based contract management solution specifically designed for the construction industry. It offers features such as contract administration, change management, and dispute resolution. Thinkproject CEMAR has been used by public sector organisations in the UK, including local authorities and housing associations, to manage construction contracts effectively.
4. Built Intelligence FastDraft is an AI-powered contract drafting tool that helps organisations create contracts quickly and accurately. It uses machine learning to analyse past contracts and suggest relevant clauses, saving time and reducing the risk of errors. FastDraft integrates with various contract management platforms and has been used by public sector clients to streamline their contract creation process.

These are just a few examples of the contract management software solutions available to UK public sector organisations. When choosing a solution, it's essential to consider factors such as:

• Compatibility with existing systems and processes
• Ease of use and user adoption
• Security and data protection features
• Scalability and flexibility to meet future needs
• Pricing and value for money
• Supplier experience and track record in the public sector

By carefully evaluating these factors and using framework agreements to access pre-approved suppliers, public sector organisations can find the right contract management software to meet their specific needs and achieve better value for money.

Contact us today to discuss your contract management software requirements and learn more about how we can help you select and implement the best solution for your organisation.

Compliance and Risk Management

Contract management involves staying within legal bounds and avoiding common pitfalls, which may be common place with the specific service or product. A contract tailored around these frequent challenges is key ensures proper practices to help suppliers meet obligations and steer clear of trouble. This can often for part of supplier development.

Compliance in Contract Management

Compliance means following rules and laws in contracts. You need to know which regulations apply to your deals. Keep track of deadlines and required actions. Make sure all parties meet their duties.

Create checklists for each contract type. This helps catch issues before they cause problems. Train your team on compliance topics. Regular updates keep everyone aware of new rules.

Look for risks in every contract. Common risks include:

• Late delivery
• Poor quality goods or services
• Payment issues
• Data breaches

Make a risk register, this can often be requested as part of a bid or business proposal, which can be a perfect to start with and can be discussed, updated and built on throughout the agreement term.

Review contracts often. Spot new risks as they pop up. Take steps to lower the chance of issues or lessen their impact.

Work with the other party to share some risks. This can lead to fairer deals for both sides.

Financial Risk Management

Money risks can hurt your bottom line. Watch for these dangers:

• Cost overruns
• Exchange rate changes
• Late payments
• Hidden fees

Set clear payment terms in contracts. Include late fees to encourage prompt payment. Use fixed prices where possible to avoid surprises. Check the financial health of companies you work with and this should extend beyond the initial procurement exercise, such as with a credit check and Financial Viability Risk Assessment, reassessed at least annually. It is important to consider the risk of a supplier and ensuring relevant financial requirements. We often work with our clients to agree reasonable and proportionate thresholds - to ensure compliance but also to ensure it makes sense practically!

Audit Trails and Transparency

Keep detailed records of all contract actions. This creates an audit trail. It shows who did what and when.

Store contracts in a central place. Make sure the right people can access them. Use version control to track changes.

Set up a system for approvals and sign-offs. This makes sure the proper checks happen.

Be open with contract info within your company. This helps different teams work together. It also makes audits easier.

Use reporting tools to spot trends and issues. This can help you improve your contract process over time.

Key Stakeholders in Public Sector Contract Management

Effective contract management in the public sector involves collaboration among various stakeholders. Each stakeholder plays an important role in ensuring that contracts are managed efficiently, deliver value for money, and meet the organisation's objectives. Here are the key stakeholders typically involved in public sector contract management:

1. The procurement team is responsible for the initial sourcing, negotiation, and award of the contract. They ensure that the contract is compliant with relevant regulations, such as the Public Contracts Regulations 2015 (or the Procurement Act), and that it achieves the best value for money. During the contract management phase, the procurement team may be involved in performance monitoring, contract amendments, and dispute resolution.
2. The finance department is also important in contract management by ensuring that payments are made (or not) in accordance with the contract terms and that the organisation's financial interests are protected. They also monitor the contract's financial performance, track budgets, and provide financial reports to support decision-making.
3. The service delivery team is often responsible for the day-to-day management of the contract and ensuring that the supplier delivers the goods or services as specified in the contract. They work closely with the supplier to monitor performance, address any issues that arise, and identify opportunities for improvement. The service delivery team may also be involved in contract planning, risk management, and change management. They need to have the time and skills to do this role!
4. End users are the individuals or groups who ultimately benefit from the goods or services provided under the contract. In the public sector, end users may include patients, customers or resident, for example. They could also be internal customers within your organisation. Engaging end users in the contract management process can help ensure that the contract meets their needs and expectations, and that any issues or concerns are addressed promptly.
5. Supplier representatives are of course key stakeholders in contract management, as they are responsible for delivering the goods or services as agreed in the contract. Effective contract management involves building a collaborative relationship with supplier representatives, with regular communication and meetings to discuss performance, identify issues, and explore opportunities for improvement. It's important to involve supplier representatives who have the authority to make decisions and contribute value to these discussions.
6. Senior management, such as department heads or executive directors, may not be involved in the day-to-day management of contracts but play a crucial role in setting the overall strategy and direction for contract management. They are responsible for ensuring that contracts align with the organisation's goals and objectives, and that contract management processes are effective and efficient.

By involving these key stakeholders in the contract management process, public sector organisations can ensure that contracts are managed effectively, that risks are mitigated, and that the best possible outcomes are achieved for all parties involved. Regular communication and collaboration among stakeholders can help identify issues early, resolve disputes, and drive continuous improvement throughout the contract lifecycle.

Practical Tips for Optimising Performance and Value

Tailor your Key Performance Indicators (KPIs)

Start with a generic list of public sector KPIs, which you may have from a template or previous contract.

Then as a group consider at a real practical level what would provide you with specific insight and the data you need to really make a difference. Tailor these KPIs to your specific service by considering, for example, if you're managing a grounds maintenance contract, you might place more emphasis on KPIs specifically related to common complaints and challenges, such as not meeting frequencies and plan and equipment failure. Of course, typically these are also key, but it is the practical interpretation of them for your contract which is the key:

• Delivery times
• Quality standards
• Cost savings
• Customer satisfaction
• Environmental impact

Considering the unique challenges and priorities of your service:

• The needs and expectations of your end users
• The potential risks and opportunities associated with the contract

Monitor and Review KPIs Regularly

KPIs are only useful if you check they are accurate and continually monitor them. They need to create action!

• Set up a system to collect and analyse KPI data on a regular basis (e.g., weekly, monthly, or quarterly)
• Use dashboards or reports to make the data easy to understand and identify trends or issues quickly
• Share KPI results with suppliers to keep them informed and motivated
• Regularly review and sense-check your KPIs to ensure they remain relevant and effective

Invest in Staff Training and Development

• Provide your contract management staff with the training and skills they need to effectively monitor and manage contracts
• Ensure staff have sufficient time allocated to contract management tasks, rather than treating it as an add-on to their core responsibilities
• Encourage staff to identify opportunities for improvement and share best practices across the organisation

Use Service Level Agreements (SLAs) to Define Expectations

• Develop tailored SLAs that clearly define the expected levels of service and performance for each contract
• Ensure SLAs are aligned with your KPIs and the specific requirements of your service
• Regularly review and update SLAs to ensure they remain relevant and effective

Develop a Culture of Continuous Improvement

• Encourage a collaborative approach to contract management, working closely with suppliers to identify opportunities for improvement. Both need a constant drive and reason to succeed!
• Use data and insights from KPI monitoring to drive decision-making and prioritise areas for improvement
• Consider piloting new approaches or innovations on a small scale before rolling them out more widely
• Celebrate successes and share learning from contract management experiences across the organisation

Contractual Documents and Templates

Contract templates and documents are key tools in effective contract management. They help standardise processes and ensure important details are not overlooked.

Using Contract Templates

Contract templates save time and reduce errors. You can find templates for many common contract types online or create your own. Start with a basic template and add sections for your specific needs.

Key parts to include:

• Party names and contact info
• Contract term and end date
• Payment terms
• Scope of work
• Termination clauses

Review and update your templates regularly. This keeps them current with laws and best practices.

Tailoring Contracts for Different Purposes

Each contract type has unique needs. Employment contracts focus on job duties and benefits. Vendor agreements spell out delivery terms and quality standards.

Tips for tailoring:

• Remove unneeded sections
• Add industry-specific clauses
• Check for local law compliance
• Use clear, simple language

Ask a lawyer to review important or complex contracts. This extra step can save headaches later. At Thornton & Lowe, we are experts in public sector procurement and contract management, but we are not legal professionals. We can use our third party solicitors or yours. We will save you time and money by bringing real focussed, commercial focus onto your projects.

Special Considerations for Government and Sales Contracts

Government contracts of course have strict rules. You must follow specific tendering processes and reporting requirements. Keep detailed records of all communications and decisions. We often start our engagement with a public sector client by supporting or leading their procurement project, which then leads into guidance and advice for appropriate contract management mechanisms.

The the Procurement Act we are expecting to see more ability for post-tender negotiations, which is another opportunity to engage, negotiate and ensure the best possible solution.

Frequently Asked Questions

Contract management involves many important aspects of business operations and project success. Understanding the key elements can help organisations optimise their contract processes.

How will the Procurement Act change contract management expectations? The Procurement Act aims to simplify and streamline public sector procurement processes. For contract management, this means:

Contract managers will need to adapt their processes and skills to meet these new expectations, ensuring they have the tools and resources needed to effectively manage contracts under the new regime.

1. Greater emphasis on value for money and social value considerations
2. Increased focus on contract performance monitoring and reporting
3. More flexibility to make changes to contracts during their lifecycle
4. Stronger powers to tackle underperformance and terminate contracts if necessary

How can I ensure compliance when making contract modifications or deviations? Contract modifications and deviations can be necessary to respond to changing circumstances or requirements, but it's crucial to ensure these are handled in a compliant manner. Key steps include:

If in doubt, seek advice from your organisation's legal or procurement teams to ensure compliance with relevant regulations and best practices.

1. Checking whether the proposed modification is permitted under the contract terms and procurement regulations
2. Documenting the reasons for the modification and the expected impacts on cost, time, and quality
3. Seeking approval from the appropriate level of authority within your organisation
4. Communicating the changes to all relevant stakeholders, including the supplier and end-users
5. Updating the contract documents and management systems to reflect the agreed modifications

What practical steps can I take to monitor and manage supplier performance effectively? Effective supplier performance management is critical to ensuring value for money and quality outcomes. Practical steps include:

• Proactively monitoring and managing supplier performance, you can drive better outcomes and value from your contracts
• Developing clear and measurable KPIs that are aligned with your organisation's objectives and the specific requirements of the contract
• Setting up regular performance review meetings with the supplier to discuss progress, issues, and opportunities for improvement
• Using data and insights from contract management systems to track performance and identify trends or areas of concern
• Engaging end-users and other stakeholders to gather feedback on supplier performance and service quality
• Taking prompt action to address any underperformance or non-compliance, using the tools and processes set out in the contract

How can I develop my skills and knowledge as a public sector contract manager? Investing in your professional development is essential to stay up-to-date with best practices and meet the evolving demands of public sector contract management. Practical steps include:

By continuously developing your skills and knowledge, you can become a more effective and confident contract manager, able to drive value and compliance in your organisation's contracts.

1. Attending training courses and workshops on topics such as contract law, negotiation, and supplier relationship management
2. Pursuing professional certifications such as the CIPS Diploma in Procurement and Supply or the IACCM Contract Management Certification
3. Participating in networking events and forums to share experiences and learn from peers in other organisations
4. Staying informed about changes in procurement regulations and guidance, such as the Procurement Act and associated secondary legislation
5. Seeking out mentoring or coaching opportunities to develop your skills and knowledge in a supportive environment

What role does contract management software play in effective public sector contract management? Contract management software can be a powerful tool to support effective contract management in the public sector. When selecting contract management software, consider factors such as ease of use, security and data protection features, scalability, and integration capabilities. Look for solutions that are specifically designed for the public sector and that offer good value for money.

1. Centralised storage and easy access to contract documents and data
2. Automated alerts and reminders for key milestones and deadlines
3. Standardised workflows and approval processes to ensure compliance and consistency
4. Real-time reporting and analytics to track performance and identify issues or opportunities
5. Integration with other systems such as finance and procurement to streamline processes and data sharing