The CIPS Contract Management guide is intended to cover all those activities associated with contract management. The activities themselves are divided into two distinct but interdependent phases, upstream and downstream of the award of the contract.
The principles in this guide could be applied to all contracts, from a simple order, through framework contracts, to complex construction or service contracts. It should also be relevant for contracts in both the private and public sectors.
What is Contract Management?
Contract management encompasses everything from establishing the business case and confirmation of need through to relationship management and reviewing performance. It can be divided into two phases: upstream and downstream of the contract being awarded.
The most successful contract management plan is one which includes a focus on upstream – or pre-award – activities.
"Often an overlooked key skill, contract management is not something to be handed...to another department such as legal...contract management is the engine that drives true value across the supply chain and should stay with dedicated professionals."
Contract Management Podcast with Duncan Brock, Chartered FCIPS Professional, Group Director, Chartered Institute of Procurement & Supply
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Force Majeure Podcast with Dick Jennings (MCIPS), Solicitor, R.D.Y. Jennings and co solicitors
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Improving Contract Management: Applying Contract Leadership® - Colin Linton (FCIPS)
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Why You Need an Effective Contract Management Process?
There are a number of reasons why organisations in both the public and private sectors need an effective contract management process:
- Increasing pressure to reduce costs
- The need to optimise financial and operational performance
- New regulatory requirements
- Increasing contract volumes and complexity
- Growing need to automate and improve contractual processes
- Increasing compliance and analytical needs.
Contract Management Cycle
To create a smooth end-to-end process, CIPS has developed a highly effective Contract Management Cycle to ensure optimum scoping, planning, implementing, managing and reviewing. This can help you add value to every contract and understand key roles and responsibilities.
CIPS CONTRACT MANAGEMENT CYCLE
A Successful Contract Management Strategy
The growing recognition of the need to automate and improve contractual processes and satisfy increasing compliance and analytical needs has also led to an increase in the adoption of more formal and structured contract management procedures and an increase in the availability of software applications designed to address these needs.
Your contract management plan should ensure:
- Arrangements for service delivery satisfactory to both parties
- The expected business benefits, efficiencies and value for money are delivered
- The supplier is co-operative and responsive
- Your organisation understands its obligations under the contract
- There are no disputes or surprises
- Professional and objective debate over changes and issues.
Upstream or Pre-award Activities
The foundations for effective and successful contract management rely upon careful, comprehensive and thorough implementation of pre-award activities. The focus should be on why the contract is being established and on whether the supplier will be able to deliver in service and technical terms. Careful consideration must be given to how the contract will work once it has been awarded.
Downstream or Post-award Activities
After the contract has been formulated and awarded, the process turns to three main post-award activities:
Service Delivery: Ensuring service is delivered in accordance with the agreed performance and quality levels.
Supplier Relationship: Maintaining and developing an open and constructive relationship.
Contract administration: Formal management of the contract.
Contractual arrangements may commit the organisations to its supplier(s) for some time and to varying degrees of dependency. It is therefore important to make the relationship work effectively by developing mutual trust and understanding, creating an open and constructive environment and contributing to the joint management of the contract delivery.
It is primarily through the development of mutual trust and confidence that the other elements for success are created. As the supplier gains greater understanding of the organisation’s business needs and style and develops a level of confidence and trust, it will be more willing to be proactive and innovative in bringing forward improvements and savings to mutual benefit, more willing to share problems, plans and concerns, more willing to negotiate and more confident in investing for the longer term.
The organisation also benefits by gaining a greater understanding of the strengths and weaknesses of the supplier, enabling it to concentrate its management and development support in those areas.
The guide covers several factors that can inhibit the development of a successful relationship as well as factors that encourage the development of a successful relationship.
Contract Management: Read the Full Guide
This guide is a comprehensive resource for CIPS members to use for all activities associated with contract management from administration through to relationship management and performance review.
DOWNLOAD THE FULL GUIDE
(Source: Stonebraker & Liao, 2003)
CIPS Contract Management Tools
- CIPS Contract Management Cycle - This model when followed in sequence will ensure that you are able to manage your suppliers’ contracts effectively and efficiently whilst developing suitable relationships during the agreement period.
- Five Termination Methods Flow Diagram - This model can be used to ascertain if there is a legal reason to terminate a contract.
- Scorecard Template - This template can be used to record suppliers’ performance based on the KPIs that have been set by a procurement professional.
- Contract Improvement Process - This model works on the concept on continuous improvement/total quality management and promotes to the fact of always looking for ways to make contracts more efficient and add more value.
- KPI Vs SLA - This model helps to explain how Service Level Agreements and Key Performance Indicators, an integral part of effective contract performance, should relate to the overall organisation’s vison.
- Condition Innominate Warranty Diagram - This flow diagram can be used to understand whether a contract can be terminated after one party has committed a breach of a condition, warranty or innominate terms.
- 5 Elements of a contract – In order for a contract to be successfully developed it has to include five elements. This model shows the five elements that have to be present in all legally binding contracts.
- Express v implied terms - This model represents the differences between implied terms which are set by the law of the land and express terms which are agreed between the supplier and the procurement professional.
- Pricing mechanisms - Pricing mechanisms are an example of express terms and there are a variety of pricing mechanisms that can be discussed in the contract development process. This model outlines seven pricing mechanisms.
- Key contract sections - This model explores the six key sections within a contract that should be included within the development stage.
- Standard Terms and Conditions - This document is able to be downloaded and used within a procurement contract.
- Model v bespoke - Contracts can be model or bespoke. Model or standard contracts are templates that may be used with certain information amended to best suit the needs of the parties.
- Model form of contract - This model or standard form contract can be downloaded and amended with specific details to best suit the needs of the buying organisation when developing a contract.
- Contract implementation migration and mobilisation - This model aims to explain the different stages within contract implementation.
- Elements of mobilisation - This model shows six elements relating to contract mobilisation. Elements include managing communication and relationship management.
- Contract migration - This simple model demonstrates the process of moving a contract from the current supplier to the one that has recently been awarded the contract to conduct future obligations.
- Contract implementation stages - This model shows the four stages associated with implementation and what should happen at each stage. This diagram can be used to help plan the implementation process, map any change and plan for effective communication.
CIPS members can download the CIPS Contract Management Tools to use in your organisation along with the guidance notes will full explanations of all of the tools listed and how to use each tool effectively.
Contract Management Resources for Members
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More Contract Management Resources
Contract Management Training
Enhance your knowledge of contract management and how to use it for competitive advantage.
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The largest global institue for procurement. CIPS membership grants access to resources, networking, support and discounts.
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Podcast on Contract Management
Hear from Duncan Brock on Contract Management podcast.
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The CIPS Global Standard for Procurement and Supply is a competency framework used to enhance efficiency and performance.
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