How to set up and manage a successful contract

15 September 2020

Successful contracts rely on strategy alignment, regular reviews, internal and external coordination and cooperation, and facing difficult decisions head on.

Haward Soper, honorary associate professor of law at the University of Leicester, spoke to CIPS in the podcast Contract Law: Hints and tips, and shared his best tips for ensuring effective and efficient practices when setting up and managing a contract. 

Soper highlighted that contract performance is the main interest for contract and procurement lawyers, so everything is working towards ensuring a successful outcome.

“The joy in contract is that you need a range of skills and you have these in the room – whether that’s procurement professionals, facilities managers, engineers or contract managers – you always use a team effort to make a contract work,” he added. 

Clarity and alignment from the start

Soper said: “The key issue for me is always about understanding the other party. What does the other party think that the contract is about?”

Ensure each party’s understanding of the contract is aligned, and if there is a gap in understanding, consider how to bridge the gap and bring clarity back to the contract to resolve any problems.

It’s recommended that both parties sit down and understand each other’s key drivers, and build the relationship through formal or informal meetings.

He added: “Make sure you are clear in your incentives, governance strategy, KPIs, management structure, so you make it work in several dimensions.”

You need to “give and take where it’s reasonably possible” and engage constructively to ensure contracts work.

Soper explained: “There are things that can be given easily, while others can’t. As long as both parties understand the boundaries, this [approach] has the capacity to make even quite difficult contracts work.”

Take difficult decisions early 

He said: “Take the difficult decisions early, lead and don’t let matters fester otherwise you could be discussing nonsense for months.” 

Soper emphasised the need to pay on time, especially with long-term difficult contracts and if your company is a large organisation with the available cash flow. He referenced facilities management contracts worth £100m plus that he was involved in, where the best performing contracts were those paid in full and on time. 

This takes the issue of non-payment risks off the table, allowing for smoother contract negotiations.

Soper recommended that if one side is behaving badly, don't reciprocate in kind “because it digs deeper trenches and makes things worse”. Instead find the root cause and manage the issue. 

“Reciprocity is at the root of a lot of law and economics theory but out in the real world people tend not to reciprocate so it’s something to think very carefully about,” he said. 

He warned: “Holding back payment is a one-off trump card that is advised against as, if the client is reliant on the supplier in the long term, it could make matters worse.”

Communicate and cooperate

Successful contract law relies on management, communication and cooperation, according to Soper. 

Soper conducted a survey on contract managers around the importance of cooperation and found that 58.4% believed it to be mission critical in managing contracts, and 40.5% thought it was important.

Soper said while widespread cooperation could be made a legality as part of a contract, it’s very difficult to implement because “the courts are cautious in asserting widespread and complex duties to cooperate”. He recommended, if this is necessary, to ensure you have a contract lawyer who can draft and understand the issues.

“These things can be caught in the contract but also need to be carried out into management of the contract, as always there are two dimensions – the legal and management element – and they have to work in tandem,” he added.

Coordinate thoroughly and professionally 

You should have a “professional handover” process for when contracts are transferred, Soper said.

“Internally, you need to kick this off so that you have a professional handover – from procurement to contract management to execution. The procurement department should keep a handle on it and make sure there’s a proper internal kick off, so that everyone knows what’s expected. 

“Then, externally, you need to sit down to communicate with the other party and ensure they have the same understanding as you. That sets the scene and has a knock-on effect to building supplier relationships,” he added.

Review regularly with a transparent approach

Soper recommended that procurement “regularly review what goes well and what’s not going well and communicate why there are problems”. 

If an issue arises, question where it is coming from in order to resolve it. For example, is it a problem within the team or contract structure?

He emphasised the importance of recognising good work.

“All too often we forget in these contracts that huge amounts of stuff are probably going too well, and someone is in an office somewhere doing a first class job and feeling unregarded because the parts of the contract going wrong are getting all the attention. You need to make sure you keep a balanced view.”

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