How many dead contracts do you have in your closet?

posted by Nicola Sackie
6 August 2019

As procurement professionals, we spend so long sourcing and pre-qualifying suitable suppliers, writing and issuing tenders, analysing offers, negotiating proposals, and then executing the final contract documentation. 

Then what?  You move onto your new project…

It never ceases to amaze me, just how many of these hard-earned contracts are never referenced again. They are allowed to roll over, auto-renew or simply lapse or expire without ever being looked at again. I have experienced this in several organisations. 

There must be a central contracts database to enable heads of procurement to manage pipeline activity within their team, to highlight where formal contract action is required, either to prevent auto-renewal instances or contracts simply expiring. As a leading waste management company, Biffa has acquired a number of businesses over the years and the need to manage and maintain a single point overview of our wider contractual exposure has never been more important.

In addition, there must be a review of the contract via supplier relationship management. If there is a rebate scheme in operation, this process will allow management of this commercial requirement. If there is a price indexation clause in the contract, this will need to be regularly validated. If there are volume commitments, these will need to be monitored closely. If the supplier is not performing well, formal contract action can be taken. If supplier performance is good, it will offer the opportunity to communicate positive results to the wider stakeholder community.

Previous experience has unearthed contracts with unclaimed rebates, while several contracts have simply been allowed to lapse and no replacement has been installed. Several other contracts have auto-renewed several times (under onerous terms) due to a lack of intervention or management.

In my opinion, there needs to be just as much effort dedicated to the formal management of the contract as there had been to implement the original contract in the first place. As the team’s recent review would indicate, this work is essential.

So dust off your contracts, get them registered in a contracts database and conduct formal SRM. In short, don’t let all your hard work go to waste.

☛ Nicola Sackie is category manager at Biffa Waste Services Ltd

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