Signing a contract is not the end of the procurement process. It is the point at which an organisation needs to make sure the agreement delivers what was agreed.
Good contract management helps procurement teams keep control of commercial commitments, monitor supplier performance, manage risk and make informed decisions throughout the life of an agreement. For procurement teams, the benefits of contract management go beyond keeping contracts organised. Good procurement contract management helps turn the commercial terms agreed during sourcing into outcomes during delivery.
What is contract management in procurement?
Contract management is the process of managing an agreement throughout its lifecycle, from preparing for contract commencement through to performance management, renewal, transition or termination. In a procurement environment, this includes managing contractual obligations, monitoring supplier performance, dealing with changes and variations, keeping track of financial arrangements and making sure important dates and responsibilities are understood.
It is not simply a case of storing a signed contract somewhere that people can find it. Procurement teams need to know what has been agreed, who is responsible for managing the contract and how supplier performance will be monitored.
What are the benefits of contract management?
The value of contract management will vary depending on the organisation and the contracts it manages. A high-value strategic supplier will naturally require a different approach from a low-risk, low-value agreement. However, there are several important benefits that apply across procurement and supplier management.
Protecting commercial value
A procurement exercise may secure competitive pricing, discounts, rebates, service levels and other commercial terms. Those terms still need to be managed once the contract is signed. Regular contract reviews can help procurement teams check that agreed pricing and other commercial commitments are being applied correctly and identify areas where expected value may not be being realised. This becomes particularly important for larger or longer-term contracts, where relatively small issues can have a bigger impact over time.
Improving supplier performance
A contract should establish what a supplier is expected to deliver. Supplier contract management provides the structure for monitoring whether those expectations are being met, which could involve reviewing KPIs, service levels, delivery milestones, quality measures or other performance requirements. Where performance falls short, regular contract reviews give both parties an opportunity to address the issue. For important supplier relationships, contract management can also support more strategic conversations around future requirements and opportunities for improvement.
Strengthening contract compliance and governance
Contracts contain obligations for both the organisation and the supplier. Without clear ownership and oversight, important requirements can easily be overlooked. Good contract management helps establish who is responsible for the agreement, what needs to be monitored and how issues or changes should be handled. It can also provide a clearer record of decisions, supplier performance and contractual changes, helping organisations demonstrate appropriate governance and accountability. The level of governance should be proportionate to the contract; not every agreement requires the same level of oversight.
Reducing commercial and contractual risk
Contracts can expose organisations to commercial, operational and contractual risks. Some will be identified before the contract is signed, but circumstances can change during the supplier relationship. Supplier performance may deteriorate, requirements may change, costs may increase or contractual obligations may become more difficult to meet. Regular contract reviews give procurement and contract management teams an opportunity to identify these issues and take action before they become larger problems. Keeping track of obligations, key dates, performance and changes gives organisations greater control over the risks associated with their supplier relationships.
Improving contract visibility and control
Contract information is often spread across different places. Signed agreements might sit in shared drives, correspondence in email accounts and supplier performance information somewhere else entirely. This makes it difficult for procurement teams to get a clear picture of the organisation’s contract portfolio. Bringing key information together can provide greater visibility of what contracts are in place, when they expire, who owns them, what obligations need attention and how suppliers are performing. For organisations managing a significant number of contracts, that visibility can make a considerable difference to day-to-day contract management.
Supporting better contract renewal decisions
Contract expiry dates, notice periods and renewal provisions can easily be overlooked when responsibility is unclear. Good contract management gives procurement teams time to review an agreement before an important date is reached. This allows them to consider supplier performance, spend, commercial terms and future requirements before deciding whether to renew, renegotiate, extend, retender or terminate. This is particularly important where a contract represents significant spend or is critical to business operations.
Providing better information for future procurement
Contract management also provides useful information for future procurement activity. Actual spend, supplier performance, pricing, service issues and changing business requirements can all help procurement teams when reviewing an existing arrangement or preparing a new sourcing exercise. This gives procurement teams a clearer picture of what is happening after a contract has been awarded, which can then inform future sourcing decisions.
Why is contract management important in procurement?
A significant amount of work can go into sourcing a supplier and negotiating the right commercial terms. That work can lose value if there is little follow-through once the contract has been signed. Contract management provides the link between what was agreed during procurement and what actually happens during delivery.
It helps procurement teams understand whether suppliers are delivering against expectations, whether commercial terms are being applied correctly and whether the agreement continues to meet the organisation’s requirements. It also gives procurement teams better information when they need to make future sourcing decisions.
What does good contract management look like?
There is no single approach that works for every contract. The right level of management depends on factors such as value, complexity, risk and strategic importance. The fundamentals are straightforward: clear ownership, appropriate governance, regular performance reviews and a process for dealing with changes and issues.
Procurement and contract management teams should have visibility of key obligations, performance measures and important dates, alongside a clear understanding of the responsibilities of both parties. The approach should be proportionate. A low-value, low-risk contract does not need the same level of management as a strategically important supplier relationship.
Technology can help, particularly where an organisation manages a large contract portfolio, but a system alone does not create good contract management. Clear processes, capable people and appropriate governance are just as important.
Contract management and the procurement process
Contract management should not be treated as completely separate from procurement. Considerations such as how supplier performance will be measured, who will manage the agreement and how contractual obligations will be monitored can be addressed during the procurement process rather than after contract award.
Once the contract is live, the focus moves towards supplier performance, commercial management, compliance, risk and the management of issues or changes. Towards the end of the agreement, procurement teams may need to consider renewal, renegotiation, re-procurement or exit.
Taking this broader view of the contract lifecycle can create a more joined-up approach between procurement, contract management and supplier management.
Contract Management Services from Barkers Procurement
If your organisation needs additional contract management expertise or support managing a complex contract portfolio, Barkers Procurement can help. Our Contract Management Services support organisations throughout the contract lifecycle, helping to strengthen commercial control, supplier performance, compliance and governance.