Monday, 15 December 2008 18:00

Why Contract Management is Important

Written by Andrew Miller
Have you ever been asked to review a contract at the start of a project only to find out some of the details are missing? Have you ever come into the middle of a project only find out that the service levels in the contract are not being met? How about contracts where service levels are not even being tracked? It makes you ask the question
There are too many instances where organizations spend tons of money on legal fees and resource time in the negotiation of a contract, only to never look at it again. The whole purpose of negotiating service levels in a contract is to be able to hold the supplier accountable for a minimum level of performance. If no one is going to track against those service levels, then how does one know that they are being met? If an organization negotiates prices for products or services, what is a reasonable time-frame before those rates need to be reviewed for validity?

Contract management should be an essential part of any project and any organization. You do not need a fancy system or database, just a simple method of tracking the details of your contracts and being proactive in their renewal. I have had clients that are still buying IT equipment from the same agreements that were negotiated 5-10 years ago. Not only have companies significantly increased the service levels that they provide since then, but the price of much of the equipment has gone down significantly. This company is not only leaving money on the table, but they are spending valuable resource time supporting equipment that other suppliers would be supporting for them, at a lower cost than their current contract.

It is imperative that organizations and projects have an understanding of which contracts are active, which contracts are coming up for renewal and when, and what is the value of each of the organization’s contracts. There is other pertinent information that should be tracked as well, but by knowing which contracts are expiring, when they expire and their value, organizations can take a proactive approach to managing those contracts. Priorities can be set as to where resource time should be allocated to re-establishing those contract and time can be allocated to doing adequate research to ensure the re-negotiated contracts provide more value to the organization.

Managing contracts is not rocket science, nor is a specific skill set required. It only requires the ability to manage existing information in an organized fashion and anticipate changes in the marketplace that will be beneficial to your company and your project.

Sounds like a pretty easy way to provide additional value to your organization, doesn’t it?
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