Effective contract lifecycle management can help your business to address many of the supply chain issues it may be experiencing. including failed delivery, liquidity risk, supplier disputes, financial distress and even total supply chain failure. Historically, businesses have focussed on the procurement and sourcing of supply, but to navigate the future organisations will need to have a renewed focus on contract management and supply chain resilience.
In the public sector, the Government is placing greater emphasis on contract management under the Procurement Act 2023, which is due to become legislation in October 2024. Under this legislation, the public sector will need to closely monitor supplier performance through Key Performance Indicators (KPIs). Where applicable, contracts over £5m must have at least three KPIs to assess performance, which will be scored ‘good’, ‘approaching target’, ‘requires improvement’, ‘inadequate’ or ‘other’. This change should drive suppliers to focus on overall performance of the contract, to avoid public reporting on under-performance.
In the private sector, the most mature Procurement functions, are ensuring the development of their contract management capabilities to complement the work of their procurement teams.
What does contract lifecycle management mean?
Contract management is the management of a contract, post signature. It refers to management activities undertaken throughout the different stages of a contract, from signature and mobilisation to exit and termination. The activities needed, time and investment required will vary depending on the size and complexity of the contract and are aimed at managing the contract in line with the agreed terms as effectively as possible.
Why is contract management important?
Once a contract is signed, managing supplier performance against that agreement becomes a critical factor in determining the value you can extract. The following graph demonstrates how the value of third-party agreements can be eroded over time.
Driving results through effective contract management
In light of these market conditions, organisations need to invest in proper contract management which will in turn drive further value from the supply chain and create competitive advantage.
Contract management is multi-faceted, and when carried out most effectively will take a holistic view of supplier performance – including delivery, finance, quality, risk and relationships. If your organisation relies heavily on your supply base, the need for professional and focussed contract management becomes increasingly important.
Contract management has been secondary to procurement activity in many businesses, but we are observing an increasing focus on contract management and businesses that fail to recognise the value of contract management will be missing an opportunity to drive value and improve their bottom line through effective third party management as well as keeping up with competitors.
Tender Requirements focusing on Contract Management
The market is likely to see greater emphasis on contract management during tender exercises in response to the changes in legislation in the public sector and in large enterprises, many procurement functions will expect suppliers to demonstrate during tenders how the overall performance of their contract will be managed.
Suppliers will need to ensure that contract performance is adequately managed and that they deliver on all aspects of performance for their customers. They will need to articulate how they will effectively manage contracts as part of their tender responses, and it is likely that organisations will place more focus on this area as part of tender selection.
Author: Oliver Back
