21 Sep

Lifecycle of a Contract

What is contract management?

The importance of well-drafted contracts in a business has been established. Organizations in both, public and private sector are facing increasing pressure to reduce financial aid and operational performance. Further, the growing need to improve contractual performance calls for a formal and structured mode of contract management.  Hence, it is imperative that those with expertise be designated to manage contracts. Contract management refers to the process of managing contracts, deliverables, deadlines, and contract terms and conditions while ensuring customer satisfaction. It can be defined as, ‘the process of systematically and efficiently managing contract creation, execution, and analysis for maximizing operational and financial performance and minimizing risk.

Pre-Execution activities in a contract

The success of contract management depends on an effective implementation of pre-execution activities in a contract. During the pre-award stages, the emphasis is laid on why the contract is being established and on whether the supplier would be able to deliver in service and technical terms. These activities are classified into a number of stages. Namely;

1.Preparing and securing management approval

The business policy must ensure that the contract meets the need of the business, contract objectives, and investment. The business case must look to establish that the proposed contract meets the following factors.

  • Critical success factors
  • The possible alternatives, including Existing contracts.
  • Risk Analysis

2.Assembling the project team

The need to assemble a team to manage a contractual procurement program will be determined on a need basis in consonance with various requisites like the nature, complexity, and significance of the procurement.

  • Nature of work environment and communication style
  • Nature of project
  • Internal and external communication

3.Developing contract strategy

The strategy for a particular contract must be in consonance with the organizational strategy. The following issues need to be addressed while formulating a contract strategy:

  • Nature, scale, and significance of the Contract
  • Need to the organization
  • Complexity of the need including Innovation level

4.Drafting specifications and requirements

The objective of a specification is to present a statement of needs and to ensure that potential suppliers are given a clear, accurate and comprehensive statement of the organization’s needs in order so that they can formulate solutions to those needs.

5.Supplier Qualification and assessment

A pre -qualification strategy determines the suitability of suppliers to meet the commercial needs of the organization. A Supplier appraisal determines a potential supplier’s capability and capacity to deliver goods and services to an organization over a period of time.

6.Evaluating tenders

All tenders received must be recorded in an appropriate manner. The process can range from maintaining a clerical record of valid tenders to the appointment of a tender opening board.

7.Negotiation

A post-tender negotiation is conducted in the process for an organization to achieve the most lucrative deal. It is defined as, ‘negotiation after receipt of formal tenders and before the letting of contracts with suppliers/contractors submitting the lowest acceptable tender with a view to obtaining an improvement in price, delivery or content’.

8.Awarding the contract

The final step of pre-execution activity is awarding the contract. After evaluation of the tender, the project team will satisfy itself that an offer has been made which meets its requirements in all respects, including budgetary, and consider that it is in a position to accept an offer and award the contract to the tenderer who has made the most economically advantageous offer to the organization.

Post-execution activities in a contract:

After a contract has been awarded, there are a few critical post-execution activities in a contract that need to be carried out. Although we shall not delve into them in detail, they can be listed as the following:

    1. Service delivery management
    2. Relationship management
    3. Executing Work Orders, Statement of Work or Order Forms
    4. Risk Management
    5. Billing/Invoices

These post-execution activities in a contract acquire their legitimacy from the European Commission and are aimed towards making changes during the contract period. The many reasons for a change may be amendments to the strategies and objectives of the parties as well as the changing business needs of the organization. Therefore, it’s safe to say contract management albeit a drawn out process is integral for an organization.

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