By Pete Hodgkinson
Firstly, many thanks for all the comments directly on the first part of this two part blog and within the many discussion groups/forums.
Following on from my last post I would like to expand on the reasons why I believe Procurement should oversee contract management. Many procurement professionals I meet firmly believe that procurement should play a larger role in contract management but I am often asked, “But how can we convince our leadership teams and budget holders that this is important?”
In Peter Smith's latest report, he outlines how to build a comprehensive business case for investing in contract management. An important part of a strong business case is defending why procurement should be in charge of it. To get you started, Peter outlines three reasons why procurement should take leadership of contract management:
In Peter Smith's latest report, he outlines how to build a comprehensive business case for investing in contract management. An important part of a strong business case is defending why procurement should be in charge of it. To get you started, Peter outlines three reasons why procurement should take leadership of contract management:
- No-one else will do it! Whilst individual business areas, functions or even people may be very interested in managing their “own” contracts, it is hard to see that they would have the appetite to take on overall process ownership, in terms of driving good practice across the organisation. Common systems, training, governance, reporting need to be co-ordinated - procurement has a clear over-arching interest so offers some logical solution.
- Contract Management is logically part of the end to end procurement process. It flows naturally from the procurement and contracting process, and should build on the supplier selection, negotiation and contracting process steps that are central to procurement.
- Whilst contract users have an obvious incentive for Contract Management to be successful, procurement has a wider motivation. When a contract goes wrong, it is unusual to hear people say “that was a good contract but we managed it badly”. It is more common to hear “why did procurement choose that supplier” or “it’s a really bad contract”. So procurement people have a personal and vested interest in effective Contract Management!
I really like the third reason Peter highlights. Procurement can agree a contract with a supplier which should deliver excellent value to the organisation but with no-one proactively managing it then all the benefits may not be achieved. By leading on contract management, Procurement can collaborate with stakeholders and contracted suppliers to accomplish continued savings and value throughout the life of the contracts they let whilst minimising risk. I would hope this would result in greater visibility of the importance of the Procurement function and therefore increasing its ability to secure greater investment in resource and enabling technologies to support it.
What’s your top reason why procurement should take over contract management?
Hi,
ReplyDeleteWording is important ... words entail concepts.
A top down approach is quickly illustrated.
The"Contract Owner" (Administration and often a senior officer) is linked with a "Project Owner (Industry CEO or other authorized senior director).
Those people does not manage directly the "project". And the word "Project" is here paramount. Each contract is passed to an intermediate office who is managing the contracts. It's often called "Contracts Owner" (Administration - CO) and "Contract Manager" or "Portfolio Manager" (Industry). Their main concerns are legal and financial.
They delegate the contract execution to a "Contract Owner Representative" (Administration) and to a "Project Manager" (PM) (Industry - Delivery Manager ?). The Industry part will execute the project while the Administration part will make sure the contract runs smoothly, is conformant to the technical specifications and the timing (money is often not-negociable), liaise with administration's quality and user's representatives and experts (Product Owner and End Users when necessary). The PM will do the same with its subs, experts and quality assurance ... COR and PM talk technical. COR reports/escalates to the CO. PM does the same iaw with the Industry POCs.
In case of troubles, CO's (Admin and Industry) talks together and required but motivated contract changes are legally issued. Do not forget the first looser may be watching you and file a legal complain.
Now what is a project ... see PMBoK or/and Prince guidelines ...
I have had the fortune to work on both sides of the argument, in 2000 I was bought in to a large company to fulfil the role of Commercial Manager reporting into a Project Manager, (Procurement were not seen as giving the support required in the area of Contract Management and Supplier Management), my role was as Commercial Manager, around 2009/9 I was moved across into procurement and combined the roles of Commercial and Procurement, and in the last 4 years build up a Commercial/Procurement team as Commercial Director.
ReplyDeleteMy view on where this important piece of work should sit however has changed with experience, and I now firmly believe that it should be in the wider remit of Procurement.
As procurement, (especially in IT), has matured it has become important to get a balance of cost savings, fit for purpose and speed to market, as well as meet the governance and compliance required by companies today, (these are the drivers being given to us by changes in both business climate and legislation).
With this in mind the most effective way that I have found to meet all these requirements is to build a strong Commercial and Purchasing team that can fulfil both traditional commodity purchasing, (Tactical), and Contract and Supplier Management, (Strategic), combined with putting in place the right processes, supply management and stakeholder management.
The benefits if you get this all right are, large cost savings, stronger supplier relationships and working closely with the stakeholders a clearer view of requirements which in the long run will assist in a speedier and cheaper delivery of goods and services.
So in summary, the reasons I believe Commercial/Procurement should take over Contract Management if delivered in the correct way are:
1. Better Spend Control, cost management - Take a company wide view of the Contract/Supplier and savings can be negotiated, there may be other contracts with the same supplier that should all be managed together.
2. Better Focus on Delivery against contract - Understand all elements of the contract impartially (Delivery, Legal, obligations and cost), and not be managed just by project timescales.
3. Lifetime view of contract rather than a project view - A contract should not be seen as a document that is complete once signed and put in a draw, it should be effectively managed and taken advantage of over its lifetime, regularly reviewing it against changes that will happen, and benefiting from opportunities that may arise.
4. Independent Management - To ensure compliance with regulatory and legal requirement, plus commercial milestones, the contract needs to be managed by someone outside of the project governance.
5. Supplier Issues - When problems arise, as they will from time to time, it is better to keep the day to day working relationship intact while dealing with the issues with someone who is not too deeply involved with the project.