The first thing to understand about contract management is that it doesn’t just entail awarding and managing contracts.
Contracts form part of every business and the more you have,
the less risk you’re exposed to. That’s why you need to have good management
processes in place to manage every contract in your business.
1.
Where are your contracts?
You should have contracts for the following (at minimum):
·
With your partners and
suppliers
·
If required, customer contracts
·
Employee contracts
The majority of B2B suppliers will insist on contracts being
agreed. To avoid your business being on the losing end of contractual
obligations, the process needs managed. You must know and fully understand the
terms you’re agreeing to when you enter a legally binding contract.
2.
Never sign without negotiation
That’s a rule to live by in business.
There’s always some wiggle room and it’s the entire reason
for part of the duties procurement officers do day in, day out. Assess,
identify and negotiate.
They need to review all the terms, understand them and find
the areas within the contracts that need revised to improve those terms.
Moreover, better terms are most often ripe for the picking. You don’t get if
you don’t ask.
3.
The ball remains in the buyer’s
court so play responsibly
When you’re negotiating contracts, you cannot be in the
mindset of scrounging for every saving you can. Savings are all well and good
but never at the expense of a positive working relationship.
One of the worst things for contract management is to have
one party feel unjust due to extravagant terms. What can start out as a
standard RFP (Request for Proposal)
can have numerous bids, the most attractive ones will be analysed, scrutinised
and all too often sabotaged.
When suppliers are keen to jump aboard and partner with you,
in particular the smaller sized firms,
often the owners are looking for security of finance, rather than good terms.
The result is that they don’t have the capacity to
understand the entire scope of works being agreed to until it’s too late. They
find themselves bending over backwards for too little remuneration in
comparison to the efforts put forth. Next thing you know, the quality of
service declines, and it’s affecting your customers.
That’s the price of cheap sourcing.
Don’t look for best pricing. Focus on best value.
4.
Build the relationship before the contract
You won’t get a great discussion going into negotiating
terms of agreements between two parties without the relationship first. When
RFPs are first put out, the focus should be on building relationships with
suppliers first because often is the case, that’s a representation of how your
working relationship will be, possibly for years to come.
If that rapport isn’t there, the working relationship will
be poor. That’s just to start with because the contracts will come up for
renewal. When you get to that stage, it’s best to be on good terms with a
supplier who gets your business, understands it, and works closely with you to
enhance your customer’s experience.
Changing suppliers doesn’t help customer service in the
short-term but sometimes, things don’t go to plan, negotiations break down and
you find yourself beginning the tendering process over.
The management of contracts is never done. As long as
they’re in place, they need managed and so do the people and companies
involved.
5.
Analysis must be thorough
For contract management purposes, there are four ways to
assess risk to business finance, and the legal responsibilities or ramifications
of commercial contracts.
The four main types of analysis include:
PEST analysis
·
Political
·
Economical
·
Social
·
Technological
SWOT
·
Strengths
·
Weaknesses
·
Opportunities
·
Threats
STEEP
·
Social
·
Technological
·
Economical
·
Environmental
·
Political
STEEPLE
Same as STEEP with the addition of…
·
Legal
·
Ethical
Most businesses will be familiar with the SWOT analysis to
assess threats and use that for their internal and external risk assessments.
However, when there are changes to the economy, the political landscape cannot
be ignored.
Take for example the UK’s exit from the EU. That’s politics
affecting businesses of all sizes. That brings legal compliance issues into the
risk assessments, and by adding in the issue of ethics for CSR policies, the
STEEPLE analysis is the more in-depth option for a comprehensive risk
assessment.
Manage your contracts and you’ll be better placed to manage
risk within your business, thus preventing complications further down the line.
Without contract management, risk management would be
impossible.
Image courtesy of stature.com.sg.
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