The Importance of Robust Contract Management
It must be one of the finest feelings in business. Your email inbox pings, or your phone buzzes in your pocket with news that the tender has been successful. The prospective client you have been toiling so hard to tie to a contract has accepted your proposal, and subject to the signing of some papers, work can begin.
The day that papers are signed are often finished off with the chinking together of champagne flutes and congratulatory back-patting. There’s nothing wrong with this, indeed it should be encouraged. After all, this why we get into business, for these moments. Unfortunately, what also frequently happens once the bubbles have begun to dissipate, is these hard-fought-for contracts are filed away, and largely forgotten about until issues begin to arise. It is one of the most persistent and potentially damaging habits any organisation can develop.
Why has contract management become so important?
A travel back in time to mid-1700s Northern England, and one would have had to shout over the din of mills and factories spinning, pressing, and blasting their way to the forefront of the Industrial Revolution. Raw materials, imported via Liverpool from the New World would be carted towards forests of chimneys, and into the entrance of red brick behemoths. Days, often just hours later, finished products would be wheeled out through exit doors. Each stage of process and production completed within the colossal, foreboding walls.
Back to today, and the world is a very different place. Technological advancements, varying specialisations beyond the competence of any individual company, intensifying competition, a shrinking world, and ever tighter timescales and margins mean often, the most basic products involve the input of multiple companies, and from all four corners of the earth.
As processes become more complex, so too do the contracts that govern them. Managing these contracts is no longer advisable in seeing a business project through to completion, it is imperative.
What are the benefits to having a contract managed?
Risk Prevention – When it comes to contracts, there is a tendency to blow the dust off them only when things start to go wrong. A key tenet of contract management is preventing risk long before it gathers the momentum to bite. Every contract has a value attached to it in the form of products or services supplied. Robust contract management ensures the value of products and services purchased is properly attained, and clamps down on ‘you get what you’re given’ scenarios where the threat of this emerges.
Contracts are valued to bring profit to the organisation owning it. Retaining value negotiation is the first, and most important line of defence in protecting these profits.
Stemming the ‘creep’ – ‘Creep’ is the silent killer of contracts. It is all too common as commissioned work progresses for costs to creep up, delays to creep in, and scope of work to creep outwards. In isolation each is damaging, together they make for a most unholy trinity. Robust contract management detects the early signs of ‘creep’, and halts its progress before any damage can be done, and thus ensuring business benefits are realised, and client obligations are delivered.
Compliance – Compliance regulations exist to ensure businesses are acting responsibly towards their staff, customers, suppliers, and the environment. They are important, backed up by legislation, and falling foul of them can have dire consequences. The bigger and more complex a contract, the more difficult it becomes remaining compliant. Deploying contract management professionals then, is by far the most effective means of protecting your business from profit-annihilating fines. Indeed, American technology and services company, Aberdeen Group discovered that compliance is improved 55% with a contract management system in place.
Time – The fact that the procurement industry exists, a major component of which is contract management, demonstrates how much time and expertise it requires. A company can look to manage its own contracts, but every employee who is selected for this role, is not working to acquire new business and/or engage in other mission critical endeavours.
Outsourcing contract management to dedicated professionals, allows every member of your workforce to focus their energies on growing the business.
Relationships – In this hyper-competitive, contemporary business world, reputations have never been so difficult to establish, and so easy to destroy. A contract that goes wrong can have consequences that reach far beyond the companies immediately involved. Not only is your name muddied with them, but with everyone they share their experience with.
Ensuring a contract is delivered as agreed, is critical to maintaining a strong reputation within your given field. If bringing in contract management specialists is the only way you can guarantee this, it is a price more than worth paying.