Monday, July 8, 2013

Establishing a Contract Management Group where none existed (Where to start).

Bea, from Paris asked that I write a post about taking over in an existing contract management team. “Where to start and how to optimize the organization where no negotiation team is build and no document system is created for retrieving past contracts? While this is a very broad request I thought I would share my thoughts on where to start.

In my blog on contract management ( or the “Contract Mgt.” page on my website I had already written several posts about Contract Management Systems, Assuming Contract Management Responsibility, and Establishing the Contract File. Faced with this situation, the first thing I would do is collect a copy of all existing contracts. While that may be a challenge, the first place I would start would be to meet with the accounts payable and accounts receivable function. The accounts receivable function tracks receivables from customers who have purchased your products or services so that may help identify any sales contracts and applicable sales person to get information from. Similarly, the accounts payable function makes payments on purchase orders or contracts that you owe suppliers and will have information about who the supplier is, who authorized the purchase, and what internal account or cost center it is being charged to. In both cases finding the owner can help uncover any open orders. If there is an in house lawyer they will normally keep copies of any contracts they were involved with so they can be a good source for contracts that do not have a financial payment associated with them. If there is no in-house lawyer, companies will usually use an external lawyer who would also keep copies. A general message from management to the employees requesting that they provide copies of any contract they have to the new contract manager would also help uncover existing contracts. In that message they should further require that all future contracts be provided to the contract manager.

Once you have all known contracts collected, I would do an inventory of them and determine which are active, which may have expired, and those that have been terminated or closed because they are completed. My first priority would be on the active contracts where I would establish a unique contract file and contract number. If you had purchased a contract management system I would load all the information about them into the system. If you don’t have a contract management systems I would capture key data needed to manage the contracts for each active contract possibly on an Microsoft Excel spreadsheet that can give you an overview of key information and can allow you to do some minimal reporting and planning. As a minimum I would want to collect the following information:
1.Unique contract number assigned to that contract.
2.Supplier or customer name, address, key contacts, email address and phone numbers.
3.Contract commencement date, completion or expiration date.
4.Key milestones and deliverables required for both parties.
5.Listing of all signed amendments, dates and subjects.
6.Contract Value (fixed/subject to change or estimated value).
7.Payment terms or schedules.
8.Key money terms such as damages or penalties that may be applied.
9.Other key requirements such as insurances required.

For contracts that have expired or been terminated I would establish a separate list and would:
1. Assign a unique contract number for filing purposes.
2. The supplier or customer name, address and a brief description of the subject of the contract.
While a contract may be completed, expired or terminated, the parties may still have rights under those contracts or claims, including third party claims could be made so those contracts should be filed.
You need to have a record’s retention plan based upon your company’s needs and the stature of limitations for any possible contract related claims. You need identify what you have, where it is located and when it is acceptable to have those documents destroyed.

Once you have this in place you can begin to perform contract management. In my post I listed what I call cradle to grave tasks in procurement contract management. The specific contract management tasks would be:
Contract filing and creation of contract management file.
Manage negotiations during mobilization of the work, requests for changes.
Manage and document performance.
Manage deliverables.
Negotiate changes.
Negotiate claims or disputes.
Negotiate amendments and file amendments
Manage payment or receivables
Manage bailed, loaned, or consigned items and their accounting or return.
Manage confidential information provided or received.
Manage any early terminations with or without cause.
Manage meeting minutes and correspondence.
Manage notices as required.
Manage acceptance and test activities required by the contract
Provide information or reporting on compliance.
Manage final acceptance and turnover of all required documents.
Manage collection and return of any items that must be returned upon completion.
Close or renew the contract.
Produce documents and provide support for any litigation.
Include documents for retention in accordance with your retention plan.

In contract management, at any point in time you may be asked to identify:
What agreements are active or closed?
What is the spend status against a contract and how much remains on the contract?
Is the contract amount a firm obligation?
What are the current terms?
What were the terms on a specific date or period?
Who the parties are?
What type of business are they such as small business, woman owned, etc,?
Where are they the located?
How much do you spend with them?
Who the internal customer(s) are for the contract?
This information can be used for a variety of purposes such as compliance reporting, financial management, claims management, etc.

Having key information readily available can simplify responding to data inquiries and provides you with more time to train your people and manage your contracts. For example, I have significant experience in both outsourcing and divesting business groups as part of a sale of the business. In those situations you would use a combination of purchasing systems, contract management systems and payment systems to determine several basic things.
a) What contracts are applicable to the specific business involved?
b) Can those contracts be assigned to either the outsource partner or buyer of the business or can the outsource partner use those contracts?
c) If the contracts supported more than just the business involved, and you need to do an assignment of the contract to the new business owner, how can you meet that obligation and your other group’s needs?
Without having those systems countless hours would be required to find the information. With the systems you can determine what groups made purchases under the contracts by their cost center information, how much the spent, when the last purchases under that contract were made by them etc.

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