SECTION 2.2 - CONTRACTS MANAGEMENT
Contracts Management is about control, visibility and compliance. Ineffective contracts management affects businesses by increasing risks and decreasing both cost-saving and revenue-generating opportunities. Contracts Management involves implementing contracts for third-party spend on products and services (in alignment with the procurement policy) and minimising the risks associated with no contractual coverage. A third-party contract is a legal, written and signed agreement between an organisation and its supplier for the delivery of specified products and services. A purchase order or even an exchange of emails can be regarded as a binding contract, but a third-party contract becomes useful when it is produced for the purpose of maximising the value of a trading relationship. A contract makes the management of the supplier simpler, since it specifies in detail the obligations of both parties and their associated liabilities in the event of failing to deliver against these. Additionally, a contract provides the opportunity to mitigate potential losses in the event of disruption; share liability of certain risks with the supplier; require the supplier to make provisions for the management of those risks; and negotiate discounts, rebates, sharing of innovation and service-level agreements. Contracting with suppliers should not be considered a “tick the box” exercise, which is often mandated by legal departments, but a robust mechanism by which procurement can deliver numerous benefits. The benefits of putting in place a contact are only realised when the contractual obligations are enforced, a prerequisite of which is having full visibility and accessibility to all third-party contracts. For a number of organisations, contracts management finishes when the contract is signed. The contract is then stored in a contracts safe and is revisited either when there is a contractual dispute or when the contract has expired (or is due to expire). In those cases, users seldom consult the contracts during their lifetime, thus potentially missing out on realising any benefits that were secured during the contract negotiation phase.
In our survey, 82.1% of respondents said they have visibility of and can easily access their third-party contracts, while 13.7% said they cannot.
Figure 20: DO YOU HAVE VISIBILITY AND EASY ACCESS TO ALL THIRD-PARTY CONTRACTS?
Don’t know No Yes
82.1%
13.7%
2.1%
0
10%
20% 30% 40% 50%
60%
70%
80%
90%
Various stakeholders should consult and use the contracts on a regular basis. Procurement should use the contracts to refer to key dates, payment terms, product or service specifications, rebates, discounts, performance indicators, service-level agreements, exit terms and any other relevant provisions. The legal department should use the contracts to ensure that they comply with the law and enterprise-wide policies and requirements. The risk function may review the contracts to ensure that insurance and risk mitigation clauses are
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