SECTION 4.2 - CONTRACT MANAGEMENT
In section 2.2 of this report we analysed the way that organisations manage supplier contracts within their categories. As we have mentioned, the objective of Contract Management is to ensure visibility, control and compliance of contracts in order to minimise the risks associated with managing third-party spend. Contract Management (operational) is the operational tracking of contract performance; tracking of contract renewal; and minimising off- contract spend, for all contracts post-negotiation.
Contract Management refers to the management of a contract during its lifetime from contract creation and authoring through to closeout or renewal.
Figure 50: THE CONTRACT LIFECYCLE
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Contract collaboration and negotiation
Contract creation and authoring
Contract close-out / renewal and analysis
Contract execution
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Contract administration
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Although the terms and conditions associated with a purchase order (PO) or an invoice can be regarded as essentially a contract, this does not guarantee the maximum value that a written agreement can deliver. Terms and conditions might be sufficient for one-off purchases or low- value, low-risk purchases, but as the volume of spend and the risk of purchases increases, an organisation should ensure that a supplier’s obligations are reflected in a formal, written contract. Contract management policies Organisations typically determine a spend threshold above which a contract has to be put in place. This ensures that requisitioners are not acting independently and, should a purchase hit a certain spend limit, have to follow a standard contracting process. Having a threshold minimises risk to the organisation while ensuring that the procurement function is not inundated with requirements to support low-value (and potentially high-volume) transactions. Half of our survey respondents have a spend threshold above which a contract needs to be drafted, while 46.6% do not.
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