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Contract Management for Non-
Specialists
2
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
3
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
4
By the end of this session we hope that you will :
- Understand the scope of commercial work
- Understand the value of applying contract management
- Have a number of practical tools and contacts to be able to manage
contracts better
- Know where you can go to develop your commercial skills
The main objective of this session is to give you a brief
overview of commercial and contract management
5
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
6
Discuss what you understand by the term “commercial management”
What does commercial management mean to you?
7
Commercial management is about our buying and selling interactions
and aligning to deliver great service. The IACCM defined it as:
“… a term used to describe the non-technical business disciplines within a
company or organization, particularly the administration of revenue and expenses
to generate a financial return. Commercial management within an organization is
applied at both policy and transactional levels. Commercial policies relate to the
rules or practices that define how business will be conducted and the standard
terms under which external relationships will be formed and governed.”
(IACCM: https://support.iaccm.com/support/solutions/articles/9000059134-the-definition-of-
commercial-management-and-a-commercial-manager)
To be commercially effective organisations need to develop both a
commercial awareness (understanding of business drivers and the
impact on the organisation) and commercial acumen (the ability to apply
awareness to decision making).
Commercial managementdescribes the managementof
the trading activity, both buying and selling
8
These slides focus on buy-side commercial management,
concerned with sourcing and supply activities
Pre	Sourcing
Requirements	
Identification
Market	
Analysis
Sourcing	
Strategy
Supplier	
Identification
Execute	
Sourcing	
Strategy
Award	
Contract
Contract	
Initiation
Contract	
Management
Supplier	
Relationship	
Management
1
2
3
4
5
67
8
9
Commercial	
Lifecycle
*often exit and termination is included, however for our purposesit is within contract and supplier relationahip management
9
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
10
Contract managementis a phase of the commercial
lifecycle which ensures value is received from the contract
Our
Focus
Pre	Sourcing
Requirements	
Identification
Market	
Analysis
Sourcing	
Strategy
Supplier	
Identification
Execute	
Sourcing	
Strategy
Award	
Contract
Contract	
Initiation
Contract	
Management
Supplier	
Relationship	
Management
1
2
3
4
5
67
8
9
Commercial	
Lifecycle
11
There are a number of definitions of Contract Management but most of
them refer to activities performed by managers after the award of a
contract.
However one clear definition is:
‘Contact management manages both pre and post contractual matters
which includes the review, drafting and negotiation of contracts, and the
thorough monitoring of the performance of that particular signed contract
until it's close-out … In a nutshell, Contract Managers are people who
possess the technical, operational and commercial skills and acumen in
managing a contract so that it always remain healthy and brings in the
optimal and desired results. ’
(IACCM: https://www2.iaccm.com/network/contract-management-forum/?post=354&cb=1446194770)
There is no one definition but Contract Management
normally concerns managing ‘live’ contractsand suppliers
12
National Audit Office Case Study: Army 2020
The MoD let a contract for the recruitment of sufficient and skilled recruit
personnel for its Army 2020 organisation structure.
The contract created a number of dependencies on the MoD to provide
IT infrastructure to support the supplier by a specified date.
In the event the MoD failed to adequately meet the dependencies placed
on it, which meant the supplier could not deliver the planned
recruitments.
This failure to articulate, understand, plan for contractual dependencies
was estimated to cost the MoD around £25m, £1m a month.
NAO: https://www.nao.org.uk/wp-content/uploads/2016/11/Commercial-
and-contract-management-insights-and-emerging-best-practice.pdf
It is important because a lack of good basic contract
management can have serious consequences
13
Discuss the risks to our organisation of not properly managing our
contracts
What do you think the risks are for our organisationof not
applying appropriate contract management?
14
The main risks associated with poor contract management practices are:
• Reputational or financial damage to the business
• Uncontrolled cost increases
• Legal disputes
• Implementation and delivery delays
• Poor quality goods and services
• Audit failures, fines and penalties
The IACCM estimated that these issues can cost organisations up to 9%
of their revenues in “value leakage”.
(IACCM: https://commitmentmatters.com/2012/10/23/poor-contract-management-costs-
companies-9-bottom-line/)
There are in fact a range of significant impacts from the
poor management of contracts
15
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
16
To perform Contract Management effectively you will need to:
• Understand how you view the supplier, and they view you
• Understand who is responsible for what relating to the contract
• Understand the responsibilities of the Contract Manager
• Understand and maintain basic Contract Management records
• Implement appropriate governance and controls
What is required for basic contract management
17
The first step, key to tailoring your efforts, is to understand
the supplier’s and your importance to each other
Understand the contract’s
importance (adapted from Kraljic matrix)
*applying a tiering approach may help
Understand your importance to
the supplier (adapted from BCG &
GE/Mckinsey)
An understanding of these positions will help you in determining the degree
of oversight and effort needed in managing the contract, and in managing
the relationship with the supplier.
Bottlenecks
Strategic /
Partnership
Commodities
/ Routine
Leverage
Contract Value
ContractRisk/Importance
Under
performer /
Focus on
increasing
profits
Invest and
grow / Star
Customer
Discretionary
/ Find ops or
increase profit
Resist change
/ Farm
Revenues
Account Value
AccountAttractiveness
18
You should be able to identifykey roles associated with the
contract and maintain regular contact with them
• The role of the ContractManager is to fully manage all aspects of
contract, ensuring successful deliver of the contract deliverables and
individual projects thatform part of the contract.
Contract	Manager
• The SRO holds overall responsibility for the contract within the
organisation including strategic and financial decisions.
Contract	Senior	
Responsible	Owner
• The central procurementand commercial team usually offer expert
advice and support. This will include helping to initiate and exit the
contract, negotiate disputes and providing training and support.
Legal	Team
• The legal team will act as an expert adviser to the Contract Manager.
They will play a significantrole reviewing changes,disputes,and existor
termination arrangements.
Central	Commercial	
or	Procurement	Team
• The finance team will maintain central records of invoices and
payments.They can supportthe Contract Manager in reviewing and
reconciling invoices as well as modelling contractfinances.
Finance	Team
Levelofday-to-dayinvolvementincontract
19
A Contract Manageris responsible for the administration of
the contract across 8 main areas
• Understanding	the	provisions,	ensuring	that	delegations	are	adhered	to,	
communicating	the	content	of	the	contract	to	others.General	Responsibilities
• Ensuring	that	risks	and	issues	are	captured,	formal	governance	arrangements	are	
in	place,	that	there	are	minutes	of	meetings	and	decisions	for	audit.	Administration
• Ensuring	the	contract	remains	good	value	as	per	the	business	case,	including	in	
terms	of	cost,	quality	and	relevance.	Mechanisms	include	benchmarking	and	
tracking.	
Value	for	Money
• Identifying	risks	and	issues	with	delivery	and	ensuring	that	these	are	addressed	
with	the	supplier,	monitoring	and	validating	SLA	and	KPI	performance.	Performance	Management
• Enacting	changes	to	the	contract	and	advising	on	the	impact	of	service	or	
product	changes.	Managing,	documenting	and	approving	the	change.	Change	Management
• Ensuring	that	the	relationship	remains	healthy,	that	we	are	a	valued	customer,	
that	senior	ownership	of	the	relationship	on	both	sides	is	maintained.	Supplier	Relationship
• Setting	the	invoice	format,	validating	invoices	against	delivery,	approving	
payment	to	the	finance	team,	monitoring	spend	against	the	business	case.	Invoicing	and	Payment
• Maintaining	a	forward	look,	working	with	a	commercial	and	procurement	team	
to	identify	new	requirements	for	replacement	and	to	exit	smoothly	Exit	&	Termination
20
The Contract Manager is responsible for ensuring the contract is well
managed and the supplier / customer relationship is healthy. Common
mechanisms for achieving this include:
1. Executive oversight meetings – responsible for receiving escalations, discussing new
opportunities, maintaining senior level line of sight and accountability.
2. Contract management meetings – responsible for discussing and agreeing actions,
risks, issues and changes to the contract.
These meetings are fed by core processes the Contract Manager should
document and/or understand:
• Risk and Issue management
• Performance and service monitoring
• Change control
• Dispute
• Escalation
• Invoicing and Payment
The role includes ensuring that the contract is well
governed and qualityassuring the service delivery
21
There are a number of tools available to the Contract Manager which can
be tailored in line with the importance of the contract.
• Contract management plan
• Actions log
• Contract risks and issues log
• Contract change log
• Spend performance
• SLA and KPI performance
• Meeting minutes & decisions
It also includesthe production and maintenanceof key
records which help managementand ensure auditability
22
Contract management is rarely a full time role, especially where the
function is performed outside of the commercial and procurement
function.
It’s important to adapt what is covered here to your specific
circumstances. It is worth reflecting that:
• Not managing the contract IS NOT AN OPTION
• Contract Management is unlikely to be a full time role, but embedded
within someone’s job
• You therefore need to tailor your effort and approach to the individual
contract to reflect the time available and the contract’s importance
It is worth reflecting on best practice but it will always need
to be tailored to suit your circumstances
23
Objectives
Introduction to commercial management
What contract management is and why it matters
Contract management in the organisation
Learning and development opportunities
Navigation
24
(1) Peers and professionals involved in procurement and commercial
functions.
(2) Professional bodies:
• International Association for Contract and Commercial Management
(IACCM)
• Chartered Institute for Purchasing and Supply (CIPS)
(3) Public Sector Bodies:
• Government Commercial Function (GCF)
This has provided you with a simple overview of Contract
Management,but there is more detailed info available
25
That brings us to the end of the session
25
QUESTIONS

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Contract Management Essentials

  • 1. 1 Presentation title - edit in the Master slide Contract Management for Non- Specialists
  • 2. 2 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 3. 3 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 4. 4 By the end of this session we hope that you will : - Understand the scope of commercial work - Understand the value of applying contract management - Have a number of practical tools and contacts to be able to manage contracts better - Know where you can go to develop your commercial skills The main objective of this session is to give you a brief overview of commercial and contract management
  • 5. 5 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 6. 6 Discuss what you understand by the term “commercial management” What does commercial management mean to you?
  • 7. 7 Commercial management is about our buying and selling interactions and aligning to deliver great service. The IACCM defined it as: “… a term used to describe the non-technical business disciplines within a company or organization, particularly the administration of revenue and expenses to generate a financial return. Commercial management within an organization is applied at both policy and transactional levels. Commercial policies relate to the rules or practices that define how business will be conducted and the standard terms under which external relationships will be formed and governed.” (IACCM: https://support.iaccm.com/support/solutions/articles/9000059134-the-definition-of- commercial-management-and-a-commercial-manager) To be commercially effective organisations need to develop both a commercial awareness (understanding of business drivers and the impact on the organisation) and commercial acumen (the ability to apply awareness to decision making). Commercial managementdescribes the managementof the trading activity, both buying and selling
  • 8. 8 These slides focus on buy-side commercial management, concerned with sourcing and supply activities Pre Sourcing Requirements Identification Market Analysis Sourcing Strategy Supplier Identification Execute Sourcing Strategy Award Contract Contract Initiation Contract Management Supplier Relationship Management 1 2 3 4 5 67 8 9 Commercial Lifecycle *often exit and termination is included, however for our purposesit is within contract and supplier relationahip management
  • 9. 9 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 10. 10 Contract managementis a phase of the commercial lifecycle which ensures value is received from the contract Our Focus Pre Sourcing Requirements Identification Market Analysis Sourcing Strategy Supplier Identification Execute Sourcing Strategy Award Contract Contract Initiation Contract Management Supplier Relationship Management 1 2 3 4 5 67 8 9 Commercial Lifecycle
  • 11. 11 There are a number of definitions of Contract Management but most of them refer to activities performed by managers after the award of a contract. However one clear definition is: ‘Contact management manages both pre and post contractual matters which includes the review, drafting and negotiation of contracts, and the thorough monitoring of the performance of that particular signed contract until it's close-out … In a nutshell, Contract Managers are people who possess the technical, operational and commercial skills and acumen in managing a contract so that it always remain healthy and brings in the optimal and desired results. ’ (IACCM: https://www2.iaccm.com/network/contract-management-forum/?post=354&cb=1446194770) There is no one definition but Contract Management normally concerns managing ‘live’ contractsand suppliers
  • 12. 12 National Audit Office Case Study: Army 2020 The MoD let a contract for the recruitment of sufficient and skilled recruit personnel for its Army 2020 organisation structure. The contract created a number of dependencies on the MoD to provide IT infrastructure to support the supplier by a specified date. In the event the MoD failed to adequately meet the dependencies placed on it, which meant the supplier could not deliver the planned recruitments. This failure to articulate, understand, plan for contractual dependencies was estimated to cost the MoD around £25m, £1m a month. NAO: https://www.nao.org.uk/wp-content/uploads/2016/11/Commercial- and-contract-management-insights-and-emerging-best-practice.pdf It is important because a lack of good basic contract management can have serious consequences
  • 13. 13 Discuss the risks to our organisation of not properly managing our contracts What do you think the risks are for our organisationof not applying appropriate contract management?
  • 14. 14 The main risks associated with poor contract management practices are: • Reputational or financial damage to the business • Uncontrolled cost increases • Legal disputes • Implementation and delivery delays • Poor quality goods and services • Audit failures, fines and penalties The IACCM estimated that these issues can cost organisations up to 9% of their revenues in “value leakage”. (IACCM: https://commitmentmatters.com/2012/10/23/poor-contract-management-costs- companies-9-bottom-line/) There are in fact a range of significant impacts from the poor management of contracts
  • 15. 15 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 16. 16 To perform Contract Management effectively you will need to: • Understand how you view the supplier, and they view you • Understand who is responsible for what relating to the contract • Understand the responsibilities of the Contract Manager • Understand and maintain basic Contract Management records • Implement appropriate governance and controls What is required for basic contract management
  • 17. 17 The first step, key to tailoring your efforts, is to understand the supplier’s and your importance to each other Understand the contract’s importance (adapted from Kraljic matrix) *applying a tiering approach may help Understand your importance to the supplier (adapted from BCG & GE/Mckinsey) An understanding of these positions will help you in determining the degree of oversight and effort needed in managing the contract, and in managing the relationship with the supplier. Bottlenecks Strategic / Partnership Commodities / Routine Leverage Contract Value ContractRisk/Importance Under performer / Focus on increasing profits Invest and grow / Star Customer Discretionary / Find ops or increase profit Resist change / Farm Revenues Account Value AccountAttractiveness
  • 18. 18 You should be able to identifykey roles associated with the contract and maintain regular contact with them • The role of the ContractManager is to fully manage all aspects of contract, ensuring successful deliver of the contract deliverables and individual projects thatform part of the contract. Contract Manager • The SRO holds overall responsibility for the contract within the organisation including strategic and financial decisions. Contract Senior Responsible Owner • The central procurementand commercial team usually offer expert advice and support. This will include helping to initiate and exit the contract, negotiate disputes and providing training and support. Legal Team • The legal team will act as an expert adviser to the Contract Manager. They will play a significantrole reviewing changes,disputes,and existor termination arrangements. Central Commercial or Procurement Team • The finance team will maintain central records of invoices and payments.They can supportthe Contract Manager in reviewing and reconciling invoices as well as modelling contractfinances. Finance Team Levelofday-to-dayinvolvementincontract
  • 19. 19 A Contract Manageris responsible for the administration of the contract across 8 main areas • Understanding the provisions, ensuring that delegations are adhered to, communicating the content of the contract to others.General Responsibilities • Ensuring that risks and issues are captured, formal governance arrangements are in place, that there are minutes of meetings and decisions for audit. Administration • Ensuring the contract remains good value as per the business case, including in terms of cost, quality and relevance. Mechanisms include benchmarking and tracking. Value for Money • Identifying risks and issues with delivery and ensuring that these are addressed with the supplier, monitoring and validating SLA and KPI performance. Performance Management • Enacting changes to the contract and advising on the impact of service or product changes. Managing, documenting and approving the change. Change Management • Ensuring that the relationship remains healthy, that we are a valued customer, that senior ownership of the relationship on both sides is maintained. Supplier Relationship • Setting the invoice format, validating invoices against delivery, approving payment to the finance team, monitoring spend against the business case. Invoicing and Payment • Maintaining a forward look, working with a commercial and procurement team to identify new requirements for replacement and to exit smoothly Exit & Termination
  • 20. 20 The Contract Manager is responsible for ensuring the contract is well managed and the supplier / customer relationship is healthy. Common mechanisms for achieving this include: 1. Executive oversight meetings – responsible for receiving escalations, discussing new opportunities, maintaining senior level line of sight and accountability. 2. Contract management meetings – responsible for discussing and agreeing actions, risks, issues and changes to the contract. These meetings are fed by core processes the Contract Manager should document and/or understand: • Risk and Issue management • Performance and service monitoring • Change control • Dispute • Escalation • Invoicing and Payment The role includes ensuring that the contract is well governed and qualityassuring the service delivery
  • 21. 21 There are a number of tools available to the Contract Manager which can be tailored in line with the importance of the contract. • Contract management plan • Actions log • Contract risks and issues log • Contract change log • Spend performance • SLA and KPI performance • Meeting minutes & decisions It also includesthe production and maintenanceof key records which help managementand ensure auditability
  • 22. 22 Contract management is rarely a full time role, especially where the function is performed outside of the commercial and procurement function. It’s important to adapt what is covered here to your specific circumstances. It is worth reflecting that: • Not managing the contract IS NOT AN OPTION • Contract Management is unlikely to be a full time role, but embedded within someone’s job • You therefore need to tailor your effort and approach to the individual contract to reflect the time available and the contract’s importance It is worth reflecting on best practice but it will always need to be tailored to suit your circumstances
  • 23. 23 Objectives Introduction to commercial management What contract management is and why it matters Contract management in the organisation Learning and development opportunities Navigation
  • 24. 24 (1) Peers and professionals involved in procurement and commercial functions. (2) Professional bodies: • International Association for Contract and Commercial Management (IACCM) • Chartered Institute for Purchasing and Supply (CIPS) (3) Public Sector Bodies: • Government Commercial Function (GCF) This has provided you with a simple overview of Contract Management,but there is more detailed info available
  • 25. 25 That brings us to the end of the session 25 QUESTIONS