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What is contract management?

Contract management is a discipline that supports commercial management through the implementation and oversight of legally enforceable performance commitments, both outbound (to the market) and inbound (from the market). It converts commercial policies and practices and technical capabilities into specific terms and conditions that are offered to or required from its suppliers, customers or business partners. Through active monitoring of performance needs and outcomes, contract management informs commercial management with regard to actual and required commitment capabilities, together with their financial and risk impact.

 

IACCM challenged members of our professional community to come up with an 'elevator pitch' for contract management. Imagine if, as you step into an elevator, someone says - 'you're a contract manager - what is contract management?'. How would you sell the concept of contract management to them in no more than 3 or 4 sentences - you've only got about 30 seconds before they leave! Below is a selection of the best responses.

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. Contract management is really about maximizing profits and minimizing risks in any contracts. 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.

Rajini Saudranrajan is a Legal Manager at Iris Corporation Ltd. and is based in Kuala Lumpur, Malaysia. She has been working in contract management for 11 years and has been a member of IACCM since attending a training class that we ran in Kuala Lumpur in 2006.

Contract Management consists of all the various tasks and activities that enable an organization to maximize the value of its recorded relationships. And yes, the definition may seem too general at first but contracts inform and define business processes in every part of an organization so the definition must be inclusive too. It's not just buyers and sellers; everyone does contract management every day.

Mike Serulneck, Director, Open Text

Contract Management at its best is about managing risk, and managing relationships. At its simplest a contract is a document describing a relationship between two parties, what each of them agree to do, and who carries the risk if things don't turn out as planned. Contract Management is about managing that relationship, and those risks, to ensure that both parties get the result they originally wanted. Everything such as cash flow, revenue, obligations management, and all other areas around this, flow from this simple premise.(mind the door)

Stephen Davis, Commercial Manager, Fujitsu Services

Contract Management is not simply an operational function overseeing transactional negotiation, implementation and management of contracts. Increasingly it is a critical vehicle for high value management information that supports strategic decision-making.

A result of this is the steady emergence of two types of contract management or commercial management. The required knowledge, measurements and skills required to perform that role have evolved at a rapid pace.

The second contract management role is far more strategic and is about business enablement rather than tactical operations. In this role, the contract manager is both an adviser to executives and a vehicle for implementing organizational goals. Essentially, the strategic contract manager ensures that contracts and contracting procedures are used to execute business strategies – for example, with regard to desired levels of risk, or through the creation of market competitive commitment capabilities, or via more relational or collaborative forms of agreement with trading partners. But this strategic role also informs management about trends or issues that are observed as a result of more thorough analysis of the contracts and their performance. For example, what are the types and severities of different risks and where are they occurring? What are the market trends with regard to the sort of commitments expected by customers or resisted by suppliers? How can the business overall be empowered to exercise better commercial judgment and to reduce regulatory, reputational or margin risks?

Today’s trends suggest that the role of contract management is secure and will become increasingly pervasive. It will be recognized as a life-cycle discipline, with measurements reflecting its impact on revenues and the bottom line. In leading organizations, it will also be an integrated discipline, quite probably part of a shared services unit, that oversees contracting for all trading relationships – buy, sell and distribution channel (even though operational resources may remain embedded within business units).

With this transition, contract management will offer an interesting and fulfilling career path, increasingly supported by structured education and training from university level upward. But with growing sophistication and an increasingly strategic role, the volume of the more administrative, operational tasks will reduce and in many cases will be performed via automation or through greater competence in other groups, such as Sales, Project Management and Procurement.

Therefore, while the job itself will become more highly valued, the numbers bearing the title may over time start to reduce. Those that remain will be more highly paid, have greater status and – of course – will be endowed with skills and knowledge that go beyond the traditional role of a contract manager.