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The Competencies a Contract Manager Needs: A Process Perspective

Published: 15 Mar 2013 Average Rating: 3.5 / 5 Print
 
This article appeared in Contracting Excellence magazine on 15 Mar 2013 view edition
 

Enduring high performance in any field of endeavor requires a systematic approach to execution. In Contract Management, the Contract Lifecycle model provides the high level framework to approach contracting as a business process. But even the most carefully designed contracting process supported by sophisticated Information Technology infrastructure will not succeed without capable Contract Management professionals. Organizations need to invest in developing the functional and interpersonal skills of their staff.

By María Arraiza-Monteux, Capability Building Program Manager, DuPont Contract Manufacturing Center of Competency; René Franz Henschel, Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark

 

Enduring high performance in any field of endeavor requires a systematic approach to execution. In Contract Management, the Contract Lifecycle model provides the high level framework to approach contracting as a business process. But even the most carefully designed contracting process supported by sophisticated Information Technology infrastructure will not succeed without capable Contract Management professionals. Organizations need to invest in developing the functional and interpersonal skills of their staff.

The IACCM Contract Lifecycle model for both the buy and sell sides consists of five (5) phases, shown in Figure 1.  Consider the competencies and skills that strengthen the Contract Managers' ability to make solid contributions to their businesses. 

Competencies aligned to the phases of the contract lifecycle will be discussed first, followed by aspects that are not phase-specific.

Initiate Bid Development Negotiate Manage

Figure 1.  IACCM Contract Lifecycle Model[1]

 

Initiate Phase

Contract Managers preparing to develop a contractual arrangement must understand how the deal is intended to support the company's overarching business strategy, as well as any applicable functional strategies

  • How will the deal enable the company to differentiate itself from competitors? 
  • How critical is it to maintain flexibility in terms and conditions to accommodate expected growth in demand?
  • If there is Intellectual Property to be shared with a third party, how shall the deal be structured to enable protection of rights?  
     

The Contract Managers will need to become proficient in the legal frameworks and requirements of their company.  Additionally, they will need to be knowledgeable of the functional resources that will support the contracting activity.

Bid Phase

Depending on the type of contracting, a bid process may be utilized to select a supplier of a product or service.  Companies will have their own RFI, RFQ, and RFP forms, as well as specific protocols consistent with the legal requirements for their industry and geography.

In terms of financial evaluations, there are four key knowledge areas for Contract Managers[2]:

  • Tax and inter-company considerations in defining structure and decision processes
  • Fundamentals of finance and accounting
  • Costing and pricing the bid
  • Price vs. Cost of relationship
     

Typically, Contract Managers are assisted by financial analysts to develop the full understanding of the financial implications of a contract.  They must know the concepts and methods applied and how to interpret the outcomes of the financial evaluations.

In the Bid Phase, it is critical that the Contract Managers are well versed in supplier selection methods and criteria. A best practice is to form a team with representatives from the key stake-holding functions, and design weighted criteria against which every candidate will be rated. 

Development Phase

Contract Managers also need to be familiar with the various types of contracts available in their company's repository.  They must understand the implications of the legal terms and conditions, as well as the contracting governance and approval processes in their company.

Knowing how to prepare a clear Statement of Work, and how to draft the specific business terms and performance criteria that will apply to a particular agreement are critical skills for Contract Managers, whether preparing a purchase or sales agreement.

Negotiate Phase

A Value Chain Analysis will be valuable for Contract Managers preparing to negotiate.  The understanding of how their organization creates value for customers and its sources of competitive advantage will result in creating stronger value propositions and more robust evaluations of offers received from third parties.

Negotiation involves persuading suppliers or customers to reach mutually beneficial agreements. Designing negotiating strategies and knowing how to execute the negotiating stages and phases up to closing on an agreement are core competencies for a Contract Manager with contract execution authority.  Familiarity with various styles and tactics will equip a negotiator for an array of circumstances.  The interpersonal skills discussed at the end of this article can be especially helpful during the negotiation phase.

Manage Phase

Once an agreement has been formally reached, Contract Managers become the primary interface with suppliers or customers to ensure that the products and services are delivered in accordance with the specifications, scope of work, and other terms and conditions on the contract.  Administrative tasks are involved, and several indicators must be monitored to evaluate the ongoing health of the relationship.  Ideally, Contract Managers will subscribe to the Performance Management process dictated by the company's Supplier or Customer Relationship Management models.

 

Competencies and Skills Needed Along the Contract Lifecycle

A number of core functional competencies will impact all the phases.  To begin with, Contract Management professionals should understand the industry and business they serve.  Rather than completing tasks mechanically and undermine the opportunity to position contracts as a powerful instrument, business acumen will enable approaching contracting as a value-adding process. They should also understand the Sales, Procurement, and Supply Chain functions within their companies, which will provide a strong technical foundation to their work. 

Not many companies approach Contract Management as a centralized function.  A typical example of decentralized management is having the Procurement function handle a contract up to the Negotiate phase.  Then contracts may be turned over to Operations for the Manage phase.  This approach calls for educating the Buyers and the Contract Administrators on the full spectrum of their respective roles and responsibilities to enable fruitful collaboration.  Otherwise, ineffective hand-offs will preclude the continuity required to attain the original business objectives. 

Contract Managers should also be familiar with the Customer Relationship Management (CRM) and the Supplier Relationship Management (SRM) models. According to APICS, “CRM's philosophy puts the customer first, and SRM's philosophy stresses mutual profitability and meeting marketplace needs over individual profitability and needs” [3]. Implementation of either model typically entails deep cultural transformations in a company, as the customer or supplier bases are segmented in order to manage them differentially.

As companies operate in increased levels of economic and geo-political uncertainty, Risk Management has become a more important competency.  Briefcase Analytics defines four areas of contract risk:  Financial, Operational, Business Conduct and Force Majeure[4]. Systematically identifying, analyzing, treating, and monitoring the risks involved with a robust Risk Management framework and processes[5] will enable businesses to respond to challenges with greater agility and resilience.  According to IACCM research, only about a third of the Contract Managers are experiencing an increased role in risk management [6]. This suggests an opportunity for their professional growth.     

Another important functional competency is Project Management. The Project Management Institute defines this discipline as “the application of knowledge, skills and techniques to execute projects effectively and efficiently, enabling organizations to tie project results to business goals”[7]. Recognizing that effective management of scopes, budgets and cycle times directly impact the quality of the contracting outcomes, some companies are approaching initial contracting activity as a project.  The project management framework lends itself well to a space that is cross-functional in nature, with variety in the work streams and at times high complexity of the deals.    

Lastly, most companies have Information Technology platforms supporting the workflow and buy/sell transactions.  Contract Managers will need to learn to utilize the interfaces and programs required for their job.

Other skills needed throughout all phases of the contract lifecycle are interpersonal and proactive skills[8]. Companies must recognize that it is not enough to have the necessary functional knowledge (financial and legal, process and project management etc.) to perform well. The contracting process is a complex network of interrelationships, both within the company and with customers and suppliers. Relationships must be managed by people who are:

  • Strongly analytical in relation to mapping and improving the necessary interactions between business functions, customers and suppliers;
  • Able to implement and facilitate the necessary communication and reporting lines;
  • Able to establish the necessary leadership, teams and effective delegation of responsibility;
  • Open-minded towards other business functions and cultures, and able to understand their goals, techniques, methods and cultures;
  • Encouraging communication and willingness to share knowledge and information;
  • Facilitating openness to constructive feedback without emotional bias;
  • Encouraging teamwork, networking, responsiveness, ethical, emphatic and social thinking;
  • Outcome-oriented, and able to reach compromise between different interests, without the lack of the ability to take decisions.
     

Knowledge of management, communication, conflicts and culture management and negotiation skills are important, not only in relation to customers and suppliers, but also in relation to facilitating the necessary interactions and processes internally (e.g. liaise between management, procurement, sales, legal and finance).

In short, to have a competent and proactive contracting function requires the resources, knowledge, skills and abilities, right social poise and motivation to create the most value of the contracted relationship [9].  Improving contracting is not only about improving the customer/supplier relationships, but also the international relationships among business functions to create a smooth, lean contracting process.

 

References:

  1. IACCM Buy and Sell Contract Management Curricula
    http://www.iaccm.com/development/online-learning-programs/curriculum/
  2. IACCM Contract Management Body of Knowledge – Buy Side
  3. APICS Certified Supply Chain ProfessionalTM Learning System, Module 3:  Managing Customer and Supplier Relationships, page 4.
  4. “Business Conduct Risk:  How Risky are Your Contracts?” by Briefcase Analytics, IACCM Ask the Expert Call 12-9-2010.
  5. International Standard ISO 31000, Risk Management – Principles and Guidelines, 1st edition, 2000-11-15.
  6. IACCM Benchmark Study, 2011.
  7. “What is Project Management?” from the Project Management Institute website.
  8. A Hard Look at the Soft Side of Performance” by Kate Vitasek and Tracy M. Maylett; CSCMP's Supply Chain Quarterly, Quarter 4/2011.
  9. On the different parts of the competence to do and the sub-elements, see e.g. Le Boterf, Barzucchetti and Vincent (2003). On proactive behavior see e.g. Kaisa Sorsa (ed), Proactive Management and Proactive Business Law (2012).

ABOUT THE AUTHORS

María Arraiza-Monteux is the Capability Building Program Manager at the DuPont Contract Manufacturing Center of Competency, based in Wilmington, Delaware. In her current role, María defines standard work and designs the learning and development program for the global contract manufacturing staff.  Over her DuPont career, María has held manufacturing and technical roles at several manufacturing plants in the United States, Puerto Rico and France, and has been improving supply chains in the specialty and industrial chemical sectors since 2000.  María holds a Bachelor of Science degree in Chemical Engineering, and she is fluent in Spanish, English and French. 

René Franz Henschel is Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark. His area of research is Contract Law, Contract Management and Proactive Management and Proactive Law. He has contributed to chapters in The International Contract Manual (Thomson Westlaw) and the IACCM Contract and Commercial Management – The Operational Guide. He is consultant to companies and public procurement organizations on how to implement best practice Proactive Contract and Commercial Management and software systems to support the relevant processes and activities.

TO CONTACT THE AUTHOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 
 
 

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