Does this sound familiar?

• "We need to buy some widgets from this supplier, and we need them yesterday. Let Procurement know so that they can get a contract in place by Friday."
• "We called this supplier for technical support and they said we didn't renew our maintenance last year. Get Procurement to find out what's going on."
• "This invoice from the supplier is $20K more than last year and it says we have to pay in 30 days. Ask Procurement to take a look at it."

As a long-time procurement professional, I've often felt like my sole purpose was to know where contracts are, when they were going to renew, and what they actually said. This becomes even more complicated when dealing with specialized contracts, like those in IT.

The Role of Procurement in Contract Management

It’s true that Procurement usually is, and should be, the custodian of contracts within an organization. However, that doesn't mean other departments don’t have a critical role to play. In fact, effective contract management requires a collaborative effort across multiple teams.

The Three Phases of a Contract Lifecycle

The life of a contract can be broken down into three key phases:

1. Negotiation Phase
2. Execution Phase
3. Administration Phase

Negotiation Phase

During this phase, parties are negotiating pricing and terms & conditions (T&Cs). While Procurement often leads the negotiations, Legal plays a significant role in reviewing and approving non-standard terms, assessing risks, and developing mitigation strategies.

Execution Phase

Before a contract is executed, the Finance teams for both parties, particularly Accounts Payable and Accounts Receivable, need to understand and prepare for the negotiated payment terms and tax implications.

Administration Phase

Once the goods and services have been delivered and payment has been made, the contract becomes live. At this stage, it must be managed in terms of milestones that trigger payments, renewal dates, and service levels. With technology agreements, IT plays a key role in this phase.

Collaborative Roles in Contract Management

While Procurement is a major stakeholder in all three phases of the contract lifecycle, other groups such as Legal, Finance, and IT are also key contributors.

How to Get Finance, Legal, IT, and Procurement on the Same Page

Unfortunately, the perception within these groups is that they simply need to inform Procurement of their needs and it will be delivered to them. When expectations aren’t met, the blame for poor contract management often falls on Procurement's shoulders.

Building a Collaborative Approach

To develop and maintain a sound contract management process, it’s essential to demonstrate to all departments that they have specific requirements and responsibilities once contracts are signed.

• Finance: Needs to understand and manage payment terms, and be prepared for financial obligations.
• Legal: Must ensure that all contractual terms are compliant and that risk mitigation strategies are in place.
• IT: Plays a critical role in managing technology agreements, ensuring compliance with service levels, and preparing for renewals and upgrades.

Benefits of Effective Contract Management

A well-developed contract management process ensures that contracts are securely stored, easily accessible, and provide a clear summary of their contents. This clarity helps avoid misunderstandings and ensures all departments are aligned and accountable.

Steps to Foster Collaboration

1. Education: Conduct training sessions to inform all departments about their roles in contract management.
2. Communication: Establish clear channels of communication between departments.
3. Centralized System: Implement a centralized contract management system that is accessible to all relevant parties.
4. Regular Reviews: Schedule regular contract review meetings to ensure ongoing compliance and address any issues proactively.

Conclusion

Contract management is not just a "Procurement thing." It is a collaborative process that involves Legal, Finance, IT, and Procurement. By fostering a collaborative approach and clearly defining each department's responsibilities, organizations can improve their contract management processes, ensuring smoother operations and better outcomes.

The next time you think about a contract management process for your organization, remember to avoid the trap of making it solely a "Procurement thing." Instead, engage all relevant departments to build a robust and effective contract management strategy.