Contract management: seven challenges to better practice

Contract Management Challenges

Contract managers right across Australia face difficulties in getting the most from their suppliers. How can we set up our contractual relationships so that the supplier will go the extra mile? Look no further than how we manage our staff and you get an idea of what better practice looks like.

Here is a list of seven challenges contract managers often face and how to overcome them.

Challenge 1: Setting up for contract management success.

Few contracts address transition, meaning suppliers cannot deliver full performance from day one. Yet we know the first 90 days are critical: the wrong processes and behaviours can become the norm and are difficult to unwind.

Include a transition-in project in your procurement documents. Deliverables may include a transition plan, site induction for new staff, implementation of IT systems and data handover from the current supplier or in-house team. Include dates for each deliverable.
Avoid the old and new supplier concurrently delivering BAU services. It leads to finger-pointing and a bad start to the new relationship.
Define deliverables and activities for transition-out, though it may be some years away. Ensure it includes return of IP, including source files for deliverables, asset-related data, contact information, and site-specific information.
Include in your pricing schedule a line for transition-in and-out. Suppliers reimbursed for these activities get them done. Have them they indicate how many employees they will allocate to these projects and ensure a project manager is appointed on their side and yours.
The first 90 days define the new relationship. As contract manager, ensure the supplier is clear on your service expectations and that any interpretations of the contracts are clarified. If the supplier gets away with not delivering exactly what is in the contract in this period, they will get away with it after 12 months too.
The new relationship should be fair but firm. New suppliers cannot be managed through trust alone; they need the opportunity to earn it first. Put them through their paces, test their capabilities and once you have mutual understanding and respect, effort can be directed elsewhere.

Challenge 2: Many contract managers forget that suppliers have aspirations too.

How, then, can they expect a relationship to flourish?

Recognise you each want different things and that this is okay. For example the provider wants to build profits and you want to decrease your cost. You want flexibility to change providers, they want an evergreen contract. Understanding the differences can help incentivise supplier performance.
Do not assume the supplier knows your expectations unless your procurement documents clearly state objectives, critical success factors, and how you will judge performance.
Like employees, suppliers have ambitions. If you find common ground, you can build a beneficial relationship. You may be able to refer the supplier to your network, or provide references or insights into a new service area, or even provide a ‘sandpit’ to test a new service within your organisation.

Challenge 3: We asked 88 suppliers how clients could get more from them.

A staggering number said, ‘return phone calls’. Many clients seem to think communication is optional, or it is okay to do everything in writing.

Establish a governance structure. In smaller contracts appoint a main contact on each side. In larger contracts, establish a contract management group, a relationship management group and operational managers.
Informal meetings allow you to learn about each other, and identify where you can help the supplier.
Never dismiss the supplier’s view; see its validity and build on it.
Treat the supplier as part of your organisation. Seek ideas, and defend them against criticism. Involve them in key decisions

Challenge 4: Today, we are buying services, not goods.

So supplier performance depends heavily on the motivation (and capability) of those delivering the services. Yet procurement too often ignores that a culture of ‘one team’ is critical to superior performance

Remember the supplier and their staff are part of your team. Invite them to important planning meetings and social gatherings. Making them feel part of your team will motivate them to do a better job.
Get to know the supplier. Meet at your premises, but also regularly visit their offices and some of their clients.
Supplier management works just like staff leadership. There is no place for cynicism and their staff will quickly sense if you doubt their ability. As with staff, create a culture of ‘we can do this together’ and show how success can be achieved.

Challenge 5: For some reason, procurement seems to talk to the supplier only once something has gone wrong.

In scheduled meetings, the discussion often focuses on KPIs not achieved.

Don’t talk only when something has gone wrong. Meet regularly, follow a set agenda, and seek feedback about your own performance. Discuss both positive and negative aspects of service delivery on both sides.
Provide accurate, timely, constructive feedback. Base it on facts (ideally measured or validated), not opinion.
Step back at regular intervals during the contract and consider these questions: Are you achieving what you set out to? Is that still what’s required? Are the services still fit for purpose? What needs adapting (including KPIs)? Do this annually to ensure that service delivery reflects what is in the contract and that the contract reflects what the business needs.

Challenge 6: It’s fair to assume suppliers also differ in their maturity, strengths and weaknesses.

Procurement teams often miss this and forgo opportunities to build on suppliers’ strengths and work with suppliers to address weaknesses

Regularly identify suppliers at risk of underperformance, and those that have the biggest opportunities to add more value to your business, including through innovation.
Provide feedback about strengths and weaknesses, and overall performance and development opportunities, and agree on formal development plans to improve performance.
Provide an environment where it is okay to fail so long as a plan is agreed on to achieve the required level of performance.

Challenge 7: Most contracts lack meaningful KPIs.

They are either absent or not linked to incentives that enhance performance.

Add a performance management framework (PMF) in your contract, with overall contract objective, critical success factors, KPIs, and performance standards and incentives. These ‘cascade’ to focus the supplier on the ‘ultimate goal’.
Next identify incentives for supplier performance. These examples can be used in the public or private sector.

This is the last of a series of articles that focus on what can be translated from the world of managing and leading staff to the world of leading suppliers. Read on to explore: