IMFO • Winter 2009 28

However, a study by Aberdeen Group and GCN found that creating, managing, and controlling compliance to supplier contracts are the greatest challenges faced by organisations in the public sector and is having an adverse affect on the breadth and quality of government services.

Related Aberdeen research revealed that ineffective control and management of supplier contracts cost private sector businesses $153 billion per year in missed savings opportunities. In light of the emerging state of supply management operations within the public sector, it is safe to say that the government is also losing billions through mismanaged contracts each year. Further to this poor contract management is hampering efforts to monitor the delivery performance of contracted services and products.

The problem is that currently most public sector organisations are plagued by disjointed, paper intensive contracting and procurement processes, none of which are integrated with other organisational systems. Public entities can hold more than 2,000 supply contracts with more than 10,000 suppliers. Contracts tend to be stored both online and in file cabinets, and most suppliers have multiple contacts with each entity. Such factors make it challenging for the organisation to quickly access supplier contracts — let alone manage them.

Limited visibility into contract performance also results in diminished negotiation leverage, inflated costs, missed rebates and savings opportunities, overcharging by suppliers, low rates of compliance to non-price terms and conditions and greater risk of regulatory violations.

The solution lies in the use of an enterprise Contract Lifecycle Management (CLM) solution to effectively and efficiently streamline contract creation and the management process to greatly reduce the effort required to monitor the delivery performance of contracted services and products. The utilisation of such a solution will also enable the organisation to standardise contract procedures department wide, develop a central repository for all contracts, “activate” or “embed” contract terms within the software of online transaction systems, track compliance more often, devise performance metrics and, likewise, embed them in transaction systems and improve automation of the contract management lifecycle

The result is that by employing such systematic and automated procedures for the management of supply contracts for example, the organisation will immediately reduce material and administrative costs, shorten contracting cycles, optimise contract usage and controls and diminish operational and regulatory risk.

A sound contract management infrastructure will also greatly improve the value and return on investment (ROI) for existing supply and IT initiatives, such as Strategic Sourcing, ERP, eProcurement, eSourcing and eBilling.

In short, public sector organisations cannot hope to effect supply management improvements or meet regulatory requirements

By: Gregg Barrett, Director, Cylon Technology and

Tim Cummins, President and CEO, IACCM

Bringing procurement and administration costs in line and getting a solid handle on contractual obligations, ensuring compliance, addressing governance and performance measures within each government department, and across departments, are currently major goals of public organisations around the world.

Gregg Barrett

29 IMFO • Winter 2009

without addressing the critical area of Contract Lifecycle Management. The international examples abound, success depends on standardising, integrating, and leveraging contract operations department wide, as well as adopting an integrated organisation-wide contract lifecycle management philosophy. Regardless of jurisdiction, all government agencies would be well served to tackle the contract management challenge that they are facing. The reason: An organisation’s ability to effectively create, manage, and control contracts is the primary driver of value.

Further to the implementation of Contract Lifecycle Management solutions many public and private sector entities are establishing dedicated Contract Management functions. Although the naming conventions vary from organisation to organisation from “Contract Management Unit” to a “Contract Management Office/Division/Operation” they are in most cases being formed in parallel with the deployment of these solutions.

Aside from being a pre-requisite for the proper discharge of fiduciary responsibilities of directors and management of the modern-day organisation, the function forms the basis of an integrated supply chain management strategy which ultimately provides the organisation with sustainable value.

The Contract Management function in most instances has the responsibility to manage the operational, regulatory and compliance information relating all contracts across business functions, to co-ordinate the ongoing execution of contracts and to provide management with the required analysis to measure the efficiency and effectiveness of the contracts management process.

The initial focus tends to be on overseeing the establishment of a central repository with a standardised library of clauses, terms and templates and a consistent contract methodology to manage all new enterprise contracts, thereafter the focus begins to broaden depending the organisations’ approach to the points below:

Objectives of the Contract Management

Function:

• organisation-wide availability and use of templates and standards;

• consistent procedures for review and approval of variations;

• availability of defined fall-backs / alternates and consistent guidance and reporting systems for empowered users;

• policy statements related to contracting; • clearly defined roles and responsibilities; • training program handbooks; • risk management tools; • market analysis reports;• and other similar documents

In addition supporting information relating to:

• organisational interfaces and management system; • financial analysis related to term options; • relationship segmentation and its correlation with con-

tract negotiation; • communicating procedures to business groups and

how they interface with commitment management resources;

• procedures that set out rules for contract development and drafting;

• interfaces with product development and lifecycle man-agement;

• post-award review and supplier relationship manage-ment;

• people management - consistent framework for training relevant professionals;

• defined career paths; • consistent methods to evaluate and develop skills;

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