Week 4- Contract Management Flashcards
What is a contract?
Is an agreement between two competent parties based on the genuine consent of the parties supported by consideration made for a lawful objective in the form required by law
What are the three types of contracts?
• Spot contracts
• Short-term contracts
• Long-term contracts
What are spot contracts?
Are contracts for one-off purchases where there is no intention of developing a longer relationship with the supplier
What are short-term contracts?
Contracts for routine purchases over relatively limited time period (typically a year or less)
What are long term contracts?
Are for purchases on a continuous basis for a like time period (typically several years or indefinitely)
What should you consider when selecting a long term contract? (4)
• Market uncertainty
• Process or technology uncertainty
• Supplier’s ability to impact costs
• Degree of trust between buyer and supplier
What is contract management?
Is the process of maximising value throughout the contract terms and minimise risk aswell as ensuring that what’s in the contract get delivered
CIPS definition of contract management
“Is the process of systemically and efficiently managing contract creation, execution and analysis for maximising operational and financial performance and minimising risk”
Why is contract management important? (2)
• Organisations facing increasing pressures to reduce costs and improve financial and operational performance
• New regulations, globalisation and increases in contract volumes and complexity shows the importance
What are the 4 phases of the contract management cycle?
• Pre-award (strategy, structure, resources)
• Award (implementation)
• Management (development)
• End of contract (life cycle management)
What happens in phase 1 of the contract management cycle (pre-award)? (4)
• Planning
• Engage with stakeholders (KPI & SLA details)
• Establishment contractual documentation
• Deciding the right approach Meg for the relationship elements of ‘process’
The krajlic matrix
Explain leverage items in krajlic matrix (4)
• High profit impact and low supply risk
• Exploitation of full purchasing power
• Targeted pricing/negotiations
• Abundant supply
Explain strategic items in the Krajlic matrix (4)
• High profit impact and high supply risk
• Development of long-term relationships
• Collaboration and innovation
• Natural scarcity
Explain non-critical items (4)
• low profit impact and low supply risk
• Product standardisation
• Profess efficiency (automated purchasing e.g catalogues, e-tendering)
• Abundant supply
Explain bottleneck items in the Krajlic matrix (4)
• Low profit impact and a high supply risk
• low control of suppliers
• Innovation and product substitution and replacement
• Production-based scarcity
Linton (2017) Proactive engagement-Level of formalisation
What happens in phase 2 (award/implement) of the contract management process? (5)
• Transition/mobilisation
• Activating administration (e.g contract database, accounts, payable)
• Activating performance mechanisms and incentivisation
• Scheduling initial review meetings
• Risk management
What happens in phase 3 (Management/development)? (6)
• Review meetings
• Managing changes/variations
• Dealing with resolving conflict
• Stakeholder engagement
• Supplier relationship management
• Supplier development
What happens in phase 4 (end of contract lifestyle) of the contract management cycle? (4)
• Decide if the contract is required for another term
• Organisations allow enough time for contract renewal or to find a new supplier
• Consider potential ongoing responsibilities and liabilities after the contract date
• Take care of the suppliers and position of your organisations assets
What are the key areas of contract management? (11)
What does effective contract management achieve? (5)
• expected business benefits and value for money are being achieved
• Supplier is co-operative and responsive
• No disputes and no surprises
• A professional and objective debate over changes can be had
• Efficiencies are being realised
Symptoms of poor contract management (6)
• Poor or inappropriate scope of work
• Cost and time over runs
• Conflicts and disputes with stakeholders & contracts
• Lack of compliance
• Critical success factors not identified
• Health and safety issues
Why does a procurement specialist need an understanding of contract law? (6)
• To effectively manage risk in a specific contract
• Use the buyer’s contract terms not the suppliers
• Negotiate clauses where risk must flow to the supplier
• Provide for remedies in the event of a supplier’s breach of contract
• Provide for contract change
• Liaise with legal specialists when necessary
