Contracts pave the way for success

Gregg Barrett OVER the past few months, I have highlighted the importance of the role of contract management in the functioning of an organisation. I hope this has made an impact on the thinking of readers and has led to action. For those who might still be unsure about the importance of contract management, consider the following: A major aspect of corporate governance is the integrity with which a company forms and manages its trading relationships. Contracts are the foundation of a modern business they provide the framework by which the organisation manages its relationships between its customers, suppliers, partners and employees. An organisations trading policies and practices are reflected in the commitments it offers or demands from its trading partners. These are typically embedded in contracts. One aspect of good governance is that commitments should be clear and unambiguous. For example, if an organisation has a code of conduct, this should be complemented by its formal contract terms and potential conflicts between them should be eliminated. Companies should undertake not to make or seek contractual commitments that are illegal, unethical, unreasonably weighted against the other side or where there is an incapability or unwillingness to perform. They should have a transparent and holistic review, approval and change procedures for their commitments. Organisations should have defined executive accountability for their contracting policies and practices including clarity over the review, use and recording of confidentiality, nondisclosure and other forms of contractual gagging and regular reviews to ensure that contract terms or practices do not represent an abuse of market or relationship power. Internal business systems and reviews must allow transactional integrity of contracts and relationships and a consolidated view of the portfolio of contracts and relationships entered into by the organisation. This must provide an accurate depiction of the revenue and expenditure obligations and the performance risks associated with the commitments made or received. The organisations risk management approach must be visibly supported by its contract review and contract management procedures. Commitments must be captured, risks of non-performance and the consequences of non-performance must be assessed and recorded, mitigation or elimination approaches must be documented and monitored. On March 4, the White House issued a memorandum, titled Government Contracting, to the heads of executive departments and agencies in the US government. The opening statement caught my eye. It said in part: The federal government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.

This statement resonates with me particularly with all the talk in South Africa about service delivery. It holds true for governments around the world and organisations in the private sector regarding their obligations to shareholders. Having read the statement, these three points stood out: - It is essential that the federal government has the capacity to carry out robust and thorough management and oversight of its contracts to achieve programmatic goals, avoid significant overcharges and curb wasteful spending. - The federal government must have sufficient capacity to manage and oversee the contracting process from start to finish to ensure that taxpayer funds are spent wisely and are not subject to excessive risk. - Government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts to identify contracts that are wasteful, inefficient or not likely to meet the agencys needs and to formulate appropriate corrective action in a timely manner. I think the memorandum should be a template for action by government and privatesector organisations around the world. It could not be more relevant in South Africa with our efforts to address service delivery contract management lies at the core of the effort. What can organisations do for an action plan? Lets look at the findings of the International Association for Contract and Commercial Management (IACCM) PostAward Contract Management Best Practices Study. It included more than 10000 contracts, procurement and legal professionals who were surveyed worldwide and it can be used as a guide: - Establish a defined career path for contract management professionals. - Create and enforce defined pro-cesses for contract review, knowledge management and information exchange and establish compliance mechanisms. - Importance must be given to the transition from negotiation to implementation of the contract. There must also be a continuity of personnel. - There must be regular reporting to executive management, tracking alignment to, and attainment of, strategic objectives. In this environment, executives recognise the importance of contract management discipline. In a keynote address at the IACCM American conference last month, its chief executive Tim Cummins outlined A New World Order in the world of contracting. He said it was driven by, among others, innovation in service delivery redefining the role of the user and the provider, the need for the contracting and negotiation process to enable creative dialogue that reduces complexity and risk thought-enhanced collaboration and innovation and the requirement for the contract to provide a framework for success. He also highlighted contracting principles that focus on outcomes and not boundaries.

These include: - Allowing flexibility in selecting terms and risks - Creating well-defined contract procedures - Writing in clear, plain language - Making a clear allocation of roles and responsibilities - Ensuring post-award management is focused on early warning and risk/gain-sharing - Establishing an environment that is proactive and forward-thinking - Designing a co-operative form of contract that encourages collaboration In concluding, the time for action is now. An organisation can no longer afford to treat contract management activities as an administrative necessary evil. Contracting must be viewed as a strategic value-adding activity that serves as a blueprint for success. ..................................................................... http://tinyurl.com/cquo3w Go to http://edocket.access. gpo.gov/2009/E9-4938.htm (Wright & Fergusson, International Journal of Project Management, March 2009)