The 3 best contract management tips that will save you money
Contract management is a vital part of the procurement process. After all, the contract is the final document that will control how much or how little you will save yourself. The issue with contract management is that it is a constant process. You should never set your contract down and let it collect dust. That is a sure-fire way to lose money.
Public sector procurement is constantly changing and evolving. There’s been far too many horror stories of contract mismanagement that lead to a school losing thousands of pounds. Take the example one SBM shared on Twitter of how they thought their hygiene services contract was supposed to run for 5 years. Notice wasn’t given on the contract, so it rolled over for another five years, or the school could pay 75% of the remaining contract to exit!
Moral of the story – always review your contract.
1. Document any and all changes to the terms of the contract
Change within a contract can be the result of several factors, these can include:
- The needs of the school changing
- Economic trends affecting the viability
- Change in strategy/objectives of both parties
Ensuring that those changes are listened to and properly executed upon for both you and your supplier is paramount. Document all changes to the terms of the contract to ensure that both parties are up to date. For example, if the number of IT support visits changes, this must be reflected in the contract – if you are changing the scope of the contract for any reason, make sure to go through the formal contract amendment process or these changes will be invalidated.
Make sure to follow the proper contracting procedures laid out within your school, so that all changes are recorded to the correct standard. Maintaining a spotless contract helps highlight your expertise in the field.
- Do not assume that your other contracting party is complying with updated contract terms. If only one party is aware of the changes it can cause chaos for your school.
- If you are a multi academy trust, there is also an obligation to follow the procurement rules/the Academies Financial Handbook.
2. Maintain a healthy working relationship
When a contract is awarded to a supplier, there is a commitment to work together well. That commitment may last a long time, so it is crucial to track the contract’s performance and maintain a healthy relationship.
Ensuring that both organiser and supplier can handle constructive criticism when necessary is vital during this process. Over time and with commitment, the relationship should develop into an understanding of how both parties work.
You will also enjoy a better understanding of the supplier as well. This will let you work to their strengths, helping them with their weaker elements by concentrating support there.
Some issues with developing a good working relationship can include:
- No co-operation from the supplier on benchmarking tests when requested by an organisation or school.
- Both parties clashing, preventing a working relationship from developing.
- Commercial problems (for example, an organisation being too dependent on the supplier).
It’s important to assess when a mistake happens. Never ignore the warning signs of poor performance or capacity issues. Tackling these issues and finding a greater outcome is key to building trust. Risk management, just like all aspects of contract management, is a task that should be monitored daily.
It is also important to note that these points relate to suppliers as well. Over-confidence as an organisation can lead to suppliers not wanting to work with you in the long run, leading to a poor reputation.
3. Monitor your targets and KPIs
Monitoring your targets and key performance indicators (KPIs) is the biggest part of contract management. Without it you would not even know if your contracts are saving you money!
Be sure to keep up to date with your KPIs as they are part of the contract’s conditions. Making sure a supplier is matching them is vital for every point we have mentioned so far.
The supplier’s performance through the life of the contract can be measured up against your KPIs as a final assessment. This will let you see if they have helped you meet the standards set for them.
Another important factor is to set up regular meetings with your contractual partner. Through these meetings, you and your supplier can talk through any areas that need improving or celebrating.
The frequency of these meetings can depend on the complexity of the procurement being done. The topic of the meeting can also change to your needs. Some of the more common varieties of contract management meetings include:
- Progress Review meeting
- Technical Review meeting
- Long-term Review/Audit meeting
These meetings are also the ideal way to build and maintain your healthy working relationship.
If you have found that a supplier is not performing to the standard you set for them, there are a few ways you can deal with it, not including the review meetings previously mentioned, these include:
- Agreed upon problem solving procedures, utilising the dispute resolution processes.
- Enforcing the agreed upon terms of the contract through legal action if necessary.
- Terminating the contract and seeking recompense from the supplier.
If an organisation is effectively monitoring their performance, these issues should be identified well before they become a major problem, as long as you act on them promptly and efficiently.
Now that we have covered the top three most important tips in contract management, how do they come together to benefit an organisation or school?
What does good contract management look like?
Managing your contract well enables you to stay informed of important aspects of it. This can be any information regarding compliance that you may need to reference through staying on top of changes as and when they happen.
When it’s time for contracts to expire, you’re allowed to take time when considering any alternatives because the information is neatly laid out in front of you. We also recommend using a Contracts Register.
The role of the contract management provider is to facilitate this relationship, to ensure all parties are meeting their agreed obligations and are not falling short in any of the key indicators and measurements.
What is a Contract Register?
A contract register is a full and comprehensive list of all the ‘contracts’ or ‘purchase arrangements’ that your school is signed up to.
A good contract’s register includes the following:
- A list of the contracts
- Description of what that contract provides
- The name of the supplier
- The start date of the contract
- The End Date of the contract – Whether there are any extension options for that contract for example “contract can be extended for 12 months”.
- Termination deadlines or a number of days’ notice required by each supplier in order to terminate your contract (this is particularly prevalent in energy contracts where in order to leave and switch to another provider you will usually need to serve termination months in advance of your contract end date)
- The annual value
- The ‘whole life value’ (the total cost over the life of the contract)
Through maintaining a contract efficiently, you will be developing a strong relationship with a supplier. One that is built on trust and mutual understanding of each other’s goals.
Ideally, if a contract is managed well, the following should happen:
- Your organisation/school understands its obligations to the contract
- Contract expectations are met
- The supplier is co-operative in all aspects of the procurement process
- Both parties left satisfied/renewing their contract
- Efficiencies and value for money are achieved
Good contract management involves a lot of moving parts that need constant monitoring. However, if your organisation or school can meet those requirements, savings are guaranteed.
Failure to have good contract management and not monitoring your contracts effectively will most assuredly mean that your contracts will eventually fall short of their expectations, and you will run into problems you are not prepared for.
How Education Buying can help
We can take ownership of managing large contracts for you and ensure that both parties are delivering on their contractual obligations.
Education Buying can:
(The role of the Contract Manager is purely from an operational-based view, and cannot provide any legal or other professional advice, such as HR or financial.)
Significant savings and efficiencies can be made by outsourcing this task to procurement professionals. It also takes the pressure off School Business Managers and increases flexibility to meet changing school management needs.
Do you have any other questions regarding contract management?
Our procurement experts will be more than happy to help answer any queries you may have. If you would like support regarding a particularly difficult procurement problem your school is dealing with, sign up now and we will get in touch with you shortly.