IACCM © 2015, 2020 1

Creating a Contract Management Plan

1 Introduction

Welcome to this module on Creating a Contract Management Plan.

Purpose of this Module

Successful business outcomes from complex contracts depend on formal, proactive contract management, which requires the creation and implementation of an effective Contract Management Plan.

It sometimes seems that many people believe that once a detailed contract has been signed, the delivery and project management teams will get right to work and deliver according to the contract. This rather naïve and simplistic viewpoint assumes that everything will go well, and in that context, why do we even need Contract Management? This viewpoint also often assumes that the complex, clever parts of the contracting process are the pre-award tendering and negotiation phases, and that the post-award contract management phase is rather straightforward, and less glamorous.

However, the reality is that signing a contract really creates no value for any party. It is in the post-award contract delivery phase that value is won or lost. For anything other than the simplest contracts, value will only be secured through proactive management. This is partly because of issues of translation and communication of requirements and obligations, and partly due to the effect of changes in requirements and circumstances over time.

Sometimes, procuring organizations take the view that contract management is something that should be done by the supplier, and the results reported by the supplier. As we move through this module, it will become clear that this reactive, rather than proactive, approach will be unlikely to ensure delivery of the business outcomes we need. Effective contract management requires participation of both the customer and the supplier.

As you review this module, bear in mind that there will be different requirements for contract management plans depending on the complexity of each contract you consider. A simple, short duration contract for the supply of commodities may not require a detailed contract plan, but rather the application of some simple contract management disciplines. However, if you are responsible for a major contract with complexity and perhaps strategic significance to your organization, you will need to apply the principles in this module more fully.

Also please remember that although the organization you work for today may not be dealing with complex contracts, this course is intended to help create the capabilities required in an advanced contract

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and commercial professional, and that includes the ability to apply the principles in this module to relevant contracts.

Learning Objectives

This module provides guidance on best practices in creating a Contract Management Plan.

Let’s take a look at the learning objectives of this module. By the end of the module you will:

• Be able to create a Contract Management Plan that will enable you to maintain and improve business outcomes throughout the life of the contract

• Know how to use the plan to maintain and improve value • Be confident in using the Contract Management Plan to effectively manage risk

2 Key Principles – Return on Investment from Contract Management

Before we get into the detail of our research into best practice in contract management, it is useful to review a few key principles that you should apply. It would not be unreasonable for a Managing Director or Chief Executive Officer to ask, ‘what return on investment do I get from contract management?’ In other words, contract management has a cost, and if it is to be performed well, it needs investment in sufficient resources to do it properly, to a highly professional level. To get backing for this investment, and to enable us to convince executives of the value of the activity, it is helpful if we as contract management professionals think and act with a ‘return on investment mindset’. So, try to approach the rest of this module with this perspective, and keep the following principles in mind:

• Think of contracting as a process for quality control • Aim to eliminate errors and defects • Segment the process to identify sources of value • Think in terms of both efficiency and effectiveness • Recognize that the biggest source of gain or loss is in post-award • Measure the process – but focus on the outcome • Gather sufficient data to gain executive interest • Supplement with external data as required • Focus on root causes and, where possible, indicate possible solutions • Recognize that this will transform your role and status – be prepared

Consider too where the costs of your services will be allocated and who will pay the bill. In some organizations, contract management is a centrally applied overhead; in others, it may be viewed as part of the ‘cost of the contract’ and paid by the business unit or project cost. Understanding who is your paymaster – and the decision-maker regarding your services – is extremely important. You must ensure that the paymaster is getting regular visibility to the value you are providing.

3 Causes of Poor Contract Outcomes

It seems logical that if we know the top issues that cause contracts to deliver poor outcomes, then our contract management plan should proactively set out to address these issues and ensure that the outcomes from our contract will at least meet expectations, and perhaps even exceed them. So firstly,

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you must be clear about the critical business goals and secondly you must ensure that you are on top of the issues that could derail them.

Before we discuss those issues, let’s see whether you can identify them. What do you think are the top 5 issues that cause poor contract outcomes? Choose the correct answers from the list on the slide.

How did you do?

The top 5 issues that cause contracts to deliver poor outcomes are:

1. Unclear scope

If the scope of the contract is unclear or uncertain, we are likely to have disagreements and perhaps disputes with our customer and suppliers. We may find our costs rising as we uncover the true cost of what was actually needed, and the danger is that delivery or service completion will be delayed, while we work out where the gaps are and how to fill them. What measures can you put into your contract management plan to verify, validate and keep current the contract scope and contract baseline?

2. Poor change management

Frequently, even if the scope was clear and agreed at the time of signature, conditions change over time and confusion or disagreement can creep in. Does your plan address this probability? Requirements change, the environment changes, the business situation and markets change, the drivers and motivations of companies change. Companies make acquisitions, divestitures, and partnerships. Key people leave, new people take over. The only certainty is that there will be change! What can you build into your contract management plan to anticipate, plan for, review, commercially manage, and even prompt change, to ensure that the outcomes of the contract will be as expected, if not better?

3. Value leakage and margin erosion

The business case before the contract is signed sets out the reasons for entering into the contract, in value terms. For a buyer, this might be expressed as delivery of certain products by a date that will enable onward sale to end customers, or incorporation into a project or solution for the benefit of an end customer, or perhaps provision of a service that will save costs or enable value added services to an end customer. For a supplier, the business case is likely to be expressed in terms of the revenue that the contract will generate, the profit that will be earned on the contract to deliver a return to shareholders and other stakeholders, and perhaps an improved relationship with the customer, leading to other sales opportunities in the future.

Value leakage and margin erosion are the names given to what happens when the outcome is disappointing compared to the business case. Value leakage and margin erosion can take the form of higher than expected costs, lower than expected income, reduced sales and revenue, and a lower than expected overall return on the investment of resources made.

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What measures can you build into your contract management plan to monitor that value is not leaking, margin is not eroding and the return on investment will be at least as good as anticipated in the business case?

4. Payment disputes

Relationships are not improved when payment disputes take place, which they commonly do, and these disputes can also be a huge drain on resources, by absorbing management time and diverting attention away from where the focus should be, on the key issue of ensuring delivery of the expected contract outcomes! So, it’s important to decide in your contract management plan what steps you will take throughout the contract period to reduce the probability of payment disputes. This might include regular review meetings to pre-approve invoices, based on work completed and progress made, clarify spend and activity or resource levels, and ensure that invoicing procedures and instructions are very clear to all concerned.

5. Poor understanding of risk

The fifth top issue that causes poor contract outcomes is poor understanding of risk. We’ll talk more about risk management later in this module, and there is also a separate module in this course, which focuses on this key activity. For now, please make a note that your Contract Management plan needs to include those activities you will carry out to identify, assess, manage, mitigate and avoid risk. And remember that an uncertainty with a potential positive outcome is called an opportunity, and your contract management plan should also set out how you will review, seek, capture and capitalize on opportunities to improve the outcome during the lifecycle of the contract.

4 Post Award Contract Management – The Six Focus Areas

IACCM’s ‘Most Admired Companies’ survey of almost 10,000 contracts, procurement and legal professionals worldwide, identified the organizations most admired for the quality of their contract management performance.

Having identified these companies, interviews were conducted with the top nominated firms, to develop a comprehensive illustration of best practice in the area of post award contract management. It was found that relatively few companies excelled on an enterprise basis – illustrating the fact that contract management is not at this point viewed as a cross-enterprise capability. Additionally, it was clear that ‘excellence’ applied to certain aspects of their operation and not to the entire process.

Among these top performers, there was a high degree of consensus on the areas of performance that are most important. The resulting research report identified the best practices and categorized them into the six key focus areas you see here. Those six key focus areas were:

• Developing effective working relationships between buyer and supplier • Requirements definition • Performance management • Change management • Measurement and service levels, and • Transition

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It follows that to have a highly effective contract management plan, we’ll need to give consideration to each of these key focus areas, and we’ll discuss that during the course of this module.

5 Developing the Contract Management Plant

What should be in the contract management plan?

The Contract Management Plan must be designed to support successful delivery of the desired results. It therefore addresses the resources needed to ensure objectives are met – people, processes, systems. The level of detail required will depend on the nature of the project or activity being addressed. For example, if there are well-established pre-existing methods or tools, these may simply be referenced by the plan. On the other hand, if the nature of the agreement requires innovative or non-standard approaches, it may be necessary to include detailed direction and instruction.

Therefore, the first step in developing a plan is to assess the nature of the contract and the extent to which it varies from established norms. For example, does it require people or organizations with specialist skills? Does it require variations from established business process? Does it fit within existing systems and methods, or require new or amended applications, or perhaps manual handling?

Developing the Plan

A well-developed plan creates the framework for communication to all those affected by the contract. Your analysis of standard versus non-standard implications is therefore critical in determining the extent of that communication and in identifying who must know what.

A second essential element is to ensure there is clarity over the critical success factors. For example, if the contract is for development of a convention center with a non-negotiable opening date in 18 months, it is essential that your plan is designed to reflect that priority and does not confuse or divert participants from that key objective.

The Framework for Designing your Plan

The first key point is to have an early and orderly set up of systems to manage the spend and performance relating to contract provisions. This will save considerable time and resources going forward, by minimizing the need to be constantly reactive on contract related issues, while keeping on top of performance and contract expenditure.

The second key point is to have a communications plan. Many contracts fail because people are unaware of their role or obligations, or there is little visibility of performance until things are going wrong. Therefore, it is essential to consider how information will flow and how to ensure the information provided is relevant and easy to understand. You need to ask questions such as ‘Who will receive this information?’ ‘What level of technical, reading or language skills do they have?’

Modern technology is transforming our capabilities in communication. It is essential to think creatively and to disseminate data or information efficiently. For example, should you send a long document and trust everyone will read it, or should your communications plan be structured in a way that makes information easy to find? Should your communications be in written form, or perhaps graphical – for

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example, flow charts or drawings? Might you use video or create specific apps? Is the plan in hard copy or available on-line and on-demand? How will it be updated and how will those update in turn be communicated? Who has rights of update?

6 Elements of a Contract Management Plan: Part I

The slide indicates a range of elements that should be considered for inclusion in the plan. Your assessment of their relevance and the extent of detail will be based on the two criteria just mentioned – that is, the extent of standard versus non-standard approaches and an understanding of the critical success factors and their impact on risk and resources. Each element should also be reviewed to determine a) who needs to know about it and b) how it will best be communicated to them and how their responding or performance data will be captured to support on-going review and management.

These management aids or “tools” may include:

• An operations manual or contract guide for distribution to the contract owners and implementation teams

• Roles and responsibilities matrix, or RACI matrix, naming those who will support the contract management effort (RACI by the way is a way of setting out the different roles and inputs of different people and RACI stands for Responsible, Accountable, Consulted or Informed)

• A contract management planner or obligations matrix that notes key dates and activities

• A tool to monitor contract budget and spend

• A change control register and process

• A risk register and risk review process (see the separate module on Risk Management for further details on this)

• An issues log for issues that may or have become risks, disputes or other problems

• A lessons learned log for continuous improvement and spreading best practice among your colleagues

• A log of key decisions made (for example, decisions approved or signed off by the customer, concessions made, relaxation of rules, interpretations of requirements, and so on)

• A goodwill log to document rights you have in the contract that you have chosen not to enforce, perhaps in return for a concession from your partner, or to maintain a good relationship, but which you should receive at least recognition from your trading partner, and perhaps something more concrete later, for example to use as a defense against any later claims or disputes

• A filing structure for contract documents, and accessibility for those who have a need to know

• Contingency and business continuity plans

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• Service improvement plans

• Subcontract management plans and templates

• Contract and subcontract negotiation summaries

• Arrangements for exit planning (more on that later in this module)

• Correspondence logs for tracking important contract and subcontract communications

• Contract copies, including electronic access, for those who need accessibility and tracking of the contract copies

7 Elements of a Contract Management Plan: Part II

You will also want your contract management plan to include the setting up of all necessary contract procedures. Some of the items you will want to consider for inclusion are the following:

• Performance tracking and reporting, KPI dashboards, SLA monitoring and quality reviews

• Financial management processes to document the spend control, forecasting, invoicing, revenue recognition, pricing and authorization procedures

• Internal change control procedure, including response times and RACI responsibilities

• Contract change control process, including external procedures

• Any relevant process maps between customer and supplier for the provision of services

• Complaint / issue escalation process and dispute resolution procedure

• Resource management process

• Subcontract and supplier management process

• Communication management process, including key customer and supplier contact details

• Document and records management process

• Deliverables management and acceptance processes

• Intellectual property management process

• Governance management process

• Facilities management process

• Meeting planning and procedures including terms of reference, attendance list and standing agenda for customer/supplier meetings and client stakeholder meetings

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• Warranty tracking

• Close out process

We mentioned the CM Planner under the heading of ‘systems’, the purpose of this planner is to ensure that you are on top of the contract, ensuring that both supplier and client perform ALL their obligations under the contract, that all scheduled activities happen on time, and that you are prepared in advance for complex contractual activities and transactions, such as managing benchmarking and exit.

You will find a checklist of all these points in the attachments library for this module, to help you in ensuring that your contract management plan includes all necessary items for a proactive successful contract management process for your contract.

8 Contract Handover

Let’s now consider the importance of having an effective transition from pre-award to post-award phase or contract handover process.

All the most admired companies interviewed perceive the transition from the negotiation phase to the implementation phase as a key period in the contract performance lifecycle and most endeavor to ensure some continuity of personnel.

The notion of an efficient transition process goes back to project management fundamentals. Organizations facilitate the process from clear requirements to a clear plan of action by engaging in project management activities. Some examples of the activities include a standardized approach to interpreting the signed agreement and communicating it within the group, and then defining the deliverables in accordance with the objectives before finally translating this into a project plan.

The plan provides clarity into resource allocation for managing specific segments of a contract.

Some of the best in class organizations also conduct reviews to ensure clear integration between strategy, procurement, contracting and contract management, prior to the final approval of the contract. Conversely, some organizations are very objective focused (performance-based terms) and specify much less detail in the contracts.

Some organizations use tools to identify resource requirements to support perceived workload, while in others the contract manager is responsible for creating a strategy, establishing principles for succession planning, individual development and requirements for category knowledge.

Continuity of personnel is commonly agreed to be desirable, but most organizations struggle with this in reality (due to issues of availability and scarcity of appropriately skilled resources). It is common (though not universal) to distinguish between ‘capture’ and ‘execution’ teams. Various methods are employed to address the challenges that this creates. Two areas stand out:

• The importance of consistent leadership has been recognized as a critical success factor in a number of studies, including several by IACCM. Most of the participants understand the importance of continuity and endeavor to achieve it.

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• Early involvement by the post-award team is also understood to increase the probability of success. It reduces internal disagreements, reduces the likelihood of ‘blame’ and increases the speed and accuracy of implementation. A minority of participants employ the same core contract management team across the life cycle. For others, the timing varies, but it seems generally agreed that introduction of the post-award personnel some 4 – 6 weeks before signature has a significant beneficial effect.

There is a big issue of knowledge transfer and communication inherent in the transition process. If we imagine a contract for a major complex project which has perhaps been through many months of tendering process, and a whole series of negotiation meetings, it is clear that much has been said and much has been written prior to the point of contract signature. Each party to the contract will have an interpretation of what each part of the contract means. Hopefully, these interpretations will be close, if not identical. We know from experience though, that different interpretations may be held, and different interpretations may develop after contract signature.

It is clearly of vital importance that the team who ran the tender or proposal process, and negotiated the contract need to give a thorough briefing to the team who will manage the contract implementation and delivery phase, assuming that these are two different teams (which is true in many organizations). One way of achieving this kind of detailed briefing is by assembling both the pre-award and post-award teams of your organization together (virtually or otherwise) and carrying out a thorough review of the contract that has been signed. Each person should have their own copy of the contract, and the pre-award team should lead a page-by-page review of the signed contract, allowing the post-award team to review each contract clause and each paragraph of any Statement of Work, Service Description, SLA and other schedules. Have somebody present who can capture all the key highlights of the contract, including the business goals of both sides, their drivers, the scope, requirements, active and passive terms of the contract, performance measures, consequences of non-performance, change procedures, reporting, governance, milestones, subcontractors, risks and opportunities. In particular, don’t forget to tease out the opportunities in and around the contract, this viewpoint is easily overlooked, but is a key part of this review.

The verbal explanation is more important than handing over documents, since the interpretation and history of how we ended up where we did in negotiation is key to understanding risks and opportunities which need to be managed during contract performance.

Although this transition process may seem like a big burden in terms of time and workload for all concerned, it is absolutely critical to the outcome of the contract management process. Without it, opportunities will not be registered, and therefore not be acted on, and the whole post-award contract management team will be operating with partial information, and will therefore be easily out-maneuvered by the other side, assuming they have a higher level of understanding and knowledge of the project and the lead-up to the contract signing.

In the attachments library, you will find templates for contract briefing sessions and for analysis of active and passive terms, which you may find helpful as a starting point for your own transition activities.

Consider carefully who needs to know what within your organization. This could include a wide range of people from different departments and functions, and it’s important not to miss anybody who is key to a successful outcome.

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Once completed, the output from your transition meeting/process will provide a valuable briefing tool for onward communication of the contract and related conditions to all those with a need to know.

In summary, best practices in transition include:

• Having a standardized approach to interpreting the signed agreement and communicating it within your group or organization

• Holding reviews to ensure clear integration between strategy, procurement, contracting and contract management, prior to the final approval of the contract

• And using tools to identify resource requirements to support perceived workload

9 Stakeholders: Part I

Developing effective relationships is one of the six key focus areas for excellence in contract management. As such, this subject should be considered and included in the contract management plan.

The link between contract managers and relationship managers is an area that varies. In some top performing companies on the buy-side, the contract manager is also the relationship manager, especially if the supplier covers multiple business divisions or projects. However, this is not the case in the majority. It is however universally understood that the contract manager has a major role in relationship management, and it is expected that they will have regular customer interface at many levels. All the most admired companies actively encourage the development of contract management interfaces and disciplines in their trading partners.

In order to develop successful relationships, contract management needs to be viewed as a process which is adopted consistently across the different business units or regions within your organization. This consistency will lead to the contract management process being viewed as a professional process which adds value to the organization in a predictable, high quality way, rather than, for example, relying on the skills of one or two talented individuals. Similarly, contract management needs to be executed as a team effort, with consistent roles and authorities, both within contract management and across other groups and functions. If successfully executed and ‘sold’ to the organization, there should be an increasing investment in contract management as it is seen as assisting knowledge transfer and management.

10 Stakeholders: Part II

The first question to ask is: who will we (or should we) have a relationship with that might impact the successful outcome of this contract?

And this question obviously looks beyond the mere contract document itself. To ensure a successful outcome for our organization, we will need to consider all the factors that could lead to success, and indeed all the factors that could get in the way and cause us to fail to achieve our expected business outcomes.

You need to understand how bringing this contract to a successful outcome is going to affect people, both in your and your customer’s and/or supplier’s organization. You can use this knowledge of how individuals may be affected, and their views on that, to support a goal of information sharing across the relationship components and in subsequently developing trust.

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Without such understanding from all the stakeholders involved with a particular customer or strategic supplier, superior results and competitive advantage for your organization will not be achieved in the long term. You must be the catalyst who promotes the willingness for all to be engaged and learn as the contract outcome is delivered; this requires you to ensure that the contract, the customer, or the inclusion of a supplier as a strategic partner, is accepted internally and does not hinder the development of the relationship; this will only erode trust.

Further, you need to consider is “who is a stakeholder”? Simply put, a stakeholder is anyone who may be affected by the program that will deliver the contract outcome. They are the people with whom you need to have a targeted communications plan (communications planning will be discussed later). You need to ensure that you understand what issues or activities that these individuals undertake, may be affected and altered by your progress towards the contract outcome.

Having understood who the stakeholders are, it is important to then map each stakeholder with regards to their ability to influence, their mindset and their attitude. You need to consider levels of interest from stakeholders in your contract and the extent of their ability to exert influence (or power) over the contract program. You can then map where in four different quadrants at a high level you would classify your various stakeholders. As you move towards a “High Interest, High Power” quadrant, so the quality of the relationship you need to maintain becomes key to your success in the contract management role. These individuals are your key players and need to be kept engaged to help facilitate the meeting of your contract management goals.

For each individual in the ‘High Interest, High Power’ quadrant, you should consider identifying them not just by name, but by their role, level of seniority, their location, the business function that they represent, their style of work and the business processes that they either manage or can affect. This then starts to form the basic knowledge required to engage these individuals which will allow you to work with them more effectively.

In addition to the basic knowledge that you have accumulated about your stakeholder community, you should also look to gather the following information where relevant, especially for your key stakeholders:

• What issues or perception points are important to these individuals and groups in the short, medium and long-term? This will give you a picture of how to transition cultural attitudes, in addition to being able to react quickly to the changes that these people are driving.

• What programs and projects are on their radar screen? This keeps you informed and allows you to maintain the confidence of your stakeholders, as they understand you have knowledge of their business environment.

• What risks and benefits are of concern or interest to them? Again, this shows willingness on your part to become involved in understanding their work environments and offers you the opportunity to contribute to bringing solutions to them.

• What do stakeholders need to know from and about the organization to do their job? You can then become a conduit for information flow to these people and groups as well as potentially help align them to the supplier community who can deliver solutions, services or products that help meet their targets.

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11 Stakeholders: Part III

We have been discussing the key players, people with a high level of power and influence over your goal of a successful contract outcome. Another way to look at this is to consider the impact of the contract program on the stakeholder community and then consider the importance of each member of the greater stakeholder community to the success of the contract program.

The four groups are shown here. Those with little importance to the program and who may only be slightly affected still need to be managed, and the most effective way to achieve that is to consider building their awareness of what you are trying to achieve. The people in this group will then at least feel included and can help support you in your goals. They may even move from one group to another through a role change or amendment to business processes. Therefore, their importance to or the effect of the program on them will be clear to them, as they have been communicated with.

Those in the keep informed group are unlikely to have significant importance or effect over your contracting goals but they may be significantly impacted by any changes that you instigate to the way the contract is managed. Keeping them informed helps mitigate the possibility that they become despondent through lack of knowledge as to what is happening and attempt to undermine the benefits that the contract will bring. Similarly, the “keep satisfied people” also need communication, and beyond just being kept informed as to what is happening, you need to ensure that they are also satisfied since these people are important to your success.

Finally, there are the key players as previously mentioned. These people are powerful stakeholders who can become allies and champions and as such can become a valuable asset. They can substantiate the case for change, reinforce messages, change incentives and accelerate any needed behavior changes.

An excellent way to think about the stakeholder community is to consider whether a person is at risk in any way (both positive and negative) from any changes you are implementing as part of the contracting process. If they are, then they are probably a stakeholder, so you should consider their attitude. Are they proactive, reactive, indifferent or hostile, whichever they are naturally predisposed to will guide the way they react towards you?

Next, think about the process that you need these stakeholders to go through. If you are in any doubt as to their attitude, it is better to assume that they do not support the goals of your contract program. Having made that assumption, or even if you know that they do support you, assume that their understanding is non-existent, minimal, or could be enhanced. You can then look to persuade them of the aims you are hoping to achieve, so that they can see the value in what you are trying to do. If you can show them the value, then they will become supportive. So, your goal is to move all stakeholders from a position of not supporting you, to one where they become supportive of your efforts.

In addition to that considered in the previous slide, there are three other areas that you should focus on. The first of these is influence. Influence is an estimate of the individual’s organizational power to make change happen. The sponsor of the contract initiative may, for example, have the power to mandate the change in practices or processes required to implement the contract (e.g., high influence), or a business leader may be a stakeholder group's mentor and influences that group's behavior (e.g., medium influence). So, the greater their influence, the more targeted and specific your communications should be.

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Next, think about their concerns. Look to capture insights about what the stakeholders concerns are in relation to the contract program. These concerns may be quotes from conversations you had with stakeholders, or they may be your best guess. But these will inform the knowledge you have of how to act and communicate with that person. It will allow you to find the most effective means of moving them towards supporting your contract management goals.

Finally, what does the stakeholder have to gain or lose from the implementation of the contract? If a stakeholder has something to gain, it can motivate that person to become supportive. However, if stakeholder has something to lose, then you must think about how to turn a negative into a positive, think of ways to minimize the loss, or minimize that person's ability to prevent changes from occurring.

In addition to understanding and prioritizing your stakeholders, also consider “where” in your organization the stakeholders are. The “where” in this instance meaning where hierarchically do they sit; where geographically are they located; in which part of the organization (sector, division, business unit or location) are your stakeholders working?

You may be in a large and complex organization across multiple industry sectors, numerous divisions and business units, producing in several hundred manufacturing locations and selling in many countries. Each of the business units may have their own procurement function and stakeholder community. Therefore the “where” of the stakeholder is very relevant in the stakeholder map -- you may have to contemplate time differences, cultural differences and so on. So, defining and clarifying the intricacies of the stakeholder community is of utmost importance for the success of the contract program.

Make sure you elaborate on the different functions that need to be considered as stakeholders and specify further any “other parties” after your initial review of the quadrants previously discussed. The other parties or required functions in your stakeholder community depend very much on the type of business you are in. In a manufacturing company for example engineering, production and quality play an important role; in an IT services company you need to consider important project, or service line managers, partner management and sales.

12 Pause for Thought

We’d like to invite you now to pause the presentation for a few minutes, and write down, for your own action plan, a list of stakeholders on your own project or business area, identifying which are key stakeholders. You can then carry this forward into your contract management plan and decide how best to address each of your stakeholders. Press pause now!

13 Requirements Definition

Given the complexity and speed of change affecting many contract relationships, the organizations we surveyed highlighted the difficulty of establishing accurate requirements. They also indicated the need for post-award teams to review requirements during transition and ensure responsive mechanisms for continuing review and update throughout the contract lifecycle

While recognizing the importance of such discipline, the maturity of organizational approach varies significantly, and many companies admit that they have difficulty in replicating success in this area.

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Obtaining thorough and accurate requirements definition supports effective resource planning and provides clarity of the responsibilities of each party involved in the contract (including sub-contractors). The quality of this process for both parties often requires deliberate steps to be taken by the contract management function to ensure seamless alignment between the business strategy and the deliverables of the contract through its developmental phases.

Best in class organizations have checklists or guidebooks to assist contract managers in obtaining detailed and precise definition of requirements and then to undertake regular reporting and review to ensure that needs and deliverables remain aligned. Such reviews are typically undertaken with direct involvement or visibility to senior management.

Other practices observed in best practice organizations included:

• Having dedicated personnel to handle requirements of special customers (for example US public sector customers)

• Engaging legal in the requirements definition phase by routing it through an assigned attorney, to minimize subsequent delays or roadblocks

• Avoiding fixed price contracts for projects where the requirements have not reached maturity

• Ensuring that “Make vs. Buy” business cases from Procurement feed into the requirements definition

There are three issues in particular that we can highlight as critical in today's requirements gathering process. One is volatility, a second is technology, and the third is inclusiveness.

The point about volatility is that business needs and conditions are constantly changing. Therefore, it is in many cases illusory that requirements will ever be complete or reach 'steady state'. Therefore, the gathering and validation process never ends, and contract management processes and plans must acknowledge this reality. By enabling a controlled and disciplined process to manage change, we can avoid the confusion and contention that comes with rigidity.

The point about technology is that we must recognize not only that it has dramatically affected the nature of requirements (and expectations of users), but it can also be used to streamline and bring quality to our requirement gathering and validation process. Web-based systems can simplify outreach; they enable polling and 'crowd sourcing' to establish both needs and priorities. And the right system can offer instant feedback on whether our initial requirements were in fact correct and met needs.

The final point – inclusiveness – builds on the previous two. Because of rapid change and the availability of web-based tools, our process can be (indeed, must be) far more inclusive of the wide range of stakeholders. Gone are the days when Procurement can act as a barrier between user and provider. Instead, they must facilitate and manage interactions between them. The alternative is for Procurement to take complete accountability for getting requirements right – and that would mean measures that punish them each time they are wrong.

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These brief ideas can be considered for inclusion in your contract management plan, with the aim of improving the quality and accuracy of requirements definition.

Requirements Definition is not an easy activity. It requires working very closely with customers, using communication and technical skills to surface underlying business needs that might be addressed by a solution. One of the dangers is to go straight to a solution, with an inadequate understanding of the business problems and fundamental needs of the customer. Requirements analysis is an explorative and iterative process.

Solution Requirements may be divided into “Functional” and “Non-Functional” requirements. Functional requirements specify what the solution must do. Non-Functional requirements refer to additional Technical and Operational and Performance requirements for the solution to be implemented and supported, but do not by themselves characterize the underlying business problem or opportunity to be solved.

Requirements should also be prioritized during the analysis process. This is typically achieved by categorizing and weighting each requirement with customer input and the cost-benefit ratio of the requirement. For example, requirements can be categorized into ‘must have’ (a ‘show stopper’), ‘preferred’ (which have demonstrable benefits), ‘optional’ (requirements which have minimal benefits) and those which should be categorized for cancellation, because they are costly or have no impact or benefit.

Non-Functional requirements encompass all the qualities that the solution must have for it to be usable, fast, reliable, secure, and attractive to users. During this stage the team will identify, group and prioritize this wide range of requirement types.

14 Measurement, Service Levels and Performance Management

Metrics matter in business performance. The better a company’s system for capturing and reporting relevant metrics, the more its operational performance improves.

It has been recognized for a long time that robust metrics stem from an understanding of what must be measured to achieve effective outcomes. Best practice organizations have a standard and structured Performance Review process throughout the life of the contract. They constantly monitor contracts with high criticality and complexity, broad scope, and longer duration to ensure they are delivering value as intended. Most best practice organizations also have a structured contract audit process which periodically reviews the health of each contract against their objectives.

Besides audits and periodic reviews some other practices include an internal customer survey sent periodically to a select group of customers: a short questionnaire that explores for example turnaround time, quality of the product, responsiveness of the team to determine the customer’s level of satisfaction. Another best practice is identifying key drivers of shared value, after the alignment of goals between the two parties is observed. Then reflecting the drivers in the contract and further ensuring performance against those drivers by both sides.

Another concern gaining significant interest among contract managers is having a clear measurement of Contract Management added value. One organization has a shareholder value analysis team assess the

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value of commercial and contract management to clients. It gathers value stories of instances in which a Contract Manager adds value. These stories are published periodically and reviewed by the company’s CEO’s and COO’s. We will look at some potential KPI’s of contract management success later in this module.

Avoiding having too many metrics is important and a tendency by some organizations to ‘measure everything’ is seen as at best a distraction, and at worst a source of disruptive conflicts.

15 Communication: Part I

Communication is about informing others of a position, a message, knowledge, a requirement for action, an emotion. But communication is also a two-way process, it is about ensuring that the information imparted has been received and understood as intended. So, effective communication must be described as a two-way activity.

People in organizations are not without emotion, feelings and perception. They are not machines that just go to work and do a job, so you need to realize that no matter how good you believe the contract management program will be, you will need to sell the idea to others before any necessary process change can happen. This is because change and developing the buy-in and acceptance of change is often heavily dependent upon human behavior.

We discussed earlier the role of stakeholder management and we explored the principles of stakeholder analysis, defining who cares, who is at risk from change, what their motivations are and how to map the different people into different management styles. It is at this point that communication management starts to be of interest, as you need to begin to design a communication plan that addresses the different perspectives of your audience. You need to have good understanding of the differing expectation, views, context and issues that concern the various groups within your stakeholders. So, you will need to design a plan that gets your messages via the appropriate channels to the various people and groups.

Another way of looking at communications management is to think about the known start point, the intended end point and the outcome that needs to be achieved. If we think about any of the individuals, we are communicating with about our contract management goals, the start point is to assume that they are unaware of the program and its intentions. This assumption allows us to initially frame the message within a context that is appropriate to each stakeholder and therefore making it more relevant to them than if it were just a generic mail shot or broadcast message.

Having placed the program within the context that is familiar to that individual, you will begin to explore hypotheses with them, such as the possible effects that the contract program would have on them, their work, their business processes and so forth. The fact that you have discovered different effects will result in choices being made by both yourself and that individual which results in some form of action that needs to be taken, potentially by you, potentially by the stakeholder.

Whichever that is, the outcomes of those actions needs to be understood, this means you need to explore how to receive feedback so you can determine if the outcomes initially proposed have been achieved, and if not, or if they are different, then you may need to go round the cycle again. You will need to redesign and explore each segment accordingly until the outcomes you are looking for are realized and

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understood by the stakeholder community, address their concerns and support their activities and business processes.

So, a powerful contract management communications strategy is about setting a direction for the way in which the organization interacts through the contract with its customer, suppliers and internal departments, so that corporate decisions, missions, visions, actions and behaviors are focused on creating business success.

16 Communication: Part II

Let’s look at your communications strategy in a bit more detail.

Communicating the business context. This requires you to summarize the key facts about the areas of the business included in the scope of the contract program. As mentioned earlier in this module in the communications cycle, you should look to provide context for each stakeholder and to highlight both the challenges and the opportunities that the business faces. You should include the contract value proposition, how the contract will support the various business ecosystems and the main external drivers from the strategic customers and suppliers themselves.

This should result in a clear expression of the strategic value of the contract and how you will support and facilitate that through the contract management process. This is about explaining why you will succeed in fulfilling and growing your contract management goals and outcomes. Ideally, you should initially identify no more than one or two aspects of your ambition, in order to not overly complicate the messages, you are providing your stakeholders and prevent them from becoming confused or concerned. This is a critical part of the communication strategy and should define the focus of the contract management effort, which should be used to drive the business’s ability to deliver competitive advantage.

Business capabilities: This will require a description of the change in business capabilities that will be needed to support the contract program, a move towards information sharing, improved governance, commitment to long term thinking and so forth. Then outline the gaps between what exists currently; maybe there is a lack of governance, and the required capabilities in order to be successful. Examples may include the ability to collaborate across the organization, the ability to determine required product development, the transparency of performance metrics or even a basic understanding of who has a relationship with which suppliers.

Finally, contract management contribution. This is an explanation of how contract management capabilities and plans will contribute to business success. This is the contract management equivalent of the corporate mission and vision statements. This section specifically connects contract management activities to articulated business success and business capabilities. It represents the "elevator pitch" as to how contract management adds value to the business.

We now understand the purpose and importance of effective communication, the need to recognize that you are taking those you are communicating with on a journey, that you need to have a plan that addresses differing issues, concerns and is essentially recognizing that a one size fits all approach is unlikely to work for everyone.

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17 Six Stage Communication Plan: Part I

A good communications plan will have different steps that you need to think through. Here we shall present the outline of a six-stage plan, taking you through the requirements to be thought through and developed at each stage. The six stages are, in summary:

1. Define objectives and priorities 2. Identify and prioritize your audiences and stakeholders 3. Different messages for each audience 4. Communication channels 5. Plan and sequence the communication 6. Evaluate and measure success of communication

In the following slides, we will look at each of these six stages in turn.

18 Six Stage Communication Plan: Part II

The first thing that you need to do is define your objectives and priorities. What is it you are trying to achieve with your communication plan? If you are uncertain of your outcomes, if you are unsure what the end goal looks like, then it is not worth beginning a communication exercise, as you will simply confuse those with whom you are talking. So be clear in your objectives as clarity of thought provides for a convincing argument. Consider how your outcomes for contract management align to corporate strategy, will build competitive advantage, will minimize disputes and conflict with your customer and suppliers and how the contracting process might bring beneficial changes to business process and delivery to your customers.

Having defined your objectives, identify and prioritize your audiences and stakeholders. Understand who is affected, involved and the extent to which that occurs.

This all forms part of the prioritization process, but you also need to not only think in terms of prioritizing the importance of people but also in terms of the order by which you will address and communicate to people. Do you need to speak to your key players first, or maybe an initial broadcast message is better? That is for you to determine.

In stage 3 we begin to think about the different messages that we will create and communicate to each audience, as they will have differing levels of interest, depth of involvement and impact on our ability to successfully implement our goals. Generally, the outcome of any communication is that we want these groups to respond in differing ways. And for each we have different needs when it comes to:

• What we want them to feel • What we want them to know • What we want them to do

These three actions, feeling, knowing and doing, are the basis and reason behind most business communications. If they are a key player, you may want them to know about the reasons for contract management and this contract, and therefore you have a need for them to do something and you will design a communication that plays to that requirement. Maybe as a Key Player you just need their

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continued support, or you want them to become an advocate, a champion helping to sell the contract program or the inclusion of a customer or supplier as a strategically managed entity.

For the build awareness group, maybe you don’t need them to do anything, but you do need them to know about the plans, and to feel that their views are respected and welcomed, that they will not be alienated by the contract program. The same thinking needs to be considered for all stakeholders, so for each group, remember to always think about these three actions; knowing, feeling and doing.

19 Six Stage Communication Plan: Part III

The fourth stage requires you to consider the communication channels that you intend to use or that are available for you. It may be that a face-to-face conversation is not applicable, or even possible. It may be that you are communicating to multiple people. So, which of the following channels might be most appropriate in each case?

• Face to face, both formally and informally • In a workshop • By email • By phone • At a hired venue • By post • Through printed material such as newsletters • Via notification on a corporate intranet, and so forth • In formalized governance sessions, departmental meetings, operational reviews

And also think about whether you are the appropriate person to undertake this task. It might be more appropriate for you to have a senior sponsor or executive communicate a message if that carries more weight.

So, in stage 4, consider the best way to reach your audience and get your messages across. Identify the channels that can be used, and those that should be used to communicate different information. And then make sure that you consider the risks they face and may prevent them from achieving the desired objective and also the requirements that must be met in order to then achieve that objective.

The last two stages are about planning and sequencing your communications and then evaluating and measuring the success of your strategy. So, what do we mean when we say planning and sequencing communication?

What you are looking to achieve is that the right set of messages and communications get to the right people at the right time. Your contract management program is going to take some time to implement, and once implemented, you will then be entering a long-term relationship process which is going to require substantial communications management on your part with your stakeholders. So, you need to consider how you will bring everything together in a strategy that incorporates a coherent and timely action plan.

The kinds of thoughts that you must consider at this stage include:

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• When will each communication happen? So, you will need to look several months into the future to determine the appropriate order by which stakeholders will be approached and the messages you will deliver to them.

• What activity are you looking for them to undertake after your communication has happened. Which of the three ideals (knowing, feeling or doing something) do you want them to respond to? This will help you design and structure the interaction.

• The purpose of the message is also important. It helps you explain why you have identified a need to talk to any stakeholder in the first instance.

• Who will be communicated to in what order? Will you speak to key players, before those in other quadrants?

• How will they be communicated to, so will you be formal, informal, by phone, by written media. This will vary the style of the message that you need to put across as you need to consider how each of the stakeholders will react to different approaches.

• Who will be responsible for the communications activity, is it you or will you have someone else undertake it? Will you use key players who have positively responded to your plans, or maybe even the executive sponsor of the contract program?

• Finally, begin the process of designing how the effectiveness of communication will be evaluated.

The final part of your six-stage communications plan is going to be the evaluation and measurement of your success. At this point you need to think about how you will determine whether you have achieved your objectives, whether the communication plan that you devised has worked or whether you need to rework any element of it. Did people understand the information you were trying to put across? You can split this part of the process into three areas.

The first is to consider the communication activities themselves. Were the methods that you chose effective, could you have engaged with the stakeholder community in any other ways? What evidence can you gather to support that and allow you to determine the relative effectiveness of the different methods utilized? These considerations become part of your lessons learned for future communications projects.

Next consider whether the objectives themselves have been received and understood by the audience in general. Are they becoming aligned to the views that you have put across? Do they understand both the purpose of the contract management program and are they now actively working with you and supporting those objectives? As before, think about the evidence that you can gather and report to show support for this. And then add that to your lessons learned and future planning.

Finally, think about the key players and the high priority stakeholders. These are the ones who will truly help to drive your program forward. Have you moved them through the journey of being unaware of the program to now actively supporting it? Are they now your champions? And then as before what lessons can you learn from the way in which you have engaged with these people?

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A successful communication strategy is about understanding what it is you want to say, why you need to say it, then making sure that it is conveyed to your audience in an effective manner that allows them to understand and act upon the information that they have received.

We have investigated the cycle of communication, taking people from a position from where they are unaware to where you have hopefully transitioned them to becoming a supporter or champion of your contract management plan. This is primarily because, regardless of how much you are bought into your plan, you need to sell the idea to others -- you can’t automatically assume that they will be on board and support you. They need to understand why it benefits the project, the company and contributes to the organization’s success and competitive advantage.

The plan should consist of a number of stages, from defining your objectives and priorities, through specifying your communication channels to providing the right sequencing to the activities.

And finally, the most important aspect is making sure that you check for feedback, to make sure that your objectives and activities have worked, provided the information in a way that is clearly understood and allows you to deliver the contract management outcomes for your company.

20 Contract Administration

Contract administration is easily overlooked, and easy to underestimate in importance, but is absolutely vital to a successful contract outcome. Contract administration ensures that we are able to document, retain and retrieve key data, facts and information in a timely way, so that we can professionally and commercially deal with changes, disputes, decisions, issues and escalations.

Our contract management plan needs to include full consideration of what excellent contract administration will mean for our contract, and how it will help facilitate a positive contract outcome.

Among other factors, we’ll need to consider where, when, what, how and for how long, to file key documents, correspondence, minutes of meetings, change notes, procedural documents and so on, and what systems, technology and processes we’ll use to do this.

These requirements will be heightened in organizations that operate under highly regulated regimes, for example under operating licenses, or banking regulations, but are also critical to commercial success in non-regulated organizations.

Effective contract administration also has a key role in enabling retrieval and analysis of performance data and metrics, for use in ‘lessons learned’ and sharing best practices information with colleagues.

Since over 80% of business communication is done electronically by email, you need to devise a strategy for ensuring you will be aware of all relevant correspondence that may have significance for management of the contract and the contract outcome. Ensure your colleagues in other functions understand the implications of such communications and copy you in or seek your advice in some cases before conducting sensitive email correspondence.

Seek legal advice on the need to retain records for a certain period of time; what records must be retained for legal purposes, how long must they be kept, which must be kept in a secure environment (and safe

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from fire, flood, and so on) and how will review and archiving or destruction of records be carried out, when appropriate? Also consider these requirements in respect of partner companies, third party channels and suppliers/subcontractors, where applicable.

21 Risk Management

There is a separate module on risk management in this course, so we will not spend too much time on the subject here, except to mention that your contract management plan should include an outline of your approach to risk management to ensure the contract outcome is secured, and you may wish to include the following aspects in your plan:

• Tools and Techniques • Risk register template • Risk management steps including: Identification, analysis, assessment, allocation, and

mitigation of risk • Risk treatment options • Risk action plan

22 Exit Planning and Preparation

When should exit be considered in the contracting process? The answer is that exit must be planned from inception. There are many reasons for this. For example, needs may change, and could lead to termination of the contract ‘for convenience’. Or changed needs may mean that the service is no longer needed, or that a new supplier with different capability is needed.

Aside from termination for convenience, there may be a termination for cause, a breach of the contract by one side or the other. And in any event, the contract term may simply expire, or the contract is performed in its entirety and comes to an end.

Your contract management plan should include considerations you’ll need to make around exit planning, and in the case of an outsourcing service, transition of the service back to the customer or to a new service provider.

For example, you’ll need to plan for a discussion on what assets and intellectual property are involved. Who owns them? How can we ensure smooth exit, and transition to the next contractor? Who needs ownership of intellectual property, or license rights that give what is needed? It’s important to think about what continued rights to use are needed, and what incentives are required to ensure all parties behave well and appropriately in exit, transition and handover.

This checklist should help you to identify the key points for your contract management plan. Make sure you have considered:

• What happens when this comes to an end? • What do we do with the people? • What do we do with the assets and IP? • How do we safeguard our ability to transition? (for example, licenses, access to facilities or

assets)

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• What are the obligations of incumbent to support transition? • Do we have to run another tender for a follow-on service? • What information would we require for such an operation? • How do we safeguard service to the end of the contract? • How do we maintain a competitive option? • How can we create a feedback loop of learning to take to new projects? • Where would such information be recorded and disseminated? • How do we go about closing out the contract?

23 Summary

Conclusions: Contract Management Resources

As will have become clear from a review of this module so far, doing contract management to a professional level will make a huge difference to delivering a successful contract outcome. And as will also have become clear, doing it to that level is a sizeable task, and requires sufficient resources to be allocated for this purpose.

In some organizations, the cost of contract management will be included in the project cost of major bids and proposals, so that when the contract is won, the resources are built into the profit and loss estimate for the project. For smaller projects, contract management may be viewed as an overhead cost, and the resource provided by a centralized contract management function or shared service center.

Either way, in these times of increasingly competitive markets, and subsequent cost pressures on organizations, it is important that executives recognize the value of contract management and support its continued existence through application of sufficient resources. We must guard against contract management being viewed as a fast way to save costs, by moving people off programs or out of the organization.

Part of your contract management planning should be to estimate the resources required to perform contract management activities over the lifecycle of the contract, and at a level which will ensure the contract outcome. A resource profile should be produced, showing the level of resource needed in the early days from before transition, through the life of the contract, right up until completion of the exit process and contract close out procedures.

Seek executive sponsorship and support for your plans and make your case on a ‘return on investment basis’, clearly demonstrating the value contract management brings, and how it will be critical to ensuring successful outcomes.

End

This concludes our Module. Please take the time to complete the Module Feedback.

Once you have completed the Module Feedback, we recommend that you go to the supplementary materials to review the additional information.

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A Module Test is available for you to take in order to check your understanding of the material or practice for the Certification Exam. The required pass rate for all Module Tests is 80%. You may take this test as many times as you wish: please allow 24 hours between each attempt.

Once you have passed all the Module Tests with at least 80% you will be invited to take the Certification Exam.