Too many organizations in the world still do not have a solid contract management program in place. This often pulls hidden risk into the business -- risk that can be easily avoided. Just becoming aware of this and being willing to take protective measures is an essential first step in the right direction.
True, in some countries the profession of contract manager (CM) is widely recognized. Both public and private sector organizations have been developing and sharpening their contracting and commercial management processes for some time. Many companies, for example, have been mandating formal CM training and certification for their CMs.
But think about many areas of the world where contract management does not exist or is incipient – just starting. Essential training is not done or well understood. Organizations lacking contract management would not know what can happen if CM is not practiced -- like value leakage that slowly drains your profit.
First, what is contract management (CM)?
The International Association of Contract and Commercial Management (IACCM) defines contract management as “a discipline that supports commercial management through the implementation and oversight of legally enforceable performance commitments, both outbound (to the market) and inbound (from the market). It converts commercial policies and practices and technical capabilities into specific terms and conditions that are offered to or required from its suppliers, customers or business partners. Through active monitoring of performance needs and outcomes, contract management informs commercial management with regard to actual and required commitment capabilities, together with their financial and risk impact.” 1
Which organizations need contract management the most?
Contract management is more suitable for medium to large organizations that have one or more of the following requirements:
- if you sell or buy complex services or goods that align with any of your internal processes, like project management, delivery, finance, legal, implementation, and company policies;
- if your contracts need global alignment, either because you have affiliates in various countries, or you provide services to organizations that have global presence;
- if you have recurrent commitments within the contract that require follow-up -- like renewals, notification requirements, legal compliance;
- if the complexity of what is delivered might cause confusion during its implementation in regard to what is or is not in scope.
- if the operation of one or more areas will depend on the outcome, stability, and/or service level of the purchased goods or services, and if it is also important to administer its renewal, and/or administer its demand as your organization grows.
- if you could leverage the hiring or selling of master agreements and simplify add on sales with pre-agreed prices, and/or work order templates.
Problems are well known – here are two
Lack of risk awareness - You cannot perform contract or commercial management unless you know the risks and how to prevent them. IACCM’s recent research2 of more than 12,000 organizations worldwide, revealed a major finding -- that companies, on average, could be generating over 9% improvement in their revenue if they tackled the commercial issues that commonly undermine contract performance.
Lack of clear scope and goals that normally would be defined in the contract has been proven to impact around 40% of projects and is the most frequent source of claims, disputes and disrupted relationships. A contract manager involved early in a solid CM process will likely prevent this from happening and could reduce the cycle time stated in a signed contract by around 20%. This would result in an estimated 25% fewer claims or disputes.
Solution – Discover how to execute a solid contract management program
The IACCM offers a service for, Transformation: Operating Model and Organization Design3 to develop a best of breed operating model for the specific requirements of your organization. It is based on the best practice experience developed over 10 years of global research and successful client projects. Its goal is to deliver holistic and interoperable solutions across the whole organization.
If your Company hires or offers complex services or goods that need coordinated interaction of multiple areas, you will benefit from implementing contract management. If you have a global reach or are established outside the U.S you might want to consider corporate membership and CM certification. The IACCM offers an online certification program in English4 and is about to launch a certification program in Spanish.5
Get CM certified – it’s available
IACCM6 has a worldwide focus with more than 50,000 members from 173 countries and offers a comprehensive online certification program, and certification exam. Global multinational companies that are IACCM members require their contract managers to be CM certified to standardize the CM practice throughout the organizations and get the associated benefits.
The U.S. Contract Management organization (NCMA),7 founded in 1959, has more than 20,000 members, but is focused on U.S. commercial and Federal Acquisition law. The role of contract management is executed in government and their contract managers must be certified. As a consequence, big entities selling to the government have put the same role into effect. NCMA does offer the exam for CM certification, but certification training is offered by education partners -- most focus on Federal contract management (fewer on commercial contract management).
ABOUT THE AUTHOR
Hildegard Tuch, Engineer in Cybernetics, College degree in Law, MBA, Master In Commercial Contract Management; Contract and Commercial Professional Certification from IACCM; and IACCM Council Member representing Mexico, is a Mexican Global IT Contract Manager, with more than 17 years of experience in IT Contract Management.
- What is Contract Management, IACCM, https://www.iaccm.com/about/contract-management/
- Ten Pitfalls To Avoid In Contracting, IACCM, 2015
- Transformation: Operating Model and Organization Design, IACCM, https://www.iaccm.com/services/transformation-operational-model-design/
- Contract & Commercial Management (CCM) Certification Program, IACCM, https://www.iaccm.com/training/contract-management/
- Certificación en Gestión de Contratos de la IACCM en idioma español, Pablo Cilotta Director, Southern Europe, South and Central America, IACCM, Jul 11, 2017
- International Association of Commercial Contract Managers (IACCM) Site, https://www.iaccm.com/
- National Contract Management (NCMA) Site, https://www.ncmahq.org/