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The complexity and volume of contract drastically increased globally in the recent years. Some of the causes that can be attributed to this include globalization, out sourcing, intense competition for existing markets as well as complicated and numerous partnership. Over the last fifty years many, of the world’s largest firms have advanced from being simple manufactures of hard goods, or providers of basic services, to being sophisticated vendors using advanced business models. This means that commitment of customers and suppliers to contractual obligations has increased, thus, the need for sustainable contract management polices (Krappe and Kallayil, 2003).
The contract management process is now increasing in importance as contractors and suppliers become virtual extensions of the buying organization. Organizations are increasingly relying on critical services and production contracts as their key to maintaining competitive advantage, the organization’s competence and process capability in contract management is now more important than ever. Some organizations are using process capability maturity models to assess, measure, and improve critical core processes, such as software development and project management. Although, the application of capability maturity models to the contract management process is just beginning to emerge as a best practice (G. Rendon, 2006).
Contracts are the basis for all activities in every enterprise and in almost every department of an enterprise. Having no contracts means there are no employees, no clients, no IT systems, no material and no partners. However the mere presence of a contract is not sufficient. It is the content of a contract that determines the future of an enterprise: What will my enterprise have to pay for and how much wills that cost me? How much will we receive or what are our expected deliverables? How will I work together with my partners? Are there any risks or (unknown) opportunities related to the contracts? When will the contract terminate or in which circumstances can it be cancelled and when? (Mockler, 2010).
Still, (2005), argues that contracts are the life blood of the modern business. Without this vital legal glue, entering into arm’s length commercial deals would be fraught with peril yet for medium to large sized organizations contract management brings challenges of its own. This means that in order to rely on contracts, managers must ensure that their terms and conditions are largely defensible. According to the survey by the international association for contract and commercial management of 2008, there are fewer high value global contracts coming to the market and an increasing number of ‘second tier’ companies entering the market and seeking to secure smaller but potentially more complex contracts.
Contract management presents opportunities that allow the contract manufacturers to achieve improved optimization through changes to production, process or organizational strategy. In addition firms, investing in project organization often do so in order to become flexible adaptable and customer oriented towards achieving efficiency in service delivery (Lind, 2008).The National Audit office (2008) indicates that focus is frequently placed on the procurement process itself than the implementation of the contract yet it is only after the contract is awarded that the benefits of the procurement process can be realized. Contract management if well-handled has the ability to decrease costs and improve service delivery, (South Africa: Contract Management Guide, 2010).
The success of contract management is largely influenced by what happened during the tendering and contract award phases, the terms and conditions that have been agreed and the type of relationship between customer and supplier (The National Audit office, 2008;Rendon, 2006). The UN practitioner’s handbook (2006) indicates that each contract is unique from the other and as such must be handled distinctively. The objective, the resources to be used, the start and end dates, coordination and planning of activities as well as the documentation because each contract process vary greatly.
Rendon (2008) contents that contract management is a key activity in the procurement process. He observes that one of practices involved would be conducting among research to collect and analyse information about how a specific industry or sector process contain types of products and services and the best ways of ensuring that customer needs are delivered and met timely in order to create efficiency in service delivery system. Such information would include contract strategy, type of contract used, pricing arrangements as well as terms and conditions with a view of ensuring service delivery efficiency.
The Contract Management guide (2010) observes that practicing good contract management has the capacity to decrease costs and enhance service delivery thus guaranteeing the quality obtained. Responsibilities for managing service delivery must be clear and appropriately apportioned between the organization’s contract manager and its service provider’s representative for attainment of effective service delivery (UNOPS Procurement manual 2010: the UK Office of Government Commerce, 2008). This helps to evaluate whether or not the provider is delivering the project or services or goods specified in a timely manner, in the quantity required and ensuring that the quality of the services provided are up to standard, (Sigma, 2011).
According to the contract management guide (2002), contract management is one of the most important project management and time management techniques. It involves preparing a sequence of steps to achieve some specific goals. Management of a contract provides a strategy for an organization to plan on how to meet the needs of a specific customer’s and also to improve on its level of service delivery. For contract between two parties provides a platform for project strategy. Arto et al, (2008) define project strategy as a direction to a project that contributes to success of a project in its environment. They interpreted direction in this context to mean either one or several of the following; goals, plans, service deliveries, means, methods, tools or governance system and mechanisms.
New regulatory requirements, globalization, increasing number in signed/awarded contracts and their complexity have resulted in an increasing need to put more emphasis on the importance and benefits of effective contract management, (Abadeen group, 2004: Elsey, 2007). After an organization awards a contract it must monitor to ensure the service is being delivered as specified. This implies that the service has been provided as to the agreed standards and price. Protiviti, (2009), argues that not having a formal, well defined and documented contract management process in place can have significant long term impact on the organization’s ability to track and monitor service delivery as well as meet stakeholders expectations. Accordingly, stakeholder involvement is fundamental to the effective planning, monitoring for efficient service delivery for each contract.
Contract management is important in ensuring service delivery processes and involves; contract planning, monitoring, stakeholder involvement, performance assessment and records management (Australian National Audit Office, 2007;IAPWG, 2006). It encompasses various activities that need to be completed on a day-to-day basis, including: developing and maintaining contact details of key people involved in the contract, scheduling meetings and other actions required by the contract, delivery and acceptance of goods or services, making payments, maintaining complete records for the contract itself, and establishing and maintaining contract documentation.
Oosterom(2007) argues that the overall goals of service delivery must be clearly understood; quality of service (the accessibility, timeliness and quality of service levels); cost of service (value for money obtained); and customer segmentation (the need for different service channels and service offerings based on comprehensive customer insight).When parastatal bodies contract a vendor, they remain responsible for ensuring the work is performed satisfactorily and government funds are used appropriately. Accordingly, the parastatal body is responsible for the consequences of poor performance whether the agency or a vendor provided the service/project or goods as agreed (Hinton, 2003). The parastatal bodies thus must see to it that service delivery is monitored closely through effective contract management to foster achievement of contract deliverables as agreed.
