The importance of good contract management cannot be overstated.
Contract management acknowledges the competitive process that resulted in the awarded process and guarantees the supplier follows the negotiated scope and specifications throughout the life of the contract. Good management also ensures they meets the right pricing and delivery standards to obtain the full value of those negotiated terms.
For contracts not managed directly by procurement, purchasing should provide adequate training to the department handed this responsibility. And if the contract has issues or changes – for example, if the contract manager retires and a new person takes over – they should provide follow-up training and documentation of any changes. Below, we’ve outlined three key components of good contract management.
Supplier and agency must clearly understand the terms and conditions, scope of work, and specifications of the project. Often, procurement professionals lead and conduct a solicitation process, and then a dedicated bid response manager from the awarded company prepares the proposal.
Occasionally, the awarded contract is then handed off to the entity’s contract manager and a company supervisor who may not have been involved in that initial process. For this reason, all involved parties must understand what is expected under the contract terms.
Both sides should review the outlined specifications and scope of work, and the vendor should submit required insurance certifications upon contract award and each renewal year. An eProcurement solution with an Insurance Certification Management module that allows direct upload of certificates and automatically notifies all parties when expiration is imminent, like PlanetBids, can help streamline this process.
Any mention of labor compliance or pay standards should be clarified, and mandated reports should be submitted within the deadlines. This is a key part of the contract administrator’s role and responsibility.
If any issues arise, the contract administrator should handle it directly and document any findings and remedies. If the issue goes unresolved or causes potential liability for the organization, then it may be prudent to involve procurement, legal, and management personnel in an ultimate resolution.
Fiscal oversight is an important part of any contract management process, including reviewing invoicing to ensure it matches contract pricing. Any inconsistencies must be addressed immediately. Simply paying invoices with no periodic audits, assuming that all is correct, can leave agencies vulnerable to overcharging or waste. Many times, suppliers have different pricing for different customers (i.e. government clients vs. retail clients), and it’s important the entity receives the correct pricing per their contract.
The contract may require the awarded company to track costs through accounting codes provided by the government client. For instance, if the police department orders office supplies, and later that same week the City Clerk’s office orders similar supplies, each order should be charged to the appropriate department. Delivery points are also important, as delivery mix-ups or misaligned billing can cost a department valuable funds.
Finally, some contracts have rebates, which should be calculated accurately. The purchasing entity should be able to gain information on how those rebates were calculated and how they are paid.
What was contracted for is exactly what should be delivered, and any special needs or terms that were negotiated should be met. Meeting the specifications is the overarching rule of the contract. Contracting for one product but suddenly receiving another product in its place is a contract violation. Unless the exception is approved by the entity, then the contract terms must be met.
Quality and quantity control are also important. For example, if a contract calls for 5 cubic yards of wastewater treatment chemicals to be delivered every week, and only 2 cubic yards are delivered instead, treatment plant operations can be disrupted. Making timely deliveries is important too. If the contract calls for next-day delivery upon an order’s acceptance, then that's what it means – NEXT-DAY delivery.
Periodic audits and inspections are effective ways to monitor a contract. Whether comparing a bill of lading on an invoice to the contracted price list or meeting the delivery truck to examine the products being delivered to ensure they meet the outlined specifications, every contract should have some type of quality control.
If procurement led the initial solicitation process, it might conduct periodic customer surveys to ask if the awarded contract is fully meeting the using department’s needs. Written or oral feedback can often identify issues or help procurement better understand if changes need to be made in the existing contract or in future solicitations.
For instance, if the agency has an expectation that the supplier respond ASAP in the scope of work, but the timeline isn’t specifically defined, then this point can be open to interpretation. One person’s understanding of ASAP might mean within the next hour, while another’s interpretation is that a 24-hour response is adequate. Clarifying the terms so that there are no ambiguities is important to both project delivery and the supplier-agency relationship.
The goal of good contract management is to ensure the terms are met and the full value is obtained, which can only happen if all parties fully understand the requirements of the contract. Utilizing an eProcurement system with a contract management module, like the PB System™ from PlanetBids, can help streamline the management process and ensure quick review for reporting and auditing purposes. Learn more about how PlanetBids can help streamline contract and vendor management for public agencies.