Contract Management in Procurement: What Good Looks Like vs What Bad Looks Like
Contract management is the set of activities that take place after contract award to ensure that both parties fulfil their obligations, that performance is tracked and addressed, and that the relationship is managed in a way that delivers the intended value. In practice, it is the function that most organisations underinvest in relative to the procurement activity that precedes it.
In 2022, with supply chain disruptions creating delivery delays and cost escalations on active contracts, the quality of contract management is being tested in ways it rarely was in more stable periods. Here is what good and bad look like.
What Good Looks Like
Good: There is a contract manager assigned for every active contract, and that person has the authority and time to fulfil the role. In many organisations, contract management is assigned as an additional duty to someone who already has a full workload. When the role is nominal, the function is nominal. A contract manager needs dedicated time, clear authority to raise issues and demand remediation, and access to the contract documents and performance data.
Good: Performance is tracked against contract requirements on a defined cadence. For supply contracts, this means on-time and in-full delivery performance. For service contracts, this means service-level agreement compliance. For construction and capital contracts, this means schedule, cost, and quality performance against the contract baseline. The data exists in a system, not in someone's head.
Good: Contract variations are documented and authorised before the work is done. A contract variation is a change to scope, schedule, or price that is formally agreed by both parties. In practice, many variations are performed on the basis of a verbal instruction and formalised -- if ever -- after the fact. This creates disputes about what was agreed, at what price, and who authorised it. Good practice is to document first, execute second.
Good: Contract close-out is treated as a distinct project phase. Close-out includes confirmation that all deliverables have been received, that all contractor claims and invoices have been settled, that warranties and defects liability periods are tracked, and that lessons learned from the contract are captured.
What Bad Looks Like
Bad: The contract sits in a filing system and is only consulted when there is a dispute. If the contract is not regularly referenced during performance reviews, the contract manager is managing from memory and informal understanding rather than from the documented agreement. Disputes are more expensive to resolve the later they are identified.
Bad: Scope creep is accepted without formal variation. In 2022, with supply chain disruptions causing material substitutions, delivery schedule changes, and specification adjustments, the risk of informal scope change is elevated. Every change to scope, even a minor one, should be documented and priced. Accumulated informal changes are the primary driver of contract cost growth.
Bad: Underperformance is tolerated rather than addressed. In 2022, with supply chain disruptions making alternative suppliers hard to find, organisations are more inclined to accept underperformance rather than escalate. This is understandable in the short term, but tolerating sustained underperformance without formal documentation sets a precedent and weakens the organisation's position in any future dispute.
Bad: There is no transition plan for contract expiry. When a contract is approaching its expiry date and renewal or retender has not been planned, the organisation is at risk of service interruption or of renewing on unfavourable terms because the incumbent contractor knows there is no alternative ready.
XNM supports public-sector and capital-project clients in building strong procurement and contract management frameworks. Reach out to XNM's procurement, sourcing & contract management team to discuss contract management for your organisation.