The foundation of an outsourced business model is a “contract,” which defines the obligations, rights, liabilities and promises between two parties. The true value and success of an agreement is measured not at contract signing but in the post contract phase, which accounts for over 90 percent of the time spent in the overall sourcing lifecycle. Contract management is essentially a set of processes to manage the agreement when action, negotiation, monitoring, review or tracking, are required. This includes contract interpretation, high-level financial review, review of proposed new charges, management of circumstances that require approvals, authorizations, consents and notices, and management of correspondence. Broadly put there needs to be due emphasis on operational, management, as well as control aspects. In the beginning, the contract provides alignment of the Buyer’s expectations and requirements, and the service provider’s performance. However, over time the two begin to diverge as the goals of both parties tend to take on more natural business characteristics. Therefore, contract management is an important function alongside financial, relationship and performance management.
We are entering 2009 with a global economic situation where the financial and liquidity crisis, increasing unemployment rates, and associated long recovery period are looming large on most minds. In a recessionary environment, there is often a delay in decision making on long-term contracts due to the associated uncertainty and also a tendency to take a closer look at the existing contracts. The added pressures on both sides due to difficult economic environmental conditions tend to amplify the degree of divergence. The obligations, interpretations and resolution are evaluated thread bare at both ends. This in turn makes the contract-management function even more critical and will tend to be in strong focus during the current times.
Customer imperatives. Buyers will want to ensure that:
- The provider is delivering on their commitments under the contract
- There is no value leakage
- There is realization of anticipated business case
- Their SLA and pricing are market competitive
- There is enough flexibility and control baked into the contract
- There is greater provider productivity
- The processes are defined to ensure contract delivery and relationship governance
- There is adequate assessment and mitigation of risks
- There is solution orientation from service providers.
Going forward, there will be enhanced emphasis on some of the contractual clauses like Right to Use Third Parties, Termination for Convenience, Termination for Change of Control of the Service Provider, Termination for Cause by Client, Termination for Cause by Service Provider, Termination Assistance, Compliance with Laws, Limitation of Liability, Intellectual Property, Disaster Recovery and Force Majeure, Savings Clause, Step in rights, Right to hire, Multi Service Provider co-operation, Audit Rights, and Contract Change Management to name a few.