Steps to Take to Stay on Top of Commercial Management in Contract
The pre-contract and post contract need to be as part of commercial management to ensure that the deal that is put in the front of the customer is one that will get sign off by their stakeholders and stay on track. In your company you will also want the comfort that the business case and the senior stakeholders will approve the contract prior to signature.
Pre Contract, commercial management support required?
The proposal in the contract cycle may require confirmation and overall review to determine if there any gaps or contract risk identified by the commercial or contract manager.
1.Proposal or project work order support
Review or check that the number and deliverables match up to what is in scope for example in a proposal or a project work order. There may be additional provisions required to be covered off in to manage the risk where for example of the customer changes the days or months for a project delivery. Equally the proposal should contain any exclusions where if any support or services that are not going to be provided using the proposal template with confidentiality statements.
2. Understand the customer request
If the commercials are based around for example a given budget per country on a multiyear deal the customer has given specific boundaries, then the key commercials need to be based around this.
So, if your standard output taking into consideration take let say any volume spends based on tiers it may be over the actual value then it is unlikely that this will go down well with the customer.
3. Requirements and deliverables
It is important that correct requirements are also captured to enable the contract to function during its term. In case if there are part which are new or existing that require a change this can be adopted through change control. Also the inputs for technical teams and resource planning is going to be key here to ensure that these map to what can be achieved in a given project phase.
4. Service credit impact
During negotiations number of services credits may change up to final version of the pre-contract keep the final figures of the items which attract the levels of service credits. If there is ceiling figure, then try to keep within this take your eye off the ball and you could find this is increased or even doubled in some cases.
5. Draft contract and checks and balances
There may be several different requirements that could impact the service in the contract for example, it is worth engaging the correct service delivery resource or subject matter experts related to supplier performance to review any standard or non-standard requirements during negotiation. If your business signs up to something which can’t be delivered, or it is near impossible due to lack of expertise in a certain area then it is worth removing this part or find an alternative. Once this is complete the final checks then can be carried out by legal teams with any gaps or inconsistencies that need further clarity.
If existing contract template are available to use or where non-standard templates is requested this should be checked with the legal teams to confirm the use of approved documentation to work from and review. Where there is policy on non-standard use of contract terms then it may prove difficult to get internal approval or meet contract compliance. Whilst drafts are being worked on regular contract status updates on the progress may be required. The company may have a existing contract process which must adopted by contracts manager as part of governance and contract creation.
6. Reduced rates etc
The commercials in a customer deal may have items like reduced rates or free days etc, the more reductions which are added all add up. If the items remain as is consider the actual commercials at this stage without the reductions to determine the difference from the original positions to revised position. See if there is alternative way to improve the profit margin.
7. Pricing and business case
Working with the pricing team support make sure that this pricing can be produced in the required time scales. There may be delays which arise from supplier providing pricing back to you, but this will need to be managed. Once the pricing is ready then this can go in the pricing section and any business case which may need approval prior for internal sign off to progressing.
8. Exchange rate
By adding the current rate exchange rate against the pound given by your finance team this will help you to work out the differences in local currency. You may want to record the exchange rate used to agree with the customer if this will be subject to review in the future.
9. Finalizing the documentation
There may a number of drafts which have been worked on including any changes from the legal team and to ensure that the latest agreed version of the document is prepared for signature. The thing to bear in mind is the time frame when the contracts need to be finalized by this is usually lead by the business. If there are going to be delays be prepared to manage these and make them known early on to avoid any delays to the new contract.
What are the activities to manage during post contract?
1. Contract documents
Once a contract is signed whether electronic or paper based copy the key thing here is going to be filing this either on an existing contract management system by the contract managers. This may include the details around the contract and contract renewal dates by having a high level summary it will assist with managing contracts. The version control in agreement will provide a audit trail of the approval.
2. Service levels impact
There may service credits in the service level agreements also due post-contract for example in an agile software development cycle where there is a failure to deliver each of the requirements as per contract then see what alternatives options are to reduce the impact on revenue.
Alternatively, there may areas of the contract you need to review and consider if there are alternatives which can be relied upon to shield any service credits which may be due. If there are such mechanisms written down in the main agreement, then get these agreed internally and have them prepared to meet the given time frames.
Post contract service credits is going to be key part of ongoing supplier relationship management and improvement of performance.
3. What about joint customer meetings on contract matters?
3.1. Joint steering committee review
There may be a joint steering committee which will determine the way the board will operate in the contract. This is meet at the agreed timeframes and review the progress in the past given period and also demonstrate the future period of planned works in the pipeline.
3.2 Commercial review
With the customer you may have regular review meetings in relation to weekly progress reviews related to proposals, change control and any updates on any upcoming issues or dispute resolution. This may also cover any progress or pending project work orders based on time and materials basis.
3.3 Billing review
The contract manager or commercial manager may be requiring with the support of others to confirm for example where certain billing can commence from and services have been delivered. They may also look for support in the interpretation of the contractual language or confirmation where certain areas are covered in the process.
4 When a contract comes to closure and exit?
4.1 Exit commitments
On exit and in line with any exit plan are there any provisions in the contract that clearly expresses the way in which this would operate. If there is then it may have the full details including any revenues. The thing you want to avoid is to wait until you are in the exit phase to revise the commitments or commercials of each party. It is better to agree this earlier.
The termination will in each contact agreement will differ so its important to know what the termination mechanism is and how the notice may be served. It may be that as a customer you decide to move on with a new provider.
5 What is the role of commercial management or contract manager ?
If your business does not have a dedicated individual for commercial or contract support, then this is likely this is where it is taking longer to conclude contracts.
The correct commercial or contract resource can be your single subject matter expertise that will handle not only the documents, it’s changes but will also assist with negotiations. They will also engage the key areas of the business to move forward any open items.
Where an organisation does this have this resource then it will need to maintain the business as usual work without creating any back logs.
This is where your business will get an extra pair of hands to deal with a number of complex issues which may arise prior to presenting them to senior stakeholders.
What are skills that are needed for contract/commerical management?
They need to be able to work with billing to determine the finance risk associated to understanding whether a removal or new service has a impact on the margin. Be able to draft either to existing terms or set of new terms to for example roles, responsibility or what happens after such time and work with the technical team or project team to confirm that it flows with their view. But at times it may involve interpretation of disputes or advice and fitting together the pieces to view the options available. With terms and conditions, it helps if there is some legal background or on the job experience and this may involve review of laws or regulations. One of the skey skill set is to ensure that stakeholders along with external and internal relationship is managed well to make progress and manage any risks.Download Our Contract Case Study
Your business may have support requirement in one or more area why not talk to us and see if we can assist with your contract management or contract governance with our consultancy contract managment services by emailing email@example.com or request a proposal from us.Get Your Free Consultation