CASE STUDY

Contract Management in the Oil and Energy Sector – Contract Management Plan | SpendEdge

Apr 8, 2021

What is the purpose in developing a contract management plan?

Procurement and sourcing are crucial departments in any industry and negotiating, signing, and contract management plan are an essential part of business operations. While entering into new agreements, companies require a clear draft of their contract and a specified contract management plan. The plan is often a formally written document that stipulates the process, procedure, roles and responsibilities, and expectations associated with the contract itself. Creating and implementing this document early in the project’s life cycle is imperative to gain the highest benefit. A contract management plan helps all involved parties ensure that the process is being accurately executed, all expectations are being met. The responsible professionals or parties successfully conduct the required steps or processes. Contract management is a crucial part of maintaining efficiency and functionality in a company’s sourcing and procurement departments. A contract management plan makes the process easier, more effective and improves the implementation of all stipulated terms within a contract.

What are the 7 stages of contract management?

Establishing contracts with suppliers and vendors is complex and requires continuous oversight, planning, and clarity. Therefore, companies dedicate professionals to proper contract management that enables better terms, improved negotiation, sustainable partnerships, and better compliance from all parties involved. The contract management process includes the following seven crucial stages:

  • Contract Preparation
  • Drafting the Contract
  • Acquire Approval
  • Contract Negotiation
  • Signing the Contract
  • Amendments and Revisions
  • Audits, Renewals, and Obligations

Developing an efficient contract management plan is a key practice to establish clear business objectives and align them with sourcing goals to ensure procurement excellence. Request a FREE proposal to get customized solutions from our team of procurement specialists and gain deep-dive assessment of your competitors and how you can stay ahead of them for a stellar business growth.

What should a contract management plan include?

Roles and Responsibilities: A well-planned and detailed contract management plan help both parties identify the roles and responsibilities involved and required in the entire process. By preemptively deciding and stipulating these details, the company avoids unnecessary confusion, risk, or potential errors. As the negotiation, signing, and management of the contract occur, both parties are aware of their roles in monitoring performance and ensuring transactional and delivery efficiency. During the drafting and negotiation process, this step also details the information required from either party, provides clarity, and helps the parties receive the data necessary to continue the process.

Performance Metrics: This document also helps the company identify the performance metrics utilized throughout the contract term. These performance metrics will determine the compliance rate, quality of product, quality of service, efficiency level, and whether both parties fulfill their promised terms. Deciding and agreeing on metrics preemptively helps both parties stay informed and vigilant regarding their performance and their partner’s performance through the process. Additionally, transparency regarding evaluation and metrics helps companies mitigate confusion, promote honesty, and maintain trust throughout the contract management process. Through regular assessment and reviews, the supplier and the company can ensure they meet the promised standards and reconsider the contract’s continuation if either party is unsatisfied with their partner’s performance.

Potential Risks and Challenges: Negotiating and complying with a signed contract is challenging and involves various challenges and risks during and after the process. Contract management is a continuous process, and it consists of identifying potential threats or obstacles, developing strategies to mitigate the challenges and maintain business continuity. By entering potential risks and challenges in the contract management plan, both parties can mutually determine the ideal approach to tackle all issues and individually prepare for the impact of uncontrolled risks within the market. During the drafting and negotiating process, this can also help stipulate the parties’ responsibilities towards handling certain risks and increase the chances of mitigating challenges before they have a significant impact.

Expected Benefits: Both parties entering a partnership have certain expectations and aim to receive certain benefits. When companies sign a contract with a supplier, they aim to reduce costs and increase savings while maintaining quality and speed. A contract management plan clearly states the company’s expectations from the supplier and provides further transparency. Similarly, a supplier aims to receive a certain amount of profit, long-term reliability, proper contract compliance from the business and states. To ensure both parties’ expectations are clear and visible to the involved parties, they are included in detail in the contract management plan and help promote more trust and reliability between the supplier and company.

Legal Requirements: Signing a contract is a legal process and often requires a significant contribution from both parties in terms of legal fees, due diligence, various other legal documents, and absolute transparency. In the contract management plan, the company details the needs for the legal process, including working with a contracting agency, providing relevant licenses, participating in the negotiations, amendments, and revisions, and understanding the rights of all involved parties. This will also include potential consultancy, third-party approvals, the parties’ legal relationship, and competency. The contract management plan is a highly detailed document and helps companies ensure that their contract management process is fair, transparent, legally sound, and clear to all parties involved.

Success Story

The oil and gas industry has grown exponentially over the years, but competition has risen substantially, and companies often struggle to keep pace with the changing market. Additionally, fossil fuel shortages and stringent regulations have made it challenging for petroleum and oil companies to locate the right suppliers, negotiate ideal contracts, and successfully expand their business without incurring losses. A leading oil and gas industry player sought to partner with SpendEdge and address the challenges within their contract management systems that were causing monetary losses, early termination of contracts, and issues with supplier relationships. In this competitive industry, losing partnerships can take a significant toll on any business, and the company wanted to mitigate the factors causing these issues. Our experts scrutinized the contract management approach and expertise utilized within the company. They noted the lack of a proper contract management plan, unclear expectations, incomplete communication, and various other issues causing suppliers to misunderstand or be surprised by sudden demands and expectations from the company. Additionally, the lack of organization and clarity led to various communication mishaps and caused suppliers to incur more losses than necessary while negatively impacting the company. Therefore, the company leverage the actionable strategies suggested by SpendEdge experts to improve their contract management process and overcame the losses caused by their previous challenges.

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