Procurement teams always get caught up in mastering sourcing or pre-signature activities. This is great, but one part of the procurement lifecycle often gets overlooked because it’s considered a minor detail: “Contract Ownership”.
Contract Ownership might be one of the most critical processes and concepts for you to get right in your organisation, especially if you’re in a highly technical area.
The Contract Owner will be responsible for almost every activity linked to the contract and the supplier.
It’s a significant role that is commonly misunderstood, so ownership of contracts is in disarray.
Perhaps you consider this easy - procurement owns the contracts.
But that isn’t scaleable.
Okay, perhaps the person who signed the contract owns that contract?
No, this will usually be a senior person who doesn’t have time to manage the day-to-day operations of a contract.
And that’s what we’re talking about. The day-to-day management of your contracts from the initial request (which might trigger an RFX exercise) through contract closure by whichever means is most appropriate.
But you, my procurement legends, are uniquely placed. You intersect every part of the organisation (one of the reasons I love procurement and the main reason I genuinely miss being a practitioner right now. ☹️). Alongside legal (perhaps without them, depending on their appetite), you can drive effective contract ownership throughout your organisation.
I will break this down for you as someone who has dedicated their career to effective contract management within the procurement and supply chain. ✌️
1 - Understanding Contract Ownership
Contract ownership refers to a person or a group who oversees the contract across its entire lifecycle, from creation to negotiation, execution, and final closure.
The contract owner(s) are usually the people/persons who request the service or goods and deal with the supplier daily.
That’s the simple bit.
Contract management is a comprehensive process in the procurement lifecycle that ensures both parties involved understand their rights and obligations and adhere to the contract.
It's divided into pre-signature (creation, negotiation, finalisation) and post-signature (tracking compliance, enforcing the contract, resolving disputes) stages.
The contract owner is pivotal to effective management throughout the entire lifecycle.
Here’s your Contract Ownership checklist for the activities a contract owner could be involved with, depending on where you want their focus.
Drafting and Negotiation: Collaborating with legal, financial, and operational stakeholders to develop contract terms that serve the organisation's interests.
Execution and Implementation: Ensuring the contract is executed correctly and that the necessary systems and processes are in place for effective implementation.
Performance Monitoring: Regularly assessing the contract's performance against defined metrics and KPIs to ensure the supplier meets all obligations.
Compliance Management: Monitoring adherence to legal regulations, industry standards, and internal policies (I’d say this is one that Procurement and Legal own, regardless of the owner).
Relationship Management: Maintaining a positive and productive relationship with the supplier, facilitating communication, and resolving issues as they arise (Procurement and Contract Management roles (not to confuse the latter with a Contract Owner) should also be involved in the relationship with the supplier, especially if it's a critical/strategic supplier, as per your supplier segmentation model).
Renewal and Termination: Deciding on contract renewal based on performance and strategic needs or managing the termination process if necessary.
As you can see, there’s a lot there, and I would never suggest that the contract owner is left with their own devices entirely here. Your role within procurement is to make the contract owner’s role as easy as possible. This might require much work around these points, but you will have a one-to-many relationship across your supplier portfolio. A contract owner will likely only have one contract if it’s a critical contract/supplier engagement or owns several less essential contracts. Still, these will not attract the attention needed to make this an arduous task.
2 - Benefits of Effective Contract Ownership
There are numerous benefits to getting contract ownership in place within your organisation. I like these in particular:
Improved Compliance: Designated contract owners ensure contracts comply with legal regulations, industry standards, and organisational policies. This proactive approach mitigates legal and financial risks associated with non-compliance. This is a dream state of affairs. It’s likely that someone in procurement will need to do a lot of heavy handholding, but over time, you’ll educate your stakeholders, and they’ll become the perfect contract owner…hopefully.
Enhanced Risk Management: By actively monitoring contract performance and the external environment, contract owners can identify potential risks early and implement mitigation strategies, protecting the organisation from unforeseen impacts. Again, you’ll need people across procurement to support this. Procurement teams usually struggle with effective risk management, and I’d suggest your stakeholders who don’t think about risks often will likely struggle, too.
Streamlined Contract Management: Clear ownership simplifies the management process, as there is a direct point of contact for all matters related to the contract. This reduces the likelihood of misunderstandings and ensures that issues are swiftly addressed. Procurement and legal can act as a point of escalation here.
Better Supplier Relationships: Effective contract owners build strong relationships with suppliers. Relationships have a killer upside, and you’ll often find that your stakeholders already have them. Influence how they use these relationships to benefit your organisation.
3 - Who Should be a Contract Owner?
I’ve spoken to many people about this and read a lot about it. There’s always a mixed view on this. Too often, I hear legal who would undoubtedly be the worst contract owners.
It would be best if you had someone close to the ground.
That’s why I always favour the person closest to the particular work with the supplier who has the authority within the organisation to make decisions.
This means you’re a new software grad and probably won’t own the supplier relationship for that GitHub contract.
But perhaps their manager might be the best place for it.
There’s no perfect candidate in that sense.
Much of this will depend on their existing workload, skill set, and desire to do this.
But these are the right people. They will be working with the supplier frequently, and we want to ensure we get the most value, as contracted, from our suppliers.
However, this challenge will require clear ownership and change management.
You’ll need to create a RACI to inform the owners what they need to do.
Before that, you’ll need to work across the organisation to determine their appetite for change.
You’ll need to communicate the changes from now to that future state of ownership.
You’ll need to do all you can to make their “lives easy” when it comes to ownership and the demands it puts on them…which aren’t tough, but it’s another task that trains the capacity battery and takes them away from their core work so that has to be minimised.
From here, look to where procurement will pick up the tasks the business doesn’t want to do or what it doesn’t have the capacity to do.
Look to automate where possible.
And iterate.
Contract ownership is constant.
Take the time to get it right.