Figure 2.1 The Work To Be Done and All Other Contract Matter
The WTBD describes the performance to be provided by the supplier, which the client wants to receive. This includes how this must be done, the other aspects such as location, time of delivery, and how parties measure and account for the WTBD. Other aspects of the WTBD are the matters that the client has to arrange to ensure that the supplier can meet the performance obligation.
CATS CM categorizes all elements that are not part of WTBD as AOCM. These include, in any case, the agreements about compensation, agreements about how to act when the WTBD is not delivered according to the contract, agreements about interaction and collaboration between both parties, and also the applicable procurement or delivery terms and conditions.
■ 2.3 DEFINITION OF CONTRACT MANAGEMENT
The contract life cycle, which will be extensively explained in Chapter 4, represents the phases that every contract has to go through. The contract life cycle has an important transition moment, which occurs when the contracting parties finalize the contract by signing it. Contract management is the managing and monitoring of a contract from the moment the contract has been signed. With this in mind, the CATS CM definition of contract management is as follows:
Contract management is the realization of intended contract objectives by proactively monitoring the fulfillment of all contractually established responsibilities, obligations, procedures, agreements, conditions and rates, resolving all ambiguities, contradictions and white spaces, managing all contract-related risks, and implementing all desired changes to the contract, during the execution phase.
The AOCM described in Section 2.2 can be recognized in the definition as the ‘contractually established responsibilities, obligations, procedures, agreements, conditions and rates’.
■ 2.4 DEFINITION OF CONTRACT MANAGER
The definition of contract manager can clearly be derived from the definition of contract management.
The contract manager is the person appointed by the contract owner to ensure that all activities arising from the contract management process are carried out.
This book is about contract management; so, it explains in great detail the tasks, responsibilities and mandates that CATS CM assigns to the role of the contract manager. We have listed several examples by way of illustration:
■ The proactive management of all agreements, obligations, conditions, assumptions, expectations and objectives relating to the contract, within an established authority or mandate, from the moment the contract has been signed until its conclusion.
■ The elimination or reduction of defects, white spaces, ambiguities, and differences of interpretation in the above-mentioned aspects.
■ The management of risks that may occur during the execution.
■ The timely provision of the most accurate information to the stakeholders – according to the agreement – regarding the status, progress, finances, and realization of the contract objectives.
■ The organization, conduction and administration of meetings with other parties involved in the contract.
■ Ensuring the insightful administration of the contract file.
■ The management of non-contractually established (secondary) objectives that are still important for the contracting party.
■ 2.5 TYPES OF CONTRACTS AND THE APPLICABILITY OF CATS CM
The applicability of CATS CM is very broad. In terms of applicability, we only find some distinctions in the types of contracts when we consider the parties involved in the contract:
■ Contracts between individuals.
■ Contracts between individuals and organizations, generally referred to as B2C (Business to Consumer).
■ Contracts between organizations, also referred to as B2B (Business to Business).
Marriage contracts and, frequently, sales contracts for housing are examples of contracts between individuals. Contracts between individuals and organizations include contracts such as employment contracts, insurance, and mortgage loans. The third type of contracts, those between organizations, can include contracts for the delivery of goods, services, or for the development or production of a new company asset.
The first two types of contracts are beyond the scope of this book. They need contract management, but they will often be handled very differently than contracts between organizations. Organizations can be businesses but they can also be government institutions, foundations, associations, etc.
CATS CM does not distinguish between the different ways of structuring the WTBD and can be used for all B2B contracts. Needless to say, not all contracts require the same level of contract management. CATS CM addresses this issue by offering contract management scenarios. These contract management scenarios are described in Chapter 8.
Organizations commonly classify their activity control levels into: strategic, tactical, and operational levels. These categories can also be applied to the finalization, execution, changing and termination of contracts. This chapter describes the CATS control model, the strategic, tactical, and operational activities related to contracts, and identifies the factors that determine the success of contract management.
■ 3.1 FACTORS THAT AFFECT THE SUCCESS OF CONTRACT MANAGEMENT
The success of contract management depends on three factors. Figure 3.1 shows this schematically. First of all, the contract management policy must be sound and include a contract management process based on CATS CM that allows people to work in a process-oriented, structured, documented, repeatable and measurable manner. Subsequently, to achieve an effective contract management process, it is important to have sufficient and competent people available to carry out the work while being supported by process-aligned systems. The third success factor is the ensuring of contract management when the contract is drawn up, the contract creation. This means that, at that moment, the focus lies on having a good and measurable translation of the contract objectives into WTBD, adequate consequences for not meeting the objectives, assessment of the effects of AOCM on contract management and, where possible, having the AOCM in alignment with the expected contract management structure.
■ 3.2 The CATS control model
The organization’s management is responsible for creating a sound framework within which the activities related to contracts can be controlled and which includes all of the success factors mentioned in the previous section. The CATS control model, shown schematically in figure 3.2, is such a framework.