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How to apply the contract management cycle

Apply the contract management cycle within your organisation to help you create a smooth end-to-end process. 

What is the Contract Management Cycle?

Our Contract Management Cycle is used to create a smooth end-to-end process, ensuring optimum scoping, planning, managing, and reviewing are taken place at the right time. This can help you add value to every project and will help you to understand key roles and responsibilities.

 

What are the stages of contract management?

Contract management is a continuous process. It ensures that suppliers and buyers adhere to their agreed contractual obligations, along with negotiating any future changes. From planning to relationship and exiting a contract, there are twelve stages in our cycle, with useful tips and extra information for you to consider.

1 Plan Select each step to read more 2 Stakeholders Select each step to read more 3 Administration Select each step to read more 4 Relationship Select each step to read more 5 Performance Select each step to read more 6 Payment Select each step to read more 7 Risk Select each step to read more 8 Contract Select each step to read more 9 Development Select each step to read more 10 SRM Select each step to read more 11 Exit Select each step to read more 12 Asset Select each step to read more

1. STRATEGY, STRUCTURE & RESOURCES

Planning and Scoping

Planning and scoping means you are preparing to work smartly, focusing on priorities, resources and risk, considering the success factors and developing KPIs.

  • Define what the contract will (and won’t) cover and achieve, adding actions and deadlines.
  • Decide which performance criteria to use to ensure both the contractor and your organisation, meet their obligations.
  • Consider the specification, and the whole life and cost of the asset, including disposal or maintenance, and how to move smoothly from contract to contract at either end of the process.

Extra information to consider for this step

2. STRATEGY, STRUCTURE & RESOURCES

Stakeholder Management

It's important to have good working relationships between all internal and external stakeholders. The external relationship could be simple and transactional, or a more collaborative one.

  • A stakeholder definition can be users, providers, influencers and governance.
  • Stakeholder management includes identifying, analysing, planning and mapping stakeholders’ interest and influence for each contract.
  • Developing communication plans help engage and influence the main stakeholders.
  • The contract holder, project manager and finance manager should work together internally, all with a shared understanding of the terms of the contract.

Extra information to consider for this step

3. STRATEGY, STRUCTURE & RESOURCES

Contract Administration

What is contract administration? It is pre-contract formation to agree the wording prior to agreement with all parties and before implementation.

  • Good contract administration is fundamental to the success or otherwise of a contract.
  • Monitor dates for decision-making, reporting, activity, and notices of termination or exit via clear and well-defined processes, using an appropriate level of technology.
  • Log and communicate any amendments to the contract on a timely basis.
  • Once a contract has been agreed and signed, the work as a schedule of activities and responsibilities which must be adhered to.

Extra information to consider for this step

4. STRATEGY, STRUCTURE & RESOURCES

Relationship Management

To effectively maintain relationships for contract delivery, the contract manager must clearly understand their role and that of others.

  • Ensure internal and supplier-side roles are clear, and reinforced through regular communication.
  • Define dispute resolution processes and remedies unambiguously, dealing with problems effectively and quickly.
  • Include a feedback mechanism for the supplier to aid early recognition of potential issues which can then be resolved.
  • Remember, relationship management skills might be different to those needed to perform or deliver the contract, so be prepared to train existing staff.

Extra information to consider for this step

5. IMPLEMENTATION

Performance Management

Your performance management process needs to be structured to operate effectively. At the outset of the contract, set up a framework that includes details of all:

  • Service Level Agreements (SLAs) and Key Performance Indicators (KPIs).
  • Metrics or criteria to be used.
  • Reporting responsibilities.
  • Problem resolution and escalation processes.
  • Contact points.
  • Invoicing and payment process.
  • How Liquidated Damages are set against contract breaches or service failure.
  • Assessment and reward for improved efficiencies and improvements.
  • Formal performance review methods.
  • A comprehensive, objective outline of the contract milestones.

Extra information to consider for this step

6. IMPLEMENTATION

Payment and Incentives

Terms of payment will be negotiated as part of the contract, and failure to pay on time is a breach of contract.

  • If the client is late paying for high-value contracts, where time is of the essence, this could be considered a material breach of contract: one party fails to perform a major part of the contract, so the non-breaching party is no longer obligated to fulfil the contract.
  • The legal position is the same when incentives are built into contracts. Non-payment in these circumstances could have the opposite effect with a supplier, and dis-incentivise them to improve.
  • If you do not have the authority to ensure payments are on time, involve someone authorised to negotiate contract payment terms (see Stakeholders).

Extra information to consider for this step

7. IMPLEMENTATION

Risk and Resilience

The CIPS Resilience Tool asks general questions designed to stimulate thinking around the resilience of your organisation.

  • Access the tool here, and on completion, consider what additional responsibilities you might wish to share with your suppliers, and include in contract negotiations.
  • Generally, this means considering what obligations and remedies you can share with your supplier to mitigate risk and ensure resilience in the areas of: legal compliance; Government-level disruption in the market; corporate ethics; geographical, functional, performance and technical risk, particularly cyber interactions between your two organisations.

Extra information to consider for this step

8. Development

Contract Development

During the course of any contract, things will change. Establishing effective contract development processes is key.

  • External changes such as at governmental or legislative level, or new disruptive technologies or process can effect the need for contract development.
  • Altered project dependencies can mean suddenly adapting to new or altered criteria.
  • Regularly review the contract from start to finish, to identify and ensure that the ripple effect of any change is understood throughout the contract.
  • Change in project scope will need to be signed off at the appropriate authority level and communicating to stakeholders.

Extra information to consider for this step

9. Development

Supplier Development

The supplier should deliver the contract you have agreed. Ideally, however, supplier development means building efficiencies that bring additional benefit to the contract, such as time and cost savings, or quality improvements.

  • Collaborate with your supplier on an ongoing basis looking at continuous improvement activities.
  • Explore whether cheaper or more sustainable materials could be effectively used.
  • Review manufacturing flow to identify potential bottlenecks and establish how to remove them.

Extra information to consider for this step

10. Development

Supplier Relationship Management (SRM)

Good supplier relationship strategies help to create the right relationship and environment in which to work on new developments and evaluate ways to streamline processes.

  • Remember, the ultimate goal is to realise efficiencies which will add value and increase your organisation’s profitability.
  • Having the right supplier relationship management in place may be the difference between being first to market with a new concept or in a difficult supply market ensuring you have continuity of supply and reducing your risk.

Extra information to consider for this step

11. LIFECYCLE MANAGEMENT

Exit and Termination

Planning your exit strategy from a contract is essentially your vision for what you wish to achieve at the end of the project. Of course, the project should complete on-time, to budget, and all stakeholders satisfied, but how do you recognise this state?

  • Agree a sign-off procedure in advance, with clear criteria.
  • Ensure you have stakeholder acceptance, formalised if necessary, and a dispute resolution process in place.
  • If one of the goals is continuity to a second phase with the same supplier, establish the whole agreement at the beginning of the first phase. Successful contract termination is well planned.

Extra information to consider for this step

12. LIFECYCLE MANAGEMENT

Asset Management

Over time, assessments should be carried out to determine if business requirements have changed, whether the agreement is still required and fit for purpose, what can be learnt from the process and how improvements can be incorporated next time.

  • This takes us back to the start of cycle, which begins again.
  • Remember to calculate and account for end-of-life costs, including decommissioning, removal or disposal of assets.

Extra information to consider for this step

Key considerations for each step

Procurement systems Stakeholder engagement
Risk Continuous improvement
People and skills Innovation
 

What does the contract management process look like?

The contract management process consists of strategy, structure and resources, implementation, development, and lifecycle management throughout the whole process. Our Contract Management Cycle breaks down the whole process for you in 12 easy-to-follow stages. The process can differ between organisations and depends on factors such as the size of your organisation, how many contracts you create, what types of contracts you use, and the tools you have in place, which can reduce manual work considerably.

Many organisations make the mistake of starting contract management too late. Effective contract management is essential to maximising value and minimising associated risks. If contract management is overlooked, poorly implemented, or the contract itself is not structured correctly, significant value potential can be lost and exposure to risk can be high.

To avoid these issues, it’s crucial to consider contract management from the very start of the procurement process—right when the need has been identified. At this stage, organisations should start planning which mechanisms and terms should be included in the contract to ensure value and protect against risks.

The CIPS Contract Management Cycle outlines twelve key activities to guide this process, although not all are required for every contract. These activities should be considered across the four distinct phases of a contract’s lifecycle:

  • Pre-award
  • Award
  • Management and/or development
  • End of the contract lifecycle
 

How will AI change contract management processes in the future?

AI is changing contract management processes and automation is now the new normal and the future. Contract management takes time to evaluate, review and manage contracts, and AI can help streamline the process end-to-end. AI can help to automate the contract creation, reducing time and effort and ensures a high-level of accuracy. It can also analyse contract terms and conditions and identify potential risks, as well as enhancing contract security and visibility.

 

Contract management key themes

Contract management Strategy
Risk Continuous improvement
People and skills Innovation
 

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Access the latest research, whitepapers and tools across a range of key procurement and supply topics.

Contract management guide: Part 1

Effective and successful contracts require careful, comprehensive and thorough work before the deal is even awarded. This guide will give you a greater understanding of the importance of the pre-award phase of contract management and give hints and tips you can use for any deal.

Contract management guide: Part 2

The most effective and successful contracts depend on both thoughtful and thorough work before the deal is done and careful management throughout the lifetime of the arrangement. This guide will give you a greater understanding of the importance of contract management, focusing particularly on the work you need to do post-award.

Dispute resolution

Dispute resolution can be time-consuming and costly. This guide will give you a greater understanding of the four different approaches to dispute resolution, as well as alternative methods for consideration when loooking to select the right approach for your dispute.

Managing Supplier Non-Performance

This paper will help you to understand the different remedies available to you as a procurement and supply professional in the event of supplier non-performance. It examines the different mechanisms and approaches to non-performance that you can use before resorting to contract or relationship termination.

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