As organisations engage in various contractual agreements, it becomes imperative to ensure that these contracts are properly completed and reviewed to meet desired outcomes. This entails confirming client satisfaction with contract deliverables, finalising, amending, cancelling or terminating contracts as needed, managing close-out and renewal processes, and reviewing contract management, contractor performance, user satisfaction, and audit results.
Additionally, it's crucial to document and explain any variances to measures or outcomes that are not met in full, as well as report on contractor performance and review contract management practices, making recommendations for improvement.
In this topic, we will delve into the intricacies of these key aspects of contract management, exploring best practices and strategies to optimise contract outcomes and achieve organisational success.
Confirming client satisfaction with contract deliverables ensures that the expectations of the client, as defined in the contract, have been met or exceeded. This confirmation is important as it establishes a clear understanding between the parties involved and helps maintain a positive client relationship.
There are several reasons why confirming client satisfaction with contract deliverables is essential:
The primary purpose of a contract is to outline the expectations and requirements of both parties. By confirming client satisfaction with contract deliverables, you ensure that the client's expectations have been met. This helps to build trust and credibility with the client, enhancing the chances of future business opportunities.
Confirming client satisfaction also provides an opportunity to identify and address any issues or concerns that may have arisen during the contract period. This allows for the timely resolution of any disputes, misunderstandings, or discrepancies, preventing them from escalating into larger problems that may impact the overall success of the contract.
Confirming client satisfaction with contract deliverables is also a crucial aspect of quality control. It ensures that the deliverables are up to the agreed-upon standards and meet the required level of quality. This helps in maintaining a high level of performance and customer satisfaction.
Confirming client satisfaction with contract deliverables ensures that the contract is being executed in accordance with the agreed-upon terms and conditions. This helps in maintaining compliance with contractual obligations and mitigates the risk of breach of contract.
Steps to effectively confirm client satisfaction with contract deliverables
- Regular Communication: Maintain open and transparent communication with the client throughout the contract period. Seek feedback on deliverables and address any concerns or issues promptly.
- Performance Metrics: Establish clear performance metrics and measure the actual performance against these metrics to assess the level of satisfaction with deliverables.
- Client Surveys or Reviews: Conduct client surveys or reviews to gather feedback on contract deliverables. This can provide valuable insights into the client's perspective and areas for improvement.
- Documentation: Document the confirmation of client satisfaction in writing, including any feedback received, actions taken to address issues, and any modifications made to the contract.
- Follow-up: Follow up with the client after confirming satisfaction to ensure that any outstanding issues have been resolved and that the client's expectations continue to be met throughout the contract period.
In conclusion, confirming client satisfaction with contract deliverables is vital for successful contract management. It helps in meeting client expectations, resolving issues, maintaining quality control, and ensuring contract compliance. By following best practices and maintaining open communication with the client, you can establish a strong foundation for a successful and mutually beneficial contractual relationship.
Finalising, amending, cancelling, or terminating contracts requires careful consideration and adherence to established procedures. These actions may be necessary to formalise the conclusion of a contract, modify its terms, or end it prematurely.
Here's a detailed overview of how each of these actions can be carried out:
Finalising Contracts
Finalising a contract involves completing all outstanding tasks and formalities to bring the contract to its conclusion. This may include obtaining all required signatures, ensuring all agreed-upon terms and conditions are met, and preparing the necessary documentation to close the contract. Finalising a contract typically involves the following steps:
- Reviewing the contract to ensure all obligations and deliverables have been met as per the terms and conditions outlined in the contract.
- Obtaining signatures from all relevant parties to confirm their agreement to the finalised terms.
- Preparing and exchanging any final documentation, such as invoices, reports, or certificates, as per the contract requirements.
- Archiving the completed contract and all relevant documentation for future reference and record-keeping purposes.
Amending Contracts
Amending a contract involves making changes to the terms and conditions of an existing contract. This may be necessary to accommodate changes in circumstances, requirements, or expectations of the parties involved. The following steps can be followed when amending a contract:
- Identifying the need for an amendment, such as changes in scope, timeline, or pricing.
- Reviewing the existing contract to understand the implications of the proposed changes.
- Negotiating and reaching an agreement on the proposed amendments with all parties involved.
- Drafting a formal amendment document that outlines the agreed-upon changes.
- Reviewing and obtaining signatures from all relevant parties to confirm their agreement to the amended terms.
- Distributing and storing the amended contract along with any relevant documentation for future reference.
Cancelling or Terminating Contracts
Cancelling or terminating a contract involves ending the contractual relationship before its original intended duration. This may occur due to various reasons, such as breach of contract, mutual agreement, or legal requirements. Cancelling or terminating a contract may involve the following steps:
- Negotiating and reaching an agreement on any outstanding matters, such as compensation or resolution of disputes, if applicable.
- Reviewing the contract and identifying the grounds for cancellation or termination, such as breach of contract, force majeure, or mutual agreement.
- Following the contract terms and conditions, or applicable laws and regulations, for cancelling or terminating the contract.
- Notifying the other party in writing of the intent to cancel or terminate the contract, citing the appropriate reasons and providing any required notice period.
- Drafting and exchanging formal cancellation or termination documentation, including any required documentation or releases.
- Updating records and archiving all relevant documentation for future reference and audit purposes.
Contract Suspension
When a contract is suspended, it means that the contract's performance or obligations are temporarily put on hold or halted, with the expectation that they will resume at a later point in time. Suspension differs from cancellation or termination, as it does not permanently end the contract but rather puts it on hold for a specific period or until certain conditions are met.
A contract may be suspended under various circumstances, including:
If an unforeseen event or circumstance occurs that is beyond the control of the parties, such as natural disasters, war, or pandemics, it may lead to the suspension of the contract. Force majeure clauses in the contract typically provide for suspension in such situations.
If either party is facing difficulties in meeting their contractual obligations due to unforeseen circumstances or unforeseeable delays, they may request a temporary suspension of the contract until the issues are resolved.
If there is an ongoing investigation or a dispute between the parties that requires clarification or resolution, the contract may be temporarily suspended until the matter is resolved.
If the contract is subject to regulatory approval or compliance, and the necessary approvals are pending or require additional time, the contract may be suspended until regulatory requirements are met.
Key Differences
The key differences between suspension, cancellation, and termination are as follows:
- Suspension: A suspension is a temporary halt or postponement of contract performance. The contract is not terminated, and the parties expect to resume performance once the suspension period ends or certain conditions are met.
- Cancellation and Termination: Cancellation or Termination is the permanent ending of a contract before it is fully performed. It may occur due to breach of contract, mutual agreement, or other specified reasons. After cancellation or termination, the parties are discharged from their contractual obligations, except for those obligations that survive termination.
Watch
Watch the video below from Contracts Specialist to find out more about Contract Suspension
It's important to note that finalising, amending, cancelling, or terminating contracts should be done in accordance with the terms and conditions outlined in the contract itself, applicable laws, and best practices. Legal advice or consultation may be necessary in complex situations to ensure compliance and to protect the interests of all parties involved.
Example of contract termination
In 2019, Boeing, a multinational aerospace company, terminated a $4.2 billion contract with Embraer, a Brazilian aircraft manufacturer. The contract was originally signed in 2018 and involved a joint venture between the two companies to develop and market a new line of regional jets.
Boeing terminated the contract due to concerns over Embraer's financial health and its ability to fulfil its contractual obligations. Embraer was facing financial difficulties and had been experiencing delays in delivering aircraft as per the original contract terms. Boeing was concerned about the impact of these issues on the joint venture and the potential risks to its own business.
As a result, Boeing issued a notice of termination to Embraer, citing the reasons for termination in accordance with the contract terms. This termination led to the dissolution of the joint venture between the two companies, and Boeing pursued alternative options to fulfil its regional jet requirements.
This real-world example illustrates how a company may terminate a contract due to concerns about the financial health or performance of the other party. Termination in such cases may be carried out in accordance with the contract terms, including provisions for termination due to breach or failure to perform. It highlights the importance of monitoring and managing contracts effectively to mitigate risks and protect the interests of the parties involved.
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Watch the video below from Contracts Specialist to find out more about Contract Termination
Managing the close-out, renewal, or transition of a contract is an important aspect of effective contract management. Here's a detailed explanation of how to manage these processes:
Close-out of a contract
The close-out phase of a contract involves completing all remaining obligations and tasks after the contract has been fulfilled. Here are the steps involved in managing the close-out of a contract:
- Review contract deliverables: Verify that all contract deliverables have been met or completed as per the contract terms and conditions.
- Conduct final inspections: Perform any necessary inspections or audits to ensure that the goods, services, or work delivered under the contract meet the required quality standards.
- Settle outstanding issues: Resolve any outstanding issues or disputes related to the contract, including financial matters, disputes over performance, or any other contractual disputes.
- Complete financial settlements: Settle all financial matters, including payments, reimbursements, or any other financial obligations as per the contract terms.
- Archive contract documentation: Ensure that all contract documentation, including contract files, correspondence, and related records, are appropriately archived as per organisational policies or legal requirements.
- Conduct contract review: Review the contract management process and performance to identify any lessons learned or areas for improvement in future contracts.
Renewal of a contract
- Review contract terms: Review the existing contract terms, including the expiration date, renewal clauses, and any other relevant terms.
- Evaluate performance: Assess the performance of the current contract, including the contractor's performance, user satisfaction, and compliance with contract terms.
- Negotiate renewal terms: If necessary, renegotiate the terms of the contract, including pricing, scope, and any other relevant terms based on the current needs and requirements.
- Obtain necessary approvals: Seek appropriate approvals from internal stakeholders, legal teams, or other relevant parties as per organisational policies or contractual requirements.
- Update contract documentation: Update the contract documentation, including contract files, to reflect the renewed terms and conditions.
Transition to a new contract
Transitioning from an existing contract to a new contract may involve replacing a current contractor with a new contractor or transitioning to a new contract structure or scope. Here are the steps involved in managing the transition to a new contract:
- Review current contract: Assess the current contract's performance, including the contractor's performance, compliance with contract terms, and any other relevant factors.
- Define new requirements: Clearly define the requirements for the new contract, including scope, deliverables, timelines, and any other relevant factors.
- Solicit new bids or proposals: Invite bids or proposals from potential new contractors based on the defined requirements.
- Evaluate bids or proposals: Evaluate the bids or proposals received based on predetermined criteria, such as price, technical capabilities, experience, and other relevant factors.
- Select new contractor: Select the most suitable contractor based on the evaluation results and obtain any necessary approvals as per organisational policies or contractual requirements.
- Plan transition: Develop a detailed transition plan to ensure a smooth transfer from the existing contract to the new contract, including tasks, timelines, and responsibilities.
- Communicate changes: Communicate the changes to all relevant parties, including internal stakeholders, the existing contractor, and the new contractor, to ensure a coordinated transition.
- Update contract documentation: Update the contract documentation, including contract files, to reflect the transition to the new contract, including any changes in contractors, scope, or other relevant terms.
Effective management of the close-out, renewal, or transition of a contract requires careful planning, communication, and coordination among all relevant parties to ensure a seamless and successful transition.
Reviewing contract management, contractor performance, user satisfaction, and audit results is a critical step in effective contract management.
How to conduct the reviews
Contract management review
A contract management review involves evaluating the overall performance and effectiveness of the contract management process. Here are the steps involved in reviewing contract management:
Collect all relevant contract documentation, including the contract itself, contract files, correspondence, reports, and other relevant records.
Carefully review the contract terms and conditions to ensure that all parties have complied with their contractual obligations.
Assess the overall administration of the contract, including contract amendments, changes, extensions, or other modifications made during the contract term.
Verify that all parties have complied with the contract's legal, regulatory, and organisational requirements, including adherence to procurement policies, contractual deliverables, and performance metrics.
Evaluate the communication and documentation processes followed during the contract management, including record-keeping, reporting, and communication channels.
Identify any issues, deficiencies, or areas for improvement in the contract management process, and document them for further action.
Contractor performance review
A contractor performance review involves evaluating the performance of the contractor in delivering the goods, services, or work as per the contract requirements. Here are the steps involved in reviewing contractor performance:
Define the performance criteria or metrics that were established in the contract, such as quality, timeliness, cost, and other relevant factors.
Gather performance data related to the contractor's performance, such as reports, documentation, feedback from users, and other relevant sources.
Evaluate the contractor's performance against the defined criteria to assess whether they have met the contractual requirements.
Identify any gaps or deficiencies in the contractor's performance compared to the contract requirements, and document them for further action.
Review any corrective actions taken by the contractor to address performance issues identified during the contract term.
Verify that the contractor has complied with all their contractual obligations, including reporting requirements, certifications, and other contractual obligations.
User satisfaction review
A user satisfaction review involves assessing the satisfaction of the end-users or stakeholders with the goods, services, or work delivered under the contract. Here are the steps involved in conducting a user satisfaction review:
Collect feedback from the end-users or stakeholders who have utilised or benefited from the goods, services, or work delivered under the contract.
Analyse the feedback collected to assess the level of satisfaction among the end-users or stakeholders.
Identify the areas where the end-users or stakeholders are satisfied or dissatisfied with the goods, services, or work delivered under the contract.
Share the feedback with the contractor and discuss any areas of improvement or concerns raised by the end-users or stakeholders. This step needs to be inline with the contract terms.
Collaborate with the contractor to develop and implement improvement measures based on the feedback received to address any areas of dissatisfaction.
Collaborate with the contractor to develop and implement improvement measures based on the feedback received to address any areas of dissatisfaction.
Documenting and explaining variances to measures or outcomes that are not met in full involves keeping track of contract performance against the agreed-upon measures or outcomes, identifying any discrepancies or variances, and providing a clear explanation for why these variances occurred.
Steps
Use the predetermined measures or outcomes as specified in the contract to track the performance of the contractor or the project against the agreed-upon targets. This can include quantitative measures such as key performance indicators (KPIs) and milestones or qualitative measures such as quality standards or user satisfaction surveys.
Compare the actual performance with the targets or measures identified in the contract. Identify any discrepancies or variances where the performance did not meet the agreed-upon targets or measures. This can involve analysing data, conducting assessments, or evaluating reports or documentation to identify gaps or differences.
Record the identified variances in writing, providing clear and accurate documentation of the discrepancies or variances. This can include documenting the specific measures or outcomes that were not met in full, the extent of the variance, and any relevant details or factors that contributed to the variance.
Provide a clear and comprehensive explanation for why the variances occurred. This can involve conducting root cause analysis, investigating the reasons behind the discrepancies, and documenting the contributing factors such as unforeseen circumstances, changes in scope, resource constraints, or other relevant factors. Use objective and evidence based explanations to provide a clear understanding of why the measures or outcomes were not met in full.
Share the documented variances and explanations with relevant stakeholders, such as the contractor, project team, management, legal team or other parties involved in the contract. Communicate the findings in a clear and transparent manner, highlighting the reasons for the variances and the steps being taken to address them
Based on the documented variances and explanations, take appropriate corrective actions to address the identified gaps or discrepancies. This can involve revising the contract, renegotiating terms, implementing corrective measures, or taking other necessary steps to rectify the situation and ensure that the contract performance is aligned with the agreed-upon targets or measures.
Documenting and explaining variances to measures or outcomes that are not met in full is critical for maintaining transparency, accountability, and effective contract management. It enables proactive identification and resolution of issues, facilitates communication with stakeholders, and supports continuous improvement efforts to optimise contract performance.
Reporting on contractor performance and reviewing contract management practices involves evaluating the contractor's performance against the agreed-upon terms and conditions, reviewing the overall contract management process, and making recommendations for improvement.
Steps
Gather relevant performance data and information to assess the contractor's performance. This can include data on key performance indicators (KPIs), milestones, deliverables, quality standards, compliance with contractual requirements, and other performance-related metrics. Collect data from various sources, such as reports, records, documentation, and other relevant stakeholders.
Analyse the collected performance data to evaluate the contractor's performance against the agreed-upon targets or measures. Assess whether the contractor has met the contractual obligations, performed as per expectations, and achieved the desired outcomes. Use objective and evidence-based criteria to assess the performance and identify any strengths, weaknesses, or areas of improvement.
Evaluate the overall contract management process to ensure that it is being effectively implemented. Assess whether the contract is being managed in accordance with the agreed-upon terms and conditions, contractual requirements, policies, and procedures. Review the documentation, communication, record-keeping, and other relevant aspects of the contract management process.
Based on the evaluation of contractor performance and contract management practices, identify areas that require improvement. This can involve identifying gaps, deficiencies, or areas where the contractor or the contract management process can perform better. Use the evaluation findings as a basis for identifying specific areas that need attention and improvement.
Develop clear and actionable recommendations based on the evaluation findings. These recommendations should be specific, realistic, and aligned with the contract objectives and requirements. Provide detailed explanations for the recommendations and highlight the potential benefits and impacts of implementing them. Include recommendations for improving contractor performance, as well as contract management practices, documentation, communication, or other relevant aspects of contract management.
Prepare a comprehensive report summarising the contractor's performance, contract management practices, evaluation findings, and recommendations for improvement. Communicate the report to relevant stakeholders, such as management, project team, contractor, and other parties involved in the contract. Use clear and concise language to convey the findings and recommendations and provide opportunities for feedback and discussion.
Follow up on the implementation of the recommendations and monitor the progress. Ensure that the recommended improvements are being implemented as planned, and assess their effectiveness in addressing the identified issues or gaps. Adjust the contract management practices or contractor performance monitoring as necessary based on the progress and outcomes of the implemented recommendations.
Example
Here's an example of a real-world situation where a failure to effectively review contract management practices and report on contractor performance resulted in negative outcomes:
In 2017, the U.S. Department of Defense (DoD) encountered issues with its contract management practices related to a contract with a private company, TransDigm Group, for spare parts used in military aircraft. The DoD Inspector General (IG) conducted an audit and found that TransDigm Group had overcharged the DoD for spare parts by excessively increasing prices, sometimes by over 1,000% above fair and reasonable prices.
The IG audit also revealed that the DoD's contract management practices were inadequate in monitoring and reviewing contractor performance. The contract lacked price reduction clauses and did not require the contractor to provide cost data, which could have facilitated price analysis and verification of fair and reasonable prices. Additionally, the DoD did not have adequate systems in place to track and verify costs, prices, and contractor performance, resulting in overpayment for spare parts.
As a result, the DoD incurred excessive costs, estimated at over $16 million in overcharges for spare parts, due to the lack of effective contract management practices and inadequate contractor performance review. The situation received significant public attention and scrutiny, leading to reputational damage and increased calls for improved contract management practices within the DoD.
Lessons learned: This real-world example underscores the importance of robust contract management practices, including regular performance reviews, effective monitoring of contractor performance, and thorough reporting on outcomes. Inadequate contract management practices can result in financial losses, reputational damage, and increased scrutiny from stakeholders. It highlights the need for comprehensive contract oversight, including pricing verification, cost analysis, and reporting on contractor performance, to ensure that contract deliverables are met and taxpayer funds are effectively utilised in government contracts.
Conclusion
Managing contracts is of utmost importance for organisations to ensure successful outcomes, mitigate risks, and maintain healthy client relationships.
Effective contract management leads to increased client satisfaction, optimised performance, and improved transparency, while inadequate contract management can result in financial losses, legal disputes, and damaged reputation.
Therefore, organisations must prioritise robust contract management practices to achieve success and mitigate risks in today's business landscape.
Quiz
