What is Contract Administration?
In its simplest form, Contract Administration is the process of planning for, negotiating, and executing a contract for goods or services. Depending on the type and complexity of the contract, the administrative effort may require a multi-disciplined team to effectively plan for and manage the risks throughout the contract’s life cycle.
Why Implement a Contract Administration Program?
Effectively managing a supplier contract or capital project is often a team effort. Research suggests that a significant portion of a contract’s expected value is never realized due to ineffective contract management, particularly later in the contract term. Reasons why the expected value is not achieved include:
- Failure to involve all stakeholders early in the process
- Ineffective transfer from contract negotiation to execution
- Misinterpretation or misapplication of contract provisions
- Deviation from the negotiated terms
- Failure to validate compliance with agreed terms and conditions
Assembling a contract administration team early in the process is important and allows for each member to leverage their particular skill set for the benefit of the project. Project and financial controls specialists are important members of the team. Duties often performed by these members include:
- Crafting contract language that is clear and “workable”
- Vetting vendors and suppliers
- Evaluating bid proposals
- Managing budgets
- Monitoring performance metrics
- Reviewing supplier invoices for compliance with agreed terms and conditions. This work is often performed on a real-time or interim basis rather than retrospectively.
Retrospective audits may recapture some of the value lost due to contract interpretation or implementation, but achieving financial recoveries will be hampered by:
- The audit being conducted years after payment is made
- Data supporting transactions may be lost or not readily available
- The evaluation will likely be of sampled transactions and the extrapolation method may be challenged
- Consistent erroneous contract interpretation may be considered tacit approval of the errant practice
- The subject matter experts (SMEs) with respect to the contractual intent may no longer be available to arbitrate disputes
Conducting real-time or interim audits will identify issues sooner in the process allowing for immediate corrective action that will stop the contract leakage. Active contract administration helps all parties make better decisions, resolves discrepancies early, and improves overall contract compliance.
AMS-PAR’s contract administration service offering is tailored to each client’s individual needs. , our team is ready to help minimize contract leakage and improve the valued realized from your contracts. We take great effort to match the skills of our staff with the specific needs of your audit, ensuring that the team can operate at maximum efficiency.