5 Essentials for IT Contract Management
It can take a tremendous amount of effort to get all parties to negotiate, agree and sign an IT contract. So it is perhaps not surprising that many organizations, both customers and suppliers, have a tendency to congratulate themselves on their achievements; breathe a sight of relief; and put the documents in a drawer until it is time to renew them or until they have problems.
Is it any wonder then that a recent survey indicates that more than 30% of customers are dissatisfied with the performance of their service provider? While not all problems could be avoided, many could be avoided if signed Service Contracts were managed properly and then had an annual health check.
Of course, it is unlikely that the team that negotiated the contract are the same people responsible for its execution and ongoing operation. That means there’s ample room for things to “fall through the cracks” if the handover from sales to contract and operations management isn’t done quickly, completely, and accurately. IT contract management in particular is a highly neglected experience, and yet it can be the difference between contract success and failure; the difference between a mutually beneficial service relationship and the kind of service dissatisfaction we read about so often.
In a previous article, we looked at the top pitfalls to watch out for in IT service contracts. If your contract is already signed, to get you started, here are 5 essentials that could help make your IT contract a shining example of success:
Achievement Award #1: If you have an incentive scheme for sales (suppliers) or savings (customers), make sure that payments are made during the term of the contract and only if you are achieving the objectives on which the approval of the firm was based. [There is a famous legend of a salesman who collected his very large “win” bonus and departed an IT service company just after a major contract was signed – before anyone realised how costly that agreement was going to be to both the supplier and the customer.]
#2 Continuity: It is absolutely better that the people who are going to administer and execute the contract participate in the negotiations (at least in the last stages). Whether or not that happens, however, negotiators must document (in everyday language) and hand over control in a series of internal briefings,
• what has been agreed, especially in terms of the scope of the contract;
• what are the planned and expected measures of success;
• what decisions/actions have been left incomplete;
• what unusual elements or restrictions are included in the contract;
• what other agreements or negotiations have been associated with the contract;
• what commitments, deadlines, milestones, deliverables have been agreed or scheduled.
#3 Governance: How will this contract be controlled, managed and monitored during its term? It is almost impossible to stress the importance of Governance (and how often it is overlooked or neglected). Ideally this should have been agreed as part of the contract itself, but if not, the framework and staff should be in place as soon as possible after signature and well before the contracted activities start. Governance is not limited to meetings (which should be short and focused). Many elements of Governance must also be clear to all parties, including, for example,
• who plays what role and what are the limits of their responsibilities and decision-making authority;
• how disputes will be handled and what is the stage-by-stage mechanism for resolving such matters before senior management becomes involved and without going to law;
• what reports are produced, when and by whom, always ensuring that the level of detail is appropriate for the recipient;
• how changes will be managed and implemented, both at the operational level and at the financial/contractual document level;
• how the level of customer satisfaction will be measured and reported;
• how identified risks are mitigated and how such reduction is monitored;
• how innovations, savings and initiatives will be introduced and considered, and whether such activities are a regular commitment within the contract.
#4 Contract schedule: This is the simplest and least used tool in the contract management arsenal. One of the first activities for an IT contract manager is to set up a journal system that contains all the agreed dates for activities, deliverables, milestones, reports, meetings, billing/payments, cancellation periods, notification deadlines, renewals, etc. . Of course, simply having the calendar doesn’t do much good if it’s forgotten or ignored, so automatic reminders are essential for more than just one person (who may be on vacation, sick, or even leaving the company).
#5 Annual Health Check: If you don’t verify the execution of the contract, you will never know if it is successful or not. Whether that verification is done internally or using external expertise, it should be independent of the day-to-day management and operations of the contract and should certainly cover such things as financial performance, operational performance and contract performance. It may be true that “if it ain’t broke, don’t fix it”, but for IT contracts “you need to know if it’s broken”, then you can fix it before it’s too late.
Of course, there is much more to IT contract management than can be easily packed into an article of this size. So the above are just tips to help people get started and focus on the most important aspects to ensure they have those essentials in place as quickly as possible.