Fundamentals of Contract and Commercial Management

Fundamentals of Contract and Commercial Management

Fundamentals of Contract and Commercial Management
Fundamentals of Contract and Commercial Management

Why do I need to know anything about contracts?

That’s a question many people ask and which this book will answer. Contracts are fundamental to a business and its value. Just think for a moment how much you would be willing to pay for a business that had no contracts? Or why it is that investors flee from companies that show themselves unable to manage or enforce their contracts?

Most adults have managed a contract without even realizing it. Take the example of a man looking out of the front window of his house on a snowy day. He sees a young man walking by with a snow shovel. The young man sees him in the window and raises his shovel with a quizzical look on his face. The older man reaches into his pocket and pulls out his hand with money in it. The young man holds up ten fingers. The older man nods, steps away from the window, and the young man shovels the walk. After the young man finishes the walk and rings the bell, the older man opens the door, surveys the walk, and pays him ten dollars.

Expending minimal effort and time, these two men have completed a business transaction and actually managed a very simple contract from initiation to completion without the use of a single word or piece of paper. Business transactions demand more formal communication and record-keeping, but most commerce in our world follows that same process. Understanding the process and how to facilitate its important elements is fundamental to driving business objectives and success.

Making and managing contracts can be hard work, or it can be easy. A goal of this book is to combine commercial process knowledge with an understanding of the roles in the buyer/seller relationship to make contracting both efficient and effective.

Even the simple example of the snow shoveler highlights the fundamental questions that all business people have about any transaction:
  • Is it clear what is wanted, and when? 
  • Will it be at an acceptable price? 
  • Can what is promised be delivered?
As the situation becomes more complex, so do the questions we ask:
  • Is what is promised what the customer thinks they’re going to get? 
  • Does the contract offer an acceptable return? 
  • Does the contract make the best use of available resources? 
  • Do I understand the risks involved and my part in managing them? 
  • When things change, what happens? 
  • If it all goes horribly wrong, what are the consequences?
Most business people ask these basic questions routinely. Asking, answering, and documenting these questions is the most fundamental level of contract and commercial management, and it is this that makes almost everyone a contract manager, whether consciously or unconsciously.

Beyond this statement is the professional reality that contract or commercial management is often one of the least defined positions in the corporate hierarchy. Consequently, individuals with many different titles perform some or all of the elements of the process we will talk about within this book as the commercial transaction process. Whether the reader’s job title is Managing Director or Accounting Clerk, that position touches the transaction process, and understanding the value added by the contract manager enables each to function more effectively. It also means we have a collective responsibility to make the contracts in our organization contribute to its success rather than become a source of poor performance and loss.

Readers can work through each chapter of this book in sequence or select individual chapters of interest that relate to a specific job function. This is not designed to be an operational guide or give detailed instructions in the duties of contract management. Its purpose is to provide a broad commercial audience with an overview of the fundamental functions of contract management, the unique perspective and skills that dedicated professionals can bring to the transaction process. It is also designed to challenge the reader to facilitate business through understanding the process and improving its function as individual abilities and situations permit.

Part One: Essentials provides a general overview of the transaction process and the types of relationships encountered; the main elements of a contract; cost, pricing and payment; and negotiation principles. This Part concludes with an overview of the commercial transaction process. These early chapters contain checklists and questions the reader can use to identify key issues.

Part Two: The contract management lifecycle takes the reader through each of the five phases of the lifecycle, starting with initiation of a project, bidding, developing and negotiating a contract. The remaining chapters in this Part address the Manage phase: contract implementation, managing day-to-day performance and issues that must be addressed to move the project forward to a successful completion rather than a costly dispute. Questions and checklists have again been provided to aid in issue identification.

Case studies are included throughout the text to demonstrate the realworld application of the issues. Appendices are included that contain relevant supplementary information. 

Each step of the commercial transaction process is covered, including a description of the step and the critical duties that must be performed. Perhaps more important is a discussion of the reason why the step is important to the business and the value that a professional can add to the process. 

This book will enable readers to approach this process with greater knowledge, confidence and understanding, providing them with the edge to improve performance.
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