Everyone – or almost everyone – dreams of having a contract manager on the team, don’t they? The obstacle often lies in allocating budget to a function that is still new, often little known and sometimes wrongly seen as a cost centre. After all, why invest in an expert whose impact is not always immediately measurable? And yet, waiting too long carries a serious risk: projects going off track, costs spiralling and, of course, margins wearing thin. So when should you take the plunge and bring a contract manager into your organisation?
In this article there is no magic formula – to our mind, every organisation is different – but we propose to answer the question from two angles that should point you in the right direction and help you find your own answer: the complexity of your business on the one hand, and the value of your contracts on the other. With these two criteria in mind, you will be able to judge whether the time has come to install this key function in your organisation.
I. How complex your business is: fertile ground for the contract manager
a. Understanding what is at stake with complexity
Companies operating in complex environments – whether technology engineering projects, infrastructure construction or deployments in the energy sector – regularly face a host of constraints: demanding regulations, high technical risks, multiple stakeholders, and so on. This accumulation of factors makes contract management particularly delicate.
In these worlds, having a contract manager makes complete sense. Without going so far as to restate the whole importance of contract management, the contract manager can step in at every stage of the contract lifecycle to grasp the risks and opportunities running through these complex contracts. The contract manager’s role in these complex environments goes well beyond simply tracking contractual obligations: the contract manager is also a facilitator, both internally between the various teams (technical, legal, financial, etc.) and externally with the full set of stakeholders, who are often numerous in these environments.
b. A few examples to illustrate the point
Energy: imagine a project to build an energy production unit. The challenges are many: managing subcontractors who are often international, complying with environmental standards, investment volumes, financial stakes, and so on. In this context, an experienced contract manager will be your project manager’s best ally in heading off overruns, assessing and limiting the effects of delays and other contingencies, reducing your exposure to contractual penalties and also identifying opportunity levers to optimise your margins.
Construction: in construction projects, splitting the works into lots, coordinating several trades (civil engineering, electrical, plumbing, architecture, etc.) and the coexistence of public-law and private-law players can quickly become a headache. Changes along the way (change orders) are legion, every delay has a domino effect on the overall schedule, not to mention HSE matters, which are always a priority yet sometimes neglected. Without solid management of the contractual side, the risks of cost blowouts or claims multiply.
IT and Technology: IT and R&D projects involve methodologies and technologies that evolve constantly, calling for real-time adjustments, whether to deal with obsolescence, with new technological opportunities, or sometimes even with an inability to deliver on the promise of a bid or the requirements of a specification. Yet every adjustment carries contractual consequences (revised specifications, timescales, budget). A contract manager helps you lock down these changes while keeping the agility you need. In these fields, a contract manager’s added value is almost immediate: they secure contractual relationships and protect the company from both operational and financial drift. The greater the complexity, the more vital this role proves to be.
II. Contract value: a criterion as crude as it is effective
If the complexity of your business is already a good reason to bring in the contract management function, the value of your contracts is just as good a one. In a macroeconomic climate where profitability is critical, the issue is clear: how do you keep control of large (and often costly) projects without endangering an organisation’s finances and reputation? There is only one answer: contract management
a. Contract manager: guardian of the project P&L
We spoke about complexity above, but even in less complex fields, entrusting the management of a large contract to a contract manager can be justified, at the very least as soon as the financial stakes are high. The higher the contract value, the more misunderstandings, drift or disputes can have heavy consequences for the profitability of a project, and of a company more broadly.
On a contract of substantial value, just a few margin points can represent gains or losses of several million. By rigorously managing contractual obligations (payment terms, deliverables, performance clauses), the contract manager can act as the link between management control, the project manager and the lawyers, making sure margins are preserved by avoiding costly penalties, by tracking payment milestones, and by ensuring a regular, in-depth assessment of risks and opportunities that allows a sharper reading of the provisions to be booked or released.
At a time when liquidity circulates less freely and credit lines cost more than they did a few years ago, bringing in a contract manager – and contract management more generally – can be seen as an ROI opportunity. Bringing in a contract manager is a profitable investment, since the cost is often more than offset by the savings achieved (disputes avoided, delays minimised, advantageous clauses negotiated, etc.) and, more broadly, by improved project profitability.
b. A cross-functional role to secure delivery of large contracts
In mega-projects (infrastructure, energy, defence, etc.), values can climb to dizzying levels and involve a constellation of stakeholders: client-side project owners, suppliers, subcontractors, insurers, public authorities. The relational complexity often becomes a headache, with each player having its own priorities, constraints and contractual obligations.
In these contracts, beyond the ROI point made in paragraph a. above, it is essential to provide the “glue” between these different stakeholders on activities that are often neglected because they are not a priority for other functions.
First, on collaboration: while the project manager makes sure the various players involved in the project work together, the contract manager provides the contractual counterpart, often with different counterparts inside the organisations concerned. This collaboration means things get said, at the right time and in the right way, rather than being left out and only raised once it is too late
Next, when it comes to adapting the contract to the reality of the project, the contract manager again plays the leading role. Over the execution of a large project, spread over many years, it is common to have to adjust the original contract because of technical contingencies, regulatory changes or new client requests. Every change must be recorded precisely to avoid any grey areas or later conflict, and this is where the contract manager holds a key role – one that goes unfilled in their absence.
In short, the longer, more complex and more expensive contracts are, the more contract management emerges as a key success factor, with an ROI that is all the greater when the contract manager is involved early on (from the tender stage, ideally). Without this “contractual conductor”, the risk of a gap between strategic vision and operational delivery grows exponentially.
So, when (and how) should you take the plunge?
We warned you at the start of this article: there is no single answer to the question “When should we create a contract management function?”. The answer will depend on many factors, such as the nature of your business (more or less complex), the value of your contracts (higher or lower), the type of clients you have, and your organisation’s maturity when it comes to contracts.
We hope, however, that this article has helped you see things more clearly. The two key factors discussed (complexity and contract value) are indeed universal. To go further still, here is a checklist. Ask yourself the following questions:
- Does my project/contract account for more than 30% of my company’s total revenue?
- Is my project/contract worth more than €50 million?
- Is my contract performed abroad or across several jurisdictions?
- Is the purpose of the contract to build a product or deliver a service for the first time (or in an innovative way)?
- Did I hesitate before giving the GO for this contract, because of major risks or uncertainties?
- Does the contract involve more than three different parties (multiple subcontractors, public and private partners, etc.)?
If you answered “yes” to at least two of these questions, it is time to look seriously at bringing in a contract manager to manage your contract.