Contractual performance: who’s responsible?
Contracts are at the heart of business relationships. Whether they govern relationships with customers, suppliers, or partners, contracts set out in advance the reciprocal commitments, rules of the game, and safeguards, particularly in the event that commercial relations become strained. The performance phase is when all the dangers come to the fore.
However, despite their central role within organizations, the governance of contracts most often remains confused, ambiguous, or even defective, due to a lack of “ownership” of the contractual relationship in its entirety.
Contract performance: an implementation issue
If they are both well negotiated (with regard to the balance of power between the players) and well implemented in the operational phase, contracts constitute a powerful lever, in that they offer a reasonable assurance of achieving future results, particularly in terms of sales revenue and margin.
Conversely, contracts can be a source of loss of value for shareholders. There are numerous examples of companies whose operational performance has faltered due to losses stemming from poorly sized or inadequately managed contracts.
One of the most well-known contractual slippages is the A400M program development contract, where the extra costs amounted to billions of euros for the manufacturer (and for its customers!). A contract, despite being signed in accordance with the principle of contractual freedom, can turn – sometimes very quickly – into a trap for the company, which effectively becomes a prisoner of its own commitments.
Contract performance: a governance issue
In light of these strategic and financial implications, it may seem surprising that contracts are not, in general, formally placed under the responsibility of a single actor within the company, who would be the guarantor of the contract from its inception to its closing.
Shaped by multidisciplinary teams (technical, commercial, legal, and financial), contracts are neither entirely the responsibility of the buyers who negotiate them, nor of the legal experts who draft them, nor of the operational teams who implement them.
The contract is thus essentially orphaned, torn between several destinies:
Should it remain in the lap of the lawyers?
A logical choice at first sight, as they are ultimately responsible for guaranteeing the interpretation of the contract; or for securing the conditions necessary to terminate it, if necessary by legal proceedings, if a dispute arises between the parties that cannot be resolved via a negotiated solution. But what about the vast majority of contracts that, fortunately for the business world, will not give rise to legal action, but that should nonetheless be managed in the best interests of the company?
Should you entrust the responsibility for contract performance to the sales representatives (or buyers) who negotiated it?
Moving from one negotiation to another, they are often too busy closing new deals to dwell on current contracts and on the minutiae of the performance phase, which requires dedicated teams and more technical profiles.
Or to the operational teams in charge of performance?
After all, it seems reasonable to entrust responsibility for the contract to the specialists in charge of performing the agreed services over the life of the contract. However, this situation would mean that operational teams, focused on satisfying customer needs and managing the cost/quality/delivery triptych, would be responsible for managing the acceptable level of contractual risk… and could easily lose their objectivity in the face of the real risks involved.
Presenting the Project Manager
Faced with this situation of imperfect governance, where none of the players instinctively steps up to take sole responsibility for contractual performance, the Project Manager generally ends up bearing the entire responsibility for the contract’s performance.
This is actually the most commonly employed model: Project Managers, regardless of whether or not they contributed to negotiating and signing the contract, are propelled (sometimes without an explicit mandate!) to the role of guarantor of contractual performance, including the agreed margin objectives.
In accordance with the single-responsibility principle, which should guarantee sound governance, the Project Manager is then bound to the contract “in life and in death”. This is not without risk for the person concerned, as well as for the company. What Project Manager hasn’t had to apply a poorly negotiated contract, with ineffective contractual provisions, or that is simply incomplete? Similarly, what company hasn’t found themselves in a situation where they have lost confidence in a Project Manager, but where they lack the objective means to judge the contractual risks involved?
A new profession: the Contract Manager
In this context, we have witnessed the emergence of a new function in recent years: the Contract Manager.
This function, which is now integrated into the main industry frameworks (e.g., the professional engineering federation Syntec Ingénierie, or the association of French companies and public authorities CIGREF, etc.), is defined as controlling the financial and legal risks borne by the company in the context of its contractual relationships.
The Contract Manager is thus “answerable” for the performance of the contract, generally autonomously and independently from the Project Manager, thus ensuring better governance.
The creation of a Contract Manager function does not limit the Project Manager’s responsibility regarding contract performance, but it does allow the company to take a step back and to benefit from expertise in the handling of contractual issues (amendments, claims, potential disputes, etc.), particularly during the performance phase.
Let’s hope that the generalization of this new profession, reserved for “senior” profiles, will encourage a better segregation of responsibilities and provide complementary expertise to help improve the company’s overall performance.