Best Practices for an Effective Contract-Management Strategy

Introduction

Contract management is the process of actively monitoring and controlling the contract between a procuring entity and the contractor to ensure delivery of a reliable and cost-effective service (Muhwezi & Ahimibisibwe, 2015). Effective contract management helps to lower the factor of risk and uncertainty, and to enhance both financial optimization and operational efficiency (Muhammad et al., 2019).

Poor contracting management could result in huge losses for the procuring entity. According to a survey by the Global Contract Management Association (IACCM), the average cost of poor contracting, as evidenced by missed milestones and slow negotiations, is 9 percent of an organizations annual income and up to 15 percent of the contract value for large capital projects (IACCM, 2019). Most of these revenue losses can be avoided through improved contract management (IACCM, 2019).

Background to the Study

In April 2000, Congress began to take steps to address service contracting challenges by lobbying for the increased use of performance-based service contracts for all government contracts (Cooper, 2001). A performance-based contract describes the governments requirements in terms of measurable outcomes and desired results for contracted work (Cooper, 2001). Consequently, the Procurement Executive Council, a senior coordinating body comprised of officials drawn from over 20 federal agencies, established a goal that by 2005, more than 50 percent of service contracts will be performance-based (Cooper, 2001). In May 2001, Congress passed the Federal Acquisition Regulation, which established a preference for using performance-based contracting when acquiring services. These changes marked the beginning of a growing interest in contract-management...

Muhammad et al. (2019), for instance, sought to examine the relationship between contract management and performance characteristics using a sample of 100 professionals drawn from the fields of project management, architecture, engineering, and quantity surveying, among others. The study findings showed that contract length had a significant, but negative effect on project quality (Muhammad et al., 2019). The study also found effective dispute resolution between the contracting parties and mutual acceptance for the product or service to be significant influencers of project quality in contracted works (Muhammad et al., 2019).

These findings were replicated in another study by Muhwezi & Ahimibisibwe (2015), which found that the quality of a project depends on the nature of interactions between contract management teams and contractors of the disposing and procuring agencies. For this reason, the study concluded that one way to improve contractual engagement in public procurement is by adjusting laws to allow reasonable interaction between the disposing and procuring entities (Muhwezi &…