The Future of Contract Management

As contract management in procurement is the stage where customers, vendors, and partners form legally binding relationships with the supply chain, it is necessary to ensure that your requirements, especially sustainability requirements are collaboratively discussed, agreed to, and documented before entering into a contract.

In evaluating organisations across sectors, industries and geographies against the ISO 20400 standard, the most gaps I’ve encountered are in the MANAGE stage of sustainable procurement.

This has many reasons: lack of contract managers, contract managers not upskilled in sustainability, and the big one: legacy contracts that fall through the cracks due to unassigned contract managers. Where effort has been made upfront in PLAN and SOURCE, we often forget about KPIs and contract clauses to make sustainable procurement and social value generation a reality.

With the Procurement Act looming on the horizon, its need for publishing KPIs provides a good opportunity to get this right but, if your organisation is not prepared, the Act’s focus on contract management might send you running for the hills.

A key performance indicator (KPI) is defined in the Procurement Act 2023 (Act) as a factor or measure against which a supplier’s performance of a contract can be assessed during the life cycle of the contract (section 52(1)).

The Procurement Act places a significant focus on contract management. We see this right from the outset – section 1 now defines procurement to mean: “the award, entry into and 𝗺𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 of a contract”

Let us look at why this is important:

1. Do not expect your supply chain to deliver unprompted on your sustainability KPIs. The 5 rights of procurement: time, place, quantity, quality, and price might be adhered to but, the first thing to go flying out the window if left unchecked are your sustainability requirements post contract award
2. Performance management is an important component of compliance with standards such as ISO 9001, ISO 14001, or alignment with ISO 20400. Your supplier’s success is your success, their failure is your failure
3. That all important Value for Money (VfM). Value can be achieved through cost avoidance and cost mitigation. We are in a 2% sector in construction and infrastructure. Added value can be realised by embedding sustainability into procurement and generating social value

Now there are 2 elements to this (source: UK Government National Audit Office 2019):

1. Contract or Supplier Performance Management (SPM) – the process which ensures that both or all parties to a contract fully meet their respective obligations as efficiently and effectively as possible, in order to deliver the business and operational objectives required from the contract and in particular to provide value for money.
2. Supplier Relationship Management (SRM) – the proactive management of an ongoing business relationship to secure a competitive advantage for your own organisation. The focus of SRM is on the overall relationships between the supplier and the buying organisation rather than a focus on a specific contract.

The process of SPM usually follows the PLAN-DO-CHECK-ACT model:

1. Plan: is about data requirement and communication: what are the KPIs you want to set, what are the targets within those, what is the frequency of the SPM meetings, what data reporting and how often do you need data from the supply chain, what mechanism and tools will you use for data gathering and feedback mechanisms, who are the key stakeholders from both parties to be involved in the SPM, what support are your offering the supply chain for upskilling, development. And most importantly has all of this been collaboratively agreed with the supply chain and communicated to them in writing.
2. Do: gather the data, have the SPM meetings, give feedback
3. Check: verify the data, gather evidence, track progress towards KPIs and targets
4. Act: manage performance! A lot of organisations gather a lot of data but do not analyse it. Use data to make data driven decisions and reward and incentivise the supply chain. If supply chain performance does not meet the required thresholds, then supplier action plans and support to be put in place.

This is the process, and this is easier said than done. We all know the constraints we face in contract management. From lack of resource to lack of knowledge and time, we have heard these reasons before. Here are some useful tips to get prepared.

But there is more than just Time-Place-Quantity-Quality-Price to be managed and monitored. There are our CSR, ESG, Sustainability (call it what you want, just do something about it!) ambitions, targets, and due diligence (whether they are parent company led, or Joint Venture project-based or even client-driven). The need for Scope 3 data, Modern Slavery audits, waste management evidence and all the other social value generating sustainability requirements that we have woken up to, are embedding into the procurement process but not able to (not knowing how to) manage post-contract award.

This follows the same process, but the issue lies in that our contract and performance management duty for this aspect is not strong enough yet.

To give you insights on how to, best practice, case studies, and actual sustainability contract clauses we have put together a Virtual Conference on the 18^{th of} March 2025 titled ‘Integrating ESG in Contracts: Managing Risks and Compliance‘ and we invite you all to be there.

By attending this virtual conference, you will:  

• Learn about the existing contract clauses that you can use
• Learn about the good performance management duty for sustainability
• Hear from contract and government experts on contract managing for sustainability

For more information or to explore how Action Sustainability can support your organisation, please contact our team.