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Contract lifecycle

Douglas Macbeth outlines the lifecycle of any contract from basic identification of a user need through all stages.
DOUGLAS MACBETH: This Contract Lifecycle diagram shows the overall project life cycle, and is intended to show the spread and extent of the considerations needed from many different people. The diagram is used as the organisational principle of the free-to-download e-book, which provides more detail and discussion of each stage. It is not necessary to read all of this book, but it’s there for anyone who wants to take the subject further. Here, we will have a high-level discussion of the different stages. The other source indicated, from the free-to-access UK government website, provides more detail, but it really starts from what, in this diagram, is termed Stage Four. Let us look at each stage in turn.
Stage One– there has to be a business or policy reason to consider supplying some goods or services. This need has to be recognised, and the details of what would constitute satisfaction of that need has to be designed and specified. Stage Two is highly strategic since it determines if it is possible or desirable to do this activity in your own organisation, or whether you need to go to the marketplace to buy this capability and capacity. In many organisations, 80% to 90% of their spend is with outside suppliers or vendors. Stage Three– a sourcing process is needed if the decision is to go to the market to buy and, therefore, contract this service.
In the public sector, the choices are defined by rules and procedures to demonstrate fairness and to reduce the scope for corruption or political interference more than in the private sector, but the thinking is very similar. Contract negotiation, agreement, and award are the outcomes of this stage. Stage Four– once a contract is agreed, then both buyer and supplier organisations have to put agreements, plans, and processes in place to deliver on the contractual promises made on both sides. Often, this means a new team takes over the responsibility to manage this part of the lifecycle.
Stage Five– contract monitoring and improvement is needed since it is here that, without clear management, the value you negotiated can be reduced by between 5% and 15% typically. Stage Six– near the end of the contract, we have to decide is the need still there, perhaps with some changes required, or if the need is now satisfied, and the contract can end? We might need to go back to the beginning again to start the overall process afresh.
Stage Seven is similar to all end of projects. There is a need to capture what has been learned and how we can continue to improve performance and processes.

In this video, Douglas Macbeth outlines the lifecycle of any contract from basic identification of a user need through all seven stages until the requirement is fulfilled or re-visited in some way:

  • Stage 1: Specification

  • Stage 2: Make – Buy

  • Stage 3: Source – Award

  • Stage 4: Implementation

  • Stage 5: Operate

  • Stage 6: End options

  • Stage 7: Lessons

This video identifies key issues needing management attention at each stage.

By watching this, you will be able to see how the various people need to be fully involved and actively working to obtain the best possible results.

What do you think might need further development in your own work situation?

Links are available at the bottom of this page to:

  • Douglas’ e-book on ‘Contract Lifecycle Management’

  • A set of resources on ‘Contract Management Standards’ from the UK Government’s Crown Commercial Service

  • A diagram which illustrates the ‘Stages of the Contract Lifecycle’ (in PDF format)

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