The importance of good contract administration

With ever increasing levels of outsourcing excellent contract administration is a key component of an organizations purchasing function that can add substantial cost savings over competitors.

Contract administration describes the process for ensuring that all the party's performance and execution of the agreed contract terms are met according to the defined requirements. This involves sitting down and discussing with the vendors and explaining what is expected beforehand and that there will be several monitoring and milestone reviews throughout the contract phases. Also, the contractor will be measured by some means such as EVM or budget analysis to evaluate their performance.

Good contract administration also involves risk monitoring and control activities to assess the varying risk events and mitigate any adverse effects. Project changes also will affect the vendors so a change management process will be executed alongside the contract. Finally, performance related to cost and schedule conformity will be rated during the contract life and milestone reviews will take place to ensure that the contract is progressing satisfactorily.

Some best practices to consider is to employ a standardized contract administration methodology with specially trained experienced staff. Also the utilization of cross-functional teams to measure contractor performance is recommended. Additionally, a formal integrated change control process and a standardized performance measurement process should be a part of contract administration.