Contract management refers to a system organizations use to supervise relationships with other businesses that provide products and services. Each agency approaches contract management differently. For example, government agencies' management systems must conform to applicable rules and laws. Private companies and non-profits enjoy more flexibility.
A leading objective for contract management concerns the concept of value. An organization will turn to contract management when it believes an external provider is better equipped to deliver the product or service. The value must exist not only in the minds of the organization's leadership but also in the eyes of customers and shareholders. Contractors not offering sufficient value may not get their contracts renewed. For some contract management departments, value is measured in terms of quality in relationship to cost.
The concept of contract productivity is related to the concept of value. An organization will look at how much (in numerical terms) the contractor is able to produce or how many customers it is able to serve. If productivity is high, it will be advantageous to continue working with the contractor. If productivity is lower than expected, it will be advantageous to use contract terms to encourage the contractor to improve productivity or to find a different contractor as soon as legally possible.
Contract compliance is imperative. While an organization may believe it is getting a good value from the contractor--using measures of productivity, quality and other factors--it must also ensure compliance. A contract management system ensures each contractor delivers on all of its promises in a legal contract, such as furnishing appropriate documentation, meeting deadlines, demonstrating accountability, reporting financial data and complying with regulations. If an organization cannot rely on a contract management system or office to ensure compliance by contractors, it is not achieving its primary objectives of contract management.