Practical advice for charities on contract management

Exploring how charities can exploit opportunities, and manage risk, through good contract management – the practical over the technical.

Whilst we are well versed in advising charities on a plethora of technical contractual pitfalls, we see a whole host of issues arising in relation to a charity’s poor management of its contracts, and contractual relationships, from a practical point of view. Those issues can range from a charity missing complex key performance indicators, to as simple as a charity losing key contractual documentation.   

Effective contract management is crucial for charities to ensure they exploit opportunities, meet obligations, mitigate risks and achieve their mission. Here are some practical steps and advice to help charities manage their contracts effectively from a practical point of view.

Understanding contract management

Contract management involves overseeing the creation, execution and analysis of contracts to maximise operational and financial performance while minimising risk. For charities, this means ensuring that all agreements with partners, funders, suppliers, and beneficiaries are well-managed and aligned with the charity's goals.

Key steps for effective contract management

1. Get a good understanding of the contract terms

• Deliverables and performance indicators: Clearly define what is expected from each party in as plain and user friendly language as possible. This includes the specific services or goods to be provided, timelines, and quality standards.

• Terms and conditions: Ensure that all terms and conditions are clearly outlined and understood by all parties. This includes payment terms, confidentiality clauses, and termination conditions. It may be that the terms and conditions of a contract are spread across a number of documents (e.g. across an order form, standard terms and conditions and a privacy notice), in which case all documents need to be considered.  

2. Establish good communication mechanisms

• Regular updates: Maintain open lines of communication with all parties involved in the contract. Regular updates and meetings, which should be set out in the contract and diarised, can help address any issues early on.

• Point of contact: Designate a specific person or team responsible for owning and managing each contract and contractual relationship (sometimes referred to as a “SPoC”). This helps in maintaining consistency and accountability. It may involve designating different people at different times (e.g. where a procurement team is responsible for negotiating a contract and then a relationship team is responsible for managing the performance of a contract once incepted, or where a designated person ceases employment with a charity and is replaced by another person), in which case it is important to ensure an orderly handover of responsibility. 

3. Set up governance, controls, processes, and systems

• Contract repository: Maintain a centralised repository for all contracts (recognising that they may be spread across a number of documents), together with an index, which is accessible to all relevant people. This makes it easier to track and manage them. It is amazing how often contracts get lost! As a rule of thumb, contractual documentation should be kept for a period of at least seven years after their termination or expiry.

• Approval processes: Establish clear processes for contract approval and amendments. This ensures that all changes are documented and approved by the relevant parties. Again, any amendments to contracts should be held in a central repository.

4. Monitor and evaluate performance

• Key performance indicators (KPIs): Establish KPIs to measure the performance of the contract. Regularly review these indicators to ensure that all parties are meeting their obligations.

• Audits and reviews: Conduct regular audits and reviews of the contract to ensure compliance and identify any areas for improvement.

5. Identify and manage changes

• Change management: Have a process in place to manage changes to the contract. This includes documenting all changes and obtaining the necessary approvals.

• Flexibility: Be prepared to adapt the contract as circumstances change (either external or internal to the charity). This can help avoid disputes and ensure that the contract remains relevant.

6. Manage contract-related risks

• Risk assessment: Regularly assess the risks associated with each contract. This includes financial risks, legal risks, and reputational risks.

• Mitigation strategies: Develop strategies to mitigate these risks. This can include insurance, contingency plans, and regular monitoring.

7. Renew or terminate the contract when appropriate

• Renewal process: Have a clear process for renewing contracts. This includes reviewing the performance of the contract and negotiating any changes.

• Termination conditions: Ensure that the conditions for terminating the contract are clearly outlined and understood by all parties. This can help avoid disputes and ensure a smooth transition of the contract to a new party if necessary.

Maintaining a schedule of key terms

One of the most important aspects of contract management is maintaining a schedule of key terms. This schedule should include:

• Contract start and end dates: Clearly outline the duration of the contract. Be aware that certain terms and conditions may be expressed to extend beyond the life of the contract (in which case note those obligations). This can apply to things like confidentiality obligations.

• Key milestones and deadlines: Include important dates such as delivery deadlines, payment dates and review dates.

• Responsibilities and obligations: Detail the key responsibilities and obligations of each party.

• Termination conditions: Outline the conditions under which the contract can be terminated.

By maintaining a schedule of key terms, charities can ensure that they are meeting their obligations and can quickly address any issues that arise.

Conclusion

Effective contract management is essential for charities to achieve their mission and avoid potential risks. By understanding the key steps involved and maintaining a schedule of key terms, charities can ensure that their contracts are well-managed and aligned with their goals.

If you would like to discuss any aspect of this article further, please contact the charities and social economy team on 0113 244 6100.

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The information in this article is necessarily of a general nature.  The law stated is correct at the date (stated above) this article was first posted to our website.

Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.