A contract is the result of a more or less parallel procurement and sales process that consists of multiple phases. This process can be divided into several steps. This also applies to the process during which the client and the supplier jointly work on the execution of the contract. The CATS contract life cycle encompasses all phases involved in the creation and execution of a contract. In this blog, I will offer more details about these phases to demonstrate why this contract life cycle offers such a great guideline for setting up the contract management process and anchoring contract management in other contiguous processes.
Formally speaking, the term 'cycle’ is not entirely accurate. After all, a contract has a starting point and a conclusion. However, after a contract has been finalized, it is often replaced by another contract. Which is why the term ‘cycle’ is still generally used.
The CATS contract life cycle (CATS CLC) can be diagrammed as follows:
The CATS contract life cycle phases
The CATS CLC shows six phases that work in parallel for both the supplier and the client. The interaction between them is essential.
Phase 1 – Determining company needs / Compiling a product and services portfolio
For the client, the CATS CLC starts with specifying the need: what is the business need and what are the corresponding requirements? For each need, the client determines whether they want to fill the need themselves or outsource it to a supplier. This is often done at a strategic level, for the entire portfolio of part of it. When this strategic decision has not been made, the client will make a ‘make-or-buy decision’ for every need that must be met.
For the supplier, the CATS CLC starts with compiling the product and services portfolio. Similarly, this generally is a strategic decision, through which the organization determines which services or products it wants to provide. The supplier may also decide to develop a specific product or service at a contract level, (frequently) together with the client, in order to meet the client's demand.
Phase 2 – Proposal
For the client, the proposal phase consists of drawing up the bid request. For the supplier, the proposal phase starts with assessing the request for proposal and making a calculated decision about whether or not they want to make a bid.
The client then assesses the suppliers’ proposals and certain elements can be verified. At the end of this phase, a selection is made, and the client decides with which supplier(s) it wants to enter the negotiation phase.
Phase 3 – Negotiation
This phase is optional. A client can sign a proposal, thereby turning the proposal with the accompanying documents into a contract. However, because this generally doesn't happen immediately or without changes to the proposal, the negotiation phase is explained separately. This phase can take any form or shape for contracts that are not subject to tendering rules. The negotiation phase ends when the client makes a final decision regarding the supplier and draws up the final version of the contract.
In the CATS CLC, the usual Q&A rounds for public tenders, and any inspection of items, are part of the negotiation phase. The negotiation phase ends with the client's definitive choice of supplier: the awarding of the contract.
Phase 4 – Contract signing
This CATS CLC phase is very short. It is the phase in which the actual signing of the contract, the formalization of the agreements, takes place. When the contract signing phase is completed, the execution (or performance) of the contract can begin.
Phase 5 – Contract performance
The CATS CLC contract execution or performance phase is determined by the starting date and deadline or date of termination stipulated in the contract. This phase runs entirely parallel for both the supplier and the client. Naturally, this phase can also be divided into subphases. This subdivision will depend on the type of product or service that is delivered.
In the course of the contract, the client's needs or the supplier's delivery options can change. Consequently, the contractual agreements may have to be changed accordingly. Many contracts include an extension option. This is also part of the contract execution or performance phase.
Phase 6 – Termination and evaluation
This phase starts when the delivery of products and/or services by the supplier has ended. The contract managers start finalizing the contractual agreements and phaseout the temporary contract organization. The termination phase will be complete when there are no more obligations. In other words: when everything has been delivered and invoiced, or when this is not the case, an agreement has been reached about how to handle these situations.
The CATS CLC offers a graphic illustration of the contractual phases. These phases relate to the contract that has been established between the parties. So, the graphic illustration offers a good launch pad for designing the contract management process and structuring the interaction with contiguous and higher-level processes.
This is the seventh blog of the series ‘Contract Management with CATS CM® in a nutshell’, in which we guide you through an overview of our vision and methodology. Do you have any questions for Linda Tonkes and Gert-Jan Vlasveld, the authors of the book Contract Management with CATS CM® version 4? Then please send an email to email@example.com!