Purchasing Contract Administration

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The volatility of todays business conditions and increasing complexity of relationships have combined to raise the importance of defining how to define what the risks are and how to ensure meeting expectations. Good contracts provide a mutually agreed upon base for your supplier relationships.  It is a tool for governance. This presentation will provide some principles and practices for aiding in your administration of the contract.

Learning Objectives:
  • Understand the critical pieces of a contract.
  • Learn what should be covered in your inaugural meeting and why that is so important.
  • Gain insight into different approaches to relationship management and how to choose your approach.
  • Lean how to establish your KPIs and and actions you should take beyond just measurement.

Join Mike Gozzo and walk away feeling confident in your contract administration.

Level: Basic
Format: Group Internet Based
Instructional Method: QAS Self-Study (Traditional)
NASBA Field of Study: Management Services (2 hours)
Program Prerequisites: None
Advance Preparation: No
  1. Introduction
  2. Outline 00:01:30
  3. What is a Contract? 00:03:10
  4. What Does a Contract Do? 00:05:58
  5. Checklist of Key Questions 00:07:31
  6. Stakeholder Management 00:09:55
  7. Standard Forms in Contracting 00:12:43
  8. Contract Management  00:14:48
  9. Foundations of Effective Management 00:17:42
  10. Contract Managers Role: 00:22:29
  11. Contract Adminstration 00:26:18
  12. Contract Adminstration - Inaugural Meeting 00:29:27
  13. Contract Adminstration - Contrat Program Management 00:33:41
  14. Contract Adminstration - Relationship Management 00:39:03
  15. Supplier Relationships 00:39:28
  16. Increasing Supplier Involement 00:45:18
  17. Transforming the Relationship 00:47:59
  18. Contract Adminstration - Measuring Performance 00:52:14
  19. Effective System of Monitoring Contract Performance 00:53:36
  20. Key Performance Indicators (KPI) 00:55:58
  21. Performance Grid 00:59:07
  22. Grid View 00:59:47
  23. Grid Preparation 01:01:43
  24. Stage’s In Developing KPI’s 01:03:49
  25. Results -Variation Claims 01:06:33
  26. What Is Variation 01:07:40
  27. Variation 01:10:23
  28. Consequences of Variations 01:14:02
  29. What Is a Claim? 01:18:05
  30. Avoiding Claims 01:21:00
  31. Recap 01:27:16
  32. Attendee Q & A 01:30:55
  33. Presentation Closing 01:40:20

  • Michael W. Gozzo

    Michael W. Gozzo

    Michael W. Gozzo provides consulting and training services to all levels of management and is a Supply Chain Specialist including Purchasing (Supplier Collaboration), Inventory Control and Production/Operations Management.  With many years of practical international experience, he offers a supe [...]

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  • Contract 00:01:47
  • Failure Mode Effects Analysis (FMEA) 00:35:36
  • Procurement 00:23:32
  • Purchase Order 00:13:41
  • Request for Proposal (RFP)
  • Request for Quotation 00:13:08
  • Risk Register 00:35:23
  • Stakeholder 00:10:03, 01:04:15

Contract: A written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

Failure Mode Effects Analysis (FMEA): Failure mode and effects analysis is the process of reviewing as many components, assemblies, and subsystems as possible to identify potential failure modes in a system and their causes and effects.

Procurement: Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. Procurement is used to ensure the buyer receives goods, services, or works at the best possible price when aspects such as quality, quantity, time, and location are compared.

Purchase Order: A legal contract between a buyer and a vendor. It lists the materials or services to be purchased on specified terms and conditions (quantity, price / pricing conditions, delivery date).

Request for Proposal (RFP): A request for proposal (RFP) is a document that solicits proposal, often made through a bidding process, by an agency or company interested in procurement of a commodity, service, or valuable asset, to potential suppliers to submit business proposals.

Request for Quotation (RFQ): A request for quotation (RFQ) is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services.

Risk Register: A risk register is a document used as a risk management tool and to fulfill regulatory compliance acting as a repository for all risks identified and includes additional information about each risk, e.g. nature of the risk, reference and owner, mitigation measures. It can be displayed as a scatterplot or as a table.

Stakeholders: A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers.

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Frequently Asked Questions

Purchasing contract administration is the active management of a contract after it has been executed — ensuring that both the buying organization and the supplier fulfill their respective obligations, performance targets are met, risks are managed, and disputes are resolved efficiently. Many organizations invest significant effort in negotiating contracts but then leave them in a filing system and only revisit them when something goes wrong. Effective contract administration ensures that the value negotiated into the contract is actually realized: pricing is honored, deliveries meet specifications, quality standards are upheld, and the relationship evolves constructively over time. Given the volatility of today's business conditions and the increasing complexity of supplier relationships, active contract governance is essential for protecting the organization's financial interests and supply continuity.
The inaugural meeting with a supplier following contract execution is one of the most important events in the contract administration lifecycle because it establishes expectations, working norms, and relationship foundations before any issues arise. Key topics to cover include reviewing the contract scope, deliverables, and performance standards in detail to confirm shared understanding, identifying the key contacts on both sides for day-to-day communication and escalation, establishing the schedule and format for regular performance review meetings, reviewing the invoicing and payment process to prevent disputes, discussing how change requests will be handled formally, and identifying any near-term risks or transition challenges that need early attention. Documenting agreed norms and distributing them to all relevant stakeholders after the meeting ensures there is no ambiguity about how the relationship will operate.
Effective contract KPIs translate the performance standards in the contract into measurable, trackable metrics that enable objective assessment of supplier compliance. Developing good contract KPIs involves identifying the critical outcomes the contract is meant to deliver — on-time delivery, quality, cost accuracy, responsiveness — and selecting the minimum set of metrics that most accurately reflect those outcomes. Each KPI should have a defined measurement methodology, a data source, a target or threshold, and a consequence for underperformance. Collecting KPI data on a consistent schedule — monthly or quarterly — and presenting it in a shared performance scorecard creates accountability without ambiguity. The scorecard should be reviewed jointly with the supplier during regular governance meetings. When performance falls below threshold, the review process should trigger a formal corrective action plan with specific improvement targets and timelines.
A contract variation is any change to the agreed scope, schedule, pricing, or terms of a contract that occurs after execution. Variations arise for many reasons: changes in business requirements, unforeseen circumstances affecting delivery, specification changes, or scope additions requested by either party. Managing variations effectively requires a formal change control process that documents the requested change, assesses its impact on cost, timeline, and risk, and obtains approval from authorized parties before implementation. Variations that are handled informally — through verbal agreements or email exchanges without formal documentation — create ambiguity about what is contractually required and expose both parties to disputes. A robust variation management process includes a standard change request form, clear approval authority thresholds, formal amendment documentation for significant changes, and a log of all variations over the contract's life for audit and financial reconciliation purposes.
Contract administration is not simply a compliance exercise — it is the primary vehicle through which buyer-supplier relationships evolve from transactional to collaborative. Organizations that approach contract administration as relationship management rather than enforcement typically experience better performance, more proactive problem-solving, and greater supplier innovation. Key practices include meeting regularly with strategic suppliers not only to review performance but to understand their challenges and explore mutual improvement opportunities. Recognizing and rewarding strong performance — whether through increased business allocation, preferred supplier status, or simply public acknowledgment — motivates continuous improvement. Being a fair, transparent, and predictable buyer creates reciprocal goodwill from suppliers. Gradually increasing supplier involvement in planning and problem-solving shifts the relationship from arm's-length to genuinely collaborative, generating value that neither party could create alone.