Solutions for different companies will be unique; however, as a general guide, the following could be considered.
Reporting Line and functional structure
The average contract management group spends most of its time on pre-award contract development, bid support and negotiation. Nearly 70% are either centralized or center-led (24% have no central leadership or guidance and 7% of those responding have no identifiable contracts organization - work is done by lawyers in conjunction with sales). Contrary to common assumptions, 75% do not report to Legal.
Our survey on Contract Management Role, Structure and Headcount was targeted at Sales Contracting groups. It revealed a virtual dead-heat in reporting line, with 27% reporting to Finance, the same percentage reporting to Sales, Sales Operations or Marketing and 25% reporting to (or being part of) Legal. The next largest group (15%) reported to Commercial or Business Operations. This result reflects some swing back towards a Sales / Operations reporting line, which stood in third place when we last reported in 2004. Reporting line and organizational structure are not significantly impacted by industry, geography or company size. The reasons for variation appear to be more complex and rooted in issues of politics, personality, company culture and functional origins.
The term 'contract manager' is commonly used by some 60% of participants. A further 18% use terms such as 'contract administrator' or 'commercial contracts manager' - In several, the nearest similar role is that of a paralegal. The title 'commercial manager' is used by 13% of respondents. As these title variations imply, the role (range of responsibilities) is not consistent.
As demonstrated in our comprehensive "Status of Commercial Contracting Report" (March 2005), this is most pronounced in groups reporting to Legal, where the role is likely to be narrower and more administrative in nature. However, this can also apply to some Finance-based groups (especially in the software industry), where contracts staff have extensive responsibilities in financial and compliance reporting.
Role and Responsibilities
The size of contract management groups varies dramatically, reflecting the inconsistent role and responsibilities. Across the companies that responded, the average revenue handled per contract manager is $35m. This has been calculated from the percentage of annual sales for which the contracts organization has direct responsibility and only including companies with a significant contracts group. The range of revenue per contract manager extends from a low of $8m to a high of more than $80m.
Factors that directly influence this relative productivity are:
- The wider the role, the lower the average revenue. For example, commercial managers typically have the widest responsibilities (e.g. including pricing and potentially extensive bid management), which reduces their average by approximately 16%. The picture is also slightly complicated by the fact that some contracts groups have responsibility for procurement and/or sub-contracting, in addition to their sales support tasks. If the group has extensive administrative responsibilities (e.g. order management), this significantly reduces the revenue average.
- If average deal size is small (below $10m), this reduces the average revenue handled. If there is extensive international business and especially if this is managed through local staff in each region / country, this reduces the average revenue handled (approximately 20% reduction). · If the headquarters location is in the US, regulatory obligations result in a lower average revenue handled (approximately 10% reduction).
- If there is limited automation, especially in companies with annual sales over $500m, this reduces average revenue handled (about 12% reduction). In general, the emphasis of most contracts groups remains oriented towards the legal / terms aspects, rather than pricing / financial responsibility.