The Hidden Cost of Poor Contract Management

Many organisations pour time, money, and resources into the front end of the procurement process—running tender processes, conducting evaluations, and negotiating terms. But once the ink dries on the contract, the focus too often shifts elsewhere.

According to McKinsey & Company, inadequate contract management can lead to a deterioration in vendor performance and cost savings, resulting in value erosion of as much as 15% to 30% of total contract value.

Contract management—the discipline of actively managing the supplier relationship, performance, obligations, and outcomes throughout the life of the agreement—is frequently under-resourced or even forgotten altogether.

Yet this oversight comes at a cost. And it’s bigger than many realise.

Let’s break down why this happens:

1. No Clear Ownership

Too often, once a contract is signed, no one is formally tasked with overseeing it. Roles and responsibilities are unclear. Supplier performance goes unchecked. This results in deliverables not being met, and value not being realised—even when a great deal was negotiated upfront.

2. Compliance Falls Through the Cracks

Are suppliers delivering what was agreed to? Are KPIs being tracked? Many businesses don’t have systems in place to report on performance or enforce compliance. If you’re not measuring, you’re not managing—and definitely not improving.

The average contract compliance rate stands at 62.6%, indicating that a significant portion of contracts may not fully adhere to agreed terms, potentially leading to financial and operational risks.

3. Missed Renewal Planning

Many contracts roll over by default. With no proactive planning or market testing, organisations miss opportunities to renegotiate better terms or explore improved solutions. Worse, contracts may expire unnoticed, leading to service disruptions or non-compliant spend.

4. No Visibility of Expiry or Risk

Without a current and accurate contract management system, organisations are flying blind. Not knowing what’s due to expire, who owns each agreement, or what the key terms are can create financial and legal risk—and frustrate both internal stakeholders and suppliers alike.

Between 55% to 70% of organisations lack effective contract management systems, leading to challenges such as revenue loss and errors in agreements. 

Gartner reports that organisations are moving away from isolated, department-specific contract management tools in favour of comprehensive, enterprise-wide Contract Lifecycle Management (CLM) solutions. This shift aims to enhance governance, control, and visibility across all contractual agreements

5. Stagnant Solutions

Innovation doesn’t stop once a contract starts. Supplier offerings evolve. Needs shift. Without a mechanism to revisit and optimise during the contract term, organisations miss out on improved services, better technology, or more cost-effective models.

6. Lost Opportunities to Partner for Value

Strong contract management opens the door for true supplier partnerships—where both parties are incentivised to improve, innovate, and deliver greater value over time.

So What Can You Do Right Now?

Here are some practical actions any organisation can take:

• Establish or refresh your Contract Management System – Ensure it tracks key details like terms, renewal dates, contract owner, and performance metrics.

• Define roles and responsibilities – Make sure everyone knows who is accountable for managing contracts post-award.

• Get proactive with renewals – Start planning 6–12 months in advance.

• Build reporting and review cycles – Don’t “set and forget.”

• Review your Contract Management Framework – Is it still fit for purpose? Has your organisation outgrown it?

  
  

Final Thought

In today’s financially constrained environment, strong contract management isn’t just good governance—it’s smart business. It can be the difference between cost containment and budget blowouts, between average performance and standout value.

If your organisation hasn’t reviewed its approach to contract management recently, now’s the time. It could be costing you more than you think.