Not surprisingly, contract management starts with knowing what contracts you have. A large number of facilities fall out of the best practice group right here. Departments still sign and manage their own contracts without any coordination or even knowledge of the materials management department. Some hospitals have centralized the contracts but done so outside of materials. A case can be made for storing contracts in several other departments including administration, risk management, legal and finance.

Centralization outside of materials is better than not centralizing at all. But optimal outcomes will not result because these other departments will not, nor should they be expected to, actually manage the contracts. Only when the majority of
contracts are centralized in materials will contract management occur. If your organization insists on creating the centralized repository elsewhere, have an additional copy made for materials.

Why have just the majority of contracts in materials instead of all? Because of the sensitive nature of some contracts, there are a couple of valid exceptions to the single storage point rule. Most organizations keep insurance and benefits contracts in the human resources office. They also keep physician services and sometimes consulting contracts in administration. Materials can still work with these departments to assist in managing them.

Actually collecting the contracts can be challenging. The first step should be publication of a policy on contract management. This should be a hospital-wide policy as described in a previous best practice. Upon publication, administration should also instruct all departments to provide copies of any current contracts to materials management. This should get many but probably not all of the contracts. The next likely source is accounts payable. Have them collect all invoices for monthly payments that are not supported by a purchase order. Check with the responsible department to see if there is a contract for the item. If the department is not aware, contract the supplier.

As you collect contracts you can take some immediate actions. Send a formal notice to each supplier to inform them of the following:

• No subsequent contracts will be valid unless signed by the Director, Materials Management;

• No modifications can be made to the current contract unless in writing and approved by the Director, Materials Management;

• No additional work or products can be provided under the contract except for those specifically included;

• If there is an evergreen clause, that is, a clause that automatically renews the contract unless the hospital gives notice of cancellation before the expiration date or some date before the expiration, give formal notice of cancellation. The notice can indicate that extension and/or renewal may still be pursued. The goal is to avoid unintended extension.

Further, if there are any terms or conditions that are especially onerous, you may consider requesting an immediate renegotiation of the contract.

Once all contracts are identified and resident in the materials department the management can begin. There are several contract management software programs available that are worth reviewing. Alternately, a simple spreadsheet can be created that includes the most important data elements for each contract. In addition to the obvious information like supplier name, product or service covered, etc., the key data elements are the expiration date and the decision date. This is usually the same date. If there is an evergreen clause, the decision date would be that date at which the contract will automatically renew. One other date should be entered. This is the date somewhat in advance of the expiration when work on the potential renewal should start.