Businesses, big and small, cannot run without agreements. Contracts agree to parties legally enforceable by creating, defining, and governing mutual rights and obligations between them.
Contracts have been used long before industrialization, and a capitalistic economy came into being. Back in the ages of kings and their empires, agreements would decide the terms of the deal, and the parties were required to uphold the terms.
As the decades went by and the world underwent insurmountable changes, the fundamentals behind contracts remained the same. Contract Management is the process of managing contracts. It includes managing agreements, from their source through to their execution by the chosen party and the eventual termination of the contract.
Since contracts have multiple facets themselves, contracts management has introduced various levels/ stages to represent every aspect of the agreement. Significant elements of contract management involve performance analysis to maximize operational and financial performance while also identifying and mitigating financial and reputational risk borne due to the non-compliance with contract terms.
Fundamentals of Contract Management
To manage work and the people involved in a contract, the team must clearly understand the work, resources, and time necessary to complete the job. A clear understanding of all these aspects is the foundation of contract management.
Benefits of Contract Management
- The quality of work is maintained: The entire contract management process aims to preserve the quality of work performed. It ensures that work is done efficiently in the right amount of time and that resources are used most cost-effectively. It ensures that the company gets the best value for money from every contract it enters. It is done by identifying and mitigating financial and reputation risks.
- Better Project Control: Project management is essential for managing the work during the initiation stage. It ensures that the work is initiated correctly.
- Increased Revenue: Higher revenue is generated when contract management is implemented. It happens in two ways. First, the company can stay competitive in the market and win more contracts. Second, the work that the company does is of higher quality. It produces higher quality results, and the business can charge a premium.
Contract Management Vs. Contract Administration
The ambit of Contract Management subsumes the entire lifecycle, right from its creation, up to its termination. However, Contract Administration incorporates the processes that go into the design of contracts between the two parties. The cycle of contract administration ends when the contract is agreed upon and signed. At the same time, the contract management begins after the signing and ends with the termination of the agreement.
Contract Administrators are responsible for ensuring both parties are happy with the contract they created together. On the other hand, the Contract Managers make sure that all parties in the agreement are compliant with all the terms.
Stages of Contract Management
As mentioned earlier, Contract Management is so much more than just getting the agreements signed. It involves a series of actions that guide and develop processes for handling every node in the agreement. It is made possible by keeping everything clear and thorough in the contract.
We know that planning plays a crucial role in the success of any strategy. A good manager always plans for their project. Contract management’s creation stage involves building a flexible roadmap to take in a few contingencies.
The creation stage is the initial step in contract management’s lengthy and thorough road. In this stage, you assess the company’s needs and resources. It includes brainstorming the critical elements of the contract strategy. This keeps all the subsequent steps spot and fault-proof and makes them ready for improvisations during contingencies. The features that should be taken care of during the planning stage are:
- The types of contracts to be managed
- Standards used in the agreements
- Responsibility for each stage
- Requirements for optimum performance of the job
- Problems/ Bottlenecks for each step and subsequent solutions
- Required Resources for implementation of the contract strategy
The creation stage sets the foundation for the following stages/ levels to follow.
The collaboration stage comes after the Creation, through which the contract management foundation has been set up. It primarily assists in implementing the set foundation for new and fresh contracts. It also involves developing new typical agreements for everyday and humdrum situations. The prominent challenge contract managers face in this stage is creating an equation that delivers what is required while reducing the risks.
The stage becomes the easiest for everyday situations. All managers need to find the right contract type and punch in the relevant information while making no or minor changes to the contract document. However, the task becomes tricky when more complex situations are in discussion, in which case, a new record is prepared from scratch, obtaining compliance, standards, and rights. An e-signature follows the Pre-contact State to finalize the contract.
The Signing Stage is the next most crucial step in Contract Management. This is where you try to execute the strategies you have planned in the previous stage. It is also the stage where you deploy contract management software to help execute contract-related tasks. The software is also known for migrating contracts with a centralized repository.
Contract Management Software is a digital tool that enables users to track and manage contracts through various stages of their life cycles. This software also allows businesses to renew notifications, compliance management, capture digital signatures, and manage contract templates.
Another significant feature of the Implementation stage is onboarding. It is made sure that every party to the contract understands the contract’s and the contract manager’s vision and objectives and is also comfortable with the tools in use.
Post the completion of the Implementation Stage, followed by the e-signature of both individuals, comes the handover stage, where it is made sure that the contract is free of errors and flaws. Every role, responsibility, milestone, and goal is confirmed.
It is when all the goals described in your contracts come to life. It is thus also the stage where you should be paying closer attention to all of the terms laid out in the agreement and perform regular monitoring of them to make sure everything is happening as it should.
The role of managers in the contract stage is to make sure everything is on track and as per the terms laid in the contract. They are responsible for identifying problems and having early warning systems in place.
Managers can take inspiration from the Planning Stage for this one. One could devise a properly ordered list of all the contract elements to be verified and checked. It will not only not let any part of the contract be left unchecked but will be a quick way to find deviations between the agreed elements and the executed work.
The Renewal stage is not essentially a stage. However, it becomes pertinent to pay attention to it after the contract stage. But the principles of the Renewal Stage should be applied in all locations.
The Renewal stage in contract management is primarily a situation in your contract life cycle where you decide whether you want to resume your contract or terminate it. Since there are clauses of penalties or default action, in the case of non-compliance with the agreement, it becomes more important to consider the end of the contract proactively in your other contract decisions.
Renewal involves evaluating contract performance and several decisions that include renewal and changes in the contract if required. The stakeholders should be aware of termination and renewal dates and ensure both the parties have ample time to gather information before the decisions get locked in yet another contract.
The post-contract stage is the conclusion of the contract. It follows the termination of contracts. In this stage, housekeeping ensures everything is done correctly, issuing or paying final invoices and archiving the contracts.
Furthermore, many contract managers tend to perform a post-mortem on their contacts to learn about takeaways for the next contracts. This post-mortem provides valuable information and learnings that are sure to improve the results of future contracts.
Contracts are only as good as the person managing them. No matter how good the terms are in the contracts, no parties to the contracts take home a good deal if not adequately addressed. Thus, it is crucial to follow the guidelines in a disciplined fashion to get the best out of your contracts.
You may also look at where to get legal document templates for your contracts.