It is a standard operating practice for businesses to have a proper contract management process that helps to administer agreements with partners, buyers, sellers, or their staff.
Often, it is difficult to find new businesses implementing proper contract management processes because it does not always fall in the top-priority category, especially for startups, which usually have limited resources, and also because the workforce needed to organize contracts is regularly costly.
What Is Contract Management?
Contract Management is the system of managing the life-cycle of contracts created and administered by an organization with other parties.
As simple as this definition is, over-simplifying contract management is a common and costly mistake that many businesses make. However, it is critical to think of contract management as getting the most out of your contracts.
Contracts can take many forms, it could come in partnership agreements, sales, lease, or intellectual property agreements.
The aim of Contract Management is to ensure that parties involved meet their respective commitments efficiently and effectively by delivering the intended outcomes of the contract.
Role Of Technology In Contract Management
With the aid of technology, contract management has grown in the last few years. These days, if you want a no-hassle contract management process at your organization, you can find software that can help you achieve that goal.
With contract management software, you can streamline the process of contract negotiation, execution, and ensure contract and regulatory compliance, while undertaking best practices and strategies across the organization.
The Contract Management Cycle
Contract Management involves monitoring performance to ensure parties coming together in agreements meet the commitments agreed upon in the contract. That is why professionals have engaged a model referred to as a contract management framework.
According to the Contract Management Handbook of the Australian National University, this framework provides a clear and standardized approach to managing contracts by approaching contract management as the coordination and management of four core processes, which are:
Proper planning is the first step in contract management. It reduces or eliminates the risk of error, maximizes procurement, and helps businesses achieve their contracting goals.
Planning includes the development of the contract management team, risk assessment, developing a communication plan, determining the procurement method, planning for the content of the procurement, and determining a cost estimate.
A Contract Management Plan should document major aspects of the contract, such as key performance indicators, reporting requirements, parties’ obligations, and communication strategies.
An important step in the contracting process is defining contracting objectives. When contracts fail, it is often because some expectations were not fulfilled. So it is important to identify contracting objectives and contracting strategy.
A contract is by agreement, the creation of legally enforceable rights and obligations between two or more parties. Whether you are purchasing goods, engaging services, or entering any form of agreement, you need to understand that your actions are binding, so you must take care to get your intended value.
An agreement must be an accurate reflection of the terms and conditions you intend, and it must consider all matters of significance that emanated from the negotiation process.
Meanwhile, contracts must be fair to other parties while protecting your organization’s interests in performing contractual agreements and against any possible civil action. We advise you to consult a legal professional during this process.
This is the phase where you need to ensure the contract contains provisions that hold parties involved accountable for producing desired results.
This is including all relevant terms and conditions and established processes that align with providing the goods or services and doing your part in whatever type of agreement you have signed.
This phase is about monitoring performance and enforcing the terms and conditions of the contract.
We must keep comprehensive and accurate records to establish and maintain an audit trail in relation to responsibilities, claims, payments, negotiations, agreed-on changes, errors, and all. There must be a central contract register that makes it easy for records to be retrieved.
A good contract administration must also include reporting. There are two (2) categories of reports; status reports and activity reports, and both types of reporting serve useful functions. This is the phase that leads to the contract completion where both parties take procedures to ensure that they fulfill their contractual obligations. At this point, you assess the success of the contract and observe some lessons for future contracting.
Even if your organization has professionals in place, it is not enough. When you amplify human capability with contract management software, organizations can expect to experience satisfactory delivery, fewer contract disputes, and more.