Contracts Management: Everything You Need to Know
The definition of contracts management is the process of managing content creation as well as the execution and analysis of the financial and operational aspects of any organization in an attempt to maximize performance. 3 min read
The definition of contracts management is the process of managing content creation as well as the execution and analysis of the financial and operational aspects of any organization in an attempt to maximize performance. Contract management is important to many businesses due to the ever-increasing importance being placed on company performance and reduction of operational costs.
Since contract management can be a very time-consuming process, no matter the size of the company, you can facilitate the process through the use of an efficient automated contract management system. Contract management can also be referred to as contract administration and involves the management, negotiation, execution, performance, determination, and modification of contracts that exist between the company and its customers, vendors, contractors, distributors, and employees. Contract management is an important aspect of maintaining relationships between the company and those that they work with.
Fundamentals of Contract Management
When companies come together to perform a business relationship, they will create a contract that will define each of the contracting parties obligations, rights, and responsibilities, as well as specific details of the products or services that they are purchasing or securing from each other.
The negotiation and execution of these contracts have a large impact on a company's expenses and revenue, and if poorly phrased or not properly defined, a business could stand to lose thousands of dollars over a technicality or poor language. Through effective contract management, a company can increase revenue, profitability, and overall performance.
Elements of Successful Contract Management
Companies will need to do more than simply have professionals handle the contract management. Successful contract managers will need the assistance of software and processes to help stay compliant and satisfy the analytical needs of the company.
A successful contract management strategy will help a business or organization:
- Realize the business benefits and financial returns.
- Ensure the supplier will stay responsive to the needs of the organization.
- Avoid contract disputes or surprises.
- Help ensure satisfactory services and delivery for both parties involved.
Stages of Contract Management
There are multiple stages of contract management that start with the pre-award stage. During this stage, the focus is on the reasons for establishing the contract as well as finding a supplier that can successfully meet the company's needs and terms. Contract management professionals will need to properly research and give consideration on how the contract will proceed once it is awarded. Throughout the stages of awarding a contract, both parties should show some flexibility and be willing to adapt to be able to achieve a contract that will work for all. Problems can arise and may require a reworking of the contract.
The stages of contract management can be extremely time-consuming and require multiple steps to create a contract that will prove to be successful for both parties. The steps involved in contract management include:
- Initial requests — During this phase, contracts will be identified by their reason, or need, and documents will be gathered to support it.
- Drafting the contracts — The drafting of the contract will be the most time-consuming step but can be streamlined with the use of contract management software.
- Negotiation of the contract — Once the contract has been drawn up, copies should be compared to note and fix any errors or discrepancies that could hinder negotiations.
- Contract approval — This can be the longest timeframe during the process as the contract will probably have to go through a lengthy approval process before it can be implemented.
- Contract execution — The execution process involves all parties and necessary signers, signing the contract so it can begin implementation.
- Obligation management — This step in the process requires the contract managers to make sure the contract is being fulfilled and met during the early stages to be able to report to key shareholders.
- Amendments and revisions — This stage will involve adding any overlooked items into amendments to the original contract.
- Reporting and auditing — After the contract is underway, the contract manager will have the job of performing regular audits and reporting to executives on the success or failure of the contract implementation and compliance.
- Contract renewal — Once the contract has reached the end of its term, a contract manager will review renewal.
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