The Fundamentals of Contract Management
Discover the fundamentals of contract management.
- The act of managing contracts for clients, suppliers, or other parties is known as contract management.
- Legal expertise is necessary for contract managers to effectively oversee the contract management process.
- Not all businesses have dedicated contract managers, but those that routinely engage with the government or in the military industry typically do.
One aspect of management that is underutilized is managing contracts. Managers constantly have conversations and encounter issues with their staff members, and some of them inevitably include pay. The administration of contracts will come up in some of these discussions. Businesses may have to handle contracts with other companies. Although it is seldom discussed, contract management is a crucial business issue. It’s crucial to comprehend the fundamentals if you’re not familiar with the contract management procedure.
Why is contract management necessary and what does it entail?
The process of managing contract formulation, implementation, and analysis is known as contract management. Its goal is to increase an organization’s operational and financial performance while lowering financial risk. Organizations are under more and more pressure to save expenses while boosting productivity. The necessity for an efficient and automated contract management system is facilitated by the fact that contract administration tends to be a particularly time-consuming aspect of company.
The cornerstones of contract administration
A contract outlines the actions taken by both organizations and the conditions under which each will carry out its obligations when two businesses want to conduct business with one another. Contracts have a significant impact on company performance because they place a strong focus on revenue and costs.
When a contract is badly written, one group might lose tens of thousands of dollars due to a little technicality that they were unable to detect. Only when handled properly, effective contract management may eventually forge strong commercial ties and open the door to increased profitability in the long run. Include a legal department or a lawyer in conversations about contract management. For effective contract management, contracts must be written precisely.
Managing various contracts with independent contractors or workers is also a part of contract management. These periodically need supervision and adjustments that benefit both parties.
In general, there are a few crucial steps in contract management. The beginning, often known as the pre-award period. This is all the work that must be done before an individual, a company, or an employee, is issued a contract. The process is rewarded at the midway stage. This contains all the papers required to formally ratify the agreement. The post-award phase is the third step. This is where a great deal of contract management and upkeep is needed.
The contract management process is more complex than that and may be regarded in more stages depending on how in-depth a perspective you’re taking. Nevertheless, those three fundamental steps provide a straightforward method to view contract management in three phases. Later on, we’ll talk about the procedure in more detail.
Ingredients for effective contract management
The presence of specialists in a company to handle contract management is insufficient. To meet the growing demands for compliance and analysis, employees must be supported by procedures and tools. Organizations may anticipate the following outcomes from a successful implementation of a contract management strategy:
- Business advantages and financial rewards are materializing as anticipated.
- The provider is helpful and attentive to the requirements of the company.
- There are no unexpected issues or contract conflicts for the company.
- Both parties are pleased with the services that were provided.
What constitutes effective contract management?
Successful post-award and upstream activity execution is the cornerstone of contract management. Employees should concentrate on the rationale behind the contract’s creation and if the supplier can adhere to its requirements during the pre-award phase.
The operation of the contract after award requires further study. Careful study and a clear statement of the contract’s objectives are necessary to prevent unpleasant surprises.
Both parties must be prepared to exercise some flexibility in order to modify the terms of the contract to take into account any evolving conditions. Since issues are unavoidable, businesses must be ready for them and have the flexibility to modify contract terms as necessary. [Related Story: Important Loan Contract Provisions to Note]
Which steps make up the contract management process’s stages?
Despite the complexity of contract administration, it may be distilled into five distinct steps: development, cooperation, signing, tracking, and renewal.
Within the phases, we may further distinguish between certain steps. The whole procedure may be divided into nine parts, each of which contributes to one of the five broad stages. When it’s time for a new round of contracts, this makes it simpler to handle the end-of-quarter crunch that often occurs. The steps for each level are as follows:
- Initial demands for creation. Finding contracts and relevant documentation to support the objective of the contract is the first step in the contract management process.
- Creating agreements. Writing a contract by hand takes time, but using automated contract management tools may simplify the process significantly.
- Contract negotiations in collaboration. Employees should be able to review different drafts of the contract once it is written and mark any differences to shorten the bargaining process.
- Signing; approving the agreement. The stage that experiences the biggest obstacles is getting management permission. Users may avoid this by designing customized approval procedures that include parallel and serial approvals and keep decisions flowing quickly.
- The contract’s execution. Through the use of electronic signatures and fax capabilities, users are able to manage and expedite the signing process while executing the contract.
- Management of obligations. To make sure that key stakeholders are meeting the deliverables and that the contract’s value isn’t declining throughout the early stages of expansion, this calls for intensive project management.
- Modifications and revisions. It might be challenging to gather all the paperwork needed for the contract’s first preparation. Systems must be in place to modify the initial contract when issues that were ignored are discovered.
- Reporting and auditing. Contract management does not include creating a contract and immediately filing it away without further consideration. Contract audits are crucial for identifying both parties’ adherence to the provisions of the contract and any potential issues.
- Renewing. Manual contract administration techniques can lead to lost corporate income and missed renewal chances. A company may find renewal opportunities and draft new contracts by automating the process.
The nine phases in contract management make up a large portion of the process. Management of the contract lifetime is essential. Contract managers need to keep an eye out for any possible modifications or violations of contract when various contract types move through their varied phases. It could be worthwhile to make changes to a contract if an employee or company is dissatisfied with it. It’s crucial to uphold contractual responsibilities while also guaranteeing satisfaction on both parties of the agreement
Lifecycle management is crucial at several points along the contract management process. When managing contracts, it’s crucial to take vendor performance and risk management into account. For instance, you may need to revise the contract or impose certain disciplinary measures if a vendor doesn’t fulfill their contractual responsibilities.
What is software for contract management?
The practice of physically managing contracts via the storing of folders and files in file cabinets is customary, yet it is rife with inefficiencies that only serve to reduce an organization’s overall efficiency.
Software for contract management offers an electronic solution to these issues. Software packages for contract administration can arrange all contract documentation. The program can monitor and distribute resources linked to the contract management process, and it can place signing and renewing on an electronic calendar that is simple to administer.
Integration with an automated contract management solution may increase a company’s value by releasing countless man-hours and automating innumerable contract management operations.
According to Robert Powell, CEO and publisher of the Rob Powell Biz Blog, “Contract management software saves important information concerning contracts pertaining to providers, commercial leases, and licensing agreements.” By establishing a centralized and consistent record for each contract’s operations, “the main objective of contract management software is to simplify administrative activities.”
Monitoring complicated contracts may be made simpler by using contract management software rather than using paperwork.
The ability for personnel spread across several regions to access contracts in one spot is the most crucial feature of contract management software, according to Powell.
Who employs contract administration software?
The departments that work directly with developing, monitoring, and signing contracts will be where this program will be used most often. This is often delegated to the HR division, which is in charge of employee accounting. The supervisors who must carry out crucial tasks might also be included in the software. Since it can integrate with calendars and communication tools, HR can use the software suite’s more labor-intensive components while the rest helps to include managers and staff who are required for particular signing or negotiating tasks.
Getting started as a contract manager
Some institutions, although not all, offer a degree in contract management. There are other business degrees that can position you for success in the field in addition to obtaining that education. The next step is to add some kind of contract management experience.
According to Jared Weitz, CEO and founder of United Capital Source, “With a bachelor’s degree and a few years of experience in the field, you can apply and test for certification through the NCMA (National Contract Management Association). “A contract manager needs to have strong communication and writing skills, as well as a keen eye for organization and deadline management, in addition to education and credentials.”
The career path can also benefit from a law degree. Understanding the law is essential for managing contracts. Both contract management and negotiation require a legal understanding and background.
Connect with other contract managers to find out how they got into their current positions if you want to become a full-time contract manager. There is no one right path to becoming a contract manager, but having business experience is crucial.
What does a contract manager get paid?
It makes sense that the pay for a contract manager varies depending on their credentials and location. A contract manager makes, on average, $80,151 per year, according to PayScale. The Raytheon Company, Accenture, and Northrop Grumman Corporation are a few of the most lucrative businesses for contract managers, according to the website.
Senior contract managers, contract directors, and contract administrators are other positions that contract managers can advance to. Another common career path in the field of contract management is that of the contract analyst.
Contract managers assist in handling the monetary and legal facets of agreements with clients or workers. Employing a contract manager may make sense for businesses that frequently enter into contractual agreements.