What is Contract Management?
If a contract is going to deliver a successful outcome, it must be effectively managed from start to finish. Good contract management will improve the chance of successful contract delivery and provides a profitable outcome for your business.
Contract management is the overseeing of contracts that have been created between clients, partners, suppliers and employees. The contract management process includes:
- Storing and organising individual contracts or collections of agreements
- Negotiating new contracts and terms
- Ensuring that parties comply with the terms and conditions
- Analysing contractual data and progress
Contracts can be standardised and straightforward, or highly complex and intricate. But either way, all contracts need effective management to continue delivering the desired outcomes on time and in budget.
If contract management is completed to a high standard, it can enhance performance while also minimising risk. However, it can be challenging for businesses that need to manage hundreds or thousands of contracts at once.
Why is Contract Management Important?
Every company uses contracts. They are legal agreements that ensure each party knows what is expected from them in their commercial relationship, and mean that either side can be held to account if they don't deliver on their requirements. But agreeing and signing a contract isn't the end of the story.
Contract management is important because primarily, it reduces the legal and financial risk for the business. When completed correctly, it will identify any errors or hazardous provisions, and makes sure that everything follows both corporate and regional laws.
By regularly managing their contracts, businesses can also improve inefficient processes and avoid costly mistakes by analysing the progress of a contract, who it is assigned to, and any important contractual dates.
What Does a Contract Manager Do?
A contract manager or a legal professional's role in contract management can be incredibly broad. For example contract management may involve working closely with the parties involved in each contract, making sure they generate the expected benefits for both sides.
A business can employ a specific 'Contract Manager' (a job role commonly found in construction projects) or a legal professional or team can complete the contract management process. This employee owns the contract on behalf of the organisation and they work to ensure that each contract is meeting its stated objectives.
Once the contract has been signed, it is the responsibility of the contract manager to make sure it is achieving what it was designed to. Throughout the life of the contract, it will need reviewing and revising to identify opportunities for business process improvement.
Contract managers tend to act as the main point of contact between a business and other parties, and they are responsible for keeping track of deadlines and deliverables. They will need to continuously monitor the execution of work, confirming that it complies with both internal procedures and industry standard. This can lead to some difficult discussions if a party is performing poorly or if they are breaching contractual terms.
What is the Contract Management Process?
The contract management process can vary between business sectors and the type of contract being used. However, we've included the key stages of contract management that can be applied to all businesses.
Here, it must be decided what the contract should achieve. This could include things like each party's obligations, the length of the contract and penalties for any contractual breach.
In some cases, it may be possible to use a pre-set contract template, but other, more complex business partnerships will need some additional tweaks and clarifications. Attention to detail is vital to ensure that all required clauses and terms are included. The wording also cannot leave room for any ambiguity, as this could lead to confusion and conflict down the line.
This step should be approached by all parties with complete transparency to benefit from the agreement. The negotiation stage of contract management will involve a draft contract being passed backwards and forwards between the parties to create amendments until everyone is satisfied with the final agreement.
When the negotiations are complete, the parties will then sign the contract to show their approval to the provisions.
Both parties are now bound by the terms of the contract. Monitoring compliance will be an ongoing process for the lifetime of the agreement.
The regular review of each contract and their terms is an essential part of contract management. They need to be examined frequently to ensure they are still relevant and match any compliance obligations.
Through regular contract audits, businesses can identify when they are up for renewal and make sure there are no missed opportunities or lapsed contracts.
What is Contract Management Best Practice?
Effective contract management can mean juggling many things at once, especially when you are going through the process with hundreds of contracts at once. But when it comes to best practice, there are some simple things firms can do to improve their operations and make contract management much easier.
Firstly, businesses should digitise all of their contracts. By storing them securely online, they can be accessed at any time and from any location, providing you have the correct security level. Digitisation can also save a corporation time when checking terms and conditions, as it can be completed remotely with search tools, saving hours from a manual contract review.
Secondly, communication between all parties should be regular and useful. Entering a contract is the beginning of a business relationship and, like all relationships, it requires effective communication. Set guidelines around how regularly meetings should be held between the parties to flag any potential issues or opportunities.
KPIs can also be helpful in shaping the communication between the teams. Not only is it critical to measure outcomes, but it can also help to establish a framework; highlighting any problems that need to be discussed.
Finally, utilise contract management software. Intelligent tools like Summize have transformed contract management by simplifying and speeding up the process of managing deadlines and deliverables, reducing human error and decreasing risk.
What is Contract Management Software?
Contract management is a function that can generate huge benefits for a business, but there is no denying that it can be very complex and time consuming. Businesses should explore which contract management practices could be automated using tools like Summize.
These tools will allow users to analyse each contract in detail, identifying key dates and important clauses, and displaying the lifecycle status of each agreement. Contract management software also shows which contracts are assigned to each user and tracks their progress, creating actionable insights.
Contract management software is fast, secure and accurate; saving your business time and resource. Summize understands your organisation and works by your side wherever you do.And that’s Summize’s ultimate guide to contract management!
Did you find it useful? Or perhaps there’s something we missed? Get in touch with us at [email protected] to let us know.