Contract Management 101: The Fundamentals

Managers engage with their workers on a regular basis, and some of those conversations and circumstances are inevitably related to monetary remuneration. Some of these discussions may be about contract management. Other times, companies must handle contractual relationships with third-party organizations. Contract management is a subject that is seldom discussed in corporate circles, despite its importance.

In order to comprehend the contract management process, it’s essential first to grasp the fundamentals of how it works.

What exactly is contract management

Contract management is the process of managing contracts, executing them, and analyzing them to optimize an organization’s financial and operational performance while reducing financial risk. Organizations are under growing pressure to reduce expenses while improving overall performance. Contract management has shown to be time-intensive, adding to the need for an effective and automated contractsafe contract management solution.

Contract management fundamentals

When two businesses want to conduct business on their own, the contract outlines the responsibilities assumed by both parties and the conditions under which each would perform their respective portions of the agreement. Contracts significantly impact a company’s profitability since they place a premium on revenue and spending.

When a contract is poorly drafted, a company may lose tens of thousands of dollars due to basic techniques that they did not have the means to discover. Effective contract management may eventually lead to stronger business connections and more profits in the long term, but only if done correctly. Involving a legal department or an attorney in contract management discussions is a brilliant idea. 

Contract management also refers to the administration of different contracts with independent contractors or workers. This sometimes requires management and flexibility, which benefits both parties. Contract management often includes a few main phases. There are preliminary phases, often known as pre-award stages. This is all the work done before a contract is given to someone, whether it is a company or an individual. The procedure is explained in the middle part. This contains all of the papers required to finalize the deal. The third category is post-award. This is where multi-contract management applies. Those three fundamental phases are a simple way to view contract management, but the process is considerably more complex. It may be seen in many stages, depending on how detailed you are.

Detailed phases of the contract management process

While there are many elements to contract administration, the process may be summarized by categorizing it into five steps: generation, collaborating, signing, tracking, and updating.

We may keep identifying specific steps in phases. The process may be divided into nine phases, each contributing to one of the five main stages. This simplifies handling the quarterly fraud that often happens when a new batch of contracts is due. The steps for each category are as follows:

Generation

1. Opening requests

Starting with the identification of contracts and the required supporting paperwork to achieve the contract’s goal, the contract management process may begin.

2. Contract approval 

Written contracts by hand take a long time to complete, but with automated contract management tools, the process may be made much more efficient.

Collaboration

3. Contract negotiation 

Workers should be able to compare contract types and detect discrepancies after signing the contract to reduce time spent in negotiations.

Signing

4. Contract approval

The stage where the majority of blockages arise is the process of obtaining management permission. Users may prevent this from happening by designing customized approval processes that include both parallel and serial approvals to keep decisions flowing fast, among other things.

5. Contract execution. 

Users may manage and shorten the signing process by utilizing electronic signature and fax support while creating contracts.

Tracking

6. Assigning responsibilities.

A significant amount of project management is required to guarantee that critical stakeholders meet their deliverables and that the contract’s overall value does not depreciate throughout its early stages of development.

7. Revisions and changes. 

Obtaining all of the papers necessary for the contract’s initial writing is a time-consuming endeavor. When missed things are discovered, procedures must be in place to amend the agreement.

8. Auditing and reporting 

Contract management does not imply putting a contract in the installation cabinet without additional consideration. Contract analysis is critical in evaluating if both parties are abiding by the contract’s provisions and identifying possible issues.

Renewal

9. Renewing.

Manual contract management techniques can result in missed renewal chances and lost income for the business. The automated method allows the company to identify opportunities for contract renewal and new contract generation opportunities.

Most of the work involved in contract management is spent dealing with these nine phases. The management of contracts is crucial. The contract manager must watch for any possible changes or violations as the different contracts go through various stages.

If an individual or a business is unhappy with their contract, it may be preferable to modify it rather than terminate it. Following through on contractual obligations while also ensuring the satisfaction of both contracting parties is essential to the success of any business venture.

Bottom Line

Contract life cycle management is essential at different stages of the contract management process. When it comes to the procurement process, the performance of vendors and risk management are crucial concerns.