This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article defines contract management, its components, how it works, its advantages, how to become a contract manager, and the distinction between contract management and contract administration.
It has been published by Rachit Garg.
All sorts of businesses involved in the commercial industry require contract management. Contract management is used for managing the legal and financial aspects of contracts. It is a contract process that includes checking the financial aspects of the contract, implementing the agreement, enforcing the contract, and adding terms and conditions. Contract management is in charge of all contracts made throughout any form of business. They manage and direct almost every life span of contracts that engage in any type of business that leads to the company’s future or dissolution. It gives an effective organization with a strong structure and a long-term lifespan. The concept of contract management is enumerated in this article in a broad sense.
What is contract management
In commercial premises, contract management is critical. Contract management pertains to the control of business operations, the execution of initiatives, and the analysis of the company’s performance in order to expand business with minimal risk. All contracts that are part of the business, as well as day-to-day contracts, are handled by contract management. It creates legal documents to expand its client, vendor, or partnership ties. Their responsibilities include not only filling out paperwork but also engaging in all activities related to the contract, such as executing the contract, understanding it, dealing with any issues that arise from it, making any necessary changes, and terminating the contract. Contract management encompasses these responsibilities.
The contract manager is in charge of the contract management. He or she must be aware of the legal knowledge that is necessary for drafting a contract between two parties for their business to proceed. They even help in the stimulation of financial crises and the monitoring of financial stability in the aspect of the contract. They carry out a contract by negotiating the terms of the agreement between the parties, making changes, and finally executing the agreement with the consent of both parties. These contracts have a long-term interval that can be used to sue if any party violates the terms and conditions mentioned in the contract.
Phases of contract management
Contract management is divided into three phases: pre-execution, execution, and post-execution.
Before the parties sign a contract, the pre-execution phase of contract management occurs. This comprises the request and the recommendation, in which the interested party requests a contract and gathers all of the details of goods and services required to create a contract, including delivery dates and all terms and conditions are to be mentioned. It also involves submitting a third-party agreement for evaluation. Collaboration and agreement negotiation is typically the longest and most expensive phase of the pre-execution process. The initial draft is reviewed by internal parties, and once accepted, it is sent to third-party reviewers. If necessary, modifications are made, and a final draft of the contract is authorized. It is ready to continue to the execution phase.
In order for a contract to be legally completed, both parties’ authorized representatives or signatories must physically or electronically sign the deal. This might happen in person or in a series. The signed contract must then be finalized and made accessible to appropriate departments, informing them of all commitments and duties that must be satisfied.
Contract management does not come to an end after the contract is signed. The contract manager must conduct numerous measures following the execution of the contract, including contract storage, reporting, renewal, or termination. The contract’s ultimate disposition occurs when all of the requirements and provisions have been met and the contract has reached its expiration date. The contract can be terminated or renewed and newly altered at this stage. Contract termination must be achieved and securely kept to avoid unwanted access and data theft.
Essentials of contract management
- Parties: To begin a contract, there must be parties, which is a basic requirement for a contract. Customers, employees, employers, business partners, clients, and other persons involved in day-to-day business contracts can be included. They will establish a positive relationship with themselves by enacting a contract.
- Subject matter: To begin drafting, the subject matter must be determined on what basis the contract is made. Before the contract is written, the parties must discuss the contract they are entering into and the issues they are dealing with.
- Drafting of contract: The contract managers with legal knowledge, will draft a contract based on the subject matter that has been addressed by the parties. They address every part of the contract, including all terms and conditions as well as contract termination.
- Negotiation: Following the contract’s drafting, it must be negotiated with the parties involved. In other words, the parties will analyze the agreements. They discuss the contract and decide on whether to accept it or make adjustments to it. If there is a change, the manager makes the necessary changes and resubmits the contract to them for approval.
- Signature: Those who both sign the contract after obtaining the parties’ consent. It is considered a legal contract. They both begin the contract by agreeing to all of the terms and establishing a strong working connection.
- Execution of a contract: After the parties’ consent, the contract is executed. In the course of business, the contract begins to play a role. The contract manager oversees that the contract is prevailing in a corrective manner by executing the contract. The parties are abiding by the contract to the absolute. If they don’t, contract management is responsible for informing the parties about the problem and directing the firm on the right path.
- Renewing: When management forgets or ignores important information that should be included in the contract, the contract can be renewed. The contract will be updated at this time, with the same interested parties in the contract reviewing.
- Duration: In business, a long-term contract lasts for a long time. The contract will stay in effect until the contract’s primary goal gets completed, i.e., the contract’s specified goal has been met. The contract’s term ends, and it’s time to part ways.
- Termination of contract: Contract termination is also an important part of contract management. The contract can be cancelled for any reason specified in the contract. If one of the parties breaks the contract, or if the parties engage in dishonest or fraudulent behaviour, the contract will be terminated. This criterion must be found and sorted out by contract management.
Stages of contract management
Business objectives and goals must be recognized
In order to form a valid contract, the first and most important step is to recognize the company’s objectives and goals. This will guide in developing expectations for both parties, as well as an effective assessment of how the agreement will be able to achieve the company’s objectives.
Drafting a contract
After the company goals and objectives have been identified, the contract drafting step begins. For the drafting process, all supporting information and documents that are necessary must be needed. If the company holds any or getting help from a standardized template that is updated and complies with all regulatory/legal and organizational criteria. If there is any uncertainty in the writing, the business may suffer a loss.
Negotiating the contract with the involved parties
When the contract has been prepared, the stage of negotiating the contract with the involved parties begins. This process ensures that the parties’ expectations are satisfied, that the price structure is appropriate, that the terms and conditions with rights and obligations are properly specified, warranty provisions, renewals, and termination are all complied with, and so on. This step assures that all suggested changes in the negotiating process are executed and monitored. The negotiating process should be designed to include all contract parties, allowing them to interact openly and with mutual understanding. In this process, it has a long-term collaborative partnership for increased performance.
Finalizing and executing the contract
After the negotiating process is done, the contract is revised to include any necessary changes, and the contract is sent to the interested parties for approval. It is necessary for an organization to have a good flow of the approval process for various types of contracts to assure that consent from the parties is required to execute the contract. After the contract has been approved and finalized, all parties must begin executing the deal according to the contract specifications.
Managing contract obligations and audits
The contract management process does not end after the deal is executed. After the contract is executed, the contract management assures that all parties engaged in the deal are complying with the contract and that their performance, timings, and payments are made accurately. This monitoring will verify that the system performs well enough to satisfy the company’s needs. It’s also essential to monitor and audit all contracts on a regular basis in order to assess performance and discover any possible risks. Contract audits on a regular basis will help in the identification and implementation of risk mitigation methods.
Managing contract termination and renewals
As the contract stage approaches its end date, it is important to maintain track of any terminations or renewals. If the contract is not renewed, the firm will suffer losses, as well as long-term relationship development, revenue maximisation possibilities, and so on. It also implies that the company must implement a new procedure to meet the same contract demand.
How does contract management work
Contract management includes processes such as contract preparation, communication, signing, implementation, and modification.
In the preparation of contract management, it functions as a beginning point to identify the subject matter on what the parties are entering into to support them, i.e., to select the subject matter for drafting a contract. The contract might be written out or typed up electronically. When written, it saves time, but when electronically written, it is more professional. The contract is being drafted in such a manner that it covers all aspects of that specific subject matter with the permission of the parties, allowing them to protect their partnership safely and securely on business premises.
After drafting the contract, the subsequent step is to communicate with the company’s partners. If there are any inconsistencies in the contract, the contract’s parties must be able to compare the variations of the contract and modify the modifications. The documentation must be written in accordance with all applicable legal specifications. It must be compared to other documents in order for any adjustments to be made to ensure a smooth flow between the parties following the execution of the contract. The parties must communicate and ensure that all terms and conditions are covered; if not, changes must be made to it.
Following the final reading, the contract must be signed by the company’s partners. Before signing the deal, the contract must guarantee that all modifications have been made. By signing the contract, professionals provide permission for the contract to enter and begin to work on it. It can be signed in either writing or electronic form, as well as through fax. The signature implies that the parties agree to the requirements and terms of the contract and that no objection or issue can be raised once they sign it. The contract will be completed when the parties’ signatures are obtained; they both enter into a valid contract.
Implementation is the process of carrying out a contract after it has been signed. It will include the time span. After the contract is implemented, the contract management monitors and reports to ensure that everything is running effectively and in accordance with the contract.
Renewing a contract if management has omitted any contract-related information. The modification procedure is used to change or exclude any criteria agreed upon by the parties. Written contracts are difficult to update or renew, but not in the case of electronic contracts, where modifications can be made quickly. It provides new potential for businesses by establishing new contracts.
What are the benefits of contract management
The benefits of contract management are as follows:
- Determining organisational goals
Contract management assists in the determination of an organization’s goals, how the company operates, its intentions, expectations, how its goals are reached, and their revenue optimization. It encourages employees to become well-versed in the company’s operations. All contracts are managed by a single contract management team.
- Improves techniques
Contract management helps in the transformation of a written contract to electronic procedures by utilizing software and tools to automate the contract process. They improve the techniques in an advanced way.
- Identify the procedure
Procedures must be identified before a contract could be formed. The methods vary from one company to another. This helps in the observation of various organizations’ processes.
- Allows for partnership
The legal department is responsible for contract management. It allows for effective coordination within the department. To avoid blunders and silly concerns, the department works diligently with legal and business knowledge to form a suitable contract into a full-fledged document. It is important to communicate with the team regularly to avoid future problems.
- Standardized contract
A general contract format must be used as the contract template. The contract must be standardized but not in a strict manner. The parties to a contract must be able to understand it easily.
How can one become a contract manager
A legal degree is advantageous for becoming a contract manager. The contract manager must be knowledgeable in both legal and business matters. As a result, a law degree is advantageous for becoming a contract manager. There is no specific procedure for becoming a contract manager; however, if one wishes to work as a contract manager full-time, they must have experience with business contracts. They should make an excellent team with contract managers. Contract management courses are available at some schools. However, in most cases, a bachelor’s or master’s degree in business is sufficient to become a contract manager.
Skills required to become a contract manager
As a contract manager, he or she must be an all-arounder with a broad range of talents who interacts directly with several departments. He or she should have expertise in business, financial, legal, sales, sourcing, and procurement. Individuals with certain characteristics can excel in this position.
A contract manager must have a deep awareness of business and industry issues. Contract managers must be able to immediately enter new industries and gain knowledge of new goods or services during the contract review process. They must completely be in line with the expectations and beliefs of the organization.
The contract manager must be effective at communicating in order to negotiate conditions, lead the parties, and monitor processes. He or she must be influential and motivating. They must be able to communicate with everyone, from sales to executives at all levels. He or she must be able to deliver under high-pressure conditions. A good sense of humour is advantageous in this job.
Attention to detail
A contract should not be read like a story. When a person reads the contract, it must include all significant details in-depth, which must be checked by the contract manager. They must pay close attention, be patient, and completely analyze all legal documents from beginning to end, truly understanding the conditions of the agreement. They must be able to identify errors and undesirable phrases, which is a necessary talent.
Contract managers are responsible not just for new contracts, but also for the renewal of current contracts. This will result in a high task that will increase year after year. They must discover contracts promptly, prepare ahead of important dates, and keep negotiation and execution operations on track.
Contract talks can last for months, if not years. When a huge sum of money is on the line, emotions may cause the best varied interested people to become engaged in the process. Contract managers must be emotionally intelligent as well as analytical and reasonable. They may also encounter internal pressure to complete the deal as soon as possible. They must make quick decisions while blending risk management and market speed.
When there is a legal conflict in business, contract managers must go on defence first to defend the company. They must thoroughly understand the company’s risk and ensure that it is appropriately recorded in all legal papers. Whether it is connected to obtaining final permission, negotiating specific needs with the parties involved, or just recognising the seller’s reputation, contract managers must be capable of assessing the risk on behalf of the firm.
What is a contract management software
When it comes to manually handling contracts, contract management software is an electronic solution to the problem. All contract documents may be organised using this software. The software can establish contract signing and renewal on an easy-to-manage electronic calendar, and it can assist in tracking and allocating contract management resources. Integration with an automated contract management tool may save countless man-hours and automate numerous contract-management operations, resulting in increased value for a firm. It simplifies the monitoring of complicated contracts without depending primarily on documents. It may also be utilised, allowing workers in many places to view contracts in a single place.
Who uses a contract management software
This software will be mostly utilised in departments that deal directly with contract drafting, tracking, and signing. This is frequently delegated to the HR department, which is in charge of the associated employee with accounting. Managers who need to accomplish important functions can also be included in the software. Because it integrates with calendars and communication software, HR can employ the software suite’s heavy-lifting components while the remaining helps to bring in managers and staff who are needed for certain aspects of signing or negotiating.
Why is a contract management software important
Choosing contract management software that meets the requirements of an organisation may be a difficult and time-consuming job. In the long run, the software can be extremely effective, efficient, and productive. When contract management software automates the entire lifecycle of an organisation’s contract, the amount of time spent on strategic duties will be considerably reduced, as well the risk of human mistakes. Contract management software would also increase greater efficiency at all stages of contract management, resulting in shorter contract cycles. Contract management software will assist in centralising a repository for contracts in a cloud system while also allowing all relevant stakeholders more comfortable access to important contract information. Thus, locating, tracking, and assessing contracts will be as simple as a few mouse clicks.
Contract management software will also help to reduce contractual risks and increase performance. It will guarantee that all the important stakeholders receive essential alerts on time, particularly when it comes to contract renewals, payments, deadlines, and so on. Contracts are also linked to compliance management. Furthermore, contract management automation powered by artificial intelligence improves data analytics. Selecting contract management software that matches an organization’s needs may be a challenging and time-consuming task. The programme has the potential to be incredibly effective, efficient, and productive in the long term. Predictive capabilities allow organisations to gain important information from a contract management system and estimate costs and revenues.
Benefits of a contract management software
Standardize organisation’s contracts: Contractors can use a contract management software application to select templates from a library and clauses to maintain standard contract content and clauses across the company. Organisations may now put an end to NDAs that are circulated around the firm in six distinct forms.
Make monitoring and tracking contract changes easy: One advantage of this programme is that organisations don’t have to worry about which version they’re using. All text modifications, whether internal or external, are automatically idled and may be simply approved or refused.
Streamline the organisation’s contract approval process: This programme minimises and eliminates the need for the organisation to waste time determining who needs to evaluate a contract and then tracking that person down. The approval workflow ensures that the appropriate things are authorised and documented on time by the appropriate people.
Store all data of contracts in one place: Contract tracking is no longer a problem due to this software. A contract lifecycle management tool, in combination with a contract repository, provides a simple way to store contracts and related documents so that stakeholders may access them safely and quickly from anywhere in the world.
Set automated contract alerts: This software eliminates the fear of missing something important. Never miss an expiry date or a delivery due date again with the personalised alerts that show in the email.
Finding contracts faster: The contracts are free to access. There’s no need to waste time looking for suitable contracts. Contracts may be located by searching keywords or phrases, and contract attachments, such as insurance certificates, can also be found.
Taking advantage of E-signature of technology: his programme makes it simple to get an e-signature. It will just take a few minutes and will function exactly like a physical signature.
Simplify contract negotiation process: Contract modifications may now be sent back and forth between the organisation and the customer by email, rather than printing and scanning PDFs.
Integrate with organisations ERP: Manual data movement has come to an end. The contract management software may be used as a stand-alone application or as a plug-in to ERP to sync with major customers, vendors, and user lists.
Save time and money: Using this programme has taken up a limited amount of time. This programme eliminates the need to waste time manually completing operations that are now automated by this software.
Difference between contract management and contract administration
|Contract Management||Contract Administration|
|1.||Contract management specialists, or managers, are in charge of the company’s contract after contract execution is completed.||Contract administration experts are in charge of the company’s contract administration, involved in contract planning and implementation.|
|2.||After the deal is signed, contract management takes care of everything as per the contract.||Before the deal is signed, contract administration takes care of everything in implementing a contract.|
|3.||Professionals examine to see if the terms and conditions of the contract are satisfied and corrective decisions are made.||Professionals examine to ensure that all details are correctly arranged, trustworthy partners are used, and all contract terms & conditions are met.|
|4.||It depends on contract administration.||It hands over the contract to manage once it has been administered and completed.|
|5.||It is a process of managing the contract after the contract has been signed.||It is a process of contract administration that serves as a beginning point in the creation and planning of the contract.|
|6.||It is a process after making a contract.||It is a starting point in making a contract.|
|7.||Its goal is to verify and manage the parties by ensuring that all terms and conditions are followed.||Its goal is to cover all aspects of the terms and conditions that the parties must obey.|
|8.||The subject matter is used in contract management to guide the parties on that subject matter.||The subject matter is established to form the contract, which aids the contract administration in drafting it.|
As a result, contract management is a department with legal and business knowledge that is involved in contract drafting and execution. They also direct the parties and monitor their adherence to the contract. They sign the contract to acknowledge acceptance of the terms and conditions. The administration contract and the management contract are very similar, with a few exceptions. The administration draughts the contract, and the management executes it. The contract is created to protect the company’s parties. The contract is in effect for a long period of time. Contract managers only deal with contract-related issues.
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