Contract Management Execution: Close Out Contracts
Contract management is like running a marathon. You have to conserve energy throughout the race and put forth one last burst of energy to cross the finish line. In contract management, the finish line is known as a contract closeout.
The contract closeout process is only over when the terms of a contract have been fulfilled, all administrative actions have been completed, all disputes have been settled (and hopefully avoided with effective drafting and managing), and the final payment has been made. If you’re thinking that this sounds like a lot of work, you’re right. Even if your teams have a strong contract management process in place, just gathering all of the information you’ve shared and received for the duration of a contract can be difficult.
It benefits all parties if everything goes smoothly and the teams are able to work together again, either through contract renewal (if the products/services and associated terms can be continued) or a new engagement (allowing the contract to end and starting a new contract for new work scope). If you think about the process in three distinct steps—contract auditing, contract reporting, and contract adjudicating—the contract closeout process will be a conquerable challenge.
Auditing the Contract
Throughout the contract management process, it’s important to keep any documents or communications that are shared between parties. These records will be useful during the reporting phase, but before you get there, you’ll want to conduct an additional contract audit. During the contract audit, you’ll want to focus on a few key items:
Stakeholder feedback: Most importantly, you’ll want to see how people closest to the contract felt about it. Did it serve their purposes? Was it clear enough to prevent any uncertainties or awkward conversations about expectations?
Management feedback: If you were not the only legal representative working with the contract, ask team members who handled the contract what they thought of the contract’s performance. Were there too many loopholes that could still be taken advantage of? Will the contract work for another year or so of use?
Financial feedback: Bring in your finance team regarding the financial aspects of the contract. Were there any financial problems that they could see arising from it? Were there any unaddressed financial problems that arose?
Record this feedback carefully for use during the reporting phase.
Reporting on the Contract
When gathering a report for the final contract analysis, remember that the more documentation, the better. The more information leadership can review about the contract, the more informed of a decision they can make as to whether the contract should be extended or the relationship continue further with other projects/contracts.
The items in your contract closeout file will include documents that you have gathered throughout the contract management process and items from your contract audit. Be sure to include:
- Key documents: the original contract including all attachments and any contract amendments
- Supporting documents: pre-award documents, solicitation documents, responses to proposals, performance complaint letters, deliverable documentation, and payment records
- Additional documents: vendor correspondence, meeting notes, and written communications
- Feedback documents: stakeholder feedback, management feedback, and finance feedback.
With all of this information on hand, your teams should be able to determine the contract’s future in your final review.
Deciding the Contract’s Fate
Adjudicating the contract can be one of the most difficult steps of the closeout process. Because this phase usually requires input from multiple teams and team leaders, it can be difficult to come to a consensus quickly. Ultimately, the final decision will be based on current company needs, the performance of the contract, and the possibility of making adjustments that would significantly improve it.
Through the process of auditing and reporting, the contracts team, along with key stakeholders and management will gather information to analyze and make their decision as to the following options:
- Contract renewal/extension (ongoing products/service type contracts)
- Contract closeout with opportunity for future engagements (project based contracts)
- Contract closeout with limited opportunity for future engagements
- Contract closeout with no opportunity for future engagements
Ideally, it would benefit both parties to end all contracts successfully with the end goal of working together in the future as long term partners.
Deciding the Contract’s Fate
The contract closeout process can be challenging. If your team has a uniform contract management process and has kept detailed documentation on hard, the process isn’t quite as difficult, but it is still a long and involved process. The stakes are high, too; improper contract closeout can cause long-term and short-term problems.
Luckily, if you feel like you need help streamlining your business’s contract closeout process, we’re here to help. Chat with us for 30 minutes, and we’ll conduct a high-level review of your organization’s current processes, then provide initial insights. We’ll also give you information about potential contract management solutions and recommended next steps for improved contract closeout—and better overall contract management.