Contract Management Execution: Managing Contracts
When a business manages contracts carefully throughout their duration, there are fewer opportunities for neglected requirements, misinterpreted communications, and other potential problems later down the road—especially when it comes to contract closeout.
Your team can simplify the process of contract management with thorough contract drafting beforehand. For example, if your business defines KPIs within the contract, it is much easier to measure performance throughout the contract management process. (For reference, more than 75% of contracts in one survey did not include an exhaustive set of KPIs.)
Read on to learn about the basic components of effective contract management—and how your business can achieve them.
Basic Components Of Effective Management
There are three key parts to effective contract management: upholding obligations, cultivating positive relationships, and optimizing the change management process.
1. Upholding obligations. The most important part of contract management is ensuring that your team and your partner are upholding the contract requirements. While most contracts will have basic requirements recorded, it’s important to have extensive KPIs in place too, so you can measure progress more carefully. As the contract continues, it’s important for your businesses to:
- Protect your reputation by maintaining your roles and responsibilities
- Ensure general contract compliance, including delivery management
- Adhere to the exchange of value defined in the contract (delivery of goods/service and payments)
2. Cultivating positive relationships. A strong, collaborative working relationship with the other party is key to a successful contract. Collaborative relationships thrive on good intentions, with the behavior to match. In other words, you need to show the other party that you would like to benefit from the contract, but that you would also like them to benefit. To achieve this, you should work closely with the other party to:
- Establish a regular communication schedule to prevent potential problems
- Identify areas for improvement and set targets for change success measurement
- Brainstorm innovative fixes to challenges
- Plan for the future together
3. Optimizing workflow performance. While navigating #1 and #2 above, you and your partner may come across changes that need to be reflected in the contract. By following the contract amendment process, you can successfully achieve overall effective management with all parties on board. To understand this process, the following steps typically occur:
- Analyze potential changes in scope: Review your current contract and associated scope to determine which sections would need to be amended.
- Identify impact of change: When evaluating scope changes or added terms and conditions, other changes (such as associated fees and schedule) may need to be revised as well. These should be identified and updated accordingly and documented in the contract amendment.
- Review other terms and conditions for potential updates: Since the contract will be amended for the impacted scope, fees, schedule, etc., it is a good time to review the contract in its entirety to understand if any other items should be updated as well. Both parties may benefit from revising conditions to reflect the current state.
- Implement changes: Hold meetings and information sessions with all involved parties (such as internal stakeholders) regarding the changes, so that everyone is on the same page. Once complete, follow through with execution of the amendment with all parties to the contract signing.
Achieving Effective Contract Management
The steps to effective contract management are relatively clear, but you might be starting to realize that strong contract management takes a lot of work. How will you be able to pull it all off?
The path to achieving strong contract management will differ from organization to organization. Some businesses will be able to utilize client employees or onsite consultants to assist with these processes. Some businesses will need to partner with offsite consultants.
Regardless of which option works for your business, effectively managing contracts involves training, experience, familiarity with the contract, and a little bit of creativity. Especially when it comes to the contract amendment process, you’ll need to extensively train involved parties. When training, follow these three steps:
- Consult: Discuss with your team on potential contract changes and the potential impact that it may have on the organization.
- Draft: Update contract terms and conditions based on team consultation.
- Manage: Manage your team to align with the updated terms and conditions of the contract.
Once this three-pronged training approach is complete, your team should be set up for contract management success.
Overview
As you can see, effective contract management is a complex, highly involved project—but one that is imperative to your business. By upholding obligations, cultivating professional relationships, and optimizing the contract change process, your business can ensure that contracts are upheld and as beneficial to your business as possible.
Not sure how streamlined your contract management processes are? Take our maturity assessment and see whether your business has any room for improvement.
