Studies show that poor contract management costs companies approximately 9 percent of their annual income. These costs are usually due to a breach of contract, where a company can end up paying hefty damages and attorney fees. Understanding the key steps of contract management can help businesses avoid these costs. They can effectively manage agreements with different parties, creating a positive brand image. Read on to uncover what contract management is and all its steps.
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Table of Contents
What Is Contract Management
Contract management involves the administration and control of all activities in the contract process, from creation to termination. The purpose is to ensure that an agreement is well-written, that each party understands their obligations, and that they are enforceable. It also involves providing provisions for handling any breaches that might arise.
Contract Drafting
Drafting a contract involves defining the terms and conditions of the agreement. It states the scope of work, by discussing the goods and or services to be transacted and when. It also discusses the roles and responsibilities of all the parties to the contract.
Adding a dispute resolution clause can make a draft contract more comprehensive. It can give provisions on how to handle any disputes that may occur.
Finally, the draft contract should include the termination clause, indicating different circumstances under which the agreement can end.
Negotiation and Collaboration
Negotiation is a key contract process, which can derail or break the entire process if not handled properly. So, when negotiating, all involved parties should invest in effective communication and collaboration. They need to look for a win-win scenario to increase the odds of a successful contract.
Usually, the parties will negotiate on things like payment terms, confidentiality, liability and indemnifications and performance standards and penalties.
Review and Approval
After negotiation, each of the involved parties will return the contract to their organization for internal review and approval. The draft contract will be reviewed by managers, officers, and other stakeholders. The specific roles of these people can vary significantly between companies.
Companies can expedite this process by investing in a contract management software. With the help of this tool, it can be easy for different stakeholders to review a contract and approve or request for changes.
Execution and Tracking
Once a contract is approved by all involved parties the next step is to sign it and execute. The parties will now start performing the stipulated activities in the contract and adhering to the established terms and conditions. They’ll also regularly monitor the execution to determine if the established performance milestones are achieved within the established timeframe.
Contract Renewal or Termination
After all the terms in a contract are fulfilled, the parties will now decide whether to terminate or renew the contract. Usually, the contract will have provisions for terminations and renewal. If a company decides to renew a contract, they often have to discuss with other involved parties on whether to change the terms and conditions.
Conclusion
Leveraging current digital technology can simplify contract management, fastening the process and cutting costs. That’s why your company should consider investing in contract management software. The software can streamline things and simplify tracking all activities in a contract process.
