What you need to know about Contracts and Contract Management

Regardless of the size of the business, you will need some contract at some point in the business cycle. Contracts are central to modern business, whether they involve partner agreements, employment contracts, or leasing an office building. Contracts will also help you save time and money as they will include deadlines and negotiations. On the other hand, contracts need to be managed to ensure they remain effective. Otherwise, it would be shoddy work implementing agreements and failing to address them. Use this link to get the best services guaranteeing your contract’s safety.

A contract involves an agreement between two people or organizations to work together on specific terms. Consequently, contract management, also known as contract lifecycle management, entails managing contracts from the creation to termination or renewal. This process involves critically scrutinizing each stage of the contract, enhancing its efficiency. The critical practices involved in contract lifecycle management include clause negotiation, risk mitigation, and contract drafting. Also among the key activities of this management is performance analysis, thus maximizing financial and operational performance.

Why You Should Manage Contracts

Since agreements form the foundation of business relationships, they dictate each aspect of a supplier relationship or a business deal from commencement to completion. Research shows that about 1000 companies will have 40000 active contracts to deal with daily. This means that they will conduct negotiations, reviews, and approvals about 40000 times in the beginning. Don’t forget that these contracts require to be monitored during the entire lifecycle and reviewed again for renewals if necessary. Also, one contract pulls workers from different departments to work on various segments. That being said, we can conclude that this process will be costly and time-consuming. Again, if conducted manually and repetitively, there will be chances for errors that lead to missed deadlines, compliance problems, and more costs. Therefore, failure to adhere to proper contract management will keep you prone to financial penalties, procurement contract compliance problems, and endless risks.

You can incorporate contract management software into your organization to help better manage the contracts while saving on time.

Contract Management Phases

This critical contract management process comprises three phases which include the pre-award, award, and post-award. Equally crucial in contract management’s success, each of these phases covers a different step of the life cycle. These phases usually consist of recurrent tasks taken manually, making it possible to slip up and overlook little details. Therefore, you should be cautious when completing them to ensure the contract is error-free at every stage.

Pre-Award Phase

This is the first phase of the contract life cycle process. However, this stage varies depending on your business’s role in a contract, that is, if you are the seller or the buyer. Typically, the pre-award phase commences with the supplier attempting to improve their marketing strategy and customer relations. The supplier makes the necessary considerations towards deciding whether to tender a contract with other organizations or not. The seller will then create a winning strategy covering plans and execution, thus limiting risks. This only takes place if they decide to submit an offer. Pre-award phase has two categories;

Develop Solicitation

This takes place if the phase involves a buyer. After a buyer decides to purchase something, they should conduct market research, define their requirements, devise a contract strategy, and analyze the possible risks. These activities should be performed before reaching out to any potential seller. On completing these activities, the buyer can now start solicitation.

Develop Offer

After a supplier receives a buyer’s request, they should provide an offer and a business development plan. This means their response should focus on showing they understand the customer’s needs and can deliver value if the customer settles on them.

Award Phase

The length of this phase differs from contract to contract depending on the term’s complexity and the number of offers made. This phase can sometimes be straightforward, allowing you to move to the next as fast as possible. Nevertheless, organizations that involve across borders agreements or complex documents might require the phase to be drawn–out further. The steps here include;

First, the buyer should analyze all their offers, including benefits, terms, and risks. After that, they can move on to conduct cost and price analysis to allow the front-runner’s decision to be made. The next step involves negotiation and finally choosing the best offer.

Post-Award Phase

This is the final stage, and it occurs after agreements are signed and exchanged. It also involves monitoring, as even though a contract is signed, it still needs to be assessed and monitored. This helps ensure that both parties continually evaluate performance and risk and remain compliant. Therefore, you should not overlook this phase.

To guarantee efficient contract management, you should appoint a manager for each contract. Do not assign one manager to many agreements as they might be overwhelming, creating room for error. Please read and understand the terms of a contract first before signing it, whether you are a seller or a buyer.

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