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What is Contract Management?

Realising the maximum value from agreements is one of the key methods with which organisations choose to improve their business outcomes. Contract Management is a process enterprises use to maximise the financial and non-financial value of their agreements with that stakeholders. Before diving deep into the broad topic, it is key to understand What is Contract Management.  

According to a report by Grand View Research, the global Contract Management market size is expected to reach GBP 7.6 billion by 2027, growing at a CAGR of 16.6% from 2020 to 2027. 

In this blog, you’ll discover what is contract management, why it's important, and how to implement effective practices. Read ahead to learn more! 

Table of Contents 

1) What is Contract Management? 

2) The Fundamentals of Contract Management

3) Contract Management Process – Explained 

4) Benefits of Effective Contract Management 

5) Setbacks in Contract Management 

6) What is Contract Management Software?

7) Who uses Contract Management Software?

8) Contract Management vs Contract Lifecycle Management

What is Contract Management?   

Contract Management is the process of managing the stages of a Contract, from creation to execution and ultimately to termination or renewal. It involves ensuring that all the parties involved in the Contract fulfil their responsibilities and that the contract is carried out effectively. The goal of Contract Management is to maximise the benefits of a contract while minimising the cost and risks involved with it.  

Effective Contract Management involves maintaining accurate and up-to-date records of all contract-related activities while constantly communicating the changes to the stakeholders involved. These practices are critical to ensuring that contracts are successful, and both parties achieve their objectives. It can help reduce costs, increase efficiency, and mitigate all risks associated with the contract, ultimately leading to better outcomes for everyone involved. 

The fundamentals of Contract Management

When two organisations wish to do business with each other, a contract specifies the terms of their agreement and which aspects each party must fulfil. These agreements hold all parties legally accountable to one another. Contract management also applies to managing different contracts with freelancers or employees. 

The trouble is that contracts are filled with legalese and difficult-to-parse phrasing, making it more the domain of lawyers than entrepreneurs. That is where contract managers come in, helping to sort through the documents required and ensure agreements are airtight. Outsourcing this activity to a contract manager means business executives can focus on working on their businesses rather than sorting the paperwork. 

Contract Management Process – Explained
 

Contract Management Process

The Contract Management Process can be broken down into six key stages: 

a) Contract initiation 

b) Contract development 

c) Contract execution 

d) Contract monitoring 

e) Contract amendments 

f) Contract renewal 

Below is an explanation of all the stages involved in the process: 

a) Contract initiation: The process begins with the identification of the need for a contract and the parties involved. Once the parties have been identified, the terms and conditions are negotiated and agreed upon. This includes the scope of work, payment terms, delivery schedule, warranties, and other relevant clauses. During this stage, it is essential to ensure that the contract is legally enforceable and is binding to the parties.

After the terms have been signed, the contract is drafted and reviewed by both parties and all other stakeholders involved. Any changes necessary are made, and the final contract is signed by both parties. The contract initiation stage sets the foundation for successful Contract Management by establishing clear expectations and ensuring that all parties agree before work begins.  

b) Contract development: This stage builds upon the negotiation and agreement reached during the contract initiation stage. The development stage requires attention to detail to ensure that the contract accurately reflects the terms and conditions agreed upon by all parties.

During the contract development stage, the contract’s scope of work, deliverables, timelines, and payment terms are defined in detail. The contract document should also include clauses that address potential risks like liability, dispute resolution and intellectual property. It is crucial to ensure that the contract complies with all relevant regulations and laws.  

c) Contract execution: This stage is where the finalised contract has been signed and becomes legally binding. Once the contract has been developed and completely negotiated, both parties review the document to ensure that the terms and conditions have been agreed upon. Any necessary revisions are made, and the final version is approved by both parties, sometimes subject to vetoes from third-party stakeholders (e.g., On lease contracts).

During the contract execution stage, it is vital to ensure that all obligations and deadlines outlined in the contract are met by the parties. This involves keeping detailed records of all communications, changes, and updates related to the contract, as well as regularly monitoring the progress of the work. By carefully managing the contract execution stage, parties can ensure that the project is completed on time and within the budget assigned.  

d) Contract monitoring: This stage in the process is where the execution of the responsibilities in the contract for the parties is monitored closely by an uninvolved third party. This involves regular reviews and evaluation of performance metrics, communication with the other party, and identification of potential conflicts or issues that may arise during the contract. The key objective behind contract monitoring is to ensure that the project is progressing smoothly and any issues that arise are identified and resolved promptly.

During this stage in the process, it is essential to maintain open lines of communication with the other party to ensure that any updates or changes are communicated and addressed immediately. By monitoring the execution of the contract, parties can ensure that the responsibilities are completed successfully, within budget and in compliance with all contractual obligations.  

e) Contract amendments: Contract amendments refer to changes made to an existing contract, either to add, modify, or remove certain terms or clauses. These changes may be required due to various reasons, such as changes in market conditions, unexpected events, or changes in the business needs of the parties involved.

In Contract Management, it is important to have a clear process for requesting, reviewing, and approving contract amendments to ensure that they are legally valid, documented and communicated effectively to all parties involved. This helps to maintain the integrity of the contract and ensures that both parties are aware of any changes made to it.  

f) Contract renewal: This stage involves the process of extending the term of an existing contract beyond its initial expiration date. It is usually initiated when both parties agree to continue their business relationship and wish to continue working together under the terms and conditions of the original contract.

During the contract renewal process, it is important to review and assess the performance of the existing contract, identify any areas that need improvement, and negotiate any changes or updates to the terms and conditions of the contract. This helps to ensure that both parties continue to benefit from the contract and that the business relationship remains mutually beneficial. 

Enlist in our Contract Management Training course today and master the skills necessary to effectively manage contracts and mitigate risks in your enterprise. 

Benefits of Effective Contract Management
 

Benefits of Contract Management?

Effective Contract Management can provide a variety of benefits, including: 

a) Reduced risks: By actively managing contracts, organisations can reduce the risks associated with legal disputes, financial penalties, and other issues that may arise due to a breach of contract. Contract Management can help ensure that all parties meet their obligations and that any potential issues are promptly addressed.  

b) Increased efficiency: Proper Contract Management can streamline the contract lifecycle and help manage all the stages, such as drafting, negotiation, execution, and renewal. This can help enterprises save time and resources by avoiding redundancies, delays, and administrative errors.  

c) Improved compliance: Contract Management can help ensure that contracts comply with legal and regulatory requirements. This can reduce the risk of non-compliance penalties and legal disputes, and it can help businesses maintain a positive reputation.  

d) Enhanced collaboration: Contract Management can foster better communication and collaboration between the parties involved in the contract. This can help ensure that all parties understand their responsibilities and roles and can work together to achieve the desired outcomes.  

e) Increased transparency: By providing visibility into the contract lifecycle, effective Contract Management can help build trust between parties and reduce the risk of misunderstandings or disputes.  

Here are Contract Manager Interview Questions and Answers You Should Go Through Before your Interview. 

Setbacks in Contract Management 

Contract Management is a critical process that helps organisations to effectively manage contracts, minimise risks, and ensure compliance with legal requirements. Despite its importance, Contract Management is not always a smooth process, and there are several setbacks that can hinder its success. In this response, we will discuss some of the major setbacks in Contract Management. 

a) Lack of clarity: One of the most significant setbacks in the process is the lack of clarity in the contract language. Contracts can often be filled with legal jargon, which makes it difficult for stakeholders to understand their rights and responsibilities. This can lead to misunderstandings, disagreements, and ultimately, contract breaches. 

b) Ineffective communication: Effective communication is critical in the process. However, many organisations struggle with communication, particularly when dealing with multiple parties or when the parties are geographically dispersed. Poor communication can lead to delays, misunderstandings, and disputes. 

c) Inadequate documentation: Proper documentation is critical in the process. Failing to document important details, such as contract amendments, can lead to disputes and potential legal challenges. Moreover, inadequate documentation can also make it difficult to track contract performance and compliance. 

d) Relatively limited visibility: The process requires visibility into the contract lifecycle, from contract creation to contract expiration. However, many organisations lack the tools or processes necessary to gain visibility into the contract lifecycle. As a result, they may miss important contract milestones, fail to renew contracts or overlook opportunities for contract optimisation. 

e) Inadequate training: The process requires a range of skills, including legal expertise, negotiation skills, and project management skills. However, many organisations do not provide adequate training to their Contract Management teams. This can lead to errors, missed opportunities, and ultimately, contract breaches. 

In summary, the above setbacks in Contract Management can cause significant challenges to organisations. Addressing these setbacks requires a holistic approach, including clear communication, effective documentation, proper training, and the use of technology solutions to enhance visibility and control over the contract lifecycle. By addressing these issues, organisations can improve their practices and minimise risks. 

What is Contract Management Software?

Contract Management Software is a sophisticated digital solution transforming the traditionally intricate and time-consuming contract handling process. It is a centralised platform where businesses can seamlessly create, store, and manage their contracts throughout their entire lifecycle. From the initial drafting and collaborative editing stages to the crucial phases of negotiation, execution, and eventual renewal, this software ensures a streamlined and efficient workflow.

In addition to simplifying the administrative aspects, Contract Management Software incorporates advanced features such as electronic signatures and version control. These features enhance the security and validity of contracts and significantly reduce the risk of errors. Automated alerts for critical dates and milestones further contribute to the software's value by ensuring organisations stay on top of binding contractual obligations. In short, this digital tool changes how businesses approach contract management, bringing transparency, accuracy, and efficiency to the vital aspects of their operations.

Sign up for Contract Negotiation Training and learn how to successfully negotiate contracts and achieve the best outcomes for your organisation! 

Who uses Contract Management Software

Businesses of all sizes and industries widely utilise Contract Management Software. Large enterprises with complex contractual obligations find it invaluable for streamlining their extensive networks of agreements. This Software helps simplify the steps by providing a platform for creating, storing, and managing contracts. It helps ensure compliance, reduce risks, and enhance overall efficiency, allowing large enterprises to handle large contracts more efficiently.

Small and medium-sized enterprises (SMEs) also benefit significantly from Contract Management Software. Resource optimisation is paramount for these businesses, and manually tracking contracts can be time-consuming. Contract Management Software enables SMEs to automate routine tasks, such as contract creation, approval workflows, and renewal notifications. 

It saves time and reduces the chances of committing errors. Additionally, it empowers SMEs to have a clear overview of their contractual relationships, mitigating risks and facilitating better decision-making. By leveraging technology to manage contracts, businesses across the spectrum can enhance collaboration, minimise risks, and ensure that contractual obligations are met efficiently.

Join the Commercial Contracts Management Training and enhance your knowledge and skills in managing complex commercial contracts effectively.

Contract Management vs. Contract Lifecycle Management

Contract Management involves the supervision and administration of contracts during their active phase. It primarily focuses on post-award activities, ensuring compliance, addressing changes, and resolving issues as they arise during the execution of contracts.

Contract Lifecycle Management (CLM), on the other hand, provides a more comprehensive approach that covers the entire lifespan of a contract. It includes pre-award phases such as drafting, negotiation, and post-termination analysis, offering a strategic view of the whole contract lifecycle.

Scope

Contract Management:

Contract Management typically focuses on the post-award phase, dealing with the execution and monitoring of contracts. It involves ensuring compliance, managing changes, and handling any issues that arise during the active contract period.

Contract Lifecycle Management (CLM):

Conversely, CLM encompasses the entire life of a contract, from creation and negotiation to execution and even post-termination activities. It provides a more comprehensive approach, including pre-award phases such as drafting and negotiation.

Timeframe

Contract Management:

Contract Management is ongoing throughout the active period of the contract, emphasising real-time oversight and management of existing agreements.

Contract Lifecycle Management (CLM):

CLM covers the entire lifespan of a contract, from its initial creation and negotiation to its eventual termination or renewal, providing a more extended timeframe view.

Activities

Contract Management:

Activities in Contract Management involve:

1) Day-to-day oversight.

2) Compliance monitoring.

3) Handling amendments.

4) Resolving issues that companies may face during the execution of the contract.

Contract Lifecycle Management (CLM):

CLM encompasses various activities, including contract creation, negotiation, approval workflows, execution, compliance monitoring, and post-termination analysis.

Software and tools

Contract Management:

Contract Management often involves software focused on document storage, compliance tracking, and issue resolution, addressing the immediate needs of active contracts.

Contract Lifecycle Management (CLM):

CLM solutions provide a more comprehensive group of tools that cover the entire lifecycle, including contract drafting, e-signatures, negotiation, and analytics for a more strategic approach.

Strategic importance

Contract Management:

Contract Management is crucial for ensuring operational efficiency, compliance, and issue resolution during the active phase of contracts.

Contract Lifecycle Management (CLM):

CLM holds strategic importance as it involves a more holistic approach, impacting the entire process from contract creation to analysis. It contributes to strategic decision-making, risk mitigation, and overall business optimisation.

Conclusion 

In this blog, we have discussed What is Contract Management, the elements involved, the benefits and setbacks and the process. In addition, we have discussed about the latest trend in the process, Digital Contract Management, and the differences between performing the process manually and digitally.  

By implementing a solid digital system, enterprises can improve their productivity, efficiency, and profitability while reducing the time, cost, and effort associated with manual management of contracts.  

Advance your career with our comprehensive Contract Management Training courses and gain the expertise needed to succeed in this critical business function! 

Frequently Asked Questions

What is Contract Management Explanation? faq-arrow

Contract management manages contracts from creation to execution and, if necessary, through termination. It involves ensuring parties adhere to agreed terms, managing changes, and resolving issues during the active phase. The goal is to maximise the value of each contract while minimising risks and ensuring compliance. Robust Contract Management systems streamline these processes, enhancing efficiency and reducing the likelihood of contractual disputes.

What are the 4 Stages of Contract Management? faq-arrow

The four stages of contract management include:

a) Initiation: Defining the need for a contract and outlining requirements.

b) Negotiation: Discuss and finalise terms between parties.

c) Execution: Signing and implementing the contract.

d) Monitoring & Compliance: Overseeing the active contract, ensuring both parties fulfil their obligations.

What is the Job of Contract Management? faq-arrow

The job of Contract Management involves:

a) Drafting Contracts: Creating clear, comprehensive contracts.

b) Negotiation: Facilitating discussions to reach mutually agreeable terms.

c) Administration: Overseeing contracts during their active phase.

d) Compliance: Ensuring parties adhere to agreed-upon terms.

e) Risk Management: Identifying and mitigating potential risks.

f) Issue Resolution: Addressing problems that may arise during contract execution.

g) Renewal or Termination: Managing contract closure or renewal processes.

What are the other resources and offers provided by The Knowledge Academy? faq-arrow

The Knowledge Academy takes global learning to new heights, offering over 30,000 online courses across 490+ locations in 220 countries. This expansive reach ensures accessibility and convenience for learners worldwide. 

Alongside our diverse Online Course Catalogue, encompassing 17 major categories, we go the extra mile by providing a plethora of free educational Online Resources like News updates, Blogs, videos, webinars, and Interview Questions. Tailoring learning experiences further, professionals can maximise value with customisable Course Bundles of TKA.

 

What is Knowledge Pass, and how does it work? faq-arrow

The Knowledge Academy’s Knowledge Pass, a prepaid voucher, adds another layer of flexibility, allowing course bookings over a 12-month period. Join us on a journey where education knows no bounds.  

What are the related Contract Management courses and blogs provided by The Knowledge Academy? faq-arrow

The Knowledge Academy offers various Contract Management Courses including Contract Management Training, Business Contract Law etc. These courses cater to different skill levels, providing comprehensive insights into Contract Management Training

Our ISO and Compliance Blogs covers a range of topics related to Contract Managemnt, offering valuable resources, best practices, and industry insights. Whether you are a beginner or looking to advance your Contract Management expertise, The Knowledge Academy's diverse courses and informative blogs have you covered.

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