Contract Management – Stagewise Risk Assessment & Due Diligence
One aspect of management that is underutilized is managing contracts. Even though people only sign contracts once, they serve as a depiction of the duties and privileges that will be granted to a person over time. Therefore, it is crucial to monitor them to make sure they are carrying out their intended functions. The task of contract management comprises determining if the agreement was properly drafted, reviewed, and enforced to ensure that its terms are carried out as intended.
What is Contract Management?
The process of managing contract formulation, execution, and analysis is known as contract management. Its goal is to increase an organization’s operational and financial performance while lowering financial risk. The act of managing contracts for clients, suppliers, or other parties is known as contract management.
Organizations are under more and more pressure to save expenses while boosting productivity. The necessity for an efficient and automated contract management system is facilitated by the fact that contract administration tends to be a particularly time-consuming aspect of a company. Legal expertise is necessary for contract managers to effectively oversee the contract management process. Not all businesses have dedicated contract managers, but those who routinely work with the government or in the defense industry frequently do.
Benefits of Contract Management
Let’s look at some of the significant benefits of contract management.
Supports Business Operations
Effective contract management streamlines organizational operations by structuring business expectations, and the processes required to accomplish them and enabling you to assess how organizational goals are achieved. The insights gained from contract management can also be used to pinpoint opportunities for maximizing income and cutting costs.
Enhances Operational Effectiveness
Best-in-class contract management strategies incorporate a number of tools or programs that automate the management of contracts. It increases corporate efficiency and decreases the range of errors by eliminating manual efforts. The staff can concentrate on more strategic facets of contract management, such as assessing contract performance and pinpointing opportunities for development.
Increases spending transparency and reduce erratic spending
Contract management streamlines transactional and performance tracking by structuring an organization’s relationships with its stakeholders, particularly its suppliers. It improves the transparency of where exactly your money is going and promotes spending visibility. One of the major problems that firms face is maverick spending, which may be reduced by increasing spend visibility. Contract management can also assist you in finding greater cost-saving options for your company by increasing spend visibility.
Increases suppliers’ visibility
Suppliers are an essential component of most businesses nowadays because most organizations depend on suppliers to provide goods and services that support their operations. Tracking suppliers, analyzing their performance in light of the contract’s conditions, and assessing supplier risk are all made easier by contract management. Additionally, it serves as a tool for establishing long-term, mutually beneficial relationships with suppliers that provide beneficial synergies.
Enforces compliance and enhances it
The level of compliance among the important stakeholders is implemented and improved by having a contract management system that specifies terms, conditions, and procedures to be followed. An increase in compliance always aids in the reduction of several dangers inside the firm.
The Contract Management Process
Pre-Contract Reward
Contract management needs to be considered early in the procurement process for it to be effective. Its starting point lies in the Strategic Procurement Planning stage which should be formulated early on between the project conceptualization and project preparation stages.
Contract Administration
Contract administration starts at contract award and continues throughout the contract implementation period. It refers to the management of the day-to-day practicalities and administrative requirements under the contract. It also involves taking decisions and actions that may be necessary to maintain or restore the project on track and that will be informed by the monthly progress report. Contract administration thus makes up the bulk of contract management activities.
Contract Closure
The last stage of contract management is contract closure. Contract closure is often overlooked or handled poorly since the main deliverables have been completed and parties to the contract focus on other priorities. However, contract closure is important because it provides a clear end to the contract with the contractor and minimizes the risks to the borrower of (i) potential contractual claims; (ii) financial exposure; and (iii) operational impact of a poor transition.