What is contract management, and why is it important?

What is Contract Management?

Contract Management involves creating and maintaining agreements with customers, vendors, partners, and employees. Beyond creating these agreements, management over the long-term includes modifying and gaining approval when necessary, sharing and archiving these contracts, and analyzing performance compared to contractual obligations.

Formal contract management helps organizations save time, minimize cost, mitigate risk, improve revenue, optimize organizational efficiency, gain valuable insight into managing commitments, and nurture profitable relationships.

At its simplest, contract management involves three stages:

  • Stage 1: In the pre-award stage, work takes place before a contract is awarded. This includes identifying details of the contract’s purpose and scope, determining who will commit on behalf of each party, and negotiating all details.
  • Stage 2: The contract is awarded and executed, and the paperwork is completed to make the agreement final and legally binding.
  • Stage 3: In the post-award stage, contracts are managed and maintained to ensure obligations and commitments are met, revisions and adjustments are made as necessary, periodic audits are conducted, and ongoing renewals are executed as appropriate.

Benefits of Contract Management

Establishing a rigorous contract management system makes life easier for everyone involved by creating a more robust, repeatable, and efficient way of working.

When contract management is running smoothly and efficiently:

  • Processes and software are established and followed to manage the contract lifecycle.
  • Decisions are made at the proper time during a product or project’s lifecycle.
  • Organizations realize expected business benefits and results.
  • Relationships with suppliers are cooperative and responsive, with built-in abilities to evaluate supplier performance throughout the contract.
  • Delivery of products or services is satisfactory to both parties.
  • There are no contract disputes.
  • There are no surprises when it comes to delivery or quality.

Contract Management best practices

With complicated systems that so critically impact both financial and organizational performance, putting in place a series of best practices helps avoid the negative consequences of lost revenue, ineffective collaboration, and inefficient operation.

High-performing contract management systems incorporate best practices such as:

  • Standardized and centralized contract creation and storage, including a searchable repository for easy access to established contracts.
  • A globally understood set of terms, conditions, and pre-approved legal language that work across a variety of contracts.
  • Well-defined and transparent contract management KPIs and goals which are communicated throughout the business.
  • Tracking of the contract execution process, including who accepted each agreement, which version of that agreement was accepted, the date and time of acceptance, and overall time to receive approval.
  • Ongoing review of contracts to be sure requirements accurately reflect the changing business landscape and influences.
  • Financial metrics as part of the regular contract management review.
  • Regular compliance reviews to protect the company against risk of evolving legal, industry, and external regulations.

Improving Contract Management is a key ongoing process

Contracts must be regularly maintained, managed, and analyzed to maximize organizational profitability while minimizing risk and liability.

Thurman Co. is uniquely positioned to assist organizations in various aspects of Contract Management, including risk assessment and contract lifecycle management.

We help businesses manage projects to significantly impact their success and growth. When you’re ready to put your project in the hands of a trusted professional organization, contact us to learn more about working together.

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