MANAGEMENT OF CONTRACTS

MANAGEMENT OF CONTRACTS

1.     Overview of Contract Lifecycle Management

Contracts define the responsibilities, rights, and obligations for the enterprise relationship with suppliers, vendors, partners, customers, or employees.[1] They play an instrumental role in mitigating risk associated with commercial or non-commercial commitments between two entities in the business ecosystem.  ‘Contract lifecycle management is nothing but, the proactive, methodical management of a contract from initiation through award, compliance, and renewal [2].In simpler terms, it is the management of contracts made with customers, vendors, partners, or employees. It also encompasses negotiation of the terms and conditions in contracts, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk. 

2.      Pillars of Contract Management[3]

1. Contract request

Contract Request is the initial stage of contract lifecycle management. The initiation of the process happens when one party requests the contracting process and uses the information received to draft and author the contract documentation.

2. Authoring

This stage is also known as the “drafting stage.” This stage defines all the details and conditions which will form a part of the agreement.

3. Negotiation

In this stage, all parties are negotiating the document’s terms and conditions and thoroughly reviewing the contract based on their business needs and mutual understanding. 

4. Approval

Depending on the contract, it may need internal or external third-party legal approval or both. The approved version is passed to the specialist for review.

5. Execution

The approved contract has to be then signed by all parties involved, either manually or electronically.

6. Obligations management

At this stage, the working and delivery of the results promised in the contract is initiated. In other words, the parties have to fulfill the executed agreement. 

7. Contract amendments

When it comes to this point, all respective parties go through a new round of drafting, negotiation, approvals, and so on. It’s natural for some conditions to change, especially during long-term contracts.

8. Audit and reporting

Companies should regularly report on the agreements’ execution and performance to all stakeholders. Companies must always ensure specific contracts are in alignment with industry requirements and government regulations.

9. Renewal and/or termination of the agreement

This step is essential as it means a new stage of cooperation for all parties. A thoughtful and on-time contract renewal can benefit everyone while ignoring the schedule can negatively affect lawsuits. On the other hand, if the purpose of the contract has been fulfilled, the contract can be terminated at this stage.

3.     Benefits of Contract Management [4]

Some of the significant benefits of contract management:

1.      1. Aids business functioning

Efficient contract management will ensure simplification of the organization functions – it structures business expectations; the mechanisms needed for their fulfillment and allows for the analysis of how the organizational objectives are met. The insights from contract management can also help identify areas for revenue optimization and cost minimization. 

2.    2. Enhances functional efficiency

Best-in-class contract management techniques involve the use of various software or tools that automate the process of managing contracts. By reducing manual efforts, it improves business efficiency and the scope of errors.  This allows the personnel to focus on more strategic aspects of the contract management like evaluating contract performance, identifying areas for improvement, etc. 

3.     3. Promotes spend visibility and minimizes radical spending

By structuring the engagement of an organization with its stakeholders, especially its suppliers, contract management simplifies transactional, and performance tracking. It increases spend visibility and improves the transparency of where exactly the money is going. Maverick spend is one of the critical issues that plague businesses, and higher spend visibility will help curb undocumented expenditures. By increase spend visibility, contract management can also help identify higher cost savings opportunities for the organization.

4.      4. Enforces and improves compliance

Having a contract management system that dictates terms and conditions and procedures followed implements and enhances the level of compliance amongst the relevant stakeholders. Increase in compliance invariable helps in mitigating a large number of risks within the organization.

4.     In a Nutshell

Contracts form the foundation of all business relationships. With a growing number of contracts, an increasing complexity and the ongoing need for amendments, it becomes more and more challenging to manage the valuable information in the contracts. This process of contract management enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It continues throughout the lifecycle of a contract. Development of contracts management processes and working towards performance improvement is the key objective of every company’s operational mandate, be it a small, medium, or large organization. Contract management is an issue of strategic importance both to the organization and to the projects. A thorough contract management organization can increase control, increase effectiveness and reduce costs and also provide strategic and competitive advantages.

By,

Shruti Menon

Team K&T Forlex 

Mumbai | Pune | New Delhi | Singapore | Shanghai

 

#ktforlex #contract #law #legal #Corporate #contractlifecycle #management

K&T Forlex Pvt Ltd is an international business and corporate consultation firm operating from 5 cities across the globe. You may reach us at www.ktforlex.com or via email at info@ktforlex.com.

 End-Notes

1.       https://www.law.cornell.edu/wex/contract ; definition of Contract as retrieved on 30.12.2020

2.       http://www.villanovau.com/contract-lifecycle-management-benefits/ ; retrieved on 31.12.2020

3. https://www.contractworks.com/blog/7-essential-stages-of-contract-management; retrieved on 31.12.2020

4. https://www.contractlogix.com/contract-management/7-benefits-of-a-enterprise-contract-management-system/; retrieved on 30.12.2020

5. Additional read: a) https://www.stateofflux.co.uk/ideas-insights/articles/the-challenge-and-value-of-better-contract-lifecyc b) https://www.lexology.com/library/detail.aspx?g=fba60a73-935b-4c20-ae77-303cdc83a518          

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