Contract lifecycle and project management
Being responsible for managing a project is complex enough, then add contract management and the situation can become overwhelming, especially when contracts are not aligned as expected and issues arise, taking away from the project managers primary goal which is delivery. Companies employ contract managers to manage this often-complicated process. While not every organization has a contract manager, everyone who is leading a project that employ’s vendors and contractors need to understand what is involved.
Contract management is the process of managing contracts. This includes deliverables, deadlines, and the terms and conditions of the contract. It’s not merely facilitating the contract process; it also includes managing customers and their satisfaction.
Often people think only of the build-up to the contract being signed. While this negotiation period is important, it’s a mistake to neglect what happens after the contract has been awarded. This is when the real management of the contract begins.
Contract management is used in organizations in both the public and private sector to effectively manage contracts after they’re signed to create a better operational and financial performance. It also helps to reduce the financial risk for the organization. While time-consuming, having a good contract management process reduces costs and improves performance.
Contract lifecycle management is different from contract management. The latter is more about managing contracts with email, spreadsheets and file storage. Contract lifecycle management is a strategic approach to contract management that gets greater efficiencies out of the activity by combining people, processes and technology.
Contract lifecycle management or CLM is about automating and streamlining the processes involved in contract management’s various stages, such as initiation, authoring, process and workflow, negotiation and approval, execution, ongoing management and compliance, and renewal. The end goal is to save time and money while reducing errors.
This is done by using CLM software, which gives users greater visibility into what a corporation is spending and streamlines the contract process for more efficiency leading to lower administrative costs. This is accomplished through management of procurement and sales contracts, automation, standardization and more, to create contracts quickly and easily.
Some organizations will have a dedicated person for contract management known as a contract manager. They direct and oversee contracts as they move through their lifecycle. In a sense, they’re the middle person who work as a bridge connecting companies, employees, customers, vendors and contractors.
A contract manager will facilitate the negotiations, recommendations and all record-keeping associated with the contract process. They research all legal issues related to the contract and help with negotiating terms and conditions with the client and the third party.
Some of the duties of a contract manager include preparing commercial bids, developing and presenting project proposals, meeting with clients, estimating budgets, negotiating contract terms and more. Their skillset includes having knowledge of contract law and being apt at relationship management.
Contracts are important. They are legally binding documents between an employee and contractors or vendors who will be carrying out work. Therefore, contract management is equally important as it helps to make sure contractual work is done effectively. It works out for both parties involved in terms of business strategies and procedure.
Since so much of an organization’s business strategy depends on the successful negotiation of a contract, the process can be time-consuming. Using contract management helps to dedicate just the right amount of resources needed.
But once the contract is signed, the need to monitor and oversee its implementation is critical to meeting the obligations of the contract. Failure to have a contract management process in place can cost the organization money and time through levied fines and litigation—not to mention erode important business relationships.
Contract management continues to be a benefit even after the contract is finalized and services procured. Without oversight, this can lead to failure to fulfill all contractual obligations. All of this erodes the value of the project and can even lead to failure to achieve its objectives.
Contract management, like any type of management, has a process. This allows for the management of contracts to be controlled and make sure nothing important is ever being neglected. This series of actions can be broken down into seven steps:
The first step is the identification of the organisations need, goals are set, and risks defined. Remember, the contract is legally binding, so due diligence is important. Know the type of contract, any standard agreements that can be used, determine who is responsible for what and the resources needed to implement the contract.
If there’s an in-house counsel or attorney your organization works with, this is the point to consult with them. They might even have a template to work from as the contract is drafted. This will help make sure all the required clauses and terms are included. Also, take into consideration any state or country laws that might impact the contract. Take time and make sure everything is correct.
The next step is getting approval from a manager or executive to look over the contract draft and see if they have any comments or corrections before finalizing the document. This phase of the process is dependent on how your organization works, and if they have audit procedures or other policies about specific procurement. At this point, set up a system to notify the approving parties so they can view, edit and comment on the contract in real time.
The negotiating stage will involve researching the other party’s needs prior to sitting down at the negotiating table. When everyone is making changes to the contract, it’s helpful to have that document be shared and collaborated on in real time. Shuffling back and forth between different versions of the contract by email via physical documents increases the likelihood of errors and cost increases.
Once both parties agree on the contract, it’s signed by them, which makes it a legally binding document. While we often picture contract signings taking place in person, that just isn’t always the case. With virtual meetings and a global economy, getting signatures can be more difficult. More companies are using e-signatures to facilitate this stage.
It’s common that a signed contract will get amended or revised. Tracking these changes is important and highlights the need for reliable contract management process. Contracts should be shared, easy to edit and add amendments as needed.
Finally, there’s the management that follows the signature, which can be auditing, renewing contracts and other obligations. The contract should be audited regularly to make sure the obligations are being met. This includes renewing the contract when necessary. Missing a renewal is a lost opportunity and can damage the relationship between the owner and contractor.
When applying contract lifecycle management, there are things to do to help the process work more effectively. For one, digitizing and automating the process is always advisable. This is doubly so when managing a portfolio of contracts or dealing with contractors and vendors who are geographically spread apart.
The automation of notifications to keep track of when contracts are up for renewal is a good approach. As human error can be costly, but when reminders are set on the software then deadlines are easily visible.
Having reporting features on a software tool is important for a budget, which is constantly changing over the course of a project. A budget is planned and is outlined on the contract, but the actual project might find you overspending. A tool is needed to check against what has been planned to spend and what is being spent.
Contract Management is an essential part of delivering projects, although organisations may have people whose job function is to specifically focus and work on contracts, and the responsibility may fall on others, it is good to understand the intricacies of what is involved. Let us know your experience with contact management we would like to hear from you. All the best on your project management journey.