Contract Management Aspects and Interactions

Landon Smith
College of Business, Athens State University
ACM Research Project
Dr. Charles Roberts
July 10, 2021
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Abstract
This paper discusses the various aspects of contract management and how they interact

with one another. Notably, the topics of risk management, schedule management, quality

management, finance management, and human resource management are each discussed in detail

to provide an overview of how they function within the realm of contract management. Once the

defining aspects of contract management are defined and analyzed, the interaction of the

different aspects are discussed in order to show how contract management actually functions at a

macro scale. This interactions are then analyzed and further discussed to show the importance of

each in the realm of contract management.

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Table of Contents
List of Figures…………………………………..…………………………………………………4
Introduction to Contract
Management……………………………………………………………..5
Risk Management…………………………………………………………………………….……
6
Schedule Management……………………………………………………………………….……8
Quality Management…………………………………………………………………………..…10
Finance Management…………………………………………………………………………….11
Human Resource Management……………………………………………………………….….13
Interaction between contract management aspects and conclusions………………………..…...15
References………………………………………………………………………………………..17
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List of Figures
Figure 1: Functional Make Up of Contract Management
Figure 2: Finance Management Work Breakdown Structure
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Introduction to Contract Management

Contract management is the synergy between customers and clients after the point of

contract agreement. This includes the accountability of each party and the actual execution of the

agreements listed within a given contract. Notably, contract management differs significantly

from contract administration as contract management occurs after a contract has been written and

agreed upon. Contract management includes the topics of risk management, schedule

management, quality management, finance management, and human resource management. Each

of these topics include their own subsets of tasks and ideas that are used throughout the contract

management process. Figure 1 (Kamaruzzaman 2019) shows the functional make up of contract

management and demonstrates the importance of each aspect of contract management to ensure

success.
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Figure 3: Functional Make Up of Contract Management

Risk Management

Risk management is defined as “the forecasting and evaluation of financial risks together

with the identification of procedures to avoid or minimize their impact,” (Oxford 2021). To this

end, risk management has a multitude of applications in various fields: from the financial sector

to science and engineering, as well as to managing contracts in a productive and beneficial way.
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Risk management in the realm of contract management includes the importance of ensuring that

all potential failures within a contract from either party are addressed and managed

appropriately.

The main goals within the realm of risk management are to identify potential risks and

calculate the likelihood of each risk’s occurrence. Mathematically, risks can be quantified as the

probability of a certain event multiplied by the monetary consequence of the event. This gives a

quantifiable value to each risk and allows the business to determine whether managing such a

risk is necessary or beneficial. Within contract management, risks are determined by the

likelihood of one party failing to uphold their end of the contract: be it not having the ability to

manufacture a certain quantity of products, not having the resources to provide the necessary

services, etc. The risks must be analyzed and mitigated to the best of both parties’ ability in order

to ensure successful execution of contracts, and thus all risks must be documented so all parties

are aware of potential risks, and aware of the steps being taken to prevent the risks from

negatively impacting the execution of the contract.

The methods of managing contract risk include certain methods such as PERT, the

Program Evaluation and Review Technique (Turner 2001). This method is the most popular and

was developed for construction work when managing specific risks to life and limb. However,

PERT is also useful for managing contracts as it allows for a two sided management technique to

occur ensuring both parties are satisfied with the steps taken for risk management. Mathematical

models analyzing prior statistics and probabilities exist within the PERT technique, and allow for

managers to determine the highest order of potential risks and develop a plan to manage them

according to costs of time and money.

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Project risk management and contract risk management go hand in hand. The steps taken

to manage risks on specific projects include the identification, analysis, response and controlling

of pertinent risks; meanwhile the steps for managing risks in contracts are identical in that each

risk must first be identified and analyzed before a specific response plan is created to mitigate

any possible risks associated with the specific contract. The importance of risk management

while managing contracts cannot be understated, as the pertinent risks that might occur in a

project site are often also present with contracts between clients and businesses, as well as

contracts between two businesses.

Schedule Management

Contracts are almost always written with specific time sensitive schedules for the

execution of various parts of the contract (Kearney 2002), the timeframes written into contracts

must be upheld by both parties and thus the importance of managing the schedules is paramount

to the success of any given contract. Schedule management ensures that tasks are finished on

time and requires the creation of agreed upon schedules, follow up meetings for specific

deadlines, and variability within schedules to account for delays that might occur.

Schedule management consists of various points of interest for those involved with a

certain contract or project. Notably, upper management teams determine a start and end point for

project tasks, while middle management plans the specific tasks that subordinates must complete

in each time frame. Finally, individuals must determine personal deadlines to meet in order to

ensure that all aspects of a contract are executed in a timely manner.

Schedule management requires flexibility on both parties as delays and trouble can occur

with little notice, and can impact the sensitive timeframe of a given project or contract. Kearney
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discusses this importance and says, “Production processes are complex and may require re-

scheduling in the case of delays in deliveries,” (Kearney 2002). This demonstrates the ever

changing aspects of contracts in that, even with an agreed upon timeframe, delays can occur at

no fault of either party and must be met with flexibility to ensure proper execution. A common

type of contract in the defense industry is a company contracted out to complete a specific job on

behalf of the government. These contracts are often criticized by taxpayers because they almost

never conclude on time or on budget, this is because of the multitude of moving pieces that are

required to ensure proper execution and delays are often inevitable due to the hundreds of

individuals responsible for the parts of the contract. This type of contract work generally has

generous extension clauses to ensure that the fundamental deliverables are completed with high

quality in spite of delays that may occur (Black 2020).

Finally, schedule management must also consider the internal requirements and schedules

of both parties. For example, when managing international contracts between multi-national

corporations, the timeframes must reflect different time zone schedules and holidays that the

different organizations observe. Setting up online meetings between two organizations on

different continents can be difficult, due to the differences in the time zones. Additionally, when

planning contract deadlines, holidays must be accounted for as well. For example, if a French

and an American corporation are collaborating on a contract, the French side must adhere to

American holidays and plan deadlines around July 4 in order to not interfere with the American

labor force. The importance of international relations with regards to schedule management is

paramount to ensure that both parties are satisfied with the progress, while also understanding

the potential for delays that might occur.

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Quality Management

Quality management is a branch of contract management that deals with the quality

assurance for all deliverables. Quality assurance is important to contract management, because

often the quality of deliverables or products is written into the contract, defective units do occur,

and often the quality management plan accounts for such discrepancies to ensure that all quality

requirements within the contract are met. Generally, quality requirements are included in all

contracts that deal with engineering and technical work, also for manufacturing contracts, and

even intellectual property contracts between parties. The criteria considered include the

outcomes of final products, as well as the quality of the outcomes during various, predetermined

stages throughout the execution of the contract.

Quality management generally also consists of a quality plan which includes procedural

information as well as quality records. The quality management system is designed to be

revisited at regular increments in order to ensure that it is up to date on the current contract goals

and required outcomes, this ensures that any changes in scheduling, or product specifications are

accounted for and the quality will be maintained. Notably, many contracts include quality

regulations as part of the contract (Boulmakoul 2002). These quality regulations are agreed upon

ahead of time but change throughout the process of the contract, this ensures that all parties are

content with the measures given any updates and changes.

Quality management also includes the specific control iterations of individual

components on projects and contracts. For example, quality is managed from both a macro and a

micro scale to ensure that each component is of adequate quality, while also ensuring the

cohesion of each component for the entire project or product is also of high quality. This does

lead to limitations, however, as oftentimes contracts involve more than just two parties and
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products can come from a variety of providers leading to difficulties in ensuring quality

throughout the many phases of work within the given contract.

Overall, quality management ensures that the contract is upheld within the obligations of

each party, while also ensuring that the responsibility for each part of a contract is given to the

correct individual. This is done through continuous checks and editing with regards to the quality

management team, as well as the quality procedural information and records.

Finance Management

Finance management is the subsection of contract management that provides checks and

balances for all financial aspects of a project, from estimates to cost planning. Finance

management ensures positive outcomes for both parties by ensuring that the best possible

product or service is rendered for the best possible price. Finance management plans include

corrective measures in the event of a project running long, or not having the resources required

to complete the project on time. Often, finance and time management go hand in hand because of

the monetary value placed on time in the workforce.

Finance management is generally conducted by the human resources team in order to

ensure that payroll and other obligations will fall within the bounds of the contract, for product

procurement and other forms of financial costs, the finance team will generally specifically work

with the procurement team to ensure all financial obligations are satisfied.

Finance management can be divided into certain tasks for each involved party, these can

include resource planning, cost estimation, cost planning, and cost control. Each of these

procedural steps include specific tasks for specific people on board, while also ensuring the

cohesion between all teams and parties. Figure 2 (Kamaruzzaman 2019) shows the work
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breakdown structure for finance management with respect to given objectives as part of the

contract. Specifically, the circumstances that are taken into account when planning the financial

aspects of a contract or project include the payment schedule for completed work, as well as the

financial arrangement between the parties.

Notably, when managing a contract’s finances, it is important to account for inflation

with longer lasting contracts, as oftentimes prices may increase given enough time, and not

planning for such can lead to lower profit margins for the parties involved. For example, if a

construction company contracts with another company to purchase gasoline for their equipment

and the price of gasoline increases, the contract should indicate the resulting actions taken by

both parties.
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Figure 4: Finance Management Work Breakdown Structure

Lastly, finance management is among the most important aspects of managing contracts,

as most business contracts are entered into in order to create a profit for one or multiple parties

involved. The importance of finance management can be the difference between a company’s

profit and deficit so the terms of finance within a contract are incredibly important.

Human Resource Management

Finally, human resource management is the subsection of contract management that

specializes in human capital. Human resource management includes any aspect of a contract or

project that involves human, such as labor, services, customers, etc. Each of these aspects of
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human resource management can differ depending on the market as many countries and regions

have their own laws with regards to human resources. Human resource management generally

deals with the needs of clients and businesses in order to ensure that all requirements are met.

This can include increasing staff during busy periods to meet deadlines, or even just managing

the existing staff to ensure that all requirements are met on time.

Many problems that can arise when dealing with human resource management are

staffing and financial concerns. Payroll is the biggest expenditure for most companies

(Bochicchio 2011), and therefore having productive staff is vital to the success of a contract or

business in general. The biggest problem that human resource managers face when dealing with

contracts is ensuring enough staff members are present to complete work on time, therefore, they

often have to hire additional employees during a busy phase in a project, or furlough others

during off-peak periods. This can take a lot of juggling from human resource teams, so generally,

the human resource management realm of contract management is handled by professional

human resources teams on behalf of either party responsible for a given task in a contract.

Finally, many problems arise in international contracts due to the cultures and work

environments that employees are accustomed to. When traveling internationally to meet with

clients or other branches of a business, many employees find it difficult to adapt and thus need

additional support to ensure the success of the contract.

These problems can often be mitigated by including necessary human resource

management information in specific contracts, and enabling contracts to be adapted alongside

changes in requirements or conditions between the parties. Additionally, human resource

managers often provide special training for staff members based on the circumstances at hand in

order to ensure successful execution. Human resource management is one of the costliest and
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most important aspects of contract management, but is necessary to ensure that the human capital

is protected and taken care of during all phases of a project.

Interaction between contract management aspects and conclusions

The main aspects of contract management include risk management, schedule

management, quality management, finance management, and human resource management, each

of these interact with one another in order to provide the best possible outcome for projects and

contracts. The most important aspect of contract management is the cohesion of all branches of a

company working closely together to ensure proper outcomes. This can be done by ensuring that

the team leaders for risk management, schedule, quality, finance and human resource teams are

all communicating effectively in order to ensure smooth progress throughout a contract.

Additionally, as needs change for various teams, they must communicate and consult one

another in order to take the best course of action and ensure success.

Notably, the human resource management team is generally at the forefront of the

interactivity between various other teams, because they enable the responsible parties for each

team to communicate effectively regardless of the situation. A very common example of

interaction between teams is the communication between the finance team and the human

resources team, often the human resources team might see the need for additional staff for one

aspect of the contract and needs to communicate with the finance team to ensure the money is

there to hire additional staff on a temporary or permanent basis.

Lastly, the synergy required by all parties in a contract is vital to the success of the

contract as a whole, and therefore the various teams interacting and communicating with one

another allows the synergy to take place in a productive and efficient manner.
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References

Bochicchio, Mario A. (4 July 2011). Modelling Contract Management for Cloud Services. IEEE.
Boulmakoul, Abdel. (8 July 2002). Integrated contract management. Hewlett-Packard
Kamaruzzaman, Muhammad. (15 March 2019). Contract management and performance
characteristics: An empirical and managerial implication for Indonesia. Growing Science.
Kearney, Paul. (1 January 2009). Towards a trust and contract management framework for
dynamic virtual organizations. Academia.
Oxford English Dictionary (1 January 2021). Web.
Poppo, Laura. (22 July 2013). Managing contracts for fairness in buyer-supplier exchanges.
Strategic Management Journal.
Turner, J. Rodney. (1 November 2001). Project contract management and a theory of
organization. International Journal of Project Management.