Contract Management – the basics

Simply explained contract management is the process of managing a

contract from inception till the end with counter-parties that could
include employers, clients, customers or suppliers and vendors.
It starts from an invitation or request made by either party, followed
by drafting (of terms and conditions), negotiation, approval before the
performance stage as well as obligation monitoring, renewals,
amendments and conclusion.

Stages in Contract Management

The need for a Contract usually arises at the inception of the proposal
or a project when a Contract needs to be drafted to pen down the
understanding of the parties. Else, in case of a project contracts of
various kinds have to be included in the Invitation to Tender, Bidding
Documents or project documentation. At the start of procurement
cycle, a request is usually initiated in the procurement department
along with the inception of the project and is forwarded to the
contracts or legal department to be taken up.
1. Drafting a Contract: Contract are drafted incorporating given facts
while ensuring compliance with the law. There are certain provisions
that have to be included in the contract to protect the rights of the
parties and ensuring a balance between them. The writing could
employ standard templates and boilerplate clauses by the users while
creating a contract and later having it vetted by legal department to
ensure compliance with law. The draft is usually shared with other
departments to give their input.
2. Negotiating Terms: Once a draft is ready, it is sent out to the other
party for its consideration. The draft undergoes changes, which are
negotiated between the parties. At this stage, it is important to keep
track of the changes that are suggested by one party and agreed to or
 declined by the other party and the comments that are made by the
respective staff and redressing these. Multiple versions of the contract
may be produced after every cycle of sharing between the parties and
their staff and comparison between the various drafts may be needed
to understand what was actually intended by parties. This review
cycle continues until all of the terms are finalised and approved by
both parties. The formal draft of the contract may be required – with
taxes and duties paid – to be printed on a specific paper for issuance
and record. Approval may also require certain formalities to be met
depending upon the industry to which a transaction or project pertains.
3. Amending Contracts: Contracts may require amendments during
their life cycle. These could relate to multifarious issues such as a
change in:
a. timeline due to delays or disruptions;
b. performance terms,
c. price,
d. regulations or laws
e. intervening events or force majeure
f. parties to the contract, etc.
These amendments need to be carefully incorporated in the
draft after agreement of all concerned and updated in the record
with dissemination to project staff in a timely manner.
4. Risk Profile: It needs to be understood at this stage that whilst
negotiating and finalising the contract the concerns raised by one
party, which were not acceptable to the other party, but were vitally
important to the first party should also be documented. Though these
do not form a part of the final draft but may qualify as risks that need
to be included in the risk profile. Mitigation measures against these
risks ought to be identified and shared with the project manager and
his team later on.
 5. Performance Stage: Satisfactory performance depends upon how
well a project reflects agreed intent of the parties. Thus it is
imperative to keep a track of the project activities from a contract
management perspective. The term of a contract may be spread over
months or years and how it progresses needs careful documentation to
avoid disputes later on. Ensuring that timelines and other contractual
milestones are met properly and acknowledged and that intimations
and notices are issued in a timely manner is an essential element
contract management. Moreover, contractual communication between
the parties and sometimes even project communication having
contractual or legal import may need input by contracts or legal
managers before it could safely be issued to the other party. In a large
scale project contract, a contract manager tracks the progress and
activities by receiving regular reports from projects and planning staff
and in case of slippage in time or cost overrun prepares and submits
time and cost claims for onward submission. Having a risk profile
(alluded to earlier) comes in handy to avoid industry specific or
activity specific risks so does an in depth knowledge of contractual
terms and their interpretation in various scenarios.
6. Concluding a Contract: Successful performance of the Contract
means that the parties involved are satisfied with the performance.
While careful drafting of the contract does minimise unforeseen risks
and unwarranted eventualities it needs to be emphasized that much
depends upon how the performance is achieved. For instance in
construction contracts, there is a defect liability period wherein
defects and shortcomings in performance are to be fixed before an
acceptance of works is issued. Proper contract management by a party
ensures that the performance is accepted as per terms, any additional
work required is actually paid for and penalties are avoided.
Use of Contract Management Software
Modern Techniques of Contract Management can ensure that many of
the risks associated with the exercise either never materialise, or if
inevitable, are mitigated in a timely manner. These include
employment of trained and experienced staff to manage contracts and
employment of specialised software to manage contract management
activity.
Recent events have brought about a renewed focus on off-site
management of contracts as companies considered remote-work
option more seriously. Companies look for contract management
service providers that could introduce efficiency in the procurement
cycle by establishing electronic repositories for contracts.
Use of software for contract management provides better visibility
into the process during the achievement of contractual milestones as
well as guaranteeing timely notification of various tasks. It ensures
efficiency into the whole process and compliance of performance with
terms becomes easier, however, it must be appreciated that a software
cannot think and cannot foresee the outcomes of a particular act or
event.
Benefits of effective Contract Management
Contract Management is indeed a specialised task requiring an in-
depth knowledge of the terms of the contract, their interpretation in
various scenarios and managing legal outcomes. If done properly, it
could reduce a lot of headache for the parties involved, their
procurement and project managers. Proper Contract Management
helps avoid costly dispute resolution efforts expended in ADR or
before the Courts ultimately saving precious business relationship
between the parties.