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But here's the thing, just drafting a contract is not enough. To ensure that the agreement is effective, it is just as important to manage the contract and ensure that both parties abide by the terms of the agreement.
What is Contract Management?
Contract management is the entirety of the processes and practices that companies use to manage their contractual relationships. It includes establishing policies, procedures, and tools that help manage the life cycle of contracts, including drafting, negotiation, approval, execution, and monitoring.
Effective contract management should ensure that all parties involved in a contract are aware of their rights and obligations. In addition, a system of rules and guidelines is introduced, which can significantly contribute to effective contract management in a company. This in turn can help prevent potential disputes, minimize risks, and optimize the overall value of contracts.
Why is Contract Management Important?
There are several reasons for the importance of effective contract management. Here are a few of the most important ones.
1. Ensures compliance with legal requirements
By introducing specific contract management, companies can ensure that their contracts comply with relevant laws and regulations and thus minimize the risk of non-compliance with regulations.
2. Minimizes contract risk
Contracts can pose a significant risk as they create expectations and obligations that can result in significant legal and financial consequences. To minimize these risks, contract governance provides a structure for the uniform application of standard conditions. This reduces the likelihood of disputes and legal action due to non-payment, non-performance, or other violations of the agreement.
3. Improves contract management
To ensure successful contract management, it is essential that all parties involved know their respective roles and responsibilities. Contract governance makes this easier by ensuring that contracts are precisely defined, written thoroughly, and fully understood by all parties involved. In addition, it enables continuous monitoring of contract performance and highlights opportunities for improvement that can improve the quality of the goods or services delivered under the contract.
4. Offers greater visibility and control
Effective contract management provides greater visibility and control throughout the contract life cycle. This includes creating a central repository for contracts, streamlining the processes for contract creation, approval, and execution, and enabling access to real-time contract data and analysis. This allows companies to identify previously hidden opportunities for cost savings, reduce risks, and manage contracts more effectively.
The Most Important Components of Good Contract Management
There are several key components of good contract management that organizations should consider when developing their management programs. This includes:
- Clear roles and responsibilities: A well-designed contract management program should clearly define the roles and responsibilities of all actors involved in the contract life cycle. This includes contract owners, legal, procurement, finance, and other relevant teams.
- Standardised contract templates: Standardised Contract templates can help ensure the uniformity of contract terms, which can minimize the risk of disputes and litigation due to non-performance, non-payment or other breaches of contract. These templates should be reviewed and updated regularly to reflect changes in organizational needs and regulatory requirements.
- Centralized contract storage: One central contract storage can ensure that all contracts are stored in a secure and accessible location, which reduces the risk of lost or misplaced contracts. It can also provide greater transparency and control over the contract life cycle by providing real-time access to contract data and analytics.
- Automated contract creation and processing: The automation of processes for Contract preparation and execution can help save time and reduce the risk of errors and omissions. This can include using contract management software to automate the processes of contract creation, review, approval, and signing.
- Monitoring contract performance: Effective contract management includes a mechanism to monitor contract performance and identify areas for improvement. This may include regularly reviewing contract terms, tracking contract milestones and deliverables, and using analytics to identify opportunities for cost savings and risk reduction.
- Managing regulatory compliance: The observance Regulatory regulations are a crucial component of effective contract management. Companies should have processes in place to ensure that contracts comply with relevant laws and regulations and that any changes in legal requirements are reflected in contract templates.
- Contract extension and termination: Good contract management should also include processes for contract extension and termination. This can include setting up automatic alerts for contract renewal, setting criteria for contract termination, and providing a clear contract termination process.
4 Tips on How to Introduce Contract Management
Effective contract management is critical to ensure that your organization maximizes the value of its contracts, minimizes risks, and complies with relevant laws and regulations. If you want to implement contract governance in your organization, consider the following tips.
1. Set up a contract management team
The first step in implementing a contract management framework is setting up a contract management team. The team should consist of key players involved in the contract life cycle, including the legal department, procurement department, finance department, and other relevant teams. The team should be responsible for developing and implementing the contract governance program, monitoring contract performance, and identifying areas for improvement.
2. Develop strategies and procedures
Policies and procedures are essential parts of any contract management program. These documents set out the organization's standard practices and must be written in a clear, concise and understandable format. They also need to be updated regularly to reflect changes in the organization's structure, industry regulations, or other relevant factors.
3. Implement contract management software
A Contract management software is an essential tool for implementing a contract management framework. Contract management software provides a central platform for managing contracts, automating contract creation and execution, monitoring contract performance, and identifying areas for improvement. Contract management software can also help companies track key contract figures, such as contract value, renewal and termination dates.
4. Provide training for all stakeholders
Training for all stakeholders involved in the contract management process is essential. This ensures that everyone understands the company's policies and procedures, contract templates, and best practices. Training should be carried out regularly to ensure that stakeholders stay up to date with changes in company structure, industry regulations or other relevant factors.
