Demystify Contract Management - Everything You Need To Know!
Contract management is an important part of today’s business world. Assisting organizations in establishing and upholding effective agreements with business partners such as suppliers, vendors, investors, and other external partners. Therefore, a thorough understanding of the essentials of contract management is necessary to ensure legal compliance, mitigate risks, and enhance the worth of contractual relationships.
In this comprehensive guide, we will explore key principles of contract management, their stages, and why the contract lifecycle is important for forming a good foundation.
What is Contract Management?
Contract management is the procedure for managing contracts from creation through execution to the final stage of termination and renewal.
Some key activities involved in the contract management process include contract drafting, clause negotiation, performance analysis, and risk mitigation.
Understanding Contract Management Lifecycle
Contract lifecycle management takes the concept of contract management one step further. The addition of the word lifecycle signifies end-to-end management of contracts throughout all of the stages of the procedure. CLM or contract lifecycle are often used interchangeably as shorthand.
Importance of Contract Management
Managing your contract is important for many reasons. It helps you keep overall costs low and helps you make better and more informed decisions:
1. Reduces Legal / Financial Exposure - Effective contract management reduces legal or financial vulnerability. It ensures that proper terms are negotiated, legal requirements and consequences are spelled out, and necessary changes are made correctly. This way, there is less likelihood of the occurrence of conflict and subsequent legal issues in the future.
2. Promotes compliance - CLM management of contracts ensures that all the parties adhere to the contractual terms as provided in the law, terms, and conditions. These provisions may include timely delivery of deliverables, payments for items delivered, ownership of supplied items, and other compliance. Breach of contract occurs when any of the parties involved does not fulfill the terms of the contract.
3. Promotes Accountability - Contract managers are directly responsible for the supervision of the performance of vendors/suppliers to deliver the level of products, services, and KPIs as stated in the contracts. It improves the interaction between professionals and promotes responsibility.
4. Reduces Risks - Contract management and governance help in controlling costs within a project, since all the scopes, payments, overheads, and other costs are clearly stated in the contract. It assists in eradicating over-expenditure or wrong expenditure by explaining the amounts that one is supposed to spend on a particular expenditure.
5. Builds Relations - CLM professionals are responsible for maintaining business relations between the buyer and the seller. This makes it easier to coordinate within expectations, responsibilities, and changes in terms and conditions set in an agreement. This results in improved conflict resolution and the creation of mutually favorable partnerships between collaborators.
Stages of Contract Management Process
CLM is a systematic approach that is being used in the creation, execution, and analysis of contracts from the outset. Here are key stages involved in CLM:
Formation - This step consists of recognizing requirements, defining the roles of contract parties, establishing the objective of the contract, defining the type of contract, and evaluating potential risk.
Drafting - This phase is about writing contract terms and conditions as expressed by requirements set in written form. Tasks include searching for templates and clauses, negotiating terms and prices, reviewing contracts for compliance, and managing risks.
Implementation - During this stage, the contract is signed and becomes legally binding. It embraces acts such as acquiring signatures, engaging agreements, and conveying accountabilities to interested parties.
Management - This is the stage that involves supervision, regulation, and overseeing of contracts. Key activities include change control, managing relationships with suppliers, monitoring important milestones, renewals, amendments, and accountability for financial aspects of contractual obligations.
Closeout - Thus, during this phase, the contract attains its expiry and activities connected with the renewal or termination. This includes measuring the performance of vendors, verifying the final financial position of the contract, documenting lessons, and ensuring compliance with terms.
Conclusion
In this blog, we have discussed every essential aspect of contract management. We have also covered its benefits and stages that drive contract management processes to be more effective and productive. You can ensure clarity, accountability, and optimal outcomes by employing effective contract management in your organization. So, take a proactive and diligent approach to contract management to reach organizational goals and create maximum value for all concerned parties. Contact today!