Contract management

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Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing any changes that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creating, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.^[1]

A recent study found that 42% of enterprises indicated that the top driver for improvements in the management of contracts is the pressure to better assess and mitigate risks. In addition, nearly 65% of enterprises report that contract lifecycle management (CLM) has improved exposure to financial and legal risk.^[2]

Common commercial contracts include employment letters, sales invoices, purchase orders, and utility contracts. Complex contracts are often necessary for construction projects, goods or services that are highly regulated, goods or services with detailed technical specifications, intellectual property (IP) agreements, and international trade.

The sheer complexity and volume of corporate contracts have increased dramatically in recent years due to rising globalization, outsourcing, and regulatory requirements.

1 Areas of contract management
2 What is a contract?
3 Contract Management Software
4 Change management
5 References
6 See also
7 External links

[edit] Areas of contract management

The business-standard contract management model, as employed by many organizations in the United States, typically exercises purview over the following business disciplines:

Authoring and negotiation
Document management
Baseline management
Commitment management
Contract visibility and awareness
Issue and change management
Transaction compliance
Service level agreement compliance

[edit] What is a contract?

A contract is a legally binding agreement between the parties identified in the agreement to fulfill all the terms and conditions outlined in the agreement. A prerequisite requirement for the enforcement of a contract, amongst other things, is the condition that all the parties to the contract accept the terms of the claimed contract. Historically, this was most commonly achieved through signature or performance, but in many jurisdictions - especially with the advance of electronic commerce - the forms of acceptance have expanded to include various forms of electronic signature.

Contracts can be of many types sales contracts (including leases), purchasing contracts, partnership agreements, trade agreements, and intellectual property agreements.

A Sales Contract is a contract between your company (the Seller) and a Customer that you are promising to sell products and/or services. The customer in return is obligated to pay for the product/services bought.

A Purchasing Contract is a contract between your company (the Buyer) and a Supplier who is promising to sell you products and/or services.

A partnership agreement may be a contract which formally establishes the terms of a partnership between two legal entities such that they regard each other as 'partners' in a commercial arrangement. Note: however, that such expressions may be merely a business-expression to reflect the desire of the contracting parties to act 'as if' both are in a partnership with common goals. Therefore, it might not be the common law arrangement of a partnership which by definition creates fiduciary duties and which also has 'joint and several' liabilities.

[edit] Contract Management Software

The average Global 1000 corporation maintains over 40,000 active contracts, most of which are still managed in a traditional manual method. However, approximately 25% of Global 2000 companies have implemented some form of contract management software to help manage corporate contracts. Contract management software automates the contracting process from contract creation and negotiation through monitoring, compliance and renewal. The solutions typically maintain a warehouse of corporate contracts improving a company's access, visibility and control over contacts. Most solutions also offer the ability to warehouse standard contract and business terms and conditions and template contracts. Early research has demonstrated that using contract management software, companies are better able to realize savings achieved during procurement negotiations procurement spending, improve sales effectiveness, and increase compliance by allowing contracts to drive day-to-day operations.

[edit] Change management

There may be occasions where what is agreed in a contract needs to be changed later on. A number of bases may be used to support a subsequent change, so that the whole contract remains enforceable under the new arrangement.

A change may be based on:
1. A mutual agreement of both parties to vary the contract, outside the framework of the existing contract. This would be an independent basis for changing the contract.
2. A unilateral decision to vary the contract, contemplated and allowed for by the existing contract. This would normally have notice periods for fairness and often the right of the other, especially in consumer contracts, to cease the contractual relationship. Be careful that any one-way imposition of change is contractually justified, otherwise it may be interpreted as a repudiation of the original contract, enabling the other party to terminate the contract and seek damages.
3. A bilateral decision to vary the contract, within the variation or change control process outlined in the existing contract. These are often called Change Control provisions.