Contract management or contract administration is the management of contracts made with customers, vendors or partners. The personnel involved in contract administration required to negotiate, support and manage effective contracts are often expensive to train and retain.
Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis
for the purpose of maximizing financial and operational performance and minimizing risk.
Contract management is the management of:
1. Contract Development – the procurement phase including evaluation and contractor selection.
2. Contract Execution – those activities leading up to the final execution of the contract, including negotiation and approval of the final statement of work.
3. Contract Monitoring – those activities used to track and monitor the contract from the date of execution to contract expiration.
The following are key components of Contract Management:
- Tracking Delivery of Goods and Services – throughout the performance of the contract.
- Tracking Vendor Responsibilities – are they doing what they are responsible for in accordance with the contract.
- Tracking Milestones and Deliverables – making sure deliverables and milestones are on schedule.
- Tracking Budget and Approving Payments – making sure you are within your budget and not overspending.
- Validating Conformance to Requirements –they should align with validating the scope of work or functional/business requirements for the contract.
- Managing Vendor Relationship
Qualities of Good Contract Management:
- Be Proactive – By actively managing and monitoring your contract, you can address issues before they potentially become a problem.
- Be Collaborative – Work collaboratively with your contractor as well as other members of your team and stakeholders.
- Be Focused on Risk – Watch for increases and decreases in risk throughout the contact term – measure and mitigate.
- Be Communicative – With all members of your team, management, stakeholders and most importantly, with your contractors.
- Monitoring Performance and Metrics– this requires upfront planning to establish the metrics for reporting. The initial monitoring plan should be developed early in the contract and development phase and be based on early risk assessment. Because risk is dynamic, the monitoring plan can change throughout the contract term. Work with subject matter experts, stakeholders, and your contractor to determine what these are.
Whether a contract requires dedicated contract management depends on a number of criteria, such as:
Contract value;
Contract length;
Complexity of services;
Level of risk.
A relatively low-risk supply-only contract would benefit from the attentions of a contract manager at the start (or ideally a few weeks before the contract is signed) to implement core contract management processes, produce a contract summary if required and assess the risks and/or opportunities that may require action in the future.
