How Does Contract Management Work
Whether you’re in the business of manufacturing, construction, transportation, or any other industry that involves committing to a contract with another party, learning about contract management is essential. After all, it’s the process that helps to establish trust between both parties and ensure successful results for everyone involved. In this blog post, we’ll be taking a look at what contract management is and how it works. We’ll explore topics such as the different types of contracts, how they are drafted and managed, and how they can be enforced legally. So read on to learn more about this important aspect of business!
What is Contract Management?
In business, a contract is an agreement between two or more parties to do, or not to do, certain things.3 A contract management plan (CMP)4 is a tool used to define how the project team will work with contracts and subcontracts throughout the life of the project.
The purpose of the CMP is to:5
Ensure that the project has a consistent and coordinated approach to managing contracts;
Avoid or resolve conflicts between the project manager and individual contractors or subcontractors; and,
Establish a clear understanding of roles, responsibilities, and authorities for all members of the project team.
The CMP should be tailored to fit the size and complexity of the project, as well as the contracting strategies6 adopted by the organization. For example, on a small construction project there may only be one prime contractor7 and a few subcontractors. The CMP for this type of project would likely be less formal than for a large construction project with multiple prime contractors and dozens of subcontractors.
The Different Types of Contracts
There are four different types of contracts: verbal, written, implied, and unilateral.
Verbal contracts are the most common type of contract. They can be either spoken or unspoken, but they must be clear in order for both parties to understand the terms.
Implied contracts are created when two parties take actions that indicate there is an agreement between them, even if they have not expressly stated so. For example, if you go to a restaurant and order food, you have implicitly agreed to pay for it.
Unilateral contracts are those where only one party is bound by the terms of the agreement. An example of this would be a contest where the prize is offered to anyone who can correctly guess the winner. The person who guesses correctly is the only one bound by the terms of the agreement and is therefore the only one who can collect the prize.
The Contract Lifecycle
The contract lifecycle is the process by which a contract is created, negotiated, and executed. It begins with the identification of a need for a contract, and ends with the performance of the obligations under the contract. In between, there are a number of steps that must be taken in order to ensure that the contract meets the needs of both parties.
The first step in the contract lifecycle is the identification of a need for a contract. This can be done by either party, but it is typically the party who will be performing the work under the contract that initiates this process. Once a need for a contract has been identified, the next step is to determine what type of contract will be best suited to meet those needs. There are many different types of contracts, so it is important to select one that will provide the appropriate level of protection and certainty for both parties.
Once the type of contract has been selected, the next step is to negotiate its terms. This process can be complex, and often requires the assistance of legal counsel. The goal of negotiations is to reach an agreement on all terms of the contract that are acceptable to both parties. Once an agreement has been reached, the next step is to execute the contract. This typically involves each party signing the contract and exchanging any necessary consideration (such as money).
After execution, it is important to monitor compliance with the terms of the contract. This can be done by either party, but is typically done by
Contract Management Tools
There are a few key contract management tools that can make the process of managing contracts easier and more efficient.
First, a good contract management software solution will help you keep track of all your contracts in one place. This can be especially helpful if you have a large number of contracts to manage. The software can help you keep track of key dates, deadlines, and other important information.
Another helpful tool is a contract review checklist. This can help you ensure that you’re covering all the bases when reviewing a contract before signing it. The checklist can also help you catch any red flags or potential problems with the contract before it’s too late.
Finally, it’s always helpful to have a lawyer or other professional review your contracts before you sign them. This can help you avoid any legal pitfalls and make sure that the contract is in your best interests.
Best Practices for Contract Management
There are a few key things to keep in mind when it comes to contract management:
1. Get organized from the start. This means having a clear and consistent system for storing and tracking your contracts.
2. Make sure everyone involved knows their roles and responsibilities. This includes clearly defining the expectations for each party involved in the contract.
3. Pay attention to deadlines and deliverables. This will help ensure that both parties are held accountable and that the contract is fulfilled in a timely manner.
4. Communicate regularly with all parties involved. This will help ensure that everyone is on the same page and that any potential issues are addressed promptly.
5. Have a plan in place for resolving disputes. This could include mediation or arbitration clauses in your contract, or simply having open lines of communication so that any disagreements can be resolved quickly and efficiently.
Contract management is an essential part of any business and is necessary for ensuring that all parties involved are in agreement with the terms outlined. It involves a lot of steps, such as contract creation, review and approval process, signature acquisition, negotiation, performance monitoring, and closeout activities. By using contract management software, you can ensure that your contracts run smoothly while making sure that everyone gets what they need out of the agreement. With careful planning and efficient tools to handle it all for you, contract management can be easy and hassle-free.