Managing a project is complex. Project managers are trained to plan schedules and allocate resources to meet deadlines and stay within budgets. But once you’re contracting with people outside of your organization, the legal and logistic issues can be overwhelming.
Companies employ contract managers to manage this often-complicated contract process. While not every organization has a contract manager, everyone who is leading a project that employees vendors and contractors needs to have an understanding of contract management.
What Is Contract Management?
Contract management is the process of managing contracts. This includes deliverables, deadlines, and the terms and conditions of the contract. It’s not merely facilitating the contract process, though; but also managing customers and their satisfaction.
Often people think only of the build-up to the contract being signed. While this negotiation period is important, it’s a mistake to neglect what happens after the contract has been awarded. This is when the real management of the contract begins.
Contract management is used in organizations in both the public and private sector to effectively manage contracts after they’re signed to create a better operational and financial performance. It also helps to reduce the financial risk for the organization. While time-consuming, having a good contract management process reduces costs and improves performance.
What Is Contract Lifecycle Management?
Contract lifecycle management is different from contract management. The latter is more about managing contracts with email, spreadsheets and file storage. Contract lifecycle management is a strategic approach to contract management that gets greater efficiencies out of the activity by combining people, processes and technology.
Contract lifecycle management or CLM is about automating and streamlining the processes involved in contract management’s various stages, such as initiation, authoring, process and workflow, negotiation and approval, execution, ongoing management and compliance, and renewal. The end goal is to save time and money while reducing errors.
This is done by using CLM software, which gives users greater visibility into what a corporation is spending and streamlines the contract process for more efficiency leading to lower administrative costs. This is accomplished through management of procurement and sales contracts, automation, standardization and more to create contracts quickly and easily.
Who’s Involved in Contract Management?
Some organizations will have a dedicated person for contract management known as a contract manager. They direct and oversee contracts as they move through their lifecycle. In a sense, they’re the middlemen who work as a bridge connecting companies, employees, customers, vendors and contractors.
A contract manager will facilitate the negotiations, recommendations and all record-keeping associated with the contract process. They research all legal issues related to the contract and help with negotiating terms and conditions with the client and the third party.
Some of the duties of a contract manager include preparing commercial bids, developing and presenting project proposals, meeting with clients, estimating budgets, negotiating contract terms and more. Their skillset includes having knowledge of contract law and being apt at relationship management.
Why is Contract Management Important?
Contracts are important. They are legally binding documents between an employee and contractors or vendors who will be carrying out work. Therefore, contract management is equally important as it helps to make sure contractual work is done effectively. It works out for both parties involved in terms of business strategies and procedure.
Since so much of an organization’s business strategy depends on the successful negotiation of a contract, the process can be time-consuming. Using contract management helps to dedicate just the right amount of resources needed.
But once the contract is signed, the need to monitor and oversee its implementation is critical to meeting the obligations of the contract. Failure to have a contract management process in place can cost the organization money and time through levied fines and litigation—not to mention erode important business relationships.
Contract management continues to be a benefit even after the contract is finalized and services procured. Without oversight, this can lead to failure to fulfill all contractual obligations. All of this erodes the value of the project and can even lead to failure to achieve its objectives.
What Are the Stages of the Contract Management Process
Contract management, like any type of management, has a process. This allows for the management of contracts to be controlled and make sure nothing important is ever being neglected. This series of actions can be broken down into seven steps:
This stage is when the needs of the organization are identified, goals are set, and risks defined. Remember, the contract is legally binding, so due diligence is important. Know the type of contract, any standard agreements that can be used, determine who is responsible for what and the resources needed to implement the contract.
If there’s an in-house counsel or attorney your organization works with, this is the point to consult with them. They might even have a template to work off of as the contract is drafted. This will help make sure all the required clauses and terms are included. Also, take into consideration any state or country laws that might impact the contract. Take time and make sure everything is correct.
The next step is getting approval from a manager or executive to look over the contract draft and see if they have any comments or corrections before finalizing the document. This phase of the process is dependent on how your organization works, and if they have audit procedures or other policies about specific procurement. At this point, set up a system to notify the approving parties so they can view, edit and comment on the contract in real time.
The negotiating stage will involve researching the other party’s needs prior to sitting down at the negotiating table. When everyone is making changes to the contract, it’s helpful to have that document be shared and collaborated on in real time. Shuffling back and forth between different versions of the contract by email via physical documents increases the likelihood of errors and cost increases.
Once both parties agree on the contract, it’s signed by them, which makes it a legally binding document. While we often picture contract signings taking place in person, that just isn’t always the case. With virtual meetings and a global economy, getting signatures can be more difficult. More companies are using e-signatures to facilitate this stage.
It’s common that a signed contract will get amended or revised. Tracking these changes is important and highlights the importance of a reliable contract management process. Contracts should be shared, easy to edit and add amendments to as needed.
Finally, there’s the management that follows the signature, which can be auditing, renewing contracts and other obligations. The contract should be audited regularly to make sure the obligations within are being met. This includes renewing the contract when necessary. Missing a renewal is a lost opportunity and can damage the relationship between the owner and contractor.
Best Practices for Contract Lifecycle Management
When applying contract lifecycle management, there are things to do to help the process work more effectively. For one, digitizing and automating the process is always advisable. This is doubly so when managing a portfolio of contracts or dealing with contractors and vendors who are geographically spread apart.
Automating notifications to keep track of when contracts are up for renewal or obligations therein are delivered. Human error can be costly, but when reminders are set on the software then you’re always aware of when deadlines are coming.
Having reporting features on a software tool is important for a budget, which is constantly changing over the course of a project. A budget is planned and is outlined on the contract, but the actual project might find you overspending. You need a tool to check against what you planned to spend and what you’re actually spending.
Use Project Management Software
Most of these best practices are dependent on a project management software that is cloud-based and therefore delivering real-time data. Using an online tool fosters greater transparency in your contract management process.
How ProjectManager.com Helps Organize Your Contracts
ProjectManager.com is a cloud-based software that organizes everything to do with your project, from tasks to teams and the contracts made with vendors and contractors. It helps your organization keep to obligations, avoid miscommunications and never miss a renewal.
Use our software to plan, schedule, monitor and report on projects, while also having our tool be a central hub for all project documentation. Because we have unlimited file storage, all contracts are collected in one place. That makes it easy to find them when needed, without having to search emails or external hard drives.
As you negotiate and even after you agree on a contract with vendors and subcontracts, keep them in the loop with our collaborative platform. It’s easy to onboard them into the tool while setting security only gives them access to those parts of the software you want them to see. Share documents and create tasks that allow all parties to comment and dialogue in real-time.
Of course, there’s more. Real-time dashboards will give a high-level view of the project and its progress and performance to make sure contract workers are keeping to the terms and conditions of the contracts. Reports broaden this lens for live data in greater detail. Get better contract management and construction project management all in one tool.
ProjectManager.com is award-winning software that helps projects run more efficiently. From online Gantt charts for visual planning to a collaborative platform that helps teams work better together, every aspect of your project management is covered. Join the tens of thousands of teams already using our tool and take this 30-day trial today.