Contract management is when someone takes on the responsibility of managing contracts for employees or vendors or other parties. It is also known as contract administration, which is the management of contracts made with customers, vendors, partners, or employees. It is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk.
Contract management encompasses everything from establishing the business case and confirmation of need through to relationship management and reviewing performance.
Contract management is the process of managing agreements, from their creation through to their execution by the chosen party, and to the eventual termination of the contract. It 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. Contract managers need legal knowledge to accurately lead the contract management process.
Contract management proves to be a very time-consuming element of business, which facilitates the need for an effective and automated contract management system. 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. Effective contract management can ultimately create a powerful business relationship and pave the road to greater profitability over the long term, but only when managed correctly.
There are a number of reasons why organizations in both the public and private sectors need an effective contract management process:
- Increasing pressure to reduce costs
- The need to optimize financial and operational performance
- New regulatory requirements
- Growing need to automate and improve contractual processes
- Increasing compliance and analytical needs.
Common commercial contracts include employment letters, sales invoices, purchase orders, and utility contracts. It also applies to managing different contracts with freelancers or employees. 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, outsourcing, and international trade. These occasionally require management and alterations that help both parties.
Most larger contracts require the effective use of contract management software to aid administration among multiple parties. This software also manages access to contracts so that only authorized people in an organization can view any particular contract, improving security. Effective contract management is essential to any business, and as more companies start to understand the value of process automation, contract management solutions are becoming more sought after than ever before.