In any business transaction, contracts are integral documents. It include essential information about the relationships between the business stakeholders such as customers, suppliers, employees, partners, and the business organization itself. One organization may hold a lot of contracts thus making it difficult for them to monitor each. Having many can be very challenging in terms of keeping track of where they are placed, as well as who is accountable for them. For this reason, following a contract management process can be very helpful to business organizations. In this article, the basics will be discussed.
Generally, contract management process is the systematic way of administering the creation, implementation, and analysis to lessen problems and boost the operational and economic performance of an organization. Moreover, it makes sure that a contract’s weaknesses are identified and improved.
A contract management process has four basic components. The first component is a well-structured process of creating and implementing it. The next component is automated alerts. An automated alert is one way through which administrative processes are managed better. Another part is a preset workflow which is used during the analysis of contracts. Lastly, it includes a list of an organization’s performance indicators depending on the nature of their business.
All these four components contribute to each stage of the contract management process below:
1. Contract Request
This is the first stage of contract management. It involves bidding for a new contract, getting it into the lineup of requests, and delivering it to the correct personnel.
2. Contract Authoring
From the name itself, contract authoring is the creation of a new contract. At this phase, business organizations utilize authoring tools provided by programs. They can choose their preferred language from a collection of approved terms and phrases.
3. Contract Negotiation
After writing the contract, the next step is to negotiate it with stakeholders. It is done by sending a copy of the contract via email or fax. This stage of the process usually takes time to finish as it needs a couple of discussions.
4. Contract Approval
Contract Approval follows after a successful contract negotiation. Most of the time, especially those that are highly-negotiated need multiple approvals from various departmental entities of an organization.
In the process, factors such as the type, number of existing agreements with a specific stakeholder, amount of dollar, terms and conditions are being considered.
5. Contract Implementation
This step simply involves the execution of the terms and conditions listed.
6. Contract Compliance Management
The contract management process does not end with the implementation of the contract. Business organizations should always make sure that both parties are able to comply with the obligations stated in the contract.
7. Contract Amendment
Market and relationship status may change over time. For this reason, a contract may need to be amended or updated based on these changes.
8. Contract Auditing and Reporting
At this stage, business organizations audit and report the performance in terms of its profitability and operation.
9. Contract Termination or Renewal
Depending on its performance, a contract may be terminated or renewed.