Many companies underestimate the importance of effective contract management. Without careful drafting of specific and clear contracts, companies face numerous pitfalls in their day-to-day operations, from disputes between contractual partners to failure to meet compliance obligations. Good contract management contributes to a company’s overall success, both for short-term goals such as closing deals quickly, and for long-term goals such as building strong supplier relationships. Effective contract management strategies reduce costs, mitigate risks, and ensure that all stakeholders have the information they need to make positive decisions. They also create the best conditions for ensuring that service delivery is satisfactory to both parties. The following measures have proven helpful in my work practice:
Involve the right people in the process. A trusted project manager should have day-to-day overview of the process. The legal department or consultants must ensure that all contracts are valid and continuously up to date. All parties need to be clear about who has the authority to make final decisions. This does not mean that an executive or board member is necessarily present at every meeting, but it must be clear who has the authority to act on their behalf.
Many companies do not have a defined process when it comes to negotiating terms with their suppliers. This creates a risk of misunderstandings and disagreements. A clear and concise negotiation process is key to ensuring both parties are on the same page. This includes communicating clear expectations of supplier performance, outlining the payment structure, and ensuring that all documentation is properly completed and signed. I always advocate an open dialogue so that both parties express their expectations, and a mutually satisfactory agreement is reachable.
Managing the contract lifecycle – tracking all changes and ensuring they are properly documented – is critical. This involves updating terms and conditions, ensuring that all parties comply with their role in fulfilling the contract, reviewing points of contention, changes in, for example, tax laws or regulations, accounting for additional costs or issues that are added regardless of the original agreement. Another example, if a supplier fails to meet its contractual obligations, you may need to revise the contract or take disciplinary action.
To ensure successful completion of a project or continued successful collaboration, it is important to continuously track progress and performance. Establishing checkpoints in the process can help both parties monitor and manage issues as they arise. This approach contributes to mutual understanding between the supplier and the company. It further helps to manage projects, for example, by enabling quick corrections when something doesn’t go according to plan. The result: better quality, greater reliability, and higher productivity.
In everyday work, you often shimmy from one project to the next. Never forget about the documentation and evaluation phases after a contract has been executed. Schedule a meeting with all parties involved to identify possible weaknesses, analyze their causes, and evaluate the measures implemented. Trust me, this will save you a lot of time in similar situations in the future.
Regardless of the size of your company or the industry in which you operate, you should have the right tools, such as a supplier or contract management system. It will help you manage and monitor supplier performance, track certifications and licenses, ensure safety compliance, and make it easier to find, review, send, and adjust contracts. Manually tracking data across multiple spreadsheets, isolated systems, and disparate applications increases the risk of errors and wastes time.
Effective contract management is a critical success factor of any business. The suggestions above provide you with a framework for good contract management processes. Of course, there will always be variations from one situation to another. Likewise, it is important that you adapt the strategies to your specific needs. However, if you take these points into account when developing and implementing a successful contract management strategy, you are certainly on the right track.