Contract management or contract
administration is the management of contracts made
with customers, vendors, partners, or employees.The personnel involved in Contract
Administration required to negotiate, support and manage effective
contracts are expensive to train and retain. Contract management 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. 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.
Common commercial contracts
include employment letters, sales invoices, purchase
orders, and utility contracts. 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, and international trade.
A study has found that for
"42% of enterprises...the top driver for improvements in the management of
contracts is the pressure to better assess and mitigate risks" and
additionally,"nearly 65% of enterprises report that contract lifecycle management (CLM)
has improved exposure to financial and legal risk."
Contracts
A contract is a
written or oral legally-binding agreement between the parties identified in the
agreement to fulfill the terms and conditions outlined in the agreement. A
prerequisite requirement for the enforcement of a contract, amongst other
things, is the condition that the parties to the contract accept the terms of
the claimed contract. Historically, this was most commonly achieved through
signature or performance, but in many jurisdictions - especially with the
advance of electronic commerce - the forms of acceptance have expanded to
include various forms of electronic signature.
Contracts can be of many types,
e.g. sales contracts (including leases), purchasing contracts, partnership agreements, trade
agreements, and intellectual property agreements.
- A sales contract is a contract between a company (the seller) and a customer where the company agrees to sell products and/or services and the customer in return is obligated to pay for the product/services bought.
- A purchasing contract is a contract between a company (the buyer) and a supplier who is promising to sell products and/or services within agreed terms and conditions. The company (buyer) in return is obligated to acknowledge the goods / or service and pay for liability created.
- A partnership agreement may be a contract which formally establishes the terms of a partnership between two legal entities such that they regard each other as 'partners' in a commercial arrangement. However, such expressions may also be merely a means to reflect the desire of the contracting parties to act 'as if' both are in a partnership with common goals. Therefore, it might not be the common law arrangement of a partnership which by definition creates fiduciary duties and which also has 'joint and several' liabilities.
Areas of Contract Management
The business-standard contract
management model, as employed by many organizations in the United
States, typically exercises purview over the following business
disciplines:
- Authoring and negotiation
- Baseline management
- Commitment management
- Communication management.
- Contract visibility and awareness
- Document management
- Growth (for Sales-side contracts)
Stages in Contract Placement
STEP 1) Requirements Analysis
STEP 2) Evaluation Plan
STEP 3) Invitation to Tender
STEP 4) Evaluation of Proposals
Contract Management Certification
Candidates who meet rigorous
standards, including experience, education, training, and knowledge can be
awarded certifications. There are two main certifying associations, the NCMA
(National Contract Management Association - a US Government focused
association) offers a Certified Professional Contracts Manager (CPCM),
Certified Federal Contracts Manager (CFCM) or Certified Commercial Contracts
Manager (CCCM). IACCM (International Association for Contract & Commercial
Management - an international body focusing on commercial contracts), offers
three levels of certification: Certified Contract Manager Associate (CCMA),
Certified Contract Manager Practitioner (CCMP), Certified Contract Manager
Expert(CCME) Several Universities in the
US and UK are also offering their versions of training and certification, Saint Louis University, Villanova University, University of California at Los
Angeles and the University of Virginia provide certificates
in contract management.
Change management
There may be occasions where what
is agreed in a contract needs to be changed later on. A number of bases may be
used to support a subsequent change, so that the whole contract remains enforceable
under the new arrangement.
A change may be based on:
- A mutual agreement of both parties to vary the contract, outside the framework of the existing contract. This would be an independent basis for changing the contract.
- A unilateral decision to vary the contract, contemplated and allowed for by the existing contract. This would normally have notice periods for fairness and often the right of the other, especially in consumer contracts, to cease the contractual relationship. Be careful that any one-way imposition of change is contractually justified, otherwise it may be interpreted as a repudiation of the original contract, enabling the other party to terminate the contract and seek damages.
- A bilateral decision to vary the contracting, within the variation or change control process outlined in the existing contract. These are often called change control provisions.
Phases of Contract Management
Contract Management can be divided
into five phases namely:
- Initial Phase
- Bid Phase
- Development Phase
- Manage Phase
- Maintenance Phase
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