For most businesses, contracts are a tedious, boring and often overlooked part of doing business. Some people might imagine the contract management process as having to deal with legal teams, sifting through mountains of paperwork and going through tense negotiations. While those aspects are definitely part of the contract management process, there are other steps as well.
So, what is contract management? What exactly are contracts? And why is the process important to understand? Contracts are legally-binding documents that involve two parties exchanging something of value, or what lawyers call “a consideration.” Although they might seem like long, boring documents that you task to a lawyer, knowing how the process of creating and maintaining a mutually beneficial contract is integral to a functioning business.
Contracts should be regarded as the most clear, thorough and detailed form of business communication. The agreements, terms, and conditions upheld by a contract need to be recognized as legitimate in court if anything ever goes south. They also need to be as precise as possible, to avoid having to interpret wording if there is a disagreement. Although it won’t be common to have to deal with these legal situations when using contracts, there are still a lot of ways it could negatively impact your business. For those reasons, all businesses need to take the contract management process seriously.
What is contract management?
Contract management is the process that manages the creation, execution, and evaluation of contracts.
Why is contract management important?
When dealing with important and sensitive agreements such as stakeholder relationships, pricing, the scope of work, project deadlines, and other obligations, it is important that everyone involved is on the same page. Making sure your contracts are well-maintained, updated and frequently audited will have a great impact on your business. These checks will help you assess the effects of the contract, identify any issues and make any necessary amendments.
What is the contract management process?
The contract management process may vary depending on what type of contract you are drafting up, and who you’re working with. For example, the contract management process of hiring a part-time worker for your business will probably be much shorter and less complicated than the contract management process of hiring an accounting firm to do a forensic audit of your company. Verbal agreements and handshakes can even be regarded as a contract, according to this page by the Australian government.
However, the general process will look something like this:
Initiation: One of the parties will begin the contract creation process. This may occur after you have committed to hiring someone or received a quote from a contractor.
Authoring: This is the part of the process where either you or your legal team writes up the first draft of the contract. This is the stage where you will probably get heavily involved with lawyers who will help you refine the details and technicalities of different types of contracts. This is usually the longest part of the process, and involves being very thorough with every aspect of the contract – down to how you write your date. You might use a template if you have initiated this type of contract before, or you might need to write a new one.
Signing: Once both parties have discussed, negotiated and agreed to the terms set out in the contract, it’s time to sign. This process may involve having witnesses sign as well. Signing and officializing a contract may be a more difficult stage if the other party is not in your area. This issue has been mostly solved by the creation of electronic signatures and other contract management software.
Maintaining and auditing: But, you’re not quite done after you’ve given your signature. The contract may need to be revised and edited down the road as new situations arise. You may need to add new sections or conditions depending on performance, or maybe a loophole that arises.