Contract management is important to any kind of business because it is responsible for overseeing and administration of contracts throughout their lifecycle. Contract management is not only about organizing or sorting out contracts. It also helps in the development of contracts, as well as monitoring if all parties involved uphold the terms and conditions. The major role of contract management in any company is to maximize monetary and operational execution while minimizing risks and costs. 


TABLE OF CONTENTS


Why is contracting important?

The importance of contracts in any kind of business deals and transactions are undeniable. Even if they are in a simple plain-language document, contracts mean so much more than simply trying to affix the signatures of those involved in a piece of paper. Contracts provide a written document that outlines the full details of the relationship of two or more parties and the responsibilities and obligations of each one of them. It protects the rights of every party and stipulates potential cost and expected returns. Contracts are also legally binding and enforceable, which can minimize risks and possible problems arising from the relationships.


What are the main contract types?

There are many different types of contracts, but the three most common contract types are fixed-price contracts, cost-plus contracts, and time and materials contracts. 

Fixed-price contracts, or also known as lump-sum contracts, refer to the agreement in which one party gives a detailed description of the final outcome, including costs, material, dimension, and timeframes, while the other party provides formal statement of the total project costs, labor and materials, and billing milestone. 


Cost-plus contracts, or also called cost-reimbursable contract, refer to the contract in which one party pays the cost of work plus a fixed percentage or incentive payment for the goods or services provided by the other party. Basically, cost-plus contracts state that businesses can only pay for what they got. Time and materials contracts are usually when a buyer has no clear final goal for the project. In this contract, the seller may charge the buyer with the cost of materials and time used during the project or for the duration of the contract.


Other types of contracts include unit pricing contracts, bilateral contract, unilateral contract, implied contract, express contract, simple contract, contract under seal, unconscionable contract, adhesion contract, and aleatory contract. Businesses may choose to use one type of contract or in combination with another one. 


More on this topic: What are the types of e-contract?


What is the purpose of contract law?

The purpose of contract law is primarily concerned with supporting the social institution of exchange in both goods and services. Different countries have different systems of contract law in place, which also defines what kinds of agreement the country’s law of court recognizes as legally binding. Contract law also supports and controls the millions of agreements that collectively make up the country’s economy, actively operating in the context of dispute resolution mechanisms. It empowers two or more parties to make agreements that will be recognized and enforced by the law. 


Why do we need contract management?

The management of critical contracts helps manage obligations in an efficient manner, saving significant time and effort for all parties involved. It also offers benefits in terms of business strategies and approaches. The contract management outlines the key milestones of contracts, preventing potential risks and additional costs. Centralized data repository of all contracts can also help businesses in organizing, sorting out, and easy search of all on-going and previous contracts.


What are the stages of contract management?

Contract management has seven important phases. Each step needs to meet the goal or standard of the company before the contract proceeds to the next one. Contract management does not only apply to existing contracts, but also future and past agreements. The seven stages of contract management include planning, implementation, pre-contract, transmission, contract, pre-renewal, and post-contract.


What are contract management skills?

To be able to efficiently and effectively manage contracts, the contract manager should possess basic knowledge of law, finance and business. Great verbal communication and organizational skills are also a must. The terms and conditions of contracts may change depending on the discussion of the parties involved. As such, a good contract manager should be skillful in optimizing and managing changes to achieve maximum results with minimum loss. 


More on this topic: What are the top 5 contracting skills?


What are the benefits of contract management?

Contract management helps in monitoring the suppliers, evaluating their performance based on the terms mentioned in the contract, and assessing the manufacturer's risk. In addition, it also serves as a way to build long-term, collaborative relationships with producers that result in significant partnerships.


Major benefits of implementing a great contract management include assurance that the terms and conditions included in the contract are understood and agreed upon by all parties involved. Contract management can also help prevent future misunderstandings or conflicts by clarifying the agreement from the outset, giving the business security and stability by putting the terms of the agreement in a legally binding document.


What is effective contract management?

Having an effective contract management system means that the business has identified and implemented the best and most effective ways to sign, organize, and store contracts. The contract management system should help the business in every stage of the contract life cycle, making the transition from its drafting up to its renewal/termination as smooth as possible.


How can contract management be improved?

There is no one solution that fits all the contract management needs of a business. As such, it is important for the contract manager to have the ability to adapt to changes in the field that may have a snowball effect to the terms of the contract. Improving the contract management of a business can be as easy as using templates and hiring a consultant. Improvements can only happen after the business conducts a thorough review of the system and single out areas that need improvement. 


More on this topic: Zendoc drastically improves your post-award contract management


About Zendoc

Zendoc is a full-service AI-powered contract automation system that not only organizes all of your agreements into a single database but keeps you up-to-date on what you need to do to extract as much value from your contracts as possible. You don’t have to worry about forgetting your obligations because you don’t have to remember them in the first place.

Try Zendoc today for free!

FAQ