Contract Management Process

A company's purchasing department as well as its sales department should have a firm grasp of the contract management process. Contract management is the act of making sure that suppliers fulfill the terms of purchasing contracts, and can also refer to a company's dedication to fulfilling terms of sales contracts (or purchasing contracts when seen from the point of view of the buyers). Note that web based contract management is becoming more and more popular. The contract management process is the process used to ensure the contract terms are fulfilled. Any part of a company that might use contracts with another party can benefit from good management of the process.

Contract management might sound simple—make sure the terms are fulfilled—but it can actually become very complicated, especially when a lean supply chain system is involved. People make entire careers out of just contract management. It's a specialized skill set that every manager won't be trained in, so people educate themselves and train for just this discipline. In fact, the National Contract Management Association exists to help people who are considering such a career or who already work in the field.

Something important to realize about the contract management process is that it's strategic. It's not simply a matter of looking at a contract and demanding that x, y and z are fulfilled as promised. The situation is usually far more sensitive than that. To illustrate this, look at what a poor contract management process can do.

If a company has issue with the way a supplier is not, to their satisfaction, fulfilling the terms of the contract, then poor management could result in anger between the companies, a breakdown in communication and loss of a supplier, as well as lack of goodwill that can stretch to several different companies. Good management can help companies negotiate their difference while maintaining business relationships.

The Responsibilities of the Contract Management Process

It's important to note that a contract manager's job doesn't start when it's time to enforce the terms of a contract. Rather, the job begins before the contract is entered into. Because many people go into contract management after years of experience in other related positions such as finance or project management, they typically have a good grasp of things like managing costs and risk assessment.

Risk assessment is a big part of the contract management process. A manager will let the decision-makers know of potential risks and problems that he or she can foresee as possibilities if the company enters into a contract with a certain supplier. This can range from things like being unable to finish a project on time to going over budget. Ways to improve the overall cost while lowering the risk are part of the strategy of a contract manager, and this is all determined before the contract is finally signed. This makes the contract management process a key process in a business' overall profitability.

A contract manager, before the contract is signed, can influence things like the cost of proposals and the overall terms of a contract and may even make the actual selection of a supplier or contractor. If any legal problems should arise during the course of the contract, the manager will be the one who will work to resolve that.

There are six basic areas that should be part of every company's contract management process.

1. Planning the purchase. Other departments will work with a contract manager to determine what needs to be purchased from an external source.
2. Plan a solicitation. This involves making note of the information necessary to give to other companies to solicit their products or services.
3. The actual solicitation. The company accepts proposals, bids and offers from contractors.
4. Contractor selection. The contract manager will strategically compare proposals, bids or offers and will choose one supplier. The contract is negotiated and signed.
5. Administration. The contract manager makes sure the contract is being fulfilled and takes steps to make sure that it is if there's non-compliance.
6. Closing. The manager will determine that the terms have been fulfilled and call the contract closed.

All of these steps are necessary in an effective and efficient contract management process.

Many small companies and even some larger ones don't actually have a single person or department that specifically handles contract management. But companies that do realize the value of having highly skilled people negotiating and administrating contracts so that other employees can focus on their areas of expertise without having to deal with contract issues and disputes.

People highly trained and skilled in the contract management process can greatly lower the financial risk for a company while lowering the overall cost of purchasing. Good contract managers will be able to add things like discounts, incentives and performance evaluations directly into the contract in a way that many other types of managers wouldn't be knowledgeable enough to do properly. These types of incentives for the contractor to supply can mean fewer delays and better overall fulfillments and business relationships.