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Contract Management – The Shield Your Business Needs from Legal Risks
We know that contract management is a critical aspect of every business. It serves as the very foundation of all business relationships, be it with internal or external stakeholders. It establishes clear, legally binding agreements that govern relationships with suppliers, customers, partners, and other stakeholders.
What is contract management?
According to the National Contract Management Association, Contract Management is the process of managing contracts, deliverables, deadlines, contract terms, and conditions while ensuring customer satisfaction. In technical terms, it involves the entire contract lifecycle management. It starts from its initial creation to ongoing monitoring, compliance management, and, if necessary, renewal or termination.
This article will delve into the details of contract management, list its key elements, assess its importance, and outline a few strategies for its prudent management.
Key elements of contract management
Several key elements are essential for the successful administration of contracts throughout their lifecycle. They include:
Creation of a contract:
This is the very start. The process begins with drafting a clear and comprehensive contract that outlines the rights, responsibilities, terms, and conditions of all parties involved.
Fair rounds of negotiation:
Once the contract is created, parties involved in it negotiate to reach mutually agreeable terms and conditions.
Execution of the contract:
Once all the parties involved agree on all the terms and clauses, the contract is formally executed, i.e, signed by all parties. In the current world, signatures can be either physical or digital.
Sharing and proper storage:
Upon execution, a copy of the contract should be shared with all parties concerned. It should then be stored to ensure security and confidentiality. Further, the agreements should be easily accessible to relevant stakeholders for reference and auditing purposes.
Monitoring of contracts and their compliance:
The essence of a good contract management system is their ongoing monitoring. This will ensure that all parties fulfill their contractual obligations as per the laid down clauses and will comply with the agreed-upon terms.
Assessing and managing the performance of the contract:
This includes tracking milestones, quality, and deliverables to ensure its continuing adherence.
Identifying, assessing, and mitigating risks:
Financial, legal, and operational risks of every contract should be ascertained and laid down in clear terms.
Managing contract amendments, extensions, and renewals:
This is necessary to adapt to changing circumstances and business needs.
Generating reports and analyzing contract data:
Reports help to assess performance, costs, and areas for improvement. It is a good practice to do these on an ongoing basis.
Building and maintaining productive relationships:
Contracts ensure mutually beneficial relations with external suppliers and vendors. This aspect of contract management should never be ignored.
Negotiate contracts and manage in a way that optimizes costs for the business and also helps in identifying opportunities for cost reduction
Legal and regulatory compliance:
It is of primary importance to ensure that contracts align with relevant legal, regulatory, and jurisdictional requirements, including data protection laws or industry-specific regulations.
Amicable dispute resolution:
An important aspect of effective contract management is the management of disputes and/or conflicts that may arise during the contract’s execution and working towards amicable resolutions.
Termination and expiry of contracts:
Contracts should properly terminate at the end of their lifecycle or when you meet certain conditions, including handling post-contract obligations.
Audit and adequate documentation:
It is imperative to maintain a complete and organized record of all contract-related activities and communications for audit and future reference.
Communication and collaboration:
Contracts are effective only when there is real-time communication and collaboration among all relevant stakeholders, including legal, procurement, and operational teams. It is paramount to ensure this throughout the lifecycle of the contract.
Benefits of effective contract management
Effective management of contracts can go so far as to help align contractual agreements with the strategic goals of the organization to drive growth. Let us look at some of its obvious benefits:
- Well-executed contracts minimize legal and financial risks by ensuring that all parties adhere to contract terms and reduce disputes and legal liabilities.
- Optimized contract negotiations and execution lead to cost savings through better pricing, reduced overcharges, and the identification of cost-saving opportunities.
- Proper monitoring and tracking of contract performance ensures that you meet milestones, quality standards, and deliverables. This results in enhanced operational efficiency and the fulfillment of contractual obligations.
- Effective contract management fosters transparency and accountability in business relationships, and reduces misunderstandings and disputes. It also builds trust among all parties, thereby strengthening those relationships.
- It contributes to business growth and financial prudence by identifying expansion scope and areas for cost savings. It also allows businesses to adapt to changing circumstances or evolving business needs.
- Organized and comprehensive records of contract-related activities and communications serve audit requirements and keep businesses compliant.
Consider contract management services for your business
One of the best strategies to ensure effective management of contracts is to opt for contract management services.
Specialized firms offer contract management solutions that include contract creation, execution, monitoring, compliance, and even dispute resolution. We help businesses manage the complexities of contracts, ensure they adhere to regulatory requirements, and strengthen contractual relationships. These firms often work with the latest contract management software, leveraging the digital benefits to their clients. This, in turn, brings businesses the advantage of readily available data for analysis and decision-making.
Cogneesol’s contract management services
Cogneesol has been a leading provider of comprehensive contract lifecycle management services. We help businesses with effective management of their contracts across departments. With years of experience, we assist clients with various services, including contract drafting, monitoring, and risk management.
With proven delivery excellence, we help clients focus on their core business needs while we manage the backend. We streamline contract management operations, reduce administrative burdens, and maximize the value of contractual agreements.
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