The terms contract management and contract administration are often confused for one another or used interchangeably, but they actually represent different phases of the overall contracting process. To state it as simply as possible, contract administration is the work done before a contract is signed into effect and contract management covers everything done after signing to ensure that deliverables and deadlines are adhered to as outlined in the agreement.
Below is a more in-depth overview of the differences between contract administration and contract management and helpful tips for excelling in both phases of the contracting process.
What is Contract Administration?
The professionals responsible for a company’s contract administration focus their work on the planning and execution of contracts. The planning process often includes sourcing potential contracting partners, for example via sending out requests for proposal. In addition, contract administrators help with ironing out the details of the contract arrangement, working with prospective partners to negotiate on contract matters such as price, delivery schedules, and performance expectations.
Although the word administration makes it seem as though this facet of the contracting cycle is essentially administrative in nature, it requires a great deal of strategy and business savvy. Entering into legally sound, mutually advantageous contracts is critical to the financial success of many businesses, so it is imperative to find the right partners and put into place fair agreements.
Best Practices for Preparing a Contract Administration Plan
Creating and following a strong contract administration plan puts your team in a good position to successfully manage each new contract throughout the lifecycle of the agreement. This formal document should describe in explicit detail what is expected of both parties during the term of the agreement in order to limit possible breaches of contract or other issues that lead to either side not fulfilling their contractual obligations.
Consider the following five best practices when preparing a contract administration plan.
1. Define the scope and deliverables
The first step to ensuring a successful contracting process is to clearly lay out expectations, including the scope and deliverables. Scope creep is a common issue that can derail any contract, so including in writing exactly what the contract does and does not cover will help keep the contract on track.
2. Include a detailed timeline
It may sound like a given, but contract administration plans should include a detailed timeline accounting for every important milestone throughout the life of the contract, including project start and end dates, deadlines for deliverables, and progress updates.
3. Sort out finances
To avoid contract disputes and maintain positive relationships between both parties, everyone involved in the contract administration process should know the financial terms of the agreement, including the value of the contract, payment intervals, and the process to address the need for any additional expenses (depending on the type of contract).
4. Plan the work
To ensure transparency and accountability, the plan should include details about how the contract deliverables will be executed, including the people who will be working on each part of the agreement (including both internal and third-party personnel, if applicable). Having a plan for measuring success throughout the life of the contract will keep both parties aligned and allow for course correction if needed.
5. Anticipate the risks
Every contract comes with risk, but putting plans in place to account for those risks can prevent the contract from failing. Outline the most likely risks for each agreement and the steps that should be taken in the event those events actually happen. Building in some flexibility for timelines and budgets will allow for minor, unexpected delays or problems to be taken in stride and prevent the contract (and potentially the relationship) from suffering significantly.
What is Contract Management?
Contract management occurs after a contract has been executed and taken effect. Thus, this entails working to ensure that the terms and conditions contained within the contract are adhered to and that all of a party’s contractual obligations are met satisfactorily.
During the contract management phase, it is always possible that circumstances will change, necessitating modifications to the contract agreement. Of course, the contract management team tends to work closely with the other party to the agreement, so they are in a good position to know whether the relationship is working or if it is necessary to pursue opportunities elsewhere. As a result, it makes sense for the contract administrators and managers to remain in close communication, in the event that they are in fact separate teams within a company.
Stages of Contract Management
Knowing what to expect at each of the seven essential stages of the contract management process will increase your ability to meet contract requirements and deliver optimal results.
1. Planning stage
During the planning stage, you should outline the specifics of your team’s most pressing contract management pain points, needs, and goals, then determine what kind of approach or system would best enable you to address those areas. You’ll also want to consider the resources you have available to allocate to the contract management process.
2. Implementation stage
After you know what your contract management process should look like, you can begin to implement the tools and systems needed to support those efforts. If you only have a handful of contracts to manage, you can likely track your deadlines, deliverables, and other obligations with manual solutions like shared drives, calendars, and spreadsheets. If you have more complex contract management needs, consider implementing dedicated contract management software to help you keep track of your agreements and important deadlines.
This is also the time when everyone involved with your contract management process should be onboarded and trained on your contract management solution so they’re completely comfortable using the software.
3. Pre-contract stage
During the pre-contract stage, you should work closely with the contract administration to start understanding the important details of the new agreement. This will help you prepare for the contract management process and incorporate any specific guidelines that will help you manage the contract and deliverables effectively.
4. Handover stage
If the individuals who negotiated an agreement are not the same people who will be executing and delivering against the terms of the contract, it’s imperative to have a thorough handover process, often involving dedicated meetings to ensure alignment and common understanding of roles, responsibilities, and key deliverables.
5. Contract stage
The contract stage is when the work defined in the agreement is executed and deliverables are completed, hopefully according to the agreed upon timeline and budget. This is also one of the areas where contract management software can help you stay on track and give you the foundation needed to measure performance along the way. Features like automated alerts and notifications and custom reports will let you know of any upcoming deadlines related to deliverables, termination windows, and any other dates you determine are worth tracking.
6. Pre-renewal stage
Typically, as a contract winds down, you must determine if you want to renew, renegotiate, or terminate it completely. More often than not, there are strict timelines that determine when these actions can occur without penalty, so it’s in your best interest to start thinking about these scenarios well before the contract’s end date.
7. Post-contract stage
Once a contract has ended and the dust has settled, there are a couple of post-contract tasks to complete. Before archiving your contract, review the contract terms in detail to confirm that all conditions have been met and invoices have been settled.
Finally, conducting a post-mortem will give you an opportunity to uncover valuable information about the contract and your contract management process - including both successes and shortcomings - that can help you improve your future agreements.
To ensure all of your organization’s agreements are created, executed, organized, monitored, and optimized according to company standards, it’s important to have strong contract administration and contract management processes and systems in place.
For help planning your contract management process, download The Master Checklist for Contract Review and Management.
Some of this content was previously published on the ContractWorks blog.