Steps in Contract Management Cycle

Contract management cycle (CMC) is ” process of managing contracts, from initiation of the contract to its termination or renewal of the contract.” In our earlier article we have talked about Contract Negotiation but these two are different things. Actually, contract negotiation is subpart of contract management. Project management, contract negotiation, risk management, mitigation etc. all these encompasses contract management. The center of attention in contract management is revenues and profits adjustment and extract insights and inventions. CMC implementation results in improvement of cost saving and efficiency of the project. The foundation for contract management relies on the implementation of successful post-award and upstream activities.

The key objectives of contract management are to ensure that the contract is:

1. Delivered on time, at the right place and in the right quantity.

2. Meeting the required specifications, standards and/or quality.

3. Completed within the agreed price.

Importance of Contract Management:

Every organization wants to enhance their operational and financial performance and reduce their financial risks. For this solution they indulge themselves into contracts. Businesses got to manage contract agreements with alternative businesses. Managing contracts is associate unmarked kind of management. Managers interact with employees relevant to compensation. A number of these conversations can manage contract management.

The foundation for contract management relies on the implementation of upstream and downstream activities.

Upstream

• Good Procurement Planning (Accurate assessment of requirements – Effective Procurement Plan)
• Comprehensive Specifications (Good understanding of needs for requirements)
• Right Contract Selection (Appropriate Contractual arrangement including terms & conditions and risks)
• Careful Supplier Selection (Transparent and Competent selection of Supplier with relevant attributes having capacity and most capable)

Downstream

• Sound Contract Management Plan (Practical, thorough plan that is proportional to the size, value, scope and complexity of the Contract)
• Proactive Delivery Management (Manage Contract implementation systematically, with sufficient flexibility where required)
• Good Relationship Management (Communication, Trust, Openness, Accountability, etc.)
• Systematic Administration (Full and accurate records to demonstrate efficient and effective delivery)
• Ongoing Monitoring and Evaluation (Continuous, objective assessment of effectiveness, efficiencies, impacts, risks and value)

What are the steps in Contract Management cycle?

The process of CMC lies in three steps;

1. Strategy, Structure & Resources
2. Management & Monitoring
3. Reporting & Termination

1. Strategy, Structure & Resources

• Plan & Scope

Contracts are not granted with blind eyes. It’s essential for contracts to be well-planned and foreseen its scope with the right resources. The contract management plan is an input/output document that outlines the method in which a specific contract will be administered and executed. Correctly figuring out the needs, reasons, and remaining desires that require an agreement makes any choices down the road plenty greater manageable. Does your enterprise want to accumulate facts throughout teams, clients, or both?

• Stakeholders Analysis

A stakeholder is an entity that can affect a contract or be affected by the contract itself; this means that a stakeholder may have an interest in the outcome and/or the management of a contract. Analyze and prioritize stakeholders, stakeholders’ interests, Assessment of impact, and potential strategies. Pick a contract you are familiar with and conduct a stakeholder analysis.

2. Management & Monitoring

• Administration & Negotiation

Contract is mostly held between two parties but not necessarily. Organization’s executives after discussing key-points or ideas of contract then formalize a well-organized negotiation team that went for negotiation of the contract with their leader to another becoming contract partner. At negotiation time both teams put in front their desires and contributions towards contract with each other. If contract proves beneficial to both-parties then they sign an agreement and remain stick to it.

• Relationship management

Establish relationships, strong communication channels and systems, active support and enhancement of them throughout the life of the project so that a sustainable partnership of trust and respect is maintained.

• Performance management

Assesses whether the services being delivered by the service provider meet the required standards, whether remedial measures are effective and whether there are any trends evident in the provision of the services.

• Payment & incentives

It is an agreement where one party gets reimbursed for all its expenses plus a profit margin at a pre-decided on total cost. The main focused incentives are performance incentives, scheduled incentives and availability rates.

• Risk & resilience

 The main objective of risk management in project management is to take care of anything that might deflect the contract from reaching its ultimate goals. Every project needs a plan for execution. Mostly, organization has its own risk management team which plans and monitors their projects. Contract manager has key role in contract management who leads the team, motivates the team toward achieving project objectives.

3. Reporting & Termination

• Contract Amendment

Contract needs amendment specifically if the business collaboration scales up or down. Contract needs to track changes to monitor what was initially agreed upon and what is now relevant. Every edit and amendment should be recorded and tracked, so all parties can agree and remain fully aware of the latest changes impacting the business relationship.

• Audit & Reporting

Contract management does not simply entail drafting a contract and then pushing it into the filing cabinet without another thought. Contract audits are important in determining both organizations’ compliance with the terms of the agreement and any possible problems that might arise.

Using manual contract management methods can often result in missed renewal opportunities and business revenue lost. Automating the process allows an organization to identify renewal opportunities and create new contracts.

• Contract Renewal

For instance, when contracts are renewed and the expiry date is approaching, organizations will need reminders to notify parties of upcoming deadlines. By doing this, increased trust and loyalty remain between all parties, but it also ensures the relationship is continued, lost revenue is avoided, and legal risks are minimized.

• Contract Closure

Contract close-out comes either when project has completed and you achieved your desired results or when you are not meeting your considerations and project is running in loss. Either of the party involved in contract send invitation to other party to come on negotiation table for contract closure/termination. There may exist cancellation fee, and the party who is canceling project due to his own interest have to pay for it. In other situation, if contract has completed, then it’s mandatory to ensure that all the actions have been implemented on contract according to agreement to make it close.

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