What are contract management and contract administration, and how do these two processes impact your procurement efforts?
Dealing with contracts is hard and it’s much harder if you don’t know the difference between contract management and contract administration.
Research shows that poor and ineffective contract management is costing enterprises up to 9% of revenue annually. This is why it is imperative to know what each of these processes means so you can extract maximum value from your contracts.
This blog outlines the major differences between each of the terms, what each process is about, and how contract management software can be employed to improve operations.
Contract Management and Contract Administration Defined
What is contract administration?
This is the process that oversees all work prior to the signing of a contract. A designated contract manager is responsible for managing the process.
What is contract management?
According to the Chartered Institute of Procurement & Supply (CIPS), contract management is:
“…a continuous procurement process that ensures suppliers adhere to their agreed contractual obligations along with negotiating any future changes that need to take place.”
Explained another way, contract management is all the work done after the paperwork has been signed to ensure that deadlines, deliverables, and regulations are complied with as laid down in the agreement.
With the terms defined, let’s explore in-depth what is entailed in each of the processes.
The Contract Administration Process
Enterprises typically have a contract administrator to handle contract administration operations. The administrator’s job incorporates:
· Setting up contracts
· Sending out requests for proposals
· Drafting up the contract
· Determining deliverables
· Establishing deadlines
· Working out renewal clauses
· Finalizing the terms and conditions
· Getting the contract approved
· Closing the contract
· Keeping contract information up-to-date
Buyer contract administrators work closely with the vendor’s representative. The signing of the contract signals the end of the contract administration stage and ushers in the contract management process.
Contract Administration Best Practices
Every contract administrator should develop a contract administration plan as this will guide their conduct throughout the process. How do you prepare such a plan?
1. Outline the project scope and key deliverables
2. Establish deadlines and timelines
3. Address financial aspects
4. Highlight working team members
5. Expect and manage risk
a. Outline the project scope and key deliverables
This step is fundamental as it sets the tone of the entire contract administration process. It allows clear deliverables to be established and metrics that govern what the contract includes and excludes.
b. Establish deadlines and timelines
Contract administration should be done in a timely manner. This means project start and end dates should be discussed and set. Progress can be measured against this timeline.
c. Address financial aspects
The financial aspect of contract administration cannot be overlooked. Every team member working on contract administration must be familiar with the protocols surrounding issues such as payment intervals, contract value, how to discuss and review extra expenses.
d. Highlight working team members
Who are the people who will be involved in structuring the contract(s)? Internal, external, and relevant third-parties privy to contract details need to all be mentioned. In addition, the roles of each of these parties must be expressly mentioned. This keeps all involved accountable.
e. Expect and manage risk
Risk management is a major consideration for contract administrators. Because of the inherent risk that’s always present, it’s key to outline a protocol to be followed in the event of delays, problems, and other unforeseen matters.
The Contract Management Process
Contract managers typically follow a 7-stage contract management process:
Outline the contract pain points, objectives, aims, and figure out the system that will best address each of these concerns. Evaluate the resources on hand to cover the contract management operation.
With the planning stage completed it is time to execute the plan. Taking advantage of tools such as contract management software you can streamline and automate aspects of the process to improve efficiency.
During this stage, the contract managers consult with the contract administrators to clarify issues and work out final details.
Having finalized the contract details, a handover is mandatory between the administrators and managers if they aren’t the same personnel.
With the contract signed, both vendor and buyer set out to fulfill their roles and responsibilities as set out in the agreement. Stay on track and increase deliverables visibility with the assistance of contract management software.
This stage involves contract re-evaluation. Do you wish to renegotiate, renew or terminate the existing contract? A decision needs to be made within the designated timeline or risk a penalty.
When a contract has reached its full term, verify that all conditions have been satisfied and outstanding invoices paid before archiving it.
Following these steps enables contract managers to be strategic in their work and campaigns.
Contract Management Cycle
The Need For Contract Management Software
Dedicated contract management software gives access to a centralized contracts repository. Easily accessible, contracts can be retrieved at a moment’s notice.
The amalgamated platform ensures contract administrators can effortlessly share the contents of the contracts with various departments including procurement teams, sales, and legal prior to signing with the vendor.
Contract managers needing to verify whether or not compliance requirements set out in the agreement are being honored can also quickly find the relevant contracts.
That’s not all but Aberdeen Research reports that automation can reduce administrative costs associated with contracts by 25% to 30%.
It’s clear to see that contract management software such as that provided by ProcurePort enables both centralization and visibility.
Contract management and contract administration are an integral part of your internal procurement operations. Properly enforced they can streamline and enhance your overall vendor management experience.
For any procurement team, understanding these core processes is vital for the success of your campaigns.
Deploying contract management software will significantly boost your efforts as the software will provide you with a centralized platform that gives visibility while consolidating all captured data seamlessly.
ProcurePort is one of the leading providers of cutting-edge innovative procurement solutions including contract management software and is trusted by enterprises and organizations such as UNOPS, HUD.GOV, and conEdison.