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Quick guide to contract management for business owners and managers

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Contracts play a vital role in securing a business, regardless of its nature and size. They do not only outline expectations but also protect the negotiating parties from disadvantages and risks. Because of this, the contract management — creating and handling agreements — is an enormous responsibility.

However, managing contracts remains the most overlooked and downplayed form of management. From discussing compensation with a new hire to finalizing a deal with a supplier, contract management is an indispensable aspect of business operations. But why is it not talked about much? It is perhaps because many people do not fully grasp its importance and underestimate its complexity.

Contract management does not end when two parties sign an agreement. On the contrary, the approval of the contract is just the beginning of a long and arduous cycle. Here, we will delve into the basics of contract management, who are responsible, and why an effective contract management process is necessary.

What Contract Management Actually Is

Contract management is the process of creating, executing, analysing, and evaluating an agreement between an organisation and its customers, partners, vendors, suppliers, or employees. Its main goal is to maximise the company’s operational and financial performance while minimising business risks. Simply put, it ensures the organisation benefits from the contract it has entered and reduces the possibility of any legal actions from happening.

The term contract covers various transactions, from simple commercial contracts including purchase orders and invoices to employment contracts like job offers. It also includes sale and lease contracts as well as partnership, trade, and intellectual property agreements.

As mentioned, contract management is a complex and continuous process. So much so that many companies use the aid of contract document management software to handle complicated contracts. The management cycle has nine stages divided into three phases: pre-award, contract execution, and post-award. The first three stages deal mainly with creation and preparation and include initial requests and authoring or drafting. The next phase focuses on collaboration and includes negotiating the contract, approval, and execution. The last stages under the post-award phase deal with record-keeping and tracking. The steps include obligation management, revisions and amendments, auditing and reporting, and renewal.

The contracting parties have responsibilities that they must meet to achieve the objectives of the contract. They also have rights that protect them from possible exploitation or misappropriation from a devious partner and ensure that both parties gain something advantageous from the transaction. The stages provide them with an idea of where they are in the process and what they need to do to get to the next level. Large-scale companies and corporations have contract managers who direct and coordinate all contract-related aspects of a project.

Can Non-HR Managers Manage Contracts?

Right off the bat, yes, non-HR managers can handle contracts. There is a significant number of companies that do not follow the traditional organizational structures. Such include micro-enterprises, small businesses, and start-ups. Because small businesses typically have less than 50 employees, they do not see the value of hiring a Human Resources staff at present. Take, for instance, a veterinary clinic looking for veterinary jobs, a salon owner, a house cleaning service, or small a care provider.

In many cases, the business owners handle HR-related tasks themselves or assign them to another non-HR employee, such as the administrative assistant. Other businesses outsource HR functions to third-party specialist recruiter if for example a company was looking to recruit in a niche like electronics, they might source a knowledgeable electronics recruitment agency to take on the recruitment process. They may then also decide to use automation systems such as payroll and benefits software instead of having a payroll manager.

Without an HR department, it is acceptable to delegate the handling and overseeing contracts to non-HR personnel. After all, someone from the company must make job offers, process leave of absence paperwork, determine salaries, deal with health insurance, and address benefits and compensation claims. The one administering the contract should have exceptional interpersonal and negotiation skills. They should also thoroughly know the ins and outs of the company.

However, this practice should only apply to simple and basic contracts.

An expert who has undergone sufficient training and possesses the necessary knowledge should handle complex deals and legal documents. A lawsuit can cripple a business and will cost more than the fees of a professional who has experience in contract management. Therefore, companies that don’t have a contract or HR managers should consult a lawyer when dealing with complicated legal agreements because the exact wording of contracts is crucial to its effectiveness.

Why You Need an Effective Contract Management Process

Companies need an effective contract management process to ensure that they get the most out of the transaction and partnership. To carry out a smooth and efficient end-to-end course of action, companies follow a Contract Lifecycle Management (CLM) process. Some CLM platforms have a language processing capability and can draft a new contract based on what the company has previously decided. The feature frees contract handlers and managers from the unnecessary and time-consuming activity of writing every clause from scratch. It also leaves little or no room for errors. Ultimately, an efficient contract management process establishes healthy and stable business relationships, where both parties benefit mutually and achieve greater profitability.

A contract lays down the actions entered into by both parties when two companies enter a transaction. It includes the terms, conditions, and obligations by which they will fulfil their parts of the agreement. As with any other company, there is always pressure to reduce operational costs no matter the nature or size of the business. And this is because any expenditure saved goes towards the company’s revenue. With a poorly written contract, the company could lose an immense amount of money in profits over a technicality or a loophole the organisations have overlooked. Worse, unclear agreements could result in legal actions. Most lawsuits would not only cost thousands of dollars but could also be the downfall of a company. Following an efficient process reduces the possibility of creating a faulty contract.

How can you tell the contract strategy is successful? When a company implements the contract management process successfully, they achieve their expected benefits and financial returns. An effective contract persuades both parties to be cooperative and responsive to each other’s needs. Most importantly, the negotiating organisations find the delivery of services or goods satisfactory.

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