A simple guide to the pitfalls in contract management January 29, 2018

What is contract management?

Contract management is the process of managing contract creation, execution and analysis to maximise financial performance at an organisation, this is while reducing financial risk. Many different organisations have encountered an ever increasing amount of pressure to reduce costs and improve company performance.

Contract management is very time consuming for any business so there needs to be an automated contract management system in place.

When two companies wish to do business with each other, the contract displays the activities entered into by both organisations, the terms fulfil each company’s agreements. The contracts are one of the most important parts of the company and the businesses profitability can be affected by the contracts. When the contract is poorly phrased, an organisation can lose thousands over a simple technicality.

A contracts manager is required to attend various contract management courses and contract management training to ensure that they remain an asset to the company through their knowledge.

Here is a simple guide to the different issues that can arise during the management of different contracts.

One persistent problem that can take place in contract management is the lack of clarity in the contract that both the parties are entering into. You need to ensure that there are clear objectives which can lead to successful signing of the contracts which are legally binding. The contracts manager will have completed contract administration courses so they will know the correct structure of a contract.

Another pitfall is that some people are unable to understand the contract. The contract might be drafted by a lawyer which is meant to be read by another lawyer but anyone that doesn’t have a legal degree may fail to understand the jargon in the contract. It is important for both parties to sit down with the lawyers to ensure that they fully understand the contract before they sign it.

In contract management, another issue is the lack of flexibility, some people rather than deal proactively with alternations to the contract would rather wait until something goes wrong. This then becomes both parties blaming each other for the fault. It is important to always be transparent and carefully look at the account so any mistakes can be dealt with in the beginning stages.

Another pitfall is that the highest managers are not involved in the contract process which can leave room for error if the message is not passed down to the contract manager correctly. To avoid this the management that have requested the contract should see the final draft before it is sent to the second party for signatures.

The final pitfall is that companies are sent out contracts using software such as Docusign or Adobe Sign but do not send the draft beforehand to the second party to see if they agree with the terms. This can result in rejection of the contract or a misunderstanding with the secondary party.

Do you need contract management training? Read more about our contract administration courses.