Contract management and contract administration are two terms that are often used interchangeably. Both sets of responsibilities may even fall on the shoulders of the same person, especially in a small, growing business. However, as a company grows and begins working with more suppliers, it's often necessary to differentiate between the two. The differences between the two and how they work together is easiest to understand when you view them as two different jobs done by two different people.
Contract management encompasses everything in the contract process, from planning and negotiation to closing out the contract, as well as overseeing contract administration. Contract administration involves setting up the contracts, having the details accessible to those who need them, as well as keeping records pertaining to the contracts.
Contract Administration vs. Contract Management
Contract management can begin as soon as your company decides it needs a contract with a new supplier. This can include negotiating the contract or reviewing the contract to ensure it is favorable to the company before it is signed.
Once the paperwork is signed, almost everything else falls under the domain of contract administration, unless a problem emerges. The contract administrator will file the contracts and provide details to any staff requiring them. He will record the dates the contract starts and ends and will ensure the contract manager is aware of when a contract is due to be renewed or closed out.
If someone in the company wants to review the contract, she will normally ask the contract administrator. If there is a service issue or a faulty shipment, the contract administrator will normally record these incidents and may help to resolve them. However, if the staff involved and the contract administrator can't resolve the issue, it may be kicked up to the contract manager.
Contract Management Best Practices
The most important work relating to contract management happens before the contract is signed. If the supplier has been carefully screened and if the contract is negotiated successfully, most of the later work is a matter of administration.
Best practices for contract management outside of the administration functions include:
- Research the supplier to ensure it is a reputable company and consult a contract lawyer before a contract is signed.
- Ensure the proposed contract does not negatively impact relationships with other suppliers.
- Review the contract with all stakeholders in your company to ensure it meets their requirements.
- Once the contract is signed, ensure the person responsible for contract administration is aware of the new contract and understands her responsibilities.
- Set a date to review the contract with the contract administrator, such as a period of one to three months in the case of a contract that expires after a year.
- Set a date to begin discussing the renewal of the contract or to determine whether or not a new supplier may be required.
Contract Administration Best Practices
The primary role of contract administration is to make sure that the contractor is fulfilling his obligations as detailed in the contract. Contract administration starts once the contract is signed or a purchase order is executed. The contract administrator may often act as a go-between for the buyer at her company and the contractor, or she may advise the buyer in his interactions with the contractor to find resolutions for any problems that arise.
Best practices of contract administration include:
- Ongoing and continuous monitoring of the contractor's performance.
- Verifying the contractor's performance or the quality of goods for the purpose of payment.
- Identifying material breach of contract by comparing the contractor's performance to what is specified in the contract.
- Determining if corrective measures are required if the contractor doesn't meet his obligations and then initiating the necessary actions with the contract manager.
- Writing the completion plan for contractor exit requirements, like signing off on goods or services, final payment and contract close out.
- Ensuring users interacting with the contractor or receiving goods or services are aware of contractual obligations.
- Instructing users on how to document and report problems to the contractor and to the contract administrator.
- Instructing and overseeing that users inspect goods before signing for them, specifically to look for damaged items, short shipments and overshipments.