Contract Management Procedures

Over many centuries, contracts have become the universal way of establishing a legally binding agreement between two parties. Contract management involves administering the relationships between the entities, such as customers, partners, suppliers, or staff. Procedures include details on how to conduct negotiation, implementation, termination, and renewal activities.

Procedure Elements

Your goal in contract management is to maximize profit and minimize risk. Clearly defined procedures facilitate coordination between the parties involved. Commercial contracts include invoices, purchase orders, and partnership agreements. Implement contract management procedures using computer software systems or simply documented as a manual.

Your procedures should define how requirements for products or services provided are specified. Adherence to contract specifications often forms the basis for determining quality. Varying business demands cause alterations to contracts, as allowed by the contract management procedures. Put comprehensive contract management procedures in place so that if disputed bills and unmet obligation issues arise, they are resolved more quickly because your contracts are robust.

Ensure that you follow statutes and regulations that govern contract language and the rights and responsibilities of those involved. While once a simple handshake was considered legally binding, modern companies now rely on a series of legal document to transact business. Document how to generate four main types of contracts: fixed priced, cost-reimbursable, partially defined, and letter agreements. Procedures for contract development and management for each type should indicate how to list the price, define the scope, determine the delivery schedule, assess the risk for each party, and describe any ongoing business relationships (if relevant).

Prepare for handling different scenarios. For fixed price contracts, additional procedures should specify extenuating conditions such as how to write the contract if the exact amount of materials is not known or the activity extends over a long period of time. Some industries, such as the construction industry, include incentives in contracts to motivate operational effectiveness. Procedures associated with cost-reimbursable contracts define how to specify conditions so that the buyer assumes the financial risk from the seller by agreeing to a price that covers (typically) all the costs plus a fee. Rules for monitoring these types of contracts (typically used by nonprofit agencies or business partners for whom financial gain is not the primary goal) involve clear expectation statements. Set up procedures for partially defined contracts and letter agreements too. Investing time and effort into developing comprehensive procedures ensures your company operations flow smoothly.