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Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk. Common commercial contracts include
purchase order A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from externa ...
s, sales
invoice An invoice, bill or tab is a commerce, commercial document issued by a sales, seller to a buyer relating to a sale transaction and indicating the product (business), products, quantities, and agreed-upon prices for products or Service (economic ...
s, utility
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
s, letters of engagement for the appointment of
consultant A consultant (from la, consultare "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice and other purposeful activities in an area of specialization. Consulting servic ...
s and professionals, and
construction Construction is a general term meaning the art and science to form objects, systems, or organizations,"Construction" def. 1.a. 1.b. and 1.c. ''Oxford English Dictionary'' Second Edition on CD-ROM (v. 4.0) Oxford University Press 2009 and com ...
contracts. Complex contracts are often necessary for construction projects, goods or services that are highly
regulated Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
, goods or services with detailed technical specifications,
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
(IP) agreements,
outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
and
international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...
. Most larger contracts require the effective use of
contract management software Contract management software is the range of computer programmes, libraries and data used to support contract management, contract lifecycle management, and contractor management on projects. It may be used with project management software. Advanta ...
to aid administration among multiple parties. A study published in 2007 found that for "42% of enterprises ... the top driver for improvements in the management of contracts asthe pressure to better assess and mitigate risks" and additionally, "nearly 65% of enterprises report that
contract lifecycle management Contract lifecycle management (CLM) is the proactive, methodical management of a contract from initiation through award, compliance and renewal. Implementing CLM can lead to significant improvements in cost savings and efficiency. Understanding a ...
(CLM) has improved exposure to financial and legal risk".


Contracts

A
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
is a written or oral legally-binding agreement between the parties identified in the agreement to fulfill the terms and conditions outlined in the agreement. A prerequisite requirement for the enforcement of a contract, amongst other things, is the condition that the parties to the contract accept the terms of the claimed contract. Historically, this was most commonly achieved through signature or performance, but in many jurisdictions - especially with the advance of electronic commerce - the forms of acceptance have expanded to include various forms of electronic signature. Contracts can be of many types, e.g. sales contracts (including leases), purchasing contracts, partnership agreements, trade agreements, and
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
agreements. *A sales contract is a contract between a company (the seller) and a
customer In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for ...
where the company agrees to sell products and/or services and the customer in return is obligated to pay for the product/services bought. *A purchasing contract is a contract between a company (the buyer) and a supplier who is promising to sell products and/or services within agreed terms and conditions. The company (buyer) in return is obligated to acknowledge the goods / or service and pay for liability created. When the purchasing contract is between a retailer and manufacturer, the contract also includes conditions for processing returned items. However due to the cost of reverse logistics, retailers often dispose of returns rather than sending them the back to the vendor. *A partnership agreement may be a contract which formally establishes the terms of a partnership between two legal entities such that they regard each other as 'partners' in a commercial arrangement. However, such expressions may also be merely a means to reflect the desire of the contracting parties to act 'as if' both are in a partnership with common goals. Therefore, it might not be the
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...
arrangement of a partnership which by definition creates fiduciary duties and which also has 'joint and several' liabilities.


Contract management activities

The business-standard contract management model, as employed by many organizations in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
, typically exercises purview over the following business disciplines: *Authorizing and negotiation *Baseline management *Commitment management *Communication management. *Contract visibility and awareness *Application of commercial levers designed to secure the anticipated benefits of the contract, ensure that risk remains where it has been placed by the contract and discharge the incentives built into the contract to secure good performance and discourage poor performance. * Document management *Growth (for sales-side contracts) *Contract compliance/
governance Governance is the process of interactions through the laws, social norm, norms, power (social and political), power or language of an organized society over a social system (family, tribe, formal organization, formal or informal organization, a ...


Phases of contract management

Contract management can be divided into three phases: * pre-contract phase * contract execution phase * post-award phase (often referred to as contract compliance/governance), including contract termination. In the post-award or "downstream" phase, some organisations have a contract management team, others may require operational managers to include the management of contracts within their role.Chartered Institute of Purchasing & Supply (2010), ''Guide to Contract Management'', p. 13 The
Chartered Institute of Procurement & Supply The Chartered Institute of Procurement & Supply (CIPS), formerly the Chartered Institute of Purchasing & Supply, is a global professional body working for the procurement and supply profession in many regions of the world. It promotes best prac ...
(CIPS) suggests that the requirement for dedicated contract management depends on contract value, contract length, complexity of services and level of risk, although in the initial stages of a contract, the assessment of risk and the implementation of core contract management processes may be appropriate tasks for a dedicated contract manager. CIPS also notes that in some cases the procurement team may have an extended role in maintaining contract management. Contracting for services may be more complex than supply-only contracts and therefore require closer management.


Contract variation

There may be occasions during the post-award phase when what is agreed in a contract needs to be changed later on. A number of bases may be used to support a subsequent change, so that the whole contract remains enforceable under the new arrangement. A change may be based on: *A mutual agreement of both parties to vary the contract, outside the framework of the existing contract. This would be an independent basis for changing the contract. *A unilateral decision to vary the contract, contemplated and allowed for by the existing contract. This would normally have notice periods for fairness and often the right of the other, especially in consumer contracts, to cease the contractual relationship. Any one-way imposition of change should be contractually justified, otherwise it may be interpreted as a
repudiation Repudiation may refer to: * Repudiation (marriage), the formal act by which a husband forcibly renounces his wife in certain cultures and religions *Disownment, the formal act by which a parent forcibly renounces his child *Anticipatory repudiatio ...
of the original contract, enabling the other party to terminate the contract and seek damages. *A bilateral decision to vary the contracting, within the variation or change control process outlined in the existing contract. These are often called change control provisions.


Contract compliance/governance

During the post-award phase, it is important to ensure that contract conditions and terms are met, but it is also critical to take a closer look for items such as unrecorded liabilities, under-reported revenue or overpayments. If these items are overlooked, margin may be negatively impacted. A contract compliance audit will often commence with an opportunity review to identify the highest risk areas. Having a dedicated contract compliance (and/or governance) program in place has been shown to result in a typical recovery of 2-4% and sometimes as high as 20%. Current thinking about contract management in complex relationships is shifting from a compliance “management” to a “
governance Governance is the process of interactions through the laws, social norm, norms, power (social and political), power or language of an organized society over a social system (family, tribe, formal organization, formal or informal organization, a ...
” perspective, with the focus on creating a governance structure in which the parties have a vested interest in managing what are often highly complex contractual arrangements in a more collaborative, aligned, flexible, and credible way. In 1979, Nobel laureate
Oliver Williamson Oliver Eaton Williamson (September 27, 1932 – May 21, 2020) was an American economist, a professor at the University of California, Berkeley, and recipient of the 2009 Nobel Memorial Prize in Economic Sciences, which he shared with Elinor Ostro ...
wrote that the governance structure is the “framework within which the integrity of a transaction is decided”. He further added that “because contracts are varied and complex, governance structures vary with the nature of the transaction”. A collaborative governance framework has four components: *A relationship management structure (how the parties work together to make both day-to-day operational decisions as well as strategic decisions) *A joint performance and transformation management process designed to track the overall performance of the partnership *An exit management plan as a controlling mechanism to encourage the organizations to make ethical, proactive changes for the mutual benefit of all the parties. *Compliance to special concerns and regulations, which include the more traditional components of contract compliance


Contracts and trust

Another dimension of contract management relates to the interplay between contracts and trust. In particular, management scholars have discussed the nature of the relationship between contract and trust development. On the one hand, some have argued that contracts and trust would substitute each other; that is, the use of one mechanism decreases the advantages of the other. On the other hand, others suggest contract and trust complement each other; that is, the use of one increases the benefits of using the other mechanism.


Managerial functions

In 2008, the International Association for Contract and Commercial Management (IACCM, now World Commerce & Contracting) began a project intended to clarify the role of a contract manager, which has since been updated on several occasions. This work identified that among contract managers themselves, there is a "widespread belief that the title (and its variants, such as Commercial Manager) masks massive variations in job role, status and responsibilities". However, the IACCM's research found indications that "the core responsibilities of Contract Managers (and by deduction, Contract Management Departments) are very similar" and applied across a range of tasks from bid preparation and contract negotiation to a "middleman" role between an organization's employees and its customers, and compliance and ensuring contract close-out, extension or renewal at its end point. Scholars in business and management have paid attention to the role of contracts in managing relationships between individuals or between organizations. In particular, contracts work as instruments of control and coordination. On the one hand, contracts can moderate the risks of exploitation or misappropriation by an opportunistic partner. On the other hand, contracts can help foster communication and information sharing between parties. In the UK public sector, concerns were raised by the House of Commons Public Accounts Committee in 2009 regarding resourcing and training in relation to contract management. The committee reported that
No commercial director/head of procurement rated the level of resources allocated to the management of their major contracts as 'good', and 22% of contract managers considered they did not have time to perform their responsibilities well. Most contract managers had undertaken relevant training, although 60% of organisations did not provide a structured training programme for their staff.
Contract management standards were published in 2014 by the
Crown Commercial Service The Crown Commercial Service (CCS) is an executive agency and trading fund of the Cabinet Office (United Kingdom), Cabinet Office of the UK Government. The CCS is responsible for managing the government procurement, procurement of common goods a ...
, and have been updated periodically. These standards were developed as a result of a 2013 "Cross Government Review of Major Contracts", commissioned by the
Cabinet Office The Cabinet Office is a department of His Majesty's Government responsible for supporting the prime minister and Cabinet. It is composed of various units that support Cabinet committees and which co-ordinate the delivery of government objecti ...
to assess the management of major contracts held by the companies
G4S G4S is a British Multinational corporation, multinational private security company headquartered in London, England. The company was set up in 2004 when London-based Securicor amalgamated with Danish firm Group 4 Falck. The company offers a ran ...
and
Serco Serco Group plc is a British company with headquarters based in Hook, Hampshire, England. Serco primarily derives income as a contractor for the provision of government services, most prominently in the sectors of health, transport, justice, i ...
,Crown Commercial Service
Contract management framework summary
updated 8 February 2021, accessed 10 April 2021
and led by Bill Crothers, the government's
Chief Procurement Officer A chief procurement officer (CPO) undertakes an executive role within an enterprise, focusing on sourcing, procurement, and supply management. Typically, a CPO is responsible for the management, administration, and supervision of the company's ac ...
. In December 2016 the UK's National Audit Office (NAO) re-published a good practice contract management framework which had been first published in 2008 with the help of the Office of Government Commerce, then part of HM Treasury. The NAO "believed", based on practitioner feedback, that this framework was "one of the best references for the basic tasks necessary for good contract management".National Audit Office
Good practice contract management framework
published December 2016, archived at the National Archives, accessed 12 May 2022


See also

*
Commercial management Commercial management is "the identification and development of business opportunities and the profitable management of projects and contracts, from inception to completion". Commercial management within an organization is applied only at policy ...
*
Contract management software Contract management software is the range of computer programmes, libraries and data used to support contract management, contract lifecycle management, and contractor management on projects. It may be used with project management software. Advanta ...
* Document automation *
Government contract Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a subst ...
*
National Contract Management Association The National Contract Management Association (NCMA) is a professional association, based in the United States, dedicated to the profession of contract management. Founded in 1959, NCMA now has over 20,000 members and more than 100 local chapters ...
* Group purchasing organization * Office of Federal Contract Compliance Programs - for contracts with the United States government * Uniform Commercial Code - United States *
United Nations Convention on Contracts for the International Sale of Goods The United Nations Convention on Contracts for the International Sale of Goods (CISG), sometimes known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.Not to be confused with ot ...
* Relational contract * Vested outsourcing


References

{{reflist Enterprise architecture Contract law