If you or your business hires employees, works with third-party contractors or does business with another company, chances are you have a contract. Writing, managing and analyzing contracts are an integral part in mitigating your company’s financial risk, but the process can often be tedious. It can be a time-consuming task, but having someone or something overlooking contractual duties is absolutely necessary.
The stages of contract management can differ depending on the size of your company, the type of contract and who the other parties are. Contract management can be a lengthy and complicated process, sometimes involving lawyers, months of negotiation and copious amounts of writing and drafting. Many businesses choose to automate contract management systems through software or hire someone to take care of it. However, even if you’re looking at outside options, it is helpful to know the stages of contract management.
The very first stage of contract management is preparation. Before you even show the intent of signing a contract, you need to establish your needs, identify risks and evaluate your goals. Asking yourself questions like “What am I getting out of this?” “Is this price reasonable” “What happens if this happens?” before you author will go a long way in mitigating risk.
Imagining the worst-case scenario is always a good idea when preparing for a contract. What happens if the business you are working with goes out of business or files for bankruptcy? Your company may also want to consider meeting with the contractor or vendor first to discuss the contract before its initiation, however you will inevitably need to negotiate later on.
Write the contract
At this stage of contract management, consulting a legal professional to help navigate some tricky technicalities can be helpful. You might be able to use templates from previous contracts, or you may have to create something from scratch. If you are writing a new contract, you will definitely need to hire a legal team.
This part may take the longest, depending on the complexity of the contract. You want to be as clear and thorough as possible with the language in the contract to avoid misinterpretations or ambiguity.
Negotiating the contract
After the contract has been written up, the two parties need to sit down and finalize all the terms and conditions. At this stage, both parties must be transparent and have the most up-to-date information.
It is important to keep your own needs in mind while considering the needs of the other party.
Approving the contract
After the contract has been finalized and both parties are happy with the agreement, it must be approved. Depending on the size of the company, approval may need to come from a higher-up, like an executive or director. The contract must be presented to the appropriate manager, stakeholder or employee for approval.
Execute the contract
This stage simply involves signing the contract - however, this may prove to be difficult if the other party does not work in your area. Electronic contracts and signatures are a good solution for this.
Managing amendments and revisions
Contracts rarely stay the same after its initial signage. It’s important to continually track changes and revisions to the contract that both parties make. You may want to consider hiring a contract manager, but consider that their average salary is $80,151 according to PayScale.
Contracts can be seen as the simplest of legal agreements. It essentially involves an offer, an acceptance and a swap of value, or what lawyers called “a consideration,” according to this Financial Post article. If you meet those three conditions, you can legally enforce the deal. However, the processes of creating, negotiating, and upholding those obligations will likely be time-consuming.