When the project process begins, few things are as important as the details involved in the relevant contracts. In the construction industry, many contracts combine to provide parameters and specifics that set the tone for the entire process. Once executed, timeliness and tracking of requirements, requests and promises are an important priority.
If information hasn’t been entered into a managed, standard system, the paper or digital contracts can get lost in the shuffle, or lose priority status as they are routed from team member to team member—a recipe for poor performance, unanswered questions and bad reputations.
What is Contract Management?
Contract management is an intricate oversight process that follows contracts from pre-award to completion, including execution, vendor selection, issue detection and control, tracking and processing. When implemented properly, contract management processes ensure that budgets and abilities are in alignment with project objectives.
The best contract management flows seamlessly through the organization and integrates with project management and control, always involving the team members for input and outcomes, and carefully monitoring contractors for performance and deadlines.
While contract management can be beneficial in any industry, it is vital for industrial and construction projects. In fact, contracts in these industries ensure that operations and financial goals are met and risk is reduced. Supervision, quality control and the ability to manage numerous professionals at a time can all be handled by a contract management program specifically implemented for these types of projects.
The Stages of Contract Management
Contract management is not solely about creating agreements and getting them approved. It includes a series of stages that follow the process through to a successful conclusion. Any missed steps can cause delays and mistakes down the line. Here’s an outline of five fundamental areas of importance:
- Create: The contract management system must have the ability to incorporate standardized procedures with details specific to the goals of the organization. First steps include identifying the type of contract and who will be responsible for each task. The planning process should consider company resources, objectives and team member strengths and weaknesses, while developing an overview of potential challenges and risks.
- Negotiate: The contract should be written in a manner that reflects the organizational needs and values, helping to establish trust between the two parties. Once the initial contract has been designed, negotiation is the obvious next step. Line items can be discussed, changed or removed, as part of the negotiation process.
- Approve: Approval usually includes multiple sign-offs. Numerous managers, departments and even contractors, may have to sign off on the specifics before the final deal is made.
- Finalize: The contract signing process between enterprises is the final step before getting the project underway. Obtaining signatures from numerous parties and entities quickly—even when distance is a factor—is crucial to avoiding postponements to the process.
- Manage: Once the project begins, changes can still occur. Revisions need to be carefully managed and communicated to the appropriate parties. Deadlines, audits, revenue, and expenditures need to be tracked, completed and shared with the rest of the team.
A standardized program that is customizable to an organization’s specific needs helps a contract run smoothly. When these five areas are carefully managed, the odds of a successful relationship and a closed deal go up exponentially.
Why is Contract Management Important?
A contract provides parameters for key aspects of a project including business strategy and relationships. Competing in today’s global marketplace means team members can be located all over the world, adding challenges concerning time-zone, cultural needs and understanding.
Contracts include payment terms, negotiations, workflow, service expectations, and compliance obligations. Contract management helps reduce risk by ensuring compliance when necessary, as well as providing monitoring and tracking to prove it. It also augments the bottom line by comparing prices and reducing spending. Real-time visibility of all aspects of a contract over time enables management to make data-driven decisions and necessary course corrections before it’s too late.
When a contract is initiated, it should reflect goals, timelines, budgets, resources, risks, regulations, and specifications. Each phase of the process requires specific elements, purpose and management in order to proceed to the next step.
Technicians, engineers, and other skilled professionals must be carefully chosen to complete the contract and execute the project. Technology provides an active thread connecting all aspects of the project, helping to fill in the holes during revisions, and ensure communication with the right team members, at the right time.
Many construction companies are faced with re-thinking how business processes like productivity, performance, labor, and inventory are affecting growth and profitability. Communication, tracking, managing revisions and a variety of other tasks can add to an already complicated process. Good contract management and operational efficiency go hand-in-hand.
See how EcoSys helps you better plan and manage contracts.
Contract Management Challenges
Tracking and managing the array of moving parts of a contract can present a variety of challenges. In the engineering and construction industry, projects are often large and complex, involving joint ventures, numerous sub-contractors and complications related to global execution.
The processes of contract management can present serious challenges, especially when handled manually. Specific challenges include:
- Execution: Without proper management, files are easily lost, and final approvals and signatures take much longer than necessary.
- Tracking: It can be difficult to track and audit contracts once they have been signed and are passed on to other staff who may not understand the details that must be monitored. Budget information, e-mails, information from important meetings, and changes are stuck in transit before being addressed. Time is money, and project delays decrease profitability.
- Revisions: Managing change before a contract is approved and after it has been executed is equally important. Larger projects frequently include national or global teams and create obstacles to deadlines and cohesiveness. Updates to original documentation can take days, or even weeks. What’s more, if teams are working from different versions, the wrong decisions could be implemented. Any of those scenarios could lead to increased risk, missed deadlines, mistakes and even litigation.
- Compliance: Details laid out in the contract are non-negotiable obligations. From a legal standpoint there may be regulatory or compliance issues that must be followed to the letter. Failure to comply can have serious legal and/or financial consequences.
Benefits of Contract Management
Contract management improves communication, response time, goal alignment, transparency and accountability. These and other project performance metrics can be tracked and improved with good contract management:
- Efficiency: Contract management streamlines adherence to the contract and can lower business costs. All necessary documents can be found and accounted for in one place, offering increased transparency for team members from different departments, as well as contractors working offsite. The addition of automation makes documents and changes more accessible, which can, in turn, reduce response time to changes, additions or challenges. Positive experiences relating to contractual agreements may lock in better raw material pricing and availability as well as service costs down the line.
- Risk reduction: Important business objectives and goals are identified when a contract is written. A good contract management process sets expectations around those priorities and ensures commitments in the contract are met. The benefit works all around, holding organizations to performance clauses, and providing vendor compliance. Regulations are in a continual state of change, and staying on top of them means constant oversight to ensure your projects stay in compliance. Tracking assets, obligations and provisions is a must to mitigate the risk of financial loss. The tracking element provided by a contract management tool constantly gauges performance and compliance in real-time.
- Relationship building: A positive contract experience creates lasting business partners with vendors and subcontractors. Particularly in the construction industry, finding good help is paramount for future projects.
- Tracking and documentation: Contract management tools organize and centralize documents and processes making business insight and analytics more accessible. Standardized reporting and record-keeping results in accuracy and visibility, which, in turn, creates actionable insights. When contracts are managed with transparency, projects are less likely to get stuck because of an unknown challenge or compliance issues.
Benefits of Contract Management Software
From contract development to project completion, full project lifecycle oversight is a clear choice to maximize performance and revenue. Contract management software takes the process a step further, providing automation, a single source of truth and a real-time view of day-to-day activity.
Once a contract is approved, it needs to be accepted and signed by numerous parties. Signatures get complicated when more than one is needed, potentially from all around the country, or even the world. Contract management software provides an electronic signature tool that solves this tedious problem, expediting execution.
Following contract execution, efficient management of the contract can significantly enhance the results of the project. Software solutions can build the terms of the contract into business rules that assure compliance — whether adhering to required timing, payment terms, change management processes or even providing visibility to performance en route to achieving predetermined incentives.
In order to truly leverage the benefits, contract management software would include:
- Procurement planning: Tools to evaluate and manage potential clients and vendors should be intuitive. Software must offer parameters to choose opportunities that are in line with your company’s values and services.
- Vendor and bid management: Individual contracts inside the umbrella contract are equally important. Software offers the ability to choose and review vendors and contractors based on predetermined qualities and previous work experience.
- Budget and cost control: Staying within a predetermined budget is a must-have of a contract management program. Software adds evaluation of value, progress, completion, and forecasts for the future.
- Change management: If things change over time within the contract, revisions should be noted, approved and shared with the team quickly. Contract management software can also calculate effects on cost and scheduling.
- Field progress management: Contract management software goes beyond the contract, tracking what’s happening in the field, communicating change and progress, and reporting issues instantly. This real-time access helps the team determine alternative actions and make decisions proactively.
- Administration: Communication and collaboration are key elements of a successful contract and project. Clients, customers and contractors can stay on the same page regarding all documentation and change around meetings, action items, responsibilities, progress and status.
- Compliance: A contract management software solution notes important information and tracks it along the lifecycle of the project, creating alerts to the appropriate people when a breach is suspected. A real-time overview allows you to be proactive before a problem presents itself.
- Documentation and audit trails: Contract management software allows all team members to literally be on the same page as changes are made. Budgets, timelines, goals, audits, and other documentation are all updated and accessible in real-time. Having access to all aspects of project changes as they are happening in a single-source-view means timely reactions, positive outcomes, reduced risk and fewer complications that could result in missed deadlines, mistakes and even litigation.
Data solutions clear the way for improvements to overall contract and project organization with automated procedures and notifications. A solution that can effectively head off problems provides a competitive advantage and improves overall project performance.
A contract management solution should seamlessly integrate with other project management systems, like project portfolio management and project controls. Software that manages the entire lifecycle of your project can provide resources for all team members, no matter their specific roles. The benefit of that unified view is invaluable to the team, the process, and the bottom line.
Contract Management and Full Project Lifecycle Integration
Well-planned contract management is just one piece of a well-planned oversight method. Real-time project data is continuously updating in a lifecycle system, and should be used for more than budgets and schedules. It should broaden perspective, helping you manage change proactively, make better decisions, and enable strategic alignment.
Enterprise project performance is a single platform that unifies portfolios, project controls, and contract management. The navtive integration of these processes into one easy-to-use system enhances strategic project selection and drives each process to its successful completion. It provides measurable, actionable parameters that enhance predictability, efficiency and control of your projects.
Visit these additional resources for more information on contract management throughout the project and portfolio lifecycle: