5 Tips for Successful Contract Management
Commercial relationships are crucial to a business’s success
A business owner’s or leader’s ability to successfully manage their commercial relationships, can determine if the relationships are opportunities to drive growth or risks that impact growth. Whether these relationships involve suppliers, consultants or customers, they should be framed within the context of a legally binding contract.
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Contracts are at the heart of every commercial relationship
A contract is a legally binding agreement between two or more parties, that is enforceable by law. Once signed – i.e. agreed to by the parties – this contractual agreement creates a promise that specific rights and obligations will be fulfilled by each party to the contract. Contracts also serve as a documented record of the rights, responsibilities, obligations and expectations of the agreeing parties.
A contract enforceable by law should detail the offer being made and confirm its acceptance, define the duties of the different parties and how these duties will be performed. It should also describe the deliverables and how they will be measured and paid for, and stipulate what happens in the event of failure to deliver. Contracts also ensure you get paid – what you are owed, when it was promised, the way you want to get paid – and often identifies consequences if you don’t get paid.
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Contract management is the process of managing agreements, from creation to execution
Your contracts are your business’s crucial commercial documents, as unlike informal promises, a contract gives you a legal right to enforce in court. Your business’s relationships with your partners, vendors, customers, employees, and contractors hinge on the agreements it has with them, via your contracts.
Effective contract management commences with understanding your requirements and creating a legally binding document (‘the contract’) that reflects your needs and the risks you seek to manage. It requires a system that ensures the agreed contract delivers its positive impact to your business, and monitors the contract to ensure compliance of all parties with their obligations.
When contract management is successfully executed, you will see the following benefits:
- The expected outcomes and financial returns are realized by your business.
- Your contracting parties (suppliers, vendors, consultants) are responsive to your business’s needs.
- You do not encounter contract disputes or surprises.
- You maintain a collaborative relationship with the contracting parties through to the conclusion of the contract.
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5 Tips for successful contract management to steer clear of common pitfalls
- Appreciate the value of Contract Management – you should give contract management the priority it deserves and not treat it as a paper-exercise. You need to allocate sufficient time, effort, resource and attention to the creation of the contract. Once signed, you then need to ensure sufficient resources are assigned to proactively manage the contract and underlying commercial relationship. It is common to earmark up to 5% of the total contract spend to the cost of contract management.
- Identify Clear Measures of Success – you should identify, develop and document your measures of a successful contractual outcome. These measures of success will then be translated into the actual contractual obligations for the other parties to adhere to.
- Build Contracts around Relationships – while you have the right to seek enforcement of a contract in court, this is an expensive exercise. The costs of legal action are rarely limited to lawyers’ fees. Often, failed contracts result in a failure to achieve business outcomes, causing loss of revenue, production, or in the worst case of customers. It is possible to have both, a contract and a good working relationship, by putting in place the right structures that clearly define how the relationship should be managed around the contract.
- Monitor and Review the Contract Continuously – contracts often end-up at the bottom of a draw once the ink dries, with each party expecting the other to deliver on their promises. This is one of the key reasons for contract disputes. Monitoring and reviewing delivery and performance throughout the term of the contract – from signing through to final payment – is crucial to ensure compliance and a successful outcome for all parties.
- Manage Issues Immediately – as soon as issues of non-performance – such as delays, impacts to quality or quantity, concerns with payments – are identified, they must be managed and rectified. This helps avoid minor issues turning into non-compliance, and ensures that all parties continue to adhere to the terms of the contract.
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About the Author
Raiyo Nariman is a Kiwi based in Asia and working across the region, with over 25-years of commercial leadership experience. Raiyo has created, built and led numerous businesses, growing them across multiple Asian markets, in both entrepreneurial & intrapreneurial capacities, as CEO, MD, Director & investor/shareholder. He has invested, established and led businesses in New Zealand, Hong Kong, Malaysia, Singapore, while servicing clients and engaging strategic partners globally.
Within the arena of contract management, Raiyo has delivered training engagements for leaders and managers in both private and public sectors. Raiyo has also delivered numerous advisory engagements for clients seeking to enhance their contract management practices, including creating new contracting frameworks & business processes, reviewing & improving failing supplier / vendor relationships, and improving tendering processes. Clients have included some of New Zealand’s largest private companies, and government agencies responsible for taxation, land management, national infrastructure, research and innovation, education, and social services.