What Is Contract Administration?
Effective contract administration is a pivotal component of business operations that entails the proficient management of contracts with customers or vendors. Contracts serve as a crucial means of establishing explicit expectations and obligations between involved parties, and it is through contract administration that these expectations are reliably fulfilled.
At its core, contract administration encompasses a comprehensive and methodical approach to managing contracts with customers or vendors. This encompasses all stages of the contract lifecycle, from the initial planning and negotiation phases through to execution and performance monitoring. By executing sound contract administration practices, businesses can ensure that their contractual agreements are effectively managed and their obligations are consistently met, fostering enduring and mutually beneficial relationships with their customers and vendors. Let’s break those down:
- Planning & Preparation - This phase establishes the terms and conditions of the agreement.
- Negotiation - Parties then negotiate the finer details of the contract to ensure that their agreement meets the requirements of both parties.
- Execution - Following negotiation, the contract is executed and parties become bound to its terms. The contract administrator oversees the fulfillment of the contract and ensures that all obligations are met, including monitoring timelines, quality standards, and compliance with legal and regulatory requirements.
- Performance - This phase entails ongoing monitoring and assessment of the contract's effectiveness, which may involve periodic performance reviews, identifying potential issues or risks, and taking corrective action as necessary.
The successful administration of contracts demands a meticulous focus on detail, outstanding communication abilities, and an extensive comprehension of the legal and regulatory structures that regulate contractual agreements. It is of paramount importance to guarantee that each party involved comprehends their commitments and accountabilities and that the contract's provisions are upheld within the bounds of legal and ethical principles.
When businesses manage contracts effectively, they have the opportunity to forge enduring relationships with their customers and vendors, mitigate potential risks, and accomplish their strategic objectives with greater ease. Therefore, it is imperative to prioritise contract administration as a critical aspect of business operations.
What Is The Importance of Contract Administration?
The preparation and implementation of contracts present a tremendous opportunity for aligning mutually agreeable terms that yield positive business outcomes. Effective contract administration plays a pivotal role in facilitating the establishment of clear communication channels, identifying and managing risks, minimizing disputes, and ensuring the timely delivery of goods and services.
In companies of varying sizes, contract administration may be assigned to a dedicated team or an individual with specialized knowledge and skills in contract management. Regardless of who takes on the responsibility for contract administration, it is crucial to have a well-defined process that incorporates clear guidelines for contract preparation, negotiation, and performance.
This approach can guarantee that contracts align with the company's strategic goals, offer clarity and transparency to all parties involved, and nurture positive business relationships. Hence, prioritizing contract administration as a core aspect of business operations can lead to long-term success and growth.
What Is The Difference Between Contract Management and Contract Administration?
Contract management and contract administration are two distinct processes that involve different stages of the contract lifecycle. Contract administration pertains to the planning, negotiation, execution, and performance of contracts, while contract management refers to the overall organization and management of the entire contract lifecycle. Differentiating between these two processes is crucial in establishing an effective contract management strategy that can lead to more efficient, transparent, and successful contract outcomes.
Contract management involves a broad range of activities, including drafting, negotiating, and managing contract renewals and terminations. A contract manager oversees the entire process, ensuring that contracts move smoothly through each stage of the lifecycle and mitigating potential risks.
Examples of contract management tasks include:
- Developing a contract strategy that aligns with the overall business objectives.
- Identifying potential contract risks and establishing mitigation plans.
- Drafting, reviewing, and negotiating contracts with customers or vendors.
- Establishing contract renewal and termination processes.
- Ensuring compliance with legal and regulatory requirements.
- Managing contract performance and monitoring KPIs and SLAs.
- Conducting periodic reviews of contract performance and making necessary adjustments.
- Maintaining a contract repository and ensuring that all contracts are up-to-date.
In contrast, a contract administrator is primarily focused on the preparation and organisation of a contract before it is signed. This involves understanding the needs and requirements of each stakeholder, setting the scope of the project, and determining the optimal duration of the contract, among other tasks.
Examples of contract management tasks include:
- Gathering stakeholder requirements and identifying key contract terms and conditions.
- Developing contract templates and standard clauses to be used across contracts.
- Ensuring that contracts are executed in a timely manner and that all parties are aware of their obligations.
- Tracking contract milestones, timelines, and deadlines.
- Monitoring the performance of contracts and ensuring that all obligations are met.
- Managing contract amendments, extensions, and modifications.
- Maintaining accurate and up-to-date contract documentation.
- Facilitating communication between stakeholders regarding the contract.
- Handling any issues or disputes that arise during the contract lifecycle.
It's worth noting that in smaller organisations, it is common for one person to undertake both contract management and contract administration tasks. However, as a business grows, it can be challenging to balance administrative tasks with other contract management responsibilities, particularly without the necessary tools and systems in place to automate mundane administrative tasks.
What are the Key Areas of Contract Administration?
Contract administration involves much more than simply creating and signing contracts, as effective administration requires a deep understanding of the contractual terms, conditions, and obligations.
By implementing best practices for contract administration, businesses can ensure that they are maximising the value of their contracts, minimising risk, and achieving their strategic goals. In this section, we will explore the key areas of contract administration based on industry best practices, and how our modernised contract management system can help businesses achieve their goals and outcomes.
- Contract Request/Drafting
The contract request/drafting area of contract administration focuses on ensuring that the beginning processes of a new contract are accurately communicated. This involves raising the contract request to meet the correct requirements, defining the desired outcomes, and establishing how the forthcoming agreement will strive to meet them.
Contract managers, management teams, project managers, key stakeholders, and internal departments must stay informed throughout the drafting process, which can be facilitated by an automated contract management system such as Lexagle.
Our software creates a single source of truth through a cloud-based workspace, keeps a historical record of all correspondence, and streamlines draft creation using single-click templates that require minimal edits or individual oversight.
The negotiation area of contract administration involves coordinating with internal teams, particularly legal teams, to ensure that contract language is clear and unambiguous and that all relevant clauses are reviewed and finalised. Contract administrators also correspond with key stakeholders to ensure that they agree on final positions and contract language.
To manage the multiple drafts involved in the redlining process, version control is critical, and automation has made this process more efficient. Contract lifecycle management (CLM) tools such as Lexagle can streamline the legal review process, allowing stakeholders to stay up-to-date on the contract's current stage, and making the transition from manual processes to next-gen techniques easier with MS Word and Outlook integrations.
Approval is a critical area of contract administration that involves coordinating with stakeholders to establish mutually agreeable contract terms. This process can be time-consuming and complex, with contracts taking weeks or even months to finalise. As delays are common, contract administrators must be prepared to course-correct and manage expectations when necessary.
Contract management software can help address these challenges by providing automated reminders and AI-assisted workflows that can streamline the negotiation process and ensure that all stakeholders are on the same page.
The signature area of contract administration involves supervising signatories during the signing process to ensure that all signing requirements are met. Contract administrators maintain and track the sequence of signatories, which is usually pre-defined, to facilitate a smooth transition. They are responsible for making sure that signatures follow the designated sequence, even if the sequence changes or there are multiple contracts to oversee with different processes.
Companies can leverage contract lifecycle management (CLM) technology to expedite this phase by predefining signing workflows and automating the signature process. CLM software can integrate with other e-signature tools to aid in onboarding.
The storage area of contract administration involves determining and monitoring contract storage and accessibility. Contracts contain critical information and must be stored safely in a centralised database for ease of access and tracking, and effective security processes must be implemented to prevent unauthorised use and breaches.
The use of manual contract file cabinets poses a major liability to contract management processes and company security. Whereas cloud-based contract repositories can ensure safe and efficient contract storage by providing authorised users with any time, anywhere access to contracts and AI-powered analytics to search for information. Other benefits of a repository include digitisation of entire contract portfolios, AI extraction of key information, and management of contractual relationships.
- Change Management
The change management area of contract administration involves maintaining an amendment trail of all changes made to the contract language during the drafting and negotiation phases. This includes changes to the scope of work, master service agreements, pricing, and terms and conditions, among others. The goal is to ensure that all stakeholders are aware of and adhere to the latest contract terms. The use of modern CLM software can help minimise user errors and maintain a record of past changes for future evaluation.
- Obligation Management
Obligation management is an essential aspect of contract administration that ensures that all contractual terms and service level agreements are met. Effective obligation management involves monitoring contract performance throughout the life of the contract, establishing KPIs to measure compliance, and resolving any contract disputes smoothly. However, traditional methods of contracting can make it difficult to achieve effective obligation management, as manual processes are prone to errors and may lack the necessary visibility and transparency.
By leveraging CLM software, contract administration gains access to critical performance insights, including configurable analytics and data visualisation tools. This enables them to accurately assess contract performance, enforce deliverables, and resolve issues quickly, leading to better post-award outcomes and more transparent partnerships with counterparties.
- Termination/Renewal Management
The termination or renewal management aspect of contract administration involves tracking important contract dates and milestones to ensure continuity and prevent any disruptions in business operations. Contract administrators use various tools and methods to keep all stakeholders informed of upcoming dates and to plan for satisfactory contract closeout. However, relying on basic scheduling tools or professional correspondence can be inefficient, particularly when managing hundreds or thousands of contracts.
Lexagle offers a multifaceted solution to streamline the termination or renewal management process. Contract professionals can use configurable alerts and automatic notifications to keep all stakeholders informed without the need for individual outreach. Additionally, auto-reporting and calendar views provide additional clerical support to monitor upcoming renewals, expirations, and other relevant milestones. By using these tools, businesses can ensure that contract negotiations during termination or renewal are conducted smoothly and efficiently, minimising the risk of disruptions to business operations.
Transform Your Contract Administration Processes In Our Digital Era with Lexagle
Effective contract administration is a vital aspect of any successful business operation. By implementing a streamlined and automated contract management process, businesses can reduce costs, increase efficiency, and minimise risk.
With Lexagle's advanced AI-powered CLM software, companies can take their contract management to the next level and experience the benefits of smart, secure, and compliant contracting. So why settle for outdated manual processes when you can revolutionise your business operations with Lexagle's intelligent solutions? Contact Lexagle today to discover the future of contract administration.