For many companies, contract management is an often overlooked business operation, with few resources or personnel devoted to this important facet of running a business. Unfortunately, this frequently leads to the management team having to scramble about to put out fires in an effort to avoid a major meltdown and keep things rolling. However, even if a company does recognize the value of creating a robust contract management team and invests adequate resources into state-of-the-art technology and systems, even the most well-oiled machines are bound to encounter issues at some point.
In contract management, in particular, there are certain times when one seemingly trivial action can end up derailing the entire process. Here are the most common make or break moments in contract management and some tips on how to avoid succumbing to them:
As many companies know, and as we have mentioned in the past, there are usually different teams involved in different phases of the contract lifecycle. Obviously, the contract management team tends to be at the end of what is normally a linear sequence of events. In general, it is only after all terms have been negotiated and the ink has dried on the final agreement that the contract management team takes over. It is this very transition that will set the stage for how management of that particular contract will play out.
Most contract managers can likely attest that this does not always go well. All of the pertinent documents may not be turned over or there may not be any verbal discussion relating to unique aspects of the deal. For the most part, the contract management team may be left to piece everything together without the benefit of all the information. Clearly, this is a recipe for failure. No one can manage something if they do not even know it exists.
In light of the many communication methods that we have at our disposal, there is really no excuse for this sort of lapse. Companies simply have to make transition meetings a clearly delineated aspect of each contracting cycle. Even if teams are scattered about, a brief transition memo or video conference ought to suffice. By making the transition phase a priority step, companies likely will not need a bunch of meetings later on to clean up what were probably avoidable messes.
This is obviously another important topic in the realm of contract management and one that often creates headaches and costs companies a lot of money. A change to a contract may seem like a minor thing, such as pushing back a delivery deadline, but one change can have a ripple effect across the entire management process. For example, if production components will be delayed, this will impact the entire manufacturing process, which in turn affects the distribution schedule. These may seem like minor adjustments to the timeline, but they could cause major problems for vendors and clients.
In general, contract changes like this are more likely to throw a wrench into the process when there is not a strong contract management system in place. For one thing, it is extremely difficult to recall the initial terms to a contract, and thus when there are changes, it is all too common for things to be missed. With a strong contract management system that utilizes dynamic software, some of the inane aspects can be automated, thereby reducing the likelihood that any changes will cause serious issues.
Different Vendors or Subcontracting
Although contracts are meant to be fixed instruments, in fast-paced sectors, they are generally both static and dynamic, as changing circumstances and economics may necessitate adjustments. In some cases, these adjustments are intentional, such as changing vendors for cost savings, geographic proximity, or efficiency purposes. However, there are also situations in which a change may occur regardless of whether a company wants it.
This is particularly common in light of the increasing use of subcontractors. Even if a company contracts with one vendor for the delivery of a good or service, that company may outsource some of the work to a subcontractor or multiple subcontractors. As a result, if one of the subcontractors has some sort of issue, this will cause problems through the whole chain. In addition, there may be instances in which a subcontractor is not fully aware of the contract’s requirements and thus may not deliver a product with the correct specifications.
To avoid possible deficiencies or inconsistencies, it is important to discuss the use of subcontractors throughout the contract lifecycle. Obviously, this information may not be available during negotiations, as the vendor may not realize the need for a subcontractor until after the deal is finalized. Thus, the contract management team must continue to communicate with vendors regarding the contracted for goods and services and determine who will be involved in which aspects to ensure proper performance.
The very nature of any management process involves managing issues, expectations, and relationships. Ultimately, communication and proactive problem solving are key to ensuring that make or break moments do not derail a contract’s progress.