The Many Facets of Contracting Part 1: Contract Basics

This is the first entry in a series dedicated to the many facets of contracting, as well as how each particular facet and all its relevant components relate to contract management.

In simplest terms, contracts are the written form of a legally binding agreement. Of course, people who deal with contracts as part of their professional responsibilities know that they entail so much more than this. Contracts impose enforceable obligations, create risk, and can even drive a company’s growth. And, in many cases, they are far more than that.

Broadly speaking, contracts are dynamic business tools that constantly evolve and require diligent oversight. Here are the nuts and bolts of contracts along with their relationship to the contract management process:

Offer and Acceptance

When two parties enter into an agreement, one will offer to furnish a good or provide a service under certain, specified terms. To solidify this agreement, the other party obviously has to accept that offer exactly as it was proposed (if changing any of the terms, then it is not acceptance but rather a counteroffer). And so, it is with this simple exchange that a contract is formed.

But, the offer and acceptance are more than a simple exchange. The offer and acceptance are essentially the crux of the deal that is made, and it is this that must be monitored during the management phase of the contract lifecycle. Contract managers must ensure that the other party lives up to the terms initially offered, and they can do this by consistently monitoring performance. This is best achieved by utilizing dynamic contract lifecycle management software that tracks important dates and generates alerts.

For many contracts, the goal should be to focus on an overall fulfillment of the initial offer, rather than a bunch of individual steps taken to get to that end. However, it is helpful to create a timeline with a specific end date in mind, as well as deadlines for the completion of discrete action items. This ensures ongoing compliance and accountability.

Consideration

In contracting, consideration relates to the exchange of something of value. In many cases, this involves the exchange of money in return for the delivery of a good or service. However, there are also plenty of contracts that involve the exchange of promises, with one party agreeing to perform some action and the other party agreeing to perform some other action in return.

While the offer and acceptance explain each party’s intentions, it is the consideration that adds value and legality to the arrangement. Thus, this also requires diligent scrutiny throughout the management process, as the parties want to ensure that they are getting what they had bargained for originally.

In most cases, money will be exchanged at some point during the contractual relationship. Thus, if there is a payment schedule in place, it should correspond to appropriately timed deliverables. Useful CLM software can help with supervising these timetables, and provides an effective means of staying organized so that the contractual relationship is well-managed and all parties receive the value they anticipated.

Terms

The terms of a contract get into all of the nitty-gritty of the agreement. This involves the writing out of standard and customized clauses to delineate precisely what the parties intend to accomplish, and quite often, exactly how they intend to do it. These negotiated and drafted terms impose obligations and create legal enforceability.

With the right contract management tool, contracts can be organized into folders and subfolders depending on the seriousness of the terms imposed, and contracts can be tagged and highlighted as needed. In addition, contracts saved in an online repository are easy to access and search, so that in the event of any uncertainty, leaders can quickly locate the pertinent terms to ensure compliance or plan accordingly.