Contract Management

Contract Management

Abstract

Lack of proper negotiation skills might lead to stagnant growth for the organization since there is no contract signed. In order to counter that, contract managers need to have the skills to deal with different parties for the good of the organization.  This paper aims to determine the role of negotiation in contract management. Based on relevant books, literature sources, and other documentary sources, the nature of negotiation skills and the roles of negotiators were investigated. The paper also looked at the importance of contract management and negotiation skills. The study shows that contract managers are required to be informed about the needs of the opposing sides to allow them to open, manage, and close the negotiation talks. Proper moral and financial support of contract managers by relevant organizations will lead to them being successful in such discussions as they get to understand the needs of the opposing sides.

In modern business, contract management requires professionalism since the negotiator needs to be well informed about the excitement and challenges associated with entering a new agreement. A contract is an agreement between two parties for consideration in order to accomplish a certain task with terms and conditions clearly set by the relevant laws. It is the execution and monitoring of a contract for the purpose of maximizing operational, financial performance, and minimizing risks, which entails tracking of purchases against the contract to ensure that preferred suppliers are engaged, discounts and rebates collected, and they adhere to the rates. Contract management is very important since it forms part of the sourcing process that can be tremendous benefits to the organization or business if it is fully implemented..

The last stage in vendor selection entails developing a contract negotiation strategy. A successful contract negotiation means that the parties involved are satisfied with what was placed on the table. A sound contract will translate to a lengthy relationship between the organization and the vendor.  The main objective of the contract is to state the prerequisites terms and conditions of the engagement, and the goods or services to be provided are enshrined in the contract. The contract also provides the module of the services or goods supplied to the organization.  The contract will come up with the payment schedule and financing terms. A good contract will entail the starting date, termination, or completion dates, as well as the renewal dates of the contract.

Strategies for planning contract negotiations

Before settling on a vendor, the organization needs to come up with the list of priorities with their alternatives. During the contract negotiation process, it is hard to negotiate all the items at one time. Therefore, there is a need for priority. It is important to frequently review the priorities and ask the relevant questions in order to effectively understand what is required. The organization needs to come up with performance measurement standards during, and through this, you can effectively understand what to expect from the vendors, especially when they provide substandard services. During the negotiation, there is a need to come up with repercussions for both sides if they fail to honor the contract. The organization needs to understand the potential risk that might arise after entering the contract and how they need to counter it in the event that it does happen.

Importance of contract management

Standardized Procedures and Processes

It helps to reduce maverick buying and supply risk while the organization increases its spending power.

Spend visibility

A good contract will help an organization to get value for money since they are capable of maintaining contract terms and conditions. It makes it easy in the identification of contracts with suppliers in high-risk zones, which might be brought about by political unrest, natural disasters, and economic uncertainty, which crucial in the formulating of risk management strategies. A good contract manager will ensure that the organization or business is fully compliant with contract terms.

Foundation for Performance and Spend Analysis

It is easier to compare the purchase against the contracted buys when contract conditions and negotiated fees and prices are placed under one place.  It helps in the identification of policy violations quickly in order for the necessary steps to be initiated.

Rebate Management

Effective contract management will help ensure easy tracking of rebates and help to ensure that all savings negotiated during the sourcing cycle are captured.

Reduced Maverick Spending

With an effective contract in place, it is easier to determine the existence of a contract, contracted suppliers, and contracted prices.

Evergreen Contract Elimination

Organizations need to come up with a system that alerts the buyers for upcoming contract renewal failure to do so most contracts will go unnoticed while others get automatically renewed; therefore locking out people during that buying cycle. Having such a system in place, a buyer gets alerted months or weeks in advance, depending on the duration of the cycles.

Contract Management Process

A proper understanding of the contract management process and what it entails is important to the success of the organization. The contract management process might be a daunting task, but results emanating from the process might be good if the relevant issues are keenly considered during that process.  Contract management process entails the following processes

• The buying company needs to have a strong purchasing strategy, which mainly focuses on value for money and efficient procurement activities. All the stakeholders need to have a grip on these strategies and outcomes of those strategies.
• There is a need for Key Performance Indicator (KPI’s) with all the vendors within the organization. It will help in gauging the performance of the suppliers and acts as an encouragement to better their performance.
• There is a need for a detailed agreement with individual vendors, which states the expected performance and quality services that should be rendered on a regular basis, and it is a crucial requirement during the contract negotiation process.
• Regular monitoring of each vendor should be maintained. It can be made possible by the use of software wherever applicable.
• In the case of a breach in the contractual agreement, appropriate measures should be put in place. It might entail financial penalties, removal of the supplier from the lists vendors by the relevant departments.
• A dispute resolution mechanism needs to be initiated whenever there is a disagreement between the two parties, and relevant managerial departments need to come up with relative steps of combating the issue.

Negotiations play a pivotal role in contract management, and having such a skill helps the organization achieve the projected growth. Negotiation helps two opposing sides come to a consensus and common position on a certain matter of interest.  It is important for those negotiating business contracts to fully understand the other party involved in the process.  Effective negotiation skill is part and parcel of human relations since their success is highly dependent on the type of relationship between the stakeholders.

Contract managers play a pivotal role in an organization as they oversee and direct contracts during their lifespan. They serve as the bridge between the organization, customers, vendors, and employees as they are the facilitators for negotiation, monitoring, record keeping, and recommendations.

Role of the contract manager

In a well-establishedorganization, contract managers are tasked with the following roles:

Contract drafting, evaluation, negation, and execution

Their primary responsibility is creating and managing all contracts that the organization uses. In order to oversee that role, the contract managers need to have knowledge in various sectors, including legal compliance, relationship management, and negotiation.  They are to provide the organization with recommendations and negotiate with the vendor’s attorneys to come up with the final draft that is binding for the involved parties. Contract managers also double as the communication officer between the organization and the vendors, therefore, requiring to master the skill effectively.

Maintaining Contractual records

After signing the contract, they are to come up with the most effective way of keeping records of the signed documents. Proper record maintenance helps reduce risk by acting as an audit trail that is easily traced. It is important for the contract manager to have a good filing system.  A proper record on the entire process of procurement and contract administration is crucial whenever other departments need certain documents which have authorized information that has been made easier with the advancement in technology.  Digitization of documents increases their lifespan, unlike in the past where files were stored in cabinets. During the lifecycle of the contract, it is prudent to maintain all the relevant documents.

Developing and implementing policies and procedures

Procedures and policies ensure that the organization is understood by every employee. A well-established procedure helps in reducing expenses while increasing efficiency. There is a need to have policies in place to deal with customers, independent contractors, and employees to help in maintaining best practices and providing a strong baseline for accountability. The policies and procedures need to be in line with the contract itself.

In conclusion, contract managers need to comprehend the reason for the negotiation process is meant to ensure that relevant stakeholders have the relevant requirements in regards to product and services. Good contract manager needs to have knowledge in initiating and conducting contract negotiation process. Contract negotiations entail certain processes that the relevant person tasked with the responsibilities needs to understand. Conflict resolution is one of the skills that they need to possess since it will help the organizations reduce expenses on litigation processes brought about by contract disputes.