When the project process begins, few things are as important as the details involved in the relevant contracts. In the construction industry, many contracts combine to provide parameters and specifics that set the tone for the entire process. Once parties execute the contracts, timeliness and tracking of requirements, requests and promises are an important priority.
If no one has entered information into a managed, standard system, the paper or digital contracts can get lost in the shuffle, or lose priority status as they move from team member to team member – a recipe for poor performance, unanswered questions and bad reputations.
Contract management is an intricate oversight process that follows contracts from pre-award to completion, including execution, vendor selection, issue detection and control, tracking and processing. With sound implementation, contract management processes ensure that budgets and abilities are in alignment with project objectives.
The best contract management flows through the organization, integrates with project management and control, always involves the team members for input and outcomes and monitors contractors for performance and deadlines.
While contract management can be beneficial in any industry, it is essential for industrial and construction projects. In fact, contracts in these industries ensure that teams meet operations and financial goals and reduce risk. A contract management program specifically implemented for these types of projects can handle supervision, quality control and the ability to manage numerous professionals at a time.
The stages of contract management
Contract management is not solely about creating agreements and getting them approved. It includes a series of stages that follow the process through to a successful conclusion. Any missed steps can cause delays and mistakes down the line. Here's an outline of five fundamental areas of importance:
Create: The contract management system must have the ability to incorporate standardized procedures with details specific to the goals of the organization. First steps include identifying the type of contract and who will be responsible for each task. The planning process should consider company resources, objectives and team member strengths and weaknesses and develop an overview of potential challenges and risks.
Negotiate: Teams should write the contract in a manner that reflects the organizational needs and values, which helps establish trust between the two parties. Once the team designs the initial contract, negotiation is the obvious next step. Parties can discuss, change or remove line items as part of the negotiation process.
Approve: Approval usually includes multiple sign-offs. Numerous managers, departments and even contractors may have to sign off on the specifics before the final deal closes.
Finalize: The contract signing process between enterprises is the final step before the project gets underway. Teams must obtain signatures from numerous parties and entities quickly – even when distance is a factor – to avoid postponements to the process.
Manage: Once the project begins, changes can still occur. Teams need to manage revisions with care and communicate them to the appropriate parties. Project leads need to track, complete and share deadlines, audits, revenue and expenditures with the rest of the team.
A standardized program that is customizable to an organization's specific needs helps a contract run smoothly. When teams manage these five areas with care, the odds of a successful relationship and a closed deal go up.
Why is contract management important?
A contract provides parameters for key aspects of a project including business strategy and relationships. In today's global marketplace, team members can work all over the world, which adds challenges concerning time zones, cultural needs and understanding.
Contracts include payment terms, negotiations, workflow, service expectations and compliance obligations. Contract management helps reduce risk by ensuring compliance when necessary, as well as providing monitoring and tracking to prove it. It also augments the bottom line by comparing prices and reducing spending. Real-time visibility of all aspects of a contract over time enables management to make data-driven decisions and necessary course corrections before it's too late.
When a contract starts, it should reflect goals, timelines, budgets, resources, risks, regulations and specifications. Each phase of the process requires specific elements, purpose and management in order to proceed to the next step.
Organizations must choose technicians, engineers and other skilled professionals with care to complete the contract and execute the project. Technology provides an active thread that connects all aspects of the project, helps fill in the holes during revisions and ensures communication with the right team members at the right time.
Many construction companies must rethink how business processes like productivity, performance, labor and inventory affect growth and profitability. Communication, tracking, managing revisions and a variety of other tasks can add to an already complicated process. Good contract management and operational efficiency go hand-in-hand.
Contract management challenges
The array of moving parts in a contract can present a variety of tracking and management challenges. In the engineering and construction industry, projects are often large and complex, involving joint ventures, numerous subcontractors and complications related to global execution.
The processes of contract management can present serious challenges, especially when teams handle them manually. Specific challenges include:
Execution: Without proper management, teams lose files easily, and final approvals and signatures take much longer than necessary.
Tracking: It can be difficult to track and audit contracts once parties sign them and pass them on to other staff who may not understand the details they must monitor. Budget information, emails, information from important meetings and changes get stuck in transit before anyone addresses them. Time is money, and project delays decrease profitability.
Revisions: Change management matters equally before a contract's approval and after its execution. Larger projects frequently include national or global teams and create obstacles to deadlines and cohesiveness. Updates to original documentation can take days, or even weeks. What's more, if teams are working from different versions, they could implement the wrong decisions. Any of those scenarios could lead to increased risk, missed deadlines, mistakes and even litigation.
Compliance: Details laid out in the contract are nonnegotiable obligations. From a legal standpoint there may be regulatory or compliance issues that teams must follow to the letter. Failure to comply can have serious legal and/or financial consequences.
Benefits of contract management
Contract management improves communication, response time, goal alignment, transparency and accountability. Good contract management can track and improve these and other project performance metrics:
Efficiency: Contract management streamlines adherence to the contract and can lower business costs. Teams can find and account for all necessary documents in one place, which offers increased transparency for team members from different departments, as well as contractors working offsite. The addition of automation makes documents and changes more accessible, which can, in turn, reduce response time to changes, additions or challenges. Positive experiences relating to contractual agreements may lock in better raw material pricing and availability as well as service costs down the line.
Risk reduction: Teams identify important business objectives and goals when they write a contract. A good contract management process sets expectations around those priorities and ensures parties meet commitments in the contract. The benefit works all around, as it holds organizations to performance clauses and provides vendor compliance. Regulations are in a continual state of change, and you need constant oversight to stay on top of them and ensure your projects stay in compliance. Organizations must track assets, obligations and provisions to mitigate the risk of financial loss. A contract management tool's tracking element constantly gauges performance and compliance in realtime.
Relationship building: A positive contract experience creates lasting business partners with vendors and subcontractors. Particularly in the construction industry, the ability to find good help is paramount for future projects.
Tracking and documentation: Contract management tools organize and centralize documents and processes, which makes business insight and analytics more accessible. Standardized reporting and record-keeping result in accuracy and visibility, which, in turn, creates actionable insights. When teams manage contracts with transparency, projects are less likely to get stuck because of an unknown challenge or compliance issues.
Benefits of contract management software
From contract development to project completion, full project lifecycle oversight is a clear choice to maximize performance and revenue. Contract management software takes the process a step further and provides automation, a single source of truth and a real-time view of day-to-day activity.
Once a contract gets approval, numerous parties need to accept and sign it. Signatures get complicated when a contract needs more than one, potentially from all around the country, or even the world. Contract management software provides an electronic signature tool that solves this tedious problem and expedites execution.
Following contract execution, efficient management of the contract can enhance the results of the project. Software solutions can build the terms of the contract into business rules that assure compliance – whether adhering to required timing, payment terms, change management processes or even providing visibility to performance en route to achieving predetermined incentives.
In order to capture the full benefits, contract management software would include:
Procurement planning: Tools to evaluate and manage potential clients and vendors should be intuitive. Software must offer parameters to choose opportunities that are in line with your company's values and services.
Vendor and bid management: Individual contracts inside the umbrella contract are equally important. Software offers the ability to choose and review vendors and contractors based on predetermined qualities and previous work experience.
Budget and cost control: A contract management program must keep projects within a predetermined budget. Software adds evaluation of value, progress, completion and forecasts for the future.
Change management: If things change over time within the contract, project leads should note, approve and share revisions with the team quickly. The software can also calculate effects on cost and scheduling.
Field progress management: Contract management software goes beyond the contract to track what's happening in the field, communicate change and progress and report issues instantly. This real-time access helps the team determine alternative actions and make decisions proactively.
Administration: Communication and collaboration are key elements of a successful contract and project. Clients, customers and contractors can stay on the same page regarding all documentation and change around meetings, action items, responsibilities, progress and status.
Compliance: A contract management software solution notes important information and tracks it along the lifecycle of the project and creates alerts to the appropriate people when it suspects a breach. A real-time overview allows you to be proactive before a problem presents itself.
Documentation and audit trails: Contract management software allows all team members to be on the same page as changes happen. Budgets, timelines, goals, audits and other documentation stay updated and accessible in realtime. Access to all aspects of project changes as they happen in a single-sourceview means timely reactions, positive outcomes, reduced risk and fewer complications that could result in missed deadlines, mistakes and even litigation.
Data solutions clear the way for improvements to overall contract and project organization with automated procedures and notifications. A solution that can head off problems provides a competitive advantage and improves overall project performance.
A contract management solution should integrate with other project management systems, like project portfolio management and project controls. Software that manages the entire lifecycle of your project can provide resources for all team members, no matter their specific roles. The benefit of that unified view is invaluable to the team, the process and the bottom line.
Contract management and full project lifecycle integration
Well-planned contract management is just one piece of a well-planned oversight method. Real-time project data is continuously updating in a lifecycle system, and teams should use it for more than budgets and schedules. It should broaden perspective and help you manage change proactively, make better decisions and enable strategic alignment.
Enterprise project performance (EPP) is a single platform that unifies portfolios, project controls and contract management. The native integration of these processes into one easy-to-use system enhances strategic project selection and drives each process to its successful completion. It provides measurable, actionable parameters that enhance predictability, efficiency and control of your projects.
Leading EPP solution, Octave Sequence Enterprise (formerly EcoSys) brings critical project processes together, giving owners and contractors one source of truth for contracts, budgets, changes and performance, along with the visibility to act before small issues become costly ones.
Contact us to learn how Sequence Enterprise can help your organization manage contracts and deliver consistent project success.