What is the difference between Contract Management & Contract Administration?

Contract Administration

Contract management and contract administration are wrongly considered by many to mean the same thing and as such, they are terms that regularly get used incorrectly. Each phrase actually refers to distinct stages of the contract process. Contract administration describes the work done before a contract has been signed and contract management is the term used to describe managing the contract from the point of signing, to the end of a contract lifecycle.

What is covered by Contract Administration?

Before any contract is signed, there is a process of planning, proposals, assessments, and negotiation. This phase is called Contract Administration and can be overseen by professionals from different departments, including legal and procurement teams.

Although this may seem like a relatively easy stage of the contract lifecycle, there is a huge amount of work and expertise that goes into getting a contract signed, including several key elements that must be covered if a business is going to successfully enter a mutually beneficial agreement with any third party. So, what are the key elements of contract administration?

1. Risk assessments and profiles -Risk assessments and creating profiles are essential in the initial stages of assessing any third-party for a potential agreement. Identifying different risks relevant to a business and conducting due diligence on third-parties helps determine if or where in the chain a business may be exposed by any relationship with the third party and mitigates the risk they may pose. Having an analysis process or framework in place to compare the data against available information sources ensures businesses use fact-based decision making as the driving force behind any agreements made.

2. Contract Administration Plan - Sometimes also referred to as an Implementation plan, a contract administration plan needs to be a formally written document. This assures everyone involved in the process – employees, stakeholders, vendors of their roles and responsibilities and what is required. Although formality helps with structure, it is important not to overcomplicate the language, so the document is user friendly.

When you create a contract administration plan, it is important to break it down into stages, this makes it easier to understand every part of the contract or agreement and the responsibilities at key points in the process. It also ensures anyone involved in the agreement doesn’t have to spend ages scanning information they don’t need at the time, improving overall efficiency.

Details and specifics are vital for any contract administration plan, and it should always include clearly outlined definitions and obligations for both parties. This detailed understanding can manage the expectations and reduce any potential future non-compliance issues. The stages that need to be included and outlined are:

  • Roles & responsibilities - It is imperative that everyone involved in the contract process, on both sides, understands their roles and responsibilities. Steps should be taken to ensure all parties have detailed knowledge of what is required from them at all the key stages.
  • Contact information – who is the primary contact for both parties regarding the contract
  • Contract objectives – Define the objectives and expectations of all the parties involved.
  • Performance Management Framework, e.g., KPIs
  • Timelines – Having set timelines that have been agreed upon by all the parties is a key element. This must include milestones, deadlines and expected start and end dates.

If a business wants to ensure contract administration runs smoothly, then all the above are best practices, once all the steps have been taken and a contract has been negotiated and signed by both parties, the stage of contract administration ends and the management of the contract can begin.

What is covered by Contract Management?

Contract management starts once the contracts has been signed and the contract takes effect. This stage of the process ensures deliverables and obligations are met, as outlined in the contract or agreement, that the business and operations adhere to any regulatory compliance, any risk is mitigated and the contract is providing value during the lifecycle of the contract or agreement.

Like contract administration, there are key elements during the contract management stage of a contract lifecycle and if a contract or agreement is to be successful, both financially and operationally, then it is important to implement these elements and best practices into the management of a contract.

1. Contract management Plan

An effective Contract Management plan must oversee the entire contract lifecycle. Many businesses concentrate on the contract negotiation and beginning of the lifecycle, without having in place the framework for suitable monitoring or reviewing of performance once the contract has been awarded, there needs to be an end-to-end process, including offboarding at the termination of a contract if it is not being renewed. There are many stages that need to be included within that process and a contract management plan can be used to successfully manage all the practical requirements of a contract, such as what is required, when it is required and who is responsible. A contract management plan should include:

  • Contract Compliance
  • Auditing and Monitoring of KPIs
  • Review meeting schedule
  • Risks & issues
  • Exit strategy

2. Handover

If the employees/teams dealing with contract management are not the same department that procured and negotiated the contracts then there needs to be steps taken to ensure a thorough handover from the start of the contract lifecycle; the signing of the contracts and the people involved, to the person(s) or team responsible for the continued management of the contract. This includes access to all associated documents and information. This allows for future reference if needed. It is particularly important to communicate any set KPI’s and timelines, so the contract management team can immediately set up notifications for specific events and milestones. This process ensures everyone is kept up to speed with events and creates a smooth transition.

3.  Contract

During this stage of the contract lifecycle, there needs to be a continuous monitoring and reviews to ensure all the obligations and deliverables are being met on time and on budget. If a business only has a small number of basic contracts, this should be easily managed manually, however, if a business has a multitude of contracts, especially ones that are quite complex, contract management software is a useful tool to create an automated framework for this stage.

Implementing an automated system means a business can reduce the resources needed for contract management, and make the entire process more efficient.

Having an automated system also has huge benefits for risk management and mitigation. Auditing and compliance become less complex as every action made in a contract management system is fully tracked in the audit logs, along with a time stamp and the user’s information, fulfilling the obligations and responsibilities defined in your contract management plan.

If you use software from a company such as Symfact, who have a configurable access control interface, you have the advantage of improving communication and visibility with third-party whilst minimizing the risk in doing so. Any amendments can then be tracked back to date and source in event of legal matters regarding non-compliance with the contract management plan.

Custom reports mean you can analyze operational data and workflows, and automated reporting tracks essential information and milestones relating to your contracts. You can set up trigger-based alerts for these milestones, deadlines, and events, so nothing gets missed.

4. Contract Renewal Or Termination

When a contract is coming to end, businesses need to decide whether to renew or terminate the contract. If a business wishes to renew a contract, they may want to re-negotiate certain terms and this point in a contract must not be missed as there are often set deadlines and regulations. To avoid financial penalties, it is worth thinking about the correct course of action well before a contract is due to end.

5. Off-Boarding

If a business decides to end the contract, there needs to be a period of off-boarding and a defined exit strategy. Reviews of the contract and the contract management system employed during the lifecycle need to be undertaken to ensure a business can optimize their performance and get the most value out of contracts moving forward. The contract can then be archived.

Improving your contract administration and management and the steps outlined above with document creation, managing commitments, better resource planning and electronic signatures, really can make a difference to your organization, so if you feel this is the right step to help you successfully manage your contracts and resources, then contact us at Symfact and start your journey today towards efficient contract administration and management planning.