In business, it is essential for roles to be clearly defined. In addition to enabling better recruitment for each position, this type of clarity ensures that resources are used effectively, and that there is no duplication of effort. To that end, the difference between Contract Management and Contract Administration must be fully understood to achieve high levels of efficiency in the handling of business contracts.
Contracts are the lifeblood of any organization and begin to accumulate as soon as the business is created. These documents govern the flow of money and resources within the company, as well as between the company and Third Parties. They outline the nature and scope of internal and external relationships. The contract collection inevitably grows rapidly in businesses that are succeeding, and Contract Management strategies therefore have to be prioritized in terms of long-term business management. This means making sure that everyone involved in handling the contracts are clear on responsibilities and, most crucially, setting out the fact that Contract Administration and Contract Management are not interchangeable terms. They are, instead, complementary phases of the contract life cycle.
Understanding the contract life cycle
To understand the difference between Contract Administration and Contract Management, we first need to understand the contract life cycle. The active timespan of any contract is set out in its date range, with timescales, deadlines and milestones included in the agreed terms and conditions. This means that it is best practice to adopt a Contract Management approach that deals with the agreement as a cycle, rather than a static set of clauses. Handling contracts in this way enables the business to assign tasks and responsibilities in a way that is more clearly defined.
The contract life cycle typically has at least six stages:
- Request – This is the ‘kick-off’ to the contracting process and is the stage at which information is gathered about requirements and stakeholders.
- Drafting – The initial version of the agreement is authored using approved terms and conditions, along with the data and information compiled during the first stage.
- Negotiation – With a first draft of the contract complete, details are negotiated to ensure the agreement is an accurate record of requirements, obligations, terms and conditions, serving the purpose and objectives of both parties.
- Approval – Contract approval processes differ for each business and often involve several rounds of contract review. Final approval is then provided as signature and contract execution.
- Compliance – Once contract execution is achieved, actual performance monitoring begins using the framework of compliance. A continuous programme of analysis and review monitors the extent to which contract obligations, requirements and timescales are being met, and the extent to which external regulatory guidelines are being followed.
- Renewal – When the contract life cycle approaches its end, the question of renewal is asked and answered. If renewal is sought, there is the chance for renegotiation of terms and amendment of conditions to meet adjusted needs.
The contract life cycle can be divided into Contract Administration stages and tasks, and Contract Management stages and tasks.
In the handling of contracts, ‘administration’ means ‘the application of the agreement.’ In the context of the contract life cycle, this refers to the collection of tasks required in phases one to four – request, drafting, negotiation and approval. Specifically, Contract Administration is concerned with the creation and content of the contract, which means that early Risk Management falls under the purview of Contract Administrators.
The initial comprehensive background checks on potential Third Parties are essential to the long-term success of the contract and the ongoing protection of business interests, so these are a significant part of Contract Administration. In addition, Risk Management needs inform contract content generation, including the agreement of payment levels and timeframes, delivery schedules, performance expectations and the specification of circumstances that would constitute a breach of contract.
Finally, Contract Administration involves the extraction of contract metadata at the point of execution, ensuring that the contract becomes part of the pool of actionable data represented by the business contract collection. The extraction of metadata is essential, because it enables everyone handling the contract at any point in the future to understand the relationship between the agreement and the wider business, as well as the relationship between the contract and other agreements within the same business area or department.
Everything that comes after the point of contract execution sits under the umbrella of Contract Management. In the context of the contract life cycle, this is stages five and six – compliance and renewal. These stages encompass a number of specific tasks, however, including:
- Workflow – Ensuring that there are no delays or bottlenecks in the systems and processes involved in meeting timelines, milestones and deadlines associated with the contract.
- Performance monitoring – Ensuring that all obligations and requirements within the contract are being met for both parties, and that the quality of deliverables meets or exceeds specified expectations.
- Identification of further opportunities – Additional business opportunities can arise during the course of the contract life cycle, and they need to be identified and explored.
- Renegotiation and renewal – The end of a contract life cycle is an opportunity to review, reassess and re-define the scope of the agreement, where necessary. Though original negotiation during contract creation is completed by Contract Administrators, renegotiation and renewal of an ongoing contract is a part of the Contract Management process.
Taking these tasks into consideration, Risk Management also forms a notable part of Contract Management tasks. With Contract Administration having laid the foundation of stringent approaches to contract risk, that baton is passed to Contract Management with the expectation that those Risk Management approaches will be maintained through processes of analysis and review. Including Risk Management in Contract Management in this way ensures a responsive, proactive approach to change and fluctuation in circumstance and risk.
Areas of communication
Once the differences between Contract Administration and Contract Management are laid out, it becomes clear that the two roles are very closely related – not only because they cover consecutive sections of the contract life cycle, but also because there are significant areas of communication. These are not overlaps that result in duplication of effort, but rather points at which the baton is passed in the Contract Management relay race. The most crucial of these areas of communication are:
- Negotiation – To ensure the high performance of any contract, it is vital for Contract Administrators to communicate effectively with Contract Managers all issues covered in pre-execution negotiations. This provides essential insight that can be applied to inform all necessary post-execution amendments, renegotiations and renewals. The circumstances relating to the agreement can shift at any time during the contract life cycle, so it is of the utmost importance that the outline and detail of all initial negotiations is made available for future reference.
- Language – Contract Administrators are responsible for the creation and initial content of the contract, so it is also their responsibility to ensure Contract Managers are clear about the intent of the language used. This is partly achieved through standardization, ensuring that contracts are drafted using pre-approved clauses, terms and conditions. However, all initial negotiations will result in the inclusion of some adjustments to the template, according to the needs and objectives of both parties in relation to the proposal or contract request. This means Contract Administrators are required to ensure clarity of purpose throughout the document.
The areas of close communication between Contract Administration and Contract Management ultimately boost revenue by enhancing the efficiencies throughout the Contract System. It also increases success by improving Risk Management processes, though, and this can be just as impactful for the bottom line. Improved Risk Management reduces expenditure on delays and penalties, and reduces loss incurred by risk actualization. Moreover, by increasing the speed at which remedial contract work can be completed, these areas of communication can effectively shorten contract life cycles, thereby potentially increasing profitability even further.
The best digital solution
Symfact has created the best digital solution for Contract Administration and Contract Management, with its Contract Management Software platform. Using cloud technology, the Symfact package delivers an end-to-end product that encompasses the entire contract life cycle. That means Contract Administration and Contract Management happens within the same browser-based system, and the close communication between those roles is nurtured for the benefit of the business.
Permission-based access ensures that authorized personnel can access the system from any web-enabled device in any internet-connected location, speeding up the Administration phases of the contract life cycle and enabling a smooth and straightforward handover to the Management role. In addition, by incorporating both roles within a single platform, the communication can continue easily throughout the contract duration – using the centralized design to ensure that nothing is missed, everything happens on time, and is completed to specification.
Contact Symfact today to arrange a demonstration, and find out more about how Contract Management Software can support your Contract Administrators and Contract Managers in their closely associated roles.