April 20, 2023 | Procurement Strategy
Contracts are the backbone of all new business relationships as they define the agreed-upon terms and conditions across a project’s timeline. These legal documents are vital for outlining important terms, rights and responsibilities of all parties and mitigating liabilities. Failure to review contracts thoroughly can lead to risks and disputes for all stakeholders involved. This makes having effective contract management and review processes in place crucial. This blog outlines the six best strategies for effective contract management:
It is important to conduct a comprehensive background check – where businesses review beyond the other party’s financial statements and reputation. Consider conducting a legal search to uncover any potential disputes or litigation that might be involved. Additionally, you may want to check for any potential conflicts of interest that could arise during the contract’s performance. By conducting a thorough background check, you can better assess the other party’s suitability as a business partner and easily navigate the future without bottlenecks.
Establishing communication channels and designated points of contact helps implement a clear escalation process for handling any issues or disputes that arise. Ensure that everyone involved in the contract understands this process and knows whom to contact in case of an emergency. Additionally, consider implementing regular check-ins to ensure that communication remains open and issues can be addressed proactively.
Another effective strategy is investing in contract management software to streamline and automate processes such as contract renewal notifications and payment tracking. It simplifies the entire contract authoring and creation process. By incorporating a library of best-practice contract templates, allowing you to copy existing contracts, providing clause libraries and automatic inclusion of the contract variables, and letting you edit and store any changes you want, the leading contract management software offers maximum flexibility to create the contracts you need to drive value.
The next contract management strategy is collaborating on a review process. Establish clear criteria for assessing the contract’s performance while collaborating on the contract review process. Involving legal and financial bodies to see that the contract is compliant with laws and regulatory requirements and whether it is financially viable for all stakeholders involved. Moreover, bring standardized contract review processes to ensure consistency and mitigate the risk of errors or disputes. Across the contract review process, here are some points, legal professionals and contracted parties should consider:
Stakeholder visibility is vital to ensuring effective collaboration and communication across the contract management process. When all stakeholders are well-informed and on the same page – any conflicts and disputes that arise can be addressed promptly.
To ensure stakeholder visibility, consider implementing a reporting framework. A reporting framework can provide regular updates on contract performance, including financial reports, status updates and risk assessments. By implementing a reporting framework, stakeholders can stay updated on the current state of the contract and be able to identify any possible issues or risks, thereby ensuring their continuous involvement and engagement in the contract review process. Finally, conduct regular stakeholder meetings to further ensure better communication and collaboration amongst stakeholders.
Effective contract risk management strategies include assessing and prioritizing risks based on their likelihood to occur and their potential impact. Develop a risk management strategy that outlines how each risk will be tackled, including contingency plans for worst-case scenarios. Also, consider implementing a risk register to track and monitor risks across the contract’s performance.
Contracts are an essential part of business and building strong relationships and mitigating risks. Effective contract management can be done through investing in technology, increasing collaboration and communication and ensuring stakeholder visibility.