The three phases of contract management
No business can get by today without contracts of some description. Whether it's a contract for leasing office space, for supplying that all-important widget for your manufacturing process or even employment contracts for your workforce, contracts drive the modern business ' which means contract management is an essential part of business operations.
Left to run at its own pace, contract management can easily stall or bring challenges to the contracting parties. However, with careful management at each contract phase, an organization can strengthen and tap into the value of its contract portfolio, which, in turn, can help to shorten the sales cycle and reduce costs while ensuring all documentation and agreements remain compliant wherever a business is operating. After all, we shouldn't forget that legislation governing contracts can differ across both state and country lines, and attention must be paid to compliance across borders.
This essential process of contract management is generally considered to come in three phases:
- Pre-award, or the time where an offer of services is solicited, developed and agreed upon;
- Award, where the agreed-upon offer goes into negotiation and ratification; and
- Post-award, where the contract enters performance management leading up to its conclusion and close.
Each of these three phases of contract management covers a different step or process in the contract lifecycle, often involving manual and repetitive tasks, and so must be carefully managed by the legal and procurement teams to ensure the contract can perform at its best for the organizations involved. Let's take a closer look at the three phases of contract management and the processes to pay attention to at each one.
Pre-Award: Planning, Scoping and Developing Contracts
The first of three phases of contract management, the pre-award process differs depending on your business's role: Are you the buyer or the seller? According to the National Contract Management Association, there are two domains within the pre-award lifecycle phase:
- Develop solicitation: The buyer produces the acquisition plan and the solicitation.
- Develop offer: The seller produces the business development plan and the offer.
The buyer defines their requirements, conducts relevant market research, performs risk analysis and formulates a contract strategy before asking for solicitations, often through a tendering or RFP/RFI process.
Meanwhile, the seller, having seen the request from the buyer, must develop their response in a way that demonstrates they both understand the customer's requirements and can deliver value for the contract.
A pre-sales process generally starts with the seller seeking to develop customer relations and a market strategy while assessing the competition. After research is complete, they will make a call as to whether they will tender for the contract or not; if they decide to bid, they will need to develop a win strategy covering execution and risk mitigation plans, and then submit a final offer.
Award: Negotiating and Signing the Contract
At this point in the three phases of contract management, the buyer will usually have multiple offers to consider. The length of this phase will depend on both the number of responses and the complexity of the requirements and the contract; it could be fairly straightforward, in which case the move to negotiating and signing contracts will be relatively quick. However, for those businesses working in a more complex industry, such as defense or finance, or who are contracting across either state or national borders, this second of three phases of contract management can be more drawn-out and complex.
First of all, the buyer will evaluate the offers, looking at terms and risk impacts, and then perform a price and cost analysis to decide on front-runners for the contract. The buyer may request clarifications on the sellers' proposals, before beginning negotiations to drill further into the offer before asking for a final offer from all potential sellers.
Final offers in hand, the buyer will then review again to evaluate all offers against their criteria and select their preferred offer. To date, we've had a lot of documentation change hands, but this is where the legal team tends to step in for the important stuff: contract preparation, review and signing. They must manage legal conformity, resolving any conflicts between the contracting parties as well as any final issues.
Signing contracts is not necessarily a straightforward process, especially when dealing with large, international companies. Legal and compliance teams on both sides of the contract must know who the right signatories are for the deal size, and must manage getting those signatures in a timely and efficient manner. This is where entity management software can come in handy, highlighting the right stakeholder for the job and how to get ahold of them.
Post-Award: Performance Monitoring and Contract End
With the contracts exchanged and signed, the last of the three phases of contract management moves into performance-monitoring.
A signature does not signal the end of compliance's involvement in contract management; a contract must be continuously evaluated for risk and performance. The compliance team must ensure that contractual terms and conditions are being met, that both parties are aware of expectations and maintaining communications, and that the contract performance is of the expected quality.
It's important to note that a signed contract does not mean the end of negotiation; often, contracts will need to go through a change management process if, say, unforeseen circumstances mean additional work must be undertaken, or the shape of the final deliverable or deadline changes in some way. This is where contract management must be kept on the straight and narrow; changes must be strictly documented and version control is of paramount importance. Having a central repository for all contract documentation can help ensure the change management process is as painless as possible.
Of course, all contracts will have a review or end date built in, and that is the final process in the post-award phase of contract management. If there is a strict end date, then the business must verify that all requirements of the contract are satisfied and all unresolved matters are settled, and the contract is then reconciled to make the final payment.
If, however, the contract was drafted with a view to extend the business, it's important that the performance assessment and extension negotiations are started in good time; if not, the buyer may find themselves no longer able to make use of negotiated discounts, or may even find themselves non-compliant with local regulation. All contract milestones should be documented centrally, with notifications built in to flag upcoming events and review points.
Keep Track of Documentation Across All Three Phases of Contract Management
Throughout all three phases of contract management, the contracting, procurement and legal teams need quick and easy access to documentation. Without such access, and even with the benefit of automation software, General Counsels and Legal Specialists are at risk of making decisions that could adversely affect their organizations ' they may miss a crucial contract renewal or neglect to update documentation with the latest amendments and additions.
In addition to its world-class entity management tools, Diligent acts as a central repository for all entity-related assets so key stakeholders from across the business can easily find relevant documentation. The Data Library functionality acts as a flexible online filing cabinet to store documentation such as contracts and to help manage signing authority; multiple folders or tabs help users to categorize, sort and filter to extract specific data. Learn more about our software and schedule a demo to see how our customers keep track of contracts across all phases of the contract management lifecycle.
