In Tanzania, contracts are governed by the Law of Contract Act, it is important at all time that the contract complies with the law. However a contracts’ compliance requirement does not stop at the commencement of its life cycle, rather up until the end of the contracts life, by fulfilling and honoring all obligations and rights in the agreement.
What is Contract Management?
Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and improve company performance.
What is the essence of Contract Management?
When two companies wish to do business with each other, a contract specifies the activities agreed by both organizations and the terms through which they will fulfill their obligations of the agreement. Contracts affect business profitability in a very large way due to the emphasis on revenue and expenses. When a contract is phrased poorly, one organization might lose lots of money over a simple technicality they lacked the resources to identify.
- To ensure that delivery continue to be satisfactory to both parties, and the expected business benefits and value for money are being realized
- To ensure the organization understands its obligations under the contract
- To ensure there are no disputes and surprises arising from the contract
- To ensure that a professional and objective debate over changes and issues arising from the contract can be had
The fundamentals of contract management
Effective contract management can ultimately create a powerful business relationship and pave the road to greater profitability over the long term, but only when managed correctly. It’s a good idea to include a legal department or a lawyer in contract management discussions. The precise wording of contracts is crucial to contract management.
Generally, contract management involves a few key stages. There’s the early stages or pre-award phase. This is all the work that takes place prior to a contract being given to someone, whether it be a business or an employee. The middle stage is when the process is awarded. This includes all the paperwork to make the agreement final. Third, there’s the post-award stage. This is where a lot of contract management and maintenance comes in.
Elements of successful contract management
When a contract management strategy is successfully implemented, organizations can expect to see:
- The expected business benefits and financial returns are being realized.
- The supplier is cooperative and responsive to the organization’s needs.
- The organization encounters no contract disputes or surprises.
- The delivery of services is satisfactory to both parties.
- Activities that comprise good contract management
Contract management requires a level of flexibility for both parties involved and a willingness to adapt contract terms to reflect any changing circumstances. Problems are inevitable, which means organizations must be prepared for the unexpected and be able to adjust contract terms when needed.
Stages of contract management
Contracts play a significant role in the end-of-quarter crunch, and are broken up into stages to organize efforts and structure the typical contract process. When done manually, creating a contract can prove quite time-consuming. The process includes several of the following steps:
- Initial requests. The process begins by identifying contracts and pertinent documents to support the contract’s purpose.
- Authoring contracts. Drafting the contract.
- Negotiating the contract. After drafting the contract, it should be negotiated within employees so as to avoid any discrepancies in order to reduce negotiation time.
- Approving the contract. The instance in which most bottlenecks occur is getting management approval.
- Execution of the contract. Executing the contract allows users to control and shorten the signature process through the use of electronic signature and fax support.
- Obligation management. This requires a great deal of project management to ensure deliverables are being met by key stakeholders and the value of the contract isn’t deteriorating throughout its early phases of growth.
- Revisions and amendments. Gathering all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.
- Auditing and reporting. Contract audits are important in determining both organizations’ compliance with the terms of the agreement and any possible problems that might arise.
- Renewal. After the contract is sealed and in performance, it is important that the contract manager starts looking for a window for renewal if the contractual relationship is beneficial since not doing so might lead to loss of business revenue.
There are many times during the contract management process when lifecycle management becomes important. Performance and risk management are important considerations during the management of contracts. For example, if a vendor fails to meet their contractual obligations, you may need to rework the contract or enforce some disciplinary measure. It is common practice in Tanzania for contracting parties to view the contract management process with complacency thus paving way to a number contractual disputes.
By Adv Azadi Athuman Kalike