In the preparatory phase after contract signature, “contract awareness” refers to the process by which every stakeholder involved in performing the contract is made fully alert to its terms, conditions, obligations and associated risks.
This step is crucial, yet it is sometimes overlooked, or at least does not receive attention in proportion to its importance.
In this article we revisit the concept, what it brings, and a few tips for building it effectively into your contract management process.
What is “Contract Awareness”?
Contract awareness is an exercise in raising awareness of the key elements of the contract. It means a clear understanding of what is at stake in the contract and of the specific aspects of the collaboration that must be observed. This knowledge of the contract is not reserved for legal teams or contract managers alone, but extends to everyone involved in managing and performing the contract.
Its purpose is to allow every stakeholder to gauge the implications of the contract, the mutual expectations of the contracting parties, and the consequences of failing to comply with the conditions it sets. That includes a sound reading of specific clauses such as the parties' obligations, penalty clauses, payment terms, delivery arrangements, deadlines, termination conditions, and so on.
Performance that is completely disconnected from the contract can ultimately translate into significant additional costs for the business, inefficient delivery, and difficulty in reaching favourable outcomes in the event of claims.
What makes contract awareness a crucial step in contract management?
It is, if we can put it that way, a particularly important tool for securing, first, teams' awareness of and buy-in to the contractual obligations. It then acts as a kind of shield, minimising risk and the occurrence of disputes. Without a sound understanding of what is at stake, the parties expose themselves to departures from the contract that can disrupt the smooth running of the project (delays, financial losses, or serious tension with the other contracting party).
Conversely, a sound reading and understanding of the obligations undertaken in the contract, and of the risks, will strengthen the ability to maximise the value of a contract by exploiting every opportunity it offers. This approach will also support informed decision-making by everyone involved.
Neglecting this step in the contract management process is, in a sense, a missed opportunity to secure the durability of the project and the performance and risk limitation sought.
What are the best practices?
Putting “Contract Awareness” into practice can seem complex, especially in an environment where contracts are often seen as tedious and hard to understand. With a structured and collaborative approach, however, the process can be made more accessible and engaging for all stakeholders. In practice, that can look like this:
1. Make the contract plain
The first step is to make the contract plain. Legal and technical terms can seem heavy and indigestible. It is therefore essential to make the contract accessible and understandable to everyone. That can mean producing clear, concise summaries that highlight the key points and avoid complex legal jargon. The aim is for every team member to grasp the essentials of the contract without getting lost in the detail.
It is also important to stress the quality of the presentation, which must be clear and engaging. A well-structured presentation that makes an impact and gets to the point can considerably improve team engagement.
2. Identify the key aspects for each stakeholder
Not every element of the contract is relevant to every team member. You therefore need to know who you are addressing and identify the key aspects that specifically concern each stakeholder. For example, the technical team might pay closer attention to product specifications, while the supply team focuses on delivery terms, or the project manager takes more interest in scheduling and penalties. By targeting these key aspects, you can secure better attention and understanding from teams as to their obligations under the contract.
3. Overall knowledge and specific focus
Once the key aspects have been identified, it is important to make sure that everyone concerned has an overall knowledge of the contract and its general context. The contract manager can give a broad-brush presentation. They should then refine it with a particular focus on the sections of the contract that directly concern the responsibilities of each stakeholder. This allows everyone to understand how their work fits into the overall contractual framework, while knowing exactly what is expected of them.
4. Collaborative working
Encouraging collaborative working around the contract is essential. Teams must work together to discuss the implications of the various clauses and to make sure everyone is on the same wavelength. Running workshops or collaborative meetings allows stakeholders to ask questions, share concerns and clarify points that might be ambiguous. This collective work strengthens cohesion around the project and its optimisation during performance.
5. Training and building a contract culture
Finally, this is work that plays out over time for the contract manager. Training and raising awareness of the contract culture helps embed the contract at the heart of every project and develop the associated reflexes. Everyone then understands that contracts used operationally are not simply formalities or administrative documents, but elements that are essential to the success of the company's projects. Contract awareness will then more readily become part of best practice at the start of every new contract.
Conclusion
As you will have gathered, contract awareness is an essential part of the contract management process. By ensuring that every team member understands the contractual terms and the implications of the associated obligations, it becomes easier to contain the many pitfalls of complex projects and to maintain commercial relationships. Knowledge and awareness of contractual commitments turn into a real advantage.
Implementing a contract awareness process effectively does, however, require making the contract accessible to everyone and segmenting the relevant information in order to secure stakeholder engagement.