Contract Management is an essential business discipline which aims to optimize the management of contracts throughout their lifecycle. This is known as “contract lifecycle management”.
Contract Management encompasses a wide range of processes, from the pre-sales phase, through performance management and potential conflict resolution, to contract negotiation and monitoring.
In this article, we’ll explore the origins of this discipline, its crucial importance, and its benefits for businesses. Finally, we will clarify the distinct roles of a lawyer and a contract manager in efficient contract management.
I. The origins of contract management
The United States is often credited with popularizing the discipline, but contract management dates back to the earliest days of commerce! Commercial contracts were negotiated and drafted by merchants and traders. Over time, commercial contracts have become increasingly complex, and the need for more formal contract management has arisen.
At the beginning of the 20th century, modern contract management organizations and processes were created. These organizations have helped develop standards and practices for contract management. In the 1950s and 1960s, contract management began to be recognized as a professional function in its own right. It then developed significantly thanks to technological advances and the integration of good management practices in modern companies.
Today, contract management is an essential function for companies of all sizes. Initially reserved for large industrial groups in the construction, engineering and defense sectors, the discipline has become increasingly popular, and is now practiced by companies of all sizes and in all sectors.
II. The main functions of contract management
Over the years, contract management has become an essential response to the need to proactively manage contracts, assets and risks, thereby placing contract management at the heart of a company’s activities and profitability. Contract management has three main functions:
A. Contract management and administration
The first, fairly obvious function of a contract manager is to manage and monitor the company’s contractual activity. Contract management involves the complete management and administration of contracts, from their inception to their termination.
This includes drafting, negotiating, signing, monitoring performance, meeting deadlines and contractual obligations, as well as managing any amendments and renewals.
In recent decades, tools, processes and methods have been developed to optimize the contract manager’s performance in these administrative areas.
B. Optimizing contractual performance
Setting up contract management expertise (in-house or outsourced) enables companies to better negotiate, conclude and execute their contracts.
This rigorous management ensures that deadlines, deliverables and contractual obligations are met. By optimizing contractual performance, companies can strengthen their reputation with customers and partners, thereby fostering loyalty and stakeholder satisfaction, but also and above all preserve their margins in competitive and/or uncertain contexts.
C. Risk and litigation management
Last but not least, when you say contract, you say opportunities, but also risks! The third main function of the contract manager is to identify, assess and mitigate contract-related risks.
This means keeping a close eye on contractual clauses, deadlines and performance to avoid costly disputes, delays, non-compliance or any other situation that could harm the company’s interests.
Ultimately, contract management makes it possible to reduce the risks associated with contracts by acting proactively, identifying areas of risk upstream, rigorously monitoring the contractual performance inherent in these areas of risk and, finally, effectively managing potential problems as soon as they arise.
III. What are the advantages of contract management for businesses?
While the primary vocation of contract management is to manage, draft, negotiate and monitor contracts, the fact remains that, more or less directly, contract managers play an important role in protecting the financial and legal interests of companies.
A. Protecting margins and improving profitability
Effective contract management optimizes costs throughout the contract life cycle. This includes more advantageous negotiations, harmonization of contractual terms throughout the company’s operating cycle (so you don’t end up bearing customer risk alone), performance monitoring to ensure quality of deliverables and payments, and the ability to identify opportunities for savings and continuous improvement.
In short, contract management is a subject at the crossroads of contract law, finance and commerce. Perfectly positioned to contribute to corporate value creation.
B. Strengthening collaboration and improving compliance
Positioned at the crossroads of several functions, contract management fosters collaboration between the various teams involved in the contract life cycle (sales, engineering, purchasing, finance, controlling, projects, legal, management, etc.).
This interdepartmental collaboration helps to streamline relations between the company’s various bodies, enabling them to work together transparently, in compliance with the company’s internal procedures and compliance rules.
Effective communication (part of the essential qualities of a contract manager) and the contract manager’s interactions are not limited to internal teams, since contract management is called upon to work with a large number of external stakeholders, reinforcing collaboration and ensuring mutual understanding of internal rules and requirements. By ensuring that contracts comply with internal company policies, contract management helps maintain compliance with regulatory, legal and ethical standards.
C. Reducing contractual risks
Finally, contract management plays a crucial role in reducing corporate risks and improving compliance with internal rules.
Firstly, contract management enables potential problems to be identified and resolved quickly, reducing the risk of costly disputes and contractual breaches. Secondly, contractual performance management makes it possible to monitor each party’s compliance with its contractual obligations, thus minimizing the impact of contractual delays and non-fulfillment.
By adopting a structured and rigorous approach to Contract Management, companies can protect their interests, avoid legal and financial risks, and enhance their reputation with customers and business partners.
IV. How can contract management be positioned within the company?
One way to address the challenges of contract management is to use contract management software. This software can help businesses to manage contracts more efficiently and effectively by automating many of the key processes involved in contract management.
A. The difference between legal and contract management
A parallel (or sometimes an amalgam) is often drawn between legal functions and contract management. Although these two functions can be described as “support”, their roles are quite distinct:
The lawyer is primarily responsible for drafting and analyzing contract clauses in depth, as well as managing litigation. Its legal expertise is essential to ensure that agreements comply with current laws and regulations.
The contract manager is involved in contract management with a more operational, commercial and financial dimension. He is mainly involved in business contracts, while the legal expert is called upon to work on all types of contracts.
In a nutshell, the legal department focuses on the legal aspects and compliance of contracts, while the contract manager looks after the operational management and performance of contracts to ensure proper execution and profitability. Together, these two functions contribute to holistic and efficient contract management within the company.
B. Where does contract management fit in?
Since the aim of this article is not to raise protests, frustrations or ego wars, we at Prime Conseil are rather adept at positioning contract management in variable geometry, depending on the size, culture, sector of activity or structure of the company. The most important thing is to make contract management an integral part of the company, whatever its hierarchical structure.
However, among our customers and partners, contract management is mainly located within the operations department, sales department or legal department. A totally autonomous position attached to general management is much rarer.
Conclusion
Contract management is an essential process for any company or organization. By managing contracts effectively, companies can minimize risk, improve performance and build stronger relationships with partners and suppliers. It is therefore essential to set up a contract management function within the company, and quite easy to adopt the first best practices in this field.
However, the creation of a contract management function, the improvement of its management and efficiency, or variations in activity may require the intervention of expert contract management consultants. Our experts will be happy to answer any questions you may have.
