How Contract Management is Used in Project Management

contract management

Contract management is often an overlooked form of management. In an attempt to save money, many companies fail to employ a contract manager and instead delegate all contractual duties to the project manager. This leads to overworked project managers who do not have legal experience and end up costing the company time and money.

In an ideal world, a contract manager would handle all contract write-ups, negotiations with clients, modification of any contracts, and the fulfillment of all contractual obligations. Project managers would be responsible for managing the team that will fulfill the contractual work, writing up reports, and driving results. Read on to learn about the best practices for contract management in your business.

Clear Division of Responsibilities

A way for a business to ensure they are not overworking their project managers is to make sure they are giving different managers clearly defined responsibilities.

Project managers should be responsible for leading their team and driving results related to contractual objectives but should have no duties involving signing, modifying, or canceling contracts. These tasks should fall to the contract manager, who will have legal knowledge and experience. Contract and project managers should work closely and have daily contact to ensure their goals are always aligned.

Why Contract Managers are Important

The days of vertical integration are long gone. Companies can no longer make or do everything themselves and, therefore, often need to depend on other companies for supplies, services, and materials.

Anytime a company contracts out a good or service, they take on the risk that whoever they are working with will fail to deliver. Therefore, someone who is handling these negotiations needs to have a legal background to take the correct legal action if a company fails to hold up its end of the deal. Most project managers do not have this legal background and, therefore, cannot adequately protect their company.

In mid to large size companies, a project manager does not have the bandwidth to manage their team and deal with outside vendors. They cannot keep track of every vendor much less communicate the company’s needs and expectations to each supplier. Having a single person who is responsible for negotiating and building these vendor relationships sets a company up for future success. A contract manager will always have the goal to maximize operational and financial performance while carrying the least amount of risk possible.

Stages of Contract Management

Contract managers should be involved in every step of the contract process from the birth of the agreement to the closure and fulfillment of all contractual obligations. They should be included in the early stages, writing and modifying a contract before it is signed and legally binding. They should be in charge of awarding the contract and should be the one to write up all the paperwork that makes the contract final. Finally, they should be in charge of managing the contract, keeping track of expiration dates, and ensuring the company is doing their part to uphold their side of the agreement. They also should be the one adapting terms to accommodate changing circumstances for either party.

AI in Contract Management

While project management typically requires leading team members, contract management does not usually have as much face to face interaction, and more and more companies are choosing to install an AI software to optimize their contract management systems.

While an AI contract management system is often cheaper and eliminates human error, a computer cannot build rapport with vendors and negotiate lower prices. Therefore, it depends on your company’s needs and budget, whether it makes more sense to hire a person or an operating system to do the work. The best leader will still fall short if they are taking on too many responsibilities.

A project manager should be in charge of managing a team and driving results. If they are also in charge of keeping track of and fulfilling all contractual obligations, while working with suppliers and clients alike, they will be unable to do any part of their job competently. An efficient company understands how vital all contractual obligations are to the success of their business. Successful companies take contract management, whether it is done by a person or a computer, seriously.