What is Contract Administration?

by Bryan Tharalson 5 min read

Contract AdministrationAccording to PwC, the average number of contracts per organization is between 20,000 and 40,000. Regardless of the size of your business or your industry sector, effective contract lifecycle management affects your company. Contracts outline expectations, as well as how negative situations can be resolved. In short, they safeguard a business' resources. Despite their importance, however, there is some confusion about the role of the contract administration team , especially in contrast to contract managers. What is contract administration? How does it differ from contract management, and how can we execute contract administration more effectively?

Contract Administration Vs. Contract Management

The key difference between contract administration and contract management is timing. The contract administration team does all the work prior to the signing of the contract, while contract managers take over once the contract is in effect. Contract administration involves the planning and development of contracts. Contract administration personnel  must have an understanding of all the major parts of the contract, including effective dates, disbursement dates and the terms to accept or dissolve the agreement. The contract administration team will work with both parties to create a way of measuring their performance to ensure they are holding up their end of the agreement. They will also outline procedures to monitor the performance of both parties. Creating a contract that is legally sound and mutually advantageous is critical to the financial success of both parties. The contract administration department plays a vital role in making that working relationship a success.

Once both parties agree on the terms of the contract, they sign and the contract management function takes over. Managers implement a process to ensure contractual obligations are met within the time constraints of the agreement. They will verify that both parties have what they need to fulfill their end of the agreement, including equipment, personnel and expertise. If modifications need to be made to existing contracts, managers will facilitate this as well.

Here are two of examples to illustrate these vital roles.

  • Company A is a medical device manufacturer looking for a partner to make the packaging for its product. They send out a request for proposal (RFP) to invite vendors to bid on the project. Managers will work with developers to ensure the packaging options meet the standards. For example, the device needs to be protected from extreme heat and cold. Once a vendor is selected, the contract administration team will work on the language of the contract to ensure the vendor and the company get what they need. Both parties will review the contract and submit revisions to the contract administrator. Once the agreement is signed, the contract manager will take over and ensure the medical device manufacturer and the vendor fulfill their end of the agreement. In addition to the standard contract for services, the contract administration team will also draw up a non-disclosure agreement because the medical device is proprietary. Specs cannot be shared. The contract manager will ensure both the service agreement and the non-disclosure agreement are adhered to.

  • Our second example is Company B, a product manufacturer who wants to enter an agreement with a retailer to sell its products. The contract administration team works out all the details for both parties, ensuring that the manufacturer's resources are protected and that the retailer reaps the benefits of carrying the manufacturer's product. Once the contract administration team gets the contract signed, the contract manager takes over. The manager's role would include verifying that the products reach the retailer and that the retailer has the tools it needs to sell the products. This might include ensuring the manufacturer has not only supplied stock, but also provided educational materials for sales staff and promotional materials for customers. Contract managers would also track sales, and figure out how revenues will be dispersed and how often.


Streamlining with a CLM System

Both contract administration and contract management require a deep understanding of how contracts work, how both parties can fulfill their obligations and a lot of detail management. Information gathering and sharing among team members is critical. It's not unusual for small business to have contract administration and management personnel that are one and the same, making effective communication, reporting and processing even more critical. How are companies managing their current processes? Can a contract be effectively managed or administered if vital information cannot be quickly accessed and shared? Is there room for improvement? Consider this. According to research firm Aberdeen, 85 percent of companies and contract administration teams still use a manual process to manage contracts. However, Aberdeen also found that contract approval time drops an average of 82 percent with the use of a CLM system.

A contract lifecycle management system can alleviate pain points, create a more efficient process and give all parties immediate, real-time access to contracts. Here's how a CLM can transform your contract process.

  • Streamline the pre-signing process. While effective throughout the contract lifecycle, CLM's really shine during the pre-signing phase handled by the contract administration team. Automated document assembly and online negotiation save thousands of hours. AI-enhanced workflow management simplifies complex processes. Rule-based routing drives compliance. Approval workflows are streamlined, and the contract administration team get agreements closed much faster. ContractRoom customers, for example, frequently close agreements 10 times faster than they did using their previous process.

  • A CLM provides a one-stop shop. Instead of using multiple systems to manage the same contract, a CLM allows you to manage all steps of the process in one single platform. The contract managers can pick up exactly where the contract administration department left off, with access to all documents, history and communication.

  • Collaboration is made easy. Team members can work faster and easier since all information is stored in one place. Changes are tracked. Both parties are notified if a change is made and all previous versions are automatically saved. An end-to-end digitized process eliminates offline "black holes." A CLM can also collaborate with other systems as needed. For example, you may need to access your company's pricing documents or discount matrix to finish the details of a contract. A CLM can help automate those functions too through collaboration.

  • No manual steps. Between the CRM and ERP phase of the contract lifecycle, businesses have a lot of manual work that can be eliminated through the use of a CLM. A CLM allows  the contract administration team to send both parties an auto-generated contract to sign based on the terms you have outlined. Approval and renewal notifications can automatically be sent to the appropriate people. Once signed, the contract is auto-updated and stored back in the same CLM. The CLM essentially walks you through the contract lifecycle, ensuring no steps are missed.

  • Measure success. Analytic tools within a CLM help  the contract administration department measure the success of your contracts. Through intelligent contract repository technology and deep content search, contract managers can easily keep tabs on how both parties are honoring the contract.

Contract administration and contract management serve complimentary functions. Each are critical to protecting an organization's resources. Streamlining both processes will save time and ensure contracts are effectively written and implemented. Learn more about how a CLM can benefit your contract administration team and organization.

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