contract administration basics
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Contract Administration BasicsBy Jeff Parke, Contract Negotiation Expert and Experienced Project Coordinator
Contract administration refers to the management of a business's legal relationships with vendors, employees, customers and other third parties. The basics of contract administration are important for small-business owners to grasp. Contracts can be complex, requiring attention to detail. The proper administration of contracts ensures open communication between stakeholders within the business.
The Importance of ContractsBusinesses are constantly engaging in legally binding agreements or contracts, says Jeff Parke, experienced contract negotiation and Life Science Project Coordinator. Some of these are quite evident when, for example, the business owner signs an agreement to provide goods or services to a third party. Other times, the contracts are made orally or in a less formal way. Companies make sales invoices or purchase orders, for instance, many times every day. These types of contracts are just as important as the more formal contracts. On a basic level, all contracts must include an acceptance of terms by both parties. So even in a simple transaction such as selling a product to a customer, terms are agreed upon, even if implicitly. In this case, the business agrees to give the customer a quality product in exchange for payment. If the business were to provide the product and the customer then refused to pay, the customer would be in breach of contract, and the business would have a legal claim to retrieve the payment.
Establishing a Contract Management Team
Because contracts pervade nearly every aspect of a business, many companies choose to establish a contract management team to oversee the specifics of all the contracts the organization has. In a small business, the contract management team may consist of just the business owner and the general manager, but ideally someone from each of the company's main functions, including human resources, finance and technology, will be part of the contract management team. The team's responsibilities are to form the business's policies and procedures with the regard to the way it administers contracts. It may dictate, for example, that the company include disclaimers on all of its receipts stating that "all sales are final." The contract management team also meets periodically to review the firm's major contracts with vendors and other third parties to ensure the company is getting a fair price and is meeting the terms and conditions of the stated agreements.
Ensuring QualityAnother essential element in contract administration is ensuring the quality of the goods and services exchanged within and outside the business. The contract management team has responsibility for making sure all of the business's contracts are fair and accurate, but it is important to also make sure that the business itself is following all of the terms of the contracts in which it is a signee. For example, the company will likely have a contract with a landlord for its premises. It is essential to make sure that all of the terms laid out in the lease are being followed and that the company isn't doing anything to jeopardize its continuing operations.
Ensuring AdherenceSometimes one or both parties to a contract fail to live up to the terms and conditions of the contract. Contract administration therefore also involves resolving conflicts when they arise. Sometimes the conflicts are a simple matter of miscommunication or failure to properly read and review the contract. Other times, parties to a contract may deliberately try to avoid exchanging money or following a condition laid out in the contract. In any case, the business's first line of defense should be to communicate with the other party to try to resolve the conflict in a straight-forward manner. Barring this, the business may have to consult with an attorney.
To contact Jeff Parke, please email him at [email protected] or connect with him on LinkedIn at https://www.linkedin.com/in/parkejeff
