Ever wondered how businesses involved in large-scale projects such as bridge construction draw up contracts? Recording and anticipating needs and expectations is indeed a herculean task in large contractual projects, apart from getting everyone to sign the contract. This is where the concept of contract administration becomes crucial.
Contract Administration vs Contract Management
Contract administration is different from contract management since the latter involves supervising both the parties towards fulfilling their end of the bargain during and after the contract has been signed.
Contract administration, on the other hand, comes before the contract where the interested parties are in the stage of discussion. Contract administration is a process where the two parties come together, discuss needs and objectives, communicate expectations and challenges and come to a conclusion before drawing up a contract.
Who administers a contract?
That’s an important question because contract administration is a service that involves a third party. This third party is expected to be well-versed in contract law, business finances and business laws. A contract administrator is a neutral party who helps and guides both the interested parties objectively, presenting them with real-time challenges in the process of contracting. A client’s team member may also act as an administrator. However, it is often in the interest of both the parties to have a third party do the needful.
Why do businesses need contract administration?
1. Addressing the needs of each party
The stakes are often high in large-scale projects. It is thus very common that either of the parties may have second thoughts about certain terms or conditions for order fulfillment. These needs have to be addressed objectively and repeatedly until the stage of signing. Take for example in a road construction project, a state government selects a private infrastructure company. The company listens to the needs and makes a verbal commitment to fulfill the contract. However, this party learns later that a certain election season is due and the said road may see unusual traffic due to election rallies, a possibility that may delay the project. The company had given the government a certain cost and time estimate in their initial discussion. But they may now need to communicate the impending challenges. This is where a contract administrator may help resolve the challenge.
2. Keeping records
Another important task in the process of any project is to keep a record of capabilities, promises made or timelines. For safeguarding the interest of both the parties, there has to be evidence of what was communicated earlier and later. Since each project is unique, there may be terminology or industry-specific features that are hard to understand for one of the parties.
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3. Good stakeholder relationships
A key human factor that comes to play during contract administration is keeping both the parties in good humor. That doesn’t mean they have to become a family, but that it requires people management skills for a long-lasting relationship. A legal agreement in long-term projects lasts for a few years. It is important that those involved in that contract come to terms with each other’s ways of working and learn to find a middle ground. A good contract administration process involves clear communication that leads to better business relationships and eventually fulfilling of the contract terms.
4. Healthy workplace
A crucial aspect of contract administration is employee or team management. This is applicable in any long or short term project, or within a company between employers and employees. In large enterprises, employees report to their team leads who in turn report to the higher administration. In smaller firms, the employees have a direct dialogue with the CEO or business owners. When team members feel comfortable in communicating their side of challenges in fulfilling the contract, it leads to better delivery of the promised services. It is also important for a happier workplace.
5. Conflict management
A business litigation is a costly and lengthy process and is really bad for reputation. Every party involved in a contract wishes to avoid it. But who will ensure that conflicts are resolved? During contract administration, proper records of communication at various stages are kept. In case of conflict, it is ensured that the erring party is given ample time to rectify the error. This goes a long way in resolving conflicts more quickly apart from ensuring that no party feels wronged or cheated in the long run.
Best practices in contract administration
As we discussed earlier, every contract is unique depending on the type of project or industry, in terms of goals and objectives. How can we ensure that the said contract in a given situation is administered properly? One way is to learn about the best practices of your specific industry. However, there are some practices that are common to any kind of contract. Here are some –
1. Dig as much as you can about the project
While it sounds like a given, it is often not practised. This is why a good contract administrator, who should be a third party, researches references related to the project. There’s so much we can learn from others, and those can be great guides for the future. The contract administrator goes into the length and width of the scope of the project, its relevance and context. This process helps him or her to anticipate needs and challenges from both sides.
While usually it is expected that the contract administrator is a third party, it is still crucial to be doubly sure of his or her neutrality. The contract administrator, whether an outsider or from within the team, should try his or her best to remain objective in administering and drawing up the contract. Any bias may disrupt risk management, leading to losses in the future.
3. Contract administration software
Many contract management software also have features of contract administration. As a result, a lot can be handled on the platform that has the power to remain neutral yet administer the contract effectively. Today, AI-based software solutions such as Revnue offer advanced features that help both the parties in anticipating needs and risks while also making the process of drawing and signing of the contract smooth.
There will be conditions in future that nobody expected, and there will be inevitable conflicts within. But when you involve an AI-based solution into the mix, it drastically cuts down human errors and helps straighten the path of the contract process. Try Revnue today or talk to us.