Contracts are frequently concluded within organisations, with varying degrees of impact. These contracts must be carefully managed and administered in order to make the right contract information available at the right time and in a known and logical place. Although contract administration is these days increasingly carried out digitally, it can still be a (partially) physical administration. What is contract administration? Contract administration is one of the tasks which is included in contract management. The two fields are inseparable; in this article you’ll read why.
The definition of contract administration
The terms contract management and contract administration are sometimes used interchangeably, although there is a substantial difference. To make sure that there are no misunderstandings and to clarify who does what, good agreements are a must. This is the only way to work together effectively and efficiently. The definition of contract administration must therefore be clear.
The definition of contract administration according to the CATS CM© contract management method: setting up, filling in and keeping all recorded information about a contract or connected contracts up to date and accessible.
As such, this involves administration. A contract administrator usually does this for multiple contracts. This officer supports the contract manager and the contract owner in the administration of all contract data and provides (management) information about contracts.
In summary, the contract administrator is:
- The person who maintains the contract file;
- responsible for recording/ registering all the documentation relevant to the contract;
- the person who makes this information available, whether requested or not, to all the people who need access to this information in the context of their role in the contract.
Contract administration as a component of contract management
The introduction to contract management explains the basics of the field in detail. In summary: contract management is the management of all recorded responsibilities and duties recorded in the contract. This always takes place upon instruction of the contract owner during the execution phase of the contract.
Contract management doesn’t only involve keeping a close eye on compliance with who does what. The range of tasks of the contract manager is broader than that. This person makes sure that people comply with procedures, agreements, conditions and rates, and that unclarities, gaps and desired modifications to the contract are managed. In short, the contract manager is:
- responsible for managing the execution of the contract on a daily basis in order to achieve the contract objectives;
- appointed by the contract owner; and
- tasked with agreed responsibilities and powers.
A contract administrator supports the contract manager in administering all contract data and keeping the contract file up-to-date, to then make (management) information about the contracts available. Contract management and contract administration are therefore inseparable. Because contract administration requires different skills, it is often set up as a different role or function.
Contract administration also supports supplier management
Another adjacent field which benefits from contract administration is supplier management. Choosing suppliers and managing the relationship with these (core) suppliers requires a range of activities. The correct suppliers combined with good relationship management ensure an optimal contribution to the strategic objectives of the organisation. In order to realise this, the supplier manager is also happy to draw on (management) information which a contract administrator records about the contract.
Who does what
In practice, it must be clear how the relationship between the supplier manager, contract owner, contract manager and contract administrator is formally structured. Which activities are delegated to the contract administrator and vice versa? Can the contract administrator pose requirements for the other parties involved? Making agreements about tasks and responsibilities is crucial for a successful process of both contract management and contract administration.
The contract file as an instrument
The contract file is the entire physical and/or digital archive with all documentation and correspondence about a contract. As mentioned earlier, the contract administrator is responsible for maintaining the contract file. Most contract administrators take care of large(r) numbers of contract files (usually for multiple contract managers). A contract manager on the other hand usually manages fewer contract files.
Formation of documents in different phases
The contract file used during the contract management process consists of many different documents, some of which are already formed early in the contract lifecycle.
According to the CATS CM® contract management method, the contract lifecycle consists of the following phases:
- Determination of needs
- Make or buy decision: will we purchase the necessity or not?
- Tender/request quote and & contracting
- Contract execution
- Termination and evaluation.
Documents are created in all these phases which are relevant for a complete contract file. In total, we have as the developer of the CATS CM® contract management method identified more than 40 different types of documents. More than half of these are already created during the contract execution phase.
Completeness of the contract file
At the start of managing a new contract, the contract manager will carry out an analysis of the contract and the accompanying file. During this analysis the contract manager also carries out an inspection of the completeness of the contents of the file. This immediately makes clear the importance of good contract administration. If the contract administrator has created a complete file starting from the first phase of the contract lifecycle, this makes the work of the contract manager a lot easier. In order to provide a complete overview, the contract administrator should also include documents such as the original query, tender/quotation offer, etc.
Checklist for required documents
When setting up contract administration, it’s important to make clear internal agreements about the required documentation. Among other things, you have to determine which documents, records, reports, and issue lists must at least be included in the contract. It’s useful to set up a checklist for this. This immediately shows which documents are missing. Such a document checklist saves all parties involved a lot of time, prevents unclarity and can be the trigger to still draft a missing document, to be requested from the contract party or to be given the final status ‘not available’.
A missing file of which the status is unclear can be a source of risk. If it is not known what has been agreed regarding a certain point, this may jeopardise the contract objectives or the partnership.
Contract administration system
These days, contract files are increasingly stored in digital format in contract administration/contract management systems. CM Partners studied this again in 2017 and found that there is still much left to desired in terms of the functionalities of a good contract management system.
The use of systems increased significantly since the last study. Whereas 70% of respondents previously indicated that they used a contract management system, 89% now state they use one. Additionally, 49% of respondents indicate that limited use is made of systems, while this used to be at 30%. The percentage of respondents using systems to a large degree or for all aspects remained almost equal (respectively 29% and 11%).
Shared drives, Excel, Sharepoint, one’s own computer and applications developed in-house remain the most commonly used contract administration systems.
The respondents list a broad range of missing functionalities. The most important missing functionalities are user-friendliness, missing linkages, missing reports and notifications, the automatic recording of documentation and dashboarding.
A good contract administration system can greatly contribute to efficient collaboration between all roles involved in contract management. Modern technological developments such as the blockchain and artificial intelligence are very promising when it comes to ideal contract administration and management systems. However, this is all still at an early stage. To be continued?