A strong understanding of contract management is essential to successful commercial outcomes for your business and an important part of your professional skillset.  

Part of your role as a project manager will probably involve managing contracts with your clients, contractors or other third parties. This guide aims to equip you with fundamental contract management knowledge so you can start to confidently oversee contracts for your organisation. 

What is contract management?  

Put simply, contract management is the process of managing legally-binding agreements with customers, employees, vendors, or contractors from creation to execution.  

As a project manager, contract management is one of the key project management skills you’ll need in your toolbox. But contract management doesn’t travel alone. It goes hand in hand with contract administration.  

Technically, contract management refers to activities carried out after a contract is signed to ensure that the parties perform their obligations under the agreement. In contrast, contract administration is the work done before a contract is signed. For simplicity, we won’t distinguish between the two in this article.

Effective contract management can be time-consuming. Often only larger organisations employ dedicated contract managers. However, as project contracts become increasingly complex, contract management has become a vital part of project success. 

As a project manager, you might be responsible for overseeing the contract process from beginning to end. This could include establishing a business case, then creating, executing, and optimising your organisation’s contracts.  

 

Why is contract management important? 

Effective contract management helps ensure you successfully deliver the agreed project outcomes while achieving commercial success.  

Like with project management itself, the ability to influence a successful outcome in contract management is greatest at the beginning of the process and it diminishes with time. 

 

“The contract is a record of the agreement between the parties, so getting it right at the start is critical. If there is one catchword to bear in mind when preparing a contract, it is ‘clarity’. Ambiguity, vagaries, and unstated assumptions are fertile ground for dispute.” 

Tony Britt PMP, General Counsel, Holding Redlich

 

Contract management strategy 

When embarking on a new contract, the first step is to put a strategy in place so that everyone involved understands the goals of the process. A successful strategy should cover:  

  • the financial returns or other benefits brought to the business upon successful completion of the contract;  
  • what the organisation expects from a supplier in terms of deliverables, responsiveness, and any other factors;  
  • what obligations your organisation has to the third party;  
  • how you’ll address disputes; and 
  • importantly, risk allocation.  

The strategy is high-level and focuses on achieving efficiency and cost-effectiveness. For the nitty-gritty details specific to the contract you’re working on, you’ll also want to put a contract management plan in place. 

 

 

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Contract management plan 

The contract management plan helps you keep in control of the contract management process. It’s a detailed working document and blueprint for your contract management activities.  

Having a plan laid out will help ensure that the goals and expectations in your strategy can be met. Learn more about contract management plans and how to create them in our comprehensive guide, coming to our blog soon. 

 

Contract lifecycle management 

The contract management process includes creating, executing, and reviewing agreements to maximise operational and financial effectiveness while reducing risk throughout the contract lifecycle.  

You’ll need to work through four key stages of the contract management lifecycle to meet your deadline and goals. Breaking the work up like this can help you better manage your contract, no matter its complexity. 

 

Stage 1 – Ideation and creation  

Depending on your role, you may or may not be responsible for this stage, in which stakeholders:  

  • Identify a business need. Every contract is designed to meet a need for your organisation. The first step is identifying this need and the contractual relationship that can fill it.  
  • Create the contract. Once the third party has been chosen or your organisation is the one selected for a project, the contract is drafted, negotiated, and signed. Clear documentation of the parties’ obligations is key to successful contract execution. Ensure both parties execute the contract correctly or it may not be enforceable.   

 

“If you’re not the party creating the contract, you should ensure that someone with a good understanding of contacts reviews it before signing. Be aware that once it’s signed, you are bound by the contract, whether you have read it or understood it or not. It will also be enforceable even if it is unfavourable to you.”

Tony Britt PMP, General Counsel, Holding Redlich

 

Stage 2 – Transition  

  • Contract hand-over. At this stage, you’ll take control of the contract. Ensure you’re well versed in the details of the new agreement you will be managing. Make sure you know any specifics that may need to be managed in the future so that you can do so effectively and efficiently. 
  • Finalise your planning. As discussed above, use your planning stage to outline the needs and goals that your contract work will meet, the timeline, risks, roles, and resources. Make sure you have your plan mapped out in full – the more detail you can achieve in this stage, the more likely the process will run smoothly.   
  • Set up your contract management tools. Make sure you have all the necessary documents prepared. Then, get your contract management tools in place, whether that’s simple spreadsheets and calendars, or more sophisticated contract management software. 
  • Conduct the kick-off meeting. Chances are, you may be working with several different stakeholders during the contract management process. The people who negotiate a contract will not necessarily be the ones who will deliver on its terms. In this stage, ensure all stakeholders are aligned on the details of what the contract will deliver, how it will be done, and who will do it.   

 

Stage 3 – Contract management 

  • Manage performance. Establish KPIs for monitoring delivery performance.  
  • Administration activities. You must comply exactly with the administrative functions, and obligations set out in the contract terms. This applies to things like giving notices, submission of claims, and the supply of documents and certificates. It also includes financial administration and ensuring that payments are made only when contract stages are satisfactorily fulfilled.  

 

“Failure to comply with a contractual obligation is a breach of contract and can have serious consequences.”

Tony Britt PMP, General Counsel, Holding Redlich

 

 

  • Risk management. Your risks have been identified, but in this stage, you may need to bring into play your risk mitigation or response plans. New challenges can always arise, so stay on your toes.   
  • Manage alterations to the contract. At any stage during the fulfilment of a contract, there may be changes to the scope, extensions of time, and corresponding adjustments to the price. If this happens, you’ll need to ensure all stakeholders are aware of any changes and their impacts and the changes still fulfill the business and financial goals. 
  • Record keeping. Ensure that your organisation has processes and procedures in place to ensure that contract communications are recorded and kept somewhere safe and accessible. You’ll need those records if a dispute arises (which can happen years after contract close).   

 

Stage 4 – Evaluation and close  

  • Review. Review the contract details and ensure the work is complete and the conditions and deliverables have all been met. You may also choose to give feedback to the third party to improve further dealings with them.   
  • Evaluate. As your contract ends, evaluate the process and outcome. Look at your contract management process and pick out any learnings to improve your own work and that of your team in the future.   
  • Close or renew. When the contract is complete, you will need to decide (or advise stakeholders making the decision) if your organisation should renew, renegotiate, or close. Ideally, begin your evaluation well before the contract ends to avoid renewal penalties or delays. 

 

 

Four stages of the contract management lifecycle

 

10 tips for successful contact management 

 

1. Get the contract right 

The contract is the record of the agreement between the parties. If there’s a dispute, courts look at the words of the contract and don’t consider what the parties might have meant to say. Once signed, the terms of the contract cannot be changed except by agreement with the other party, which is often difficult to obtain when one party wants to change the deal. 

2. Take care in the pre-contract stages 

Be careful in your pre-contract correspondence and discussions. If you influence a party to enter into a contract based on a misleading statement, the contract may be void. You may be liable for damages, whether the misleading statement was intentional or not. 

3. Know what you’re signing 

It’s surprising how many contracts are signed without being read or understood. A contract will be binding on the parties regardless of whether it’s been read or understood. It may be worth getting advice. Some money spent early may save significant expenditure on a later dispute. 

4. Keep good records 

Record keeping serves several purposes. Importantly, parties need records to demonstrate that they’ve complied with their obligations under the contract. There are legal obligations to maintain records, usually for seven years. 

Also, if there is an allegation of a breach of contract, parties may be sued years after the contract is completed. You’ll need those records to make your case, whichever side of the argument you are on. 

5. Make sure the contract is with the correct party 

Only corporations, natural persons, and incorporated associations can enter into contracts. It’s common for businesses to use a trading name and not divulge the name of the entity that owns the trading name, which is the entity that must be on the contract. 

For example, if ACME Resources Pty Ltd trades as ‘Blue Lagoon Plumbing’, the contract must be in the name of ACME Resources Pty Ltd. Take care to get names right, especially when there are several related companies with similar names. 

6. Have clear risk management policies 

Consider the common risks that apply to the contracts that your business enters into and your position in relation to those risks. Knowing your position on various risks will help you prepare or review contracts so that you don’t end up with an agreement that is contrary to the risk position of your business. 

You can expressly exclude some risks in the contract. Others identified as being borne by one of the parties can be managed, possibly by insurance or by implementing risk management procedures. 

7. Follow the contract 

It may seem obvious, but not following the contract is a common problem. If the contract sets out a process or time frame for things like giving notices or making claims, follow it or you might lose your entitlements. These terms are enforceable even if they are unfair. 

8. Know what’s important to your business 

If you can identify what’s key to the success of your business, you can seek to protect it. For example, if you’re a software developer you probably won’t want to enter into an agreement that requires you to hand over all the intellectual property in your designs. On the other hand, if you’re buying these designs, you’ll want to ensure that the terms of the licence let you use them for their intended purpose. Either way, you’ll want to look closely at how the contract deals with intellectual property. 

9. Consider limiting your liability 

It’s feasible to have provisions in a contract that allow a party to limit its liability to the other party. Such provisions are generally enforceable. Many organisations have a policy of not signing contracts where their liability is unlimited. It’s simply a risk management tool. 

10. Beware the self-help option 

Often, if a contractor isn’t paid, the contactor is tempted to ‘walk away’ and not do any more work until they’re paid. The trouble is that most contracts will offer interest as the contractor’s only entitlement for late payment. Walking away from a contract (even temporarily) when not entitled to do so under the contract can give the other side a basis for terminating the contract and expose the contractor to a claim for damages. 

 

What contract management system should you use? 

Contract management software can be as simple or sophisticated as your needs dictate and your budget allows. You might choose dedicated contract management software or use your own spreadsheet and calendar system. The important thing is making sure that whatever you’re using allows for: 

  • Priority and schedule management – make sure your system allows you to track and plan for key deadlines and reduce time waste. This is key to good contract management. 
  • Process visibility – ensures all stakeholders know the up-to-date details and status of the contract. 
  • Risk management – a robust system can reduce risk by increasing visibility and by keeping a record of the process you can learn from and report on later. 

 

What contract management skills do you need? 

Contract management is an integral part of managing projects and requires many of the same skills you need to be a successful project manager. Some key skills to develop to thrive in this area include: 

  • collaboration 
  • stakeholder management  
  • negotiation  
  • communication  
  • attention to detail  
  • business acumen 
  • understanding of legal contracts. 

If you want to build your contract management skills, check out AIPM’s endorsed course directory. 

 

Contract management resources  

For more resources to help you manage your contracts, stick to reputable sources, such as government departments. The Department of Finance has a contract management guide that may assist you, plus you can always check your state government website for resources.   

For legal resources, check out the Association of Corporate Counsel.  

With this core contract management knowledge under your belt, you’ll be able to confidently navigate the agreements which are vital to making your projects a success. Mastered this? Check out more of the key skills you need as a project manager.