Effective Contract Management

Sarah states that good contract management is to prevent the high cost of the contract penalty clause, should dictate each move made with a contracted entity.

Understanding the effect of a good contract administration is essential in business making decisions that would maximize revenues and minimize risks.

A contract is drawn up to create the guidelines for a business relationship. When parties abide by the terms of a contract, the company gains from the benefits that it has to offer. But poor contract administration can cause businesses to violate terms of the contract, which can lead to penalties, fines and a potential lawsuit. Good contract management is to prevent the high cost of the contract penalty clause, should dictate each move made with a contracted entity. Part of effective contract management is developing comprehensive training programs that inform employees of the benefits of following the terms of the contract. For example, in my company the purchasing people are informed of the various ways that an agreement with a vendor can benefit the company and how it will save the company money. Without this reporting, the two sides have no way of monitoring the benefits of the agreement and developing any changes to make when the agreement comes up for renewal. Effective reporting also keeps track of quantities that help each side monitor their usage and determine when contract limits may have been met.