Part of your role as a project manager will likely involve managing contracts with your clients, contractors or any other third parties, which means having a strong understanding of contract management is an important part of your professional skillset.

This guide will equip you with the fundamental knowledge to get started in overseeing contracts for your organisation.

What is contract management?

Contract management involves managing contracts for employees, vendors, contractors or any other party your business works with. As a project manager, contract management is one of the key project management skills you’ll need in your toolbox.

Effective contract management can be time-consuming and it’s often only large organisations that employ dedicated contract managers. However, its role in reducing cost and improving performance makes it a vital part of modern business.

As a project manager, you may be responsible for overseeing the contract process from beginning to end – establishing a business case, then creating, executing, and optimising the contracts your organisation enters into.

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; and
• how disputes will be addressed.

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

Contract management plan

The contract management plan lays out the way forward with your contract creation, negotiation, fulfilment and, ultimately, renewal. Having a plan laid out will help to keep you in control of the process. Expect to refer back to your plan through out the project. 

Your contract management plan should ensure that the goals and expectations laid out in your strategy can be met. Some of the key steps of your planning phase should be:

1. Define the contract scope and deliverables

Start your plan by laying out the scope and deliverables of the contract. Clearly identifying and documenting exactly what a contract needs to cover (and what it doesn’t) helps keep your work focused and avoids scope creep.

2. Define your delivery goals and performance measures

As with managing any project or work, it’s important to know what success looks like. What are you trying to achieve with this contract and how will you measure that achievement? This helps you effectively communicate the value you’ve generated back to the business. 

3. Collect available resources

Establish an inventory of what resources are available to you to complete your contract work. This might include team members who can assist with their skills and time, but ensure that if you are allocating work, those team members have capacity and capability to meet your deadlines. 

4. Lay out roles and responsibilities

Early in the process, establish who will be responsible for various deliverables and different parts of the contract process. Determining this not only keeps everyone accountable and on track, but it helps to maintain positive relationships, as everyone is clear on the input and results, they can expect from others and themselves. 

5. Create a detailed timeline of delivery dates

Any plan should include a timeline of critical dates and milestones that must be met in order to meet your final deadline and keep the work progressing. This might include deadlines for specific deliverables, and timelines and dates for progress updates to stakeholders. 

6. Identify risks and how they can be managed

Every contract comes with some level of risk attached. Make sure you conduct a project risk assessment to anticipate the most likely and most critical problems your contract may run into. Define your risk management strategies at the same time, which could include building flexibility into your timeline or budget to account for delays and other issues. Don’t forget to consider any governance that may need to be observed. 

Contract management process

The contract management process includes activities both before, during and after a contract is in place and being completed. At various stages throughout, you’ll be responsible for managing: 

• Delivery to ensure everything is delivered according to the agreement laid out.
• Relationships between your organisation and the service provider or any other stakeholders involved, both in the long and short term. 

• Evaluation of the service delivery after the fact and at key stages during its fulfilment. 
• Improvements or optimisation to ensure your next contract is more cost effective, efficient or valuable for your needs.
• ​Changes to the terms of the contract – this is often most needed in long-term contractual relationships.

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Stages of contract management

There are a few key stages that you’ll need to work through in order 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 in the business and the project, 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. 

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 are aware of any specifics that may need to be managed in the future, so 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 it is 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 a number of different stakeholders during the contract management process. The people who negotiated a contract will not necessarily be the ones who will deliver on its terms. In this stage, make sure all stakeholders are aligned on the details of what the contract will deliver and how. 

Stage 3 – Contract management

• Manage performance. Establish KPIs for the delivery of what has been outlined in the contract and monitor its performance.
• Administration activities. This means undertaking any activities to help the contract run smoothly and ensure both parties hold up their end of the agreement. It also includes financial administration – ensuring that payments are made only when stages of the contract are satisfactorily fulfilled. 
• Risk management. Your risks should already be identified, but in this stage, you may need to bring into play your risk mitigation or response plans. New challenges may always arise – so stay on your toes. 
• Manage alterations to the contract. At any stage during the fulfilment of a contract, there may be variations, extensions or other changes to the terms of a contract. If this happens, you’ll need to make sure all stakeholders are aware of any changes and their impacts, and that those changes still fulfill the business and financial goals laid out in your strategy.   

Stage 4 – Evaluation and close

• Review. Review the contract details and ensure that the work is complete – that 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 comes to a close, 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 penalties or delays in renewing. 

Contract management system

Contract management software can be as simple or as 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 on.

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.