IMPORTANCE OF CONTRACT MANAGEMENT FOR GROWING BUSINESSES- EXPERTS’ OPINION
PUBLISHED ON 21.09.2021 BY MS. APARNA JAIN, MS. HARINDER NARVAN AND MS. AASHRIKA AHUJA
A Contract refers to an agreement enforceable by law. It is a foundation of any business and the most crucial aspect of driving any organization towards success. It governs the relationship between parties involved as well as provides a medium for conducting the affairs of any business in a smooth manner. It is crucial for reducing risks, decreasing costs and improving overall performance of any industry. Contract Management includes contract drafting services/formation, contract evaluation/review, contract execution as well as timely renewal. Negotiating terms and conditions, compliance, documentation and incorporation of amendments and changes that may arise from time to time. Legalities associates with execution of contracts can become cumbersome and have a decisive impact on any business and that is why expert legal opinion becomes an essential part of the entire process.
BENEFITS OF CONTRACT MANAGEMENT :-
- Ensuring fulfillment of contractual obligations by both all parties
- Elimination of potential breach of contract in future
- Provides a well-documented account of obligations, rights and eventualities
- Ensuring favourable output in business
- Achieving value for money and financial control
- Decreasing the level of risk involved
- Clarifies the roles and responsibilities of all parties involved
- Provides early identification and resolution of poor performance, other problems or disputes
- Provides mechanism for dispute resolution
ELEMENTS OF CONTRACT MANAGEMENT
- IDENTIFYING AND CLARIFYING PURPOSE, OBJECTIVE AND GOLAS OF BUSINESS RELATIONSHIP
Before drafting any contract it is necessary to identify common goal and purpose between the parties. Drafting and formation of contract keeping a focused purpose and target makes the process easier and simpler for execution.
- DRAFTING THE CONTRACT
This includes the process of outlining the details, rights, responsibilities and obligations of concerned parties in a written form. The goal of drafting a contract is to ensure terms and conditions of business are clearly spelt out and understood by both parties so as to avoid any ambiguity. Profitability, risk element, effectively dealing with and mitigating losses are all encompassed in contract and if drafted well , a contract can help businesses sail through all obstacles smoothly.
This refers to a process whereby parties agree to adhere to a set of legally binding terms for effectively carrying out their business relationship and giving it a logical conclusion. Usually all parties involved come to terms around a workable business model that protects their interests as well as safeguard them from any future eventualities. These negotiations are usually centered largely around risks as well as revenue. The help in building trust as well as ensuring transparency.
Once the drafted contract has been negotiated, approved and signed, it enters the stage of execution and being implemented.
This will ensure whether intended objective and purpose has been achieved and the gaps that need attention. It will ensure in realizing full value as well as in exploring the profit component.
- TERMINATION AND RENEWAL
It is vital that after successful completion of the desired task and purpose, the contract is terminated or after further negotiations, renewed for carrying out business with same set of circumstances, terms & conditions between parties.
COMMON CHALLENGES AND ISSUES IN CONTRACT MANAGEMENT
There are practical challenges not only while performing contractual obligations sometimes but also other compliances that organizations/companies and corporate are expected to follow. These issues when remain unchecked by company’s management result into frustration of many contracts on account of penalties/embargo or other restrictions put on companies. These compliances need to be incorporated into contracts effectively so as to avert possibilities of bearing losses in non compliance issues.
- DISORGANISED RENEWAL POLICYIn certain cases, due to lack of clarity regarding terms & conditions for renewals, create disturbance in the flow of business. Many times, a lot of time is spent on fulfilling administrative formalities references of which are missed out in the main contract. Delays in performance as well as fulfillment of obligations within requisite time period become a cumbersome process and also impacts the financial component thereby increasing the risk factor.
- STANDARDISATION OF CONTRACTS
As a result of one size fits all approach, innovation and room for expansion in contracts between parties becomes a restricted phenomenon. Though standard forms of contract templates are cost effective resulting into increasing productivity but it diminishes overall uniqueness of a business.
- FLUCTUATION IN PRICES
This is a major issue with respect to contracts that are centered around demand-supply chain businesses. Fluctuation in prices can have an impact on overall running and functioning of entire cost model of any business. Contracts need to be continuously managed, amended and renewed as per existing and changing scenarios in the economy.
Miscommunication arising out of decentralization of power in few industries lead to overlapping clauses being drafted in contracts that create confusion and ambiguity in functioning of businesses. Lack of clarity as well as ambiguous drafting can land up parties into unwanted legal trouble that is why clear, specific instructions with concrete goals are a lifeline of any contract and coupled with expert legal advice , the same can be a boon for any business.
Be it contracts centered around intellectual property rights protection, property registration in India or any other legal matter, Knowledgentia is your one stop solution for contract review, drafting and management. Our expert team of lawyers provide trustworthy legal and supplemental services across the globe. You may visit our website https://knowledgentia.com/ or email us at firstname.lastname@example.org for any queries.