What is Contract Management?
At its finest, contract management is about risk management and relationship management. A contract is, at the most basic level, is a document that describes a connection between two parties, what each of them agrees to do, and who bears the risk if things don’t go according to plan.
Contract management is concerned with managing that connection, as well as the associated risks, to ensure that both parties receive the desired outcome. Everything, including cash flow, revenue, commitments management, and everything else, is based on this fundamental concept.
Simply defined, contract management is the process of identifying resources, establishing partnerships, and assessing risk.
Smart contract management goes one step further, by automating the entire contracting lifecycle. Contracts are drafted & negotiated online, digitally signed, eStamped & tracked with CLM software.
Smart contract lifecycle management not only allows for the storage and renewal of contracts online, but also for real-time online clause negotiation & contract approvals.
The construction sector is one with wide applicability for smart contract management – let’s examine how Contract Lifecycle Management (CLM) can benefit construction management by first going over what construction contracts are and their various types.
What are Construction Contacts?
Construction contracts are legal documents that specify the duties and obligations of project managers and owners, as well as the methods for conducting a construction project. Since these contracts detail both parties’ processes and duties, it’s critical to get them right so that legal and financial obligations are met throughout the building process.
Some types of construction contracts are listed below:
Contract for Unit Rate/Unit Price
A unit cost contract is also known as an item rate contract, a value contract, a measurement contract, or a schedule rate contract. Contractors are obliged to estimate rates for specific items of work based on a schedule of quantities provided by the owner under this sort of construction contract management.
Percentage Rate Contract
The owner produces a schedule of products with quantities, rate units, and the amount stated in this sort of contract. Contractors must provide percentages that are higher, lower, or equal to the rates specified in the schedule. The contractor’s quoted percentage applies to the whole timetable.
Contracts based on time and materials
A time and materials contract requires the buyer to pay for the builder’s and subcontractors’ time as well as the cost of building supplies. The buyer is also faced with uncertainty since he or she must pay for any expenditures or time overruns. Many time and materials contracts will also include price maximum provisions.
Contracts for EPC and Turnkey
In the construction sector, EPC (engineering, procurement, and construction) is the most common contracting arrangement. The engineering and construction contractor will complete the project’s full engineering design, obtain all necessary equipment and materials, and then construct the facility or asset for their clients.
All modifications made during the contract parties’ negotiations are likewise included in these contracts. Construction contracts also provide the owner control over the project since they contain precise stipulations that remove doubt about both parties’ duties, decreasing time delays and cost overruns.
Why are contracts important in construction?
For all parties participating in a building project, construction contract management is critical. However, people often overlook its importance, viewing it as merely a commercial transaction and overlooking the fact that this arrangement involves real people with legitimate sentiments and real emotions.
Businesses also must be aware that managing a construction contract the right way is critical to their success as a contractor.
The construction management team’s skill in utilising contracts to manage construction projects is one of the many (infinite, if you ask us) useful services it delivers. Contracts are notoriously difficult to read and comprehend, which is why attorneys make a livelihood assisting us with them.
A contract is a legal document that represents the outcomes of negotiations between the various project parties. It defines risk and establishes rules and duties. Negotiation and coordination with others are two of the ten top talents needed to succeed in 2020, according to the World Economic Forum–and negotiation and coordination are also top skills in contract definition and management. When one combines clarity, comprehensiveness, and breadth, one gets a fantastic contract for himself.
The general contractor and the owner or developer enter into a Construction Contract Agreement, often known as construction contract management.
Lump-sum or fixed-price contracts, cost-plus contracts, and time and materials contracts are the most common types of contracts that specify the core project delivery system or contractor agreement.
Work on a building project begins once a bid is accepted. Contract modifications will occur in complicated projects, and the construction management team will be responsible for managing them. The best case scenario is that this technique is already stated out in the original documentation.
Key Differences Between Contract Management and Contract Lifecycle Management
Contract management differs from contract lifecycle management. The latter is more about using email, spreadsheets, and file storage to manage contracts. Contract lifecycle management is a systematic approach to contract management that combines people, processes, and technology to increase efficiency.
Contract lifecycle management, or CLM, is the process of automating and simplifying the many stages of contract management, including initiation, writing, procedure and workflow, negotiation and approval, implementation, continuing administration and compliance, and renewal. The ultimate objective is to save time and money while lowering the number of mistakes.
This is accomplished through the use of CLM software, which allows customers to see exactly how much money a company is spending and simplifies the contracting process for increased efficiency and fewer administrative expenses.
Contract Lifecycle Management: What The Numbers Say
Since the easiest approach to evaluate the advantages is to look at the data and research results, some of the most significant reports and numbers in has been compiled in one post, along with a discussion of the Contract Lifecycle Management’s trends and subtleties.
In a recent report, gathered jointly from Cottrill Research, CLOC and ACC, it was understood that:
- Contracts regulate 70-80 percent of corporate operations.
- External costs account for 46 cents of every dollar spent on legal services.
- In 2018, 37% of businesses spent more than $750k on legal technology.
- In 2018, mid-size enterprises with in-house technical resources spent an average of $1 million on legal technology.
Also, it has been seen that the lack of contract management has shown that:
- Poor contract management procedures cost 9 percent of yearly income, according to World Commerce and Contracting.
- According to a KPMG survey, up to 40% of a contract’s value might be lost due to poor contract governance.
- According to World Commerce and Contracting, the average cost of a basic contract is $6.900. More complicated ones might cost up to $49,000.
The Stages Of Contract Management in Construction Sector
Contract management has become more important in day-to-day operations. Obviously, this happens when companies try to increase efficiency without growing their workforce. As the number of contracts used in business transactions increases, it’s critical that contracts save time rather than waste it.
Time spent on administrative activities is reduced when one has a thorough grasp of the contract management process. One may also use strategies to speed up and automate the transaction.
Agreement on Construction Contracts
The administration of construction contracts is an important aspect of the purchasing and selling of construction services. Identifying contracts and relevant documentation to support the contract’s purpose is the first step in the contract management process.
Writing contracts
Writing a contract by hand takes time, but with the help of automated contract management solutions, the process can be made much more efficient.
Areas of Responsibility
The scope of work is a complete explanation of the Contractor’s services and equipment, as well as a detailed description of the project’s physical components, including, but not limited to, location, nature, quantity, and quality of things.
Conditions in General and Special
There are both general and particular conditions in construction contracts. The basic characteristics of the contract are covered by general conditions, whereas special conditions address specifics that are more specific to each project.
Timeline for Construction
The construction schedule is one of the files required in a construction contract. These allow you to follow the progress made on specific portions of a project or a building, as well as the goal time for completion of the building’s or parts of it’s installation.
Specifications
The requirements of a Construction Contract, as well as the project’s look, are critical to the project’s success, thus learning more about them is essential.
Bill of Materials
Any construction contract must include a bill of quantities. The “bill” organizes and documents the supplies list as well as the job to be completed.
Estimated Cost
A cost estimate for the enterprise to begin is one of several requirements. A qualified specialist in the subject should finish the estimation. In some ways, it’s similar to a contract that specifies the price, schedule, and services to be provided. The importance of a clear and simple contract cannot be overstated.
The contract’s execution
The usage of electronic signatures and fax capabilities allows users to regulate and shorten the signing procedure while executing the contract.
Drawings
Drawings are the building blocks of every construction project. When it comes to building a new home or modifying an existing one, it’s important to have a clear understanding of what needs to be built.
Gathering all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.
Renewal
Manual contract administration procedures frequently result in missed renewal chances and revenue losses for businesses. A business can find renewal opportunities and develop new contracts by automating the process.
How Contract Lifecycle Management Benefits Construction
Contracting in the construction sector may be divided into three categories: pre-award phase of contract development, award phase of contract development, and post-award contract development.
Pre-Award Phase of Contract Development
The pre-award, or bidding, step is the most crucial in this situation. Pre-award is the first of the phases in contract management, and it varies based on whether the company is the buyer or the seller in a deal.
This phase usually starts with the seller striving to strengthen customer interactions and marketing strategy. They must select whether or not to tender a deal with another firm after careful analysis. If they decide to make an offer, they must devise a winning strategy that includes execution and risk mitigation procedures. Smart CLM expedites this stage by supplying decision-makers with key contract insights after analyzing previous contract performance.
Award Phase of Contract Development
The buyer often has several proposals to examine during the award phase of the three phases of contract management. The length of this phase varies with each contract, since it is determined by the number of bids and the intricacy of the term. It might be simple, allowing you to proceed rapidly to the next phase.
Post-award Phase of Contract Development
The post-award phase is the third and final step of contract management. After the contracts have been signed and exchanged, the performance monitoring phase begins. It’s crucial to remember that just because a document has a signature doesn’t imply it’s no longer in need of scrutiny.
After a contract has been closed, it must be regularly monitored to ensure that both parties stay compliant and to assess risk and performance. As a result, every company’s post-award contract management phase is critical.
Smart CLM solutions are equipped with intelligent analytics features that monitor and track contracts, enabling all parties to conduct risk assessments & gain intelligent contract insights.
Beginning the Work
Following the acceptance of a bid, the next step is to begin working on a construction project. Contract modifications will inevitably occur in complicated projects, and they must be managed. The best case scenario is that this technique is already stated out in the original documentation.
All of the necessary contracts for the various phases of your project are prepared, fine-tuned, and interpreted by the construction management team. When it comes to avoiding risk and maximizing happiness for all parties involved, this knowledge is priceless.
Role of Contract Lifecycle Management
Construction companies may use enterprise contract management systems, which feature central contract repositories, automated workflows, and tracking of responsibilities and expenses, to proactively solve these issues.
With a manual contracting strategy, visibility into these complicated supplier networks may be impossible. Back-to-back contracting situations, in which a vendor contracts with another vendor to complete a task, are particularly difficult to track. If companies do not have total visibility into multi-tier supply networks, they expose themselves to regulatory problems.
Construction companies must find ways to speed up their operations, protect themselves from legal and financial hazards, and enhance procedures in order to compete in today’s evolving industry. All of these goals may be achieved with the aid of enterprise contract management.
SignDesk: End-to-end Automated Contract Management
With SignDesk’s end-to-end contract management tools – CONTR.ACT – sales & legal teams can draft contracts and negotiate provisions in real time. CONTR.ACT also offers simple eSignature and eStamping connections for quickly and securely completing contracts. Manage large contracts and enable a smooth workflow process while cutting TAT by 90%. Our 350+ clients have seen considerable cost savings to the tune of 60-85% as a result of automation.
Contact one of our sales professionals to learn more about how our contract lifecycle management works.
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