Contract Management & Contract Administration: What's the Difference?

Topics: Contract Management, Contract Management Software, Contract Management System, Contract Administration

Written by Lindsey Paulk

Contract management” and “contract administration” might appear to be interchangeable terms; however, each concept has distinct differences in their function, stepwise process, and role within a company. To ensure that your company is reaping maximum benefits from your contract management and contract administration strategies, understanding the similarities, differences, and the gray areas is critical.

 

The Definition of Contract Management

The Chartered Institute of Procurement & Supply defines “contract management” as the following:

“…a continuous procurement process that ensures suppliers adhere to their agreed contractual obligations along with negotiating any future changes that need to take place” (Chartered Institute of Procurement & Supply, Contract Management).

In simpler terms, contract management is the process that follows signed documentation – this process establishes the deliverables and deadlines that align with the agreement (ProcurePort, 2021).

According to World Commerce & Contracting, substandard and inefficient contract management can cost your company 9% of revenue yearly (2012). Our Dock 365 Contract Management System (CMS) offers contract management software that provides an effortless contract management life cycle platform. Implementing our contract management software will improve both contract management and contract administration across your company.

 

The Definition of Contract Administration

Contract administration” includes several functions related to contract management.

A contract administrator is often responsible for all activities pertaining to all contracts across your company’s departments. These activities typically occur prior to a contract being carried out (Greaney, 2020). The contract administrator primarily ensures that the contract is coherent to contract parameters (Wright, 2017).

 

A Key Distinction

The main difference between these two roles lies in the timeline.

The contract administrator will supervise the efforts before a contract is signed.

The contract manager will manage the process after a contract is signed, ensuring all regulations and terms are properly followed according to the contract agreement contents (ProcurePort, 2021).

 

Functions of Contract Management

These functions include, but are not limited to:

  • Executing and fulfilling contracts
  • Enforcing deadlines
  • Ensuring deadlines are met by contractual parties
  • Contract modification (Hanks, 2016)
  • Conduct periodical contract term reviews
  • Attend to breaches
  • Interpret and communicate contract terms (Wahnoun, 2021)

 

Functions of Contract Administration

These functions include, but are not limited to:

  • Contract implementation
  • Inclusion and accessibility of metadata to related parties (Greaney, 2020)
  • Extract and record deadlines
  • Routing for approval
  • Information updates
  • Bid evaluations
  • Bid requests
  • Contract payment calculations
  • Troubleshoot contract issues
  • Supervise subcontractors
  • Contract negotiation
  • Design systematized language
  • Solicit bids from vendors (Wahnoun, 2021)

 

Understanding the Convergence of Contract Management and Contract Administration

To comprehend what this overlap looks like practically, consider an example of a contract with unmet terms and conditions where a contract breach transpires.

In this case, who is at fault? The contract manager, contract administrator, or both?

What might be the role of acceptable provisions on a contract by the administrator, and what might be the role of edge case conditions to the execution of contract terms by the manager? What implications to these items contribute to the process? How does risk impact this process?

By considering the relationship between these two roles, you can prepare for these scenarios by ensuring responsibilities are properly delegated. Both contract managers and contract administrators must find a balance that propels their roles further by optimizing the contract handling system (Wahnoun, 2021).

 

Intersection Points of Contract Management and Contract Administration

It is important to separate and delegate tasks to the appropriate supervisor – either the contract manager or the contract administrator.

Effective communication is required for a smooth contract management and administration process. We recommend that contract managers regularly communicate with administrators to confirm they have the correct understanding of the contract’s language. Both managers and administrators will certify that agreements with external companies are followed through with ease.

It is best practice for companies to create clarity for employees by defining the distinctions between contract management and contract administration. This can be done by recognizing that they are entirely separate processes that might require some overlap. Continuous and open lines of communication between contract management teams and contract administration teams, particularly as companies grow, is imperative (ContraxAware, 2019).

A particular example of the intersection between contract managers and administrators occurs when contracts are renewed. In this scenario, contracts with an indefinite lifecycle will be given from the manager to the administrator for renewal, which might entail a renegotiation phase (Wahnoun, 2021).

 

Seven Stages of Contract Management

  1. Planning: evaluate and outline contract objectives and design appropriate management operations to address potential pitfalls and to maximize efficiency.

  2. Implementation: utilize contract management software, like our Dock 365 Contract Management System, to automate, simplify, and modernize your contract management process.

  3. Pre-contract: consult contract administrators to clarify problems within the contract. In this stage, you develop new agreements for standard contracts.

  4. Handover: following contract signature, deliver the contract to the party executing the contract. Ensure all contract details are finalized prior to this step.

  5. Contract: fulfillment of contract by vendor and buyer as outlined in the agreement. Employing our Dock 365 Contract Management System can help keep deadlines and deliverables on the correct track.

  6. Pre-renewal: re-evaluate the contract and decide to renew, terminate, or renegotiate the existing contract by a specific date. Our Dock 365 Contract Management System provides automated alerts and notifications so that your business never loses sight of a renewal date.

  7. Post-contract: verify that contract conditions are fulfilled and invoices are paid prior to archiving the contract. (ProcurePort, 2021)

 

Five Best Practices of Contract Administration

  1. Design scope and deliverables: outline expectations of the project wholistically and establish clear deliverables that determine what the contract will include and/or exclude.

  2. Organize timeline and deadlines: set project dates and specific by-when’s. The project will be measured by the progress on this timeline – timeliness is foundational to contract administration.

  3. Attend to financial details: gain familiarity of contract protocols pertaining to payment intervals, review of additional expenses, and contract value.

  4. Discuss roles within the team: ensure expectations and roles are clear across your administrative team. Keep team members accountable by identifying internal and external parties in addition to applicable third parties that are in knowledge of contract details.

  5. Manage and plan for risk: design risk-management protocols in the event of unforeseen issues and delays (ProcurementPort, 2021).

 

Conclusion

With proper education of the definitions, functions, intersection points, processes, and best practices regarding contract management and contract administration, your efforts will be optimized. Developing an understanding of the similarities and differences between contract management and contract administration will help you set appropriate expectations regarding each process.

Both contract management and contract administration are essential to your internal contract operations, and with proper guidance regarding the two, your system will be streamlined. We greatly recommend using our Dock 365 Contract Management System to aid you in centralizing and automating your processes in the most efficient fashion.

In essence, the objective is to have a contract management team and a contract administration team that works in harmony to supervise and ensure the success of a contract throughout its lifecycle. Both management and administration play specific roles based on the timeline of the contract – pre- and post-signature. With well-defined and clear descriptions of the tasks for both the management and administrative teams, your overall process will be set on the path of improvement from the very beginning.

 

References

Chartered Institute of Procurement & Supply. (n.d.). Contract Management. CIPS. https://www.cips.org/learn/e-learning/short-courses/developing-and-managing-contracts/contract-management/#:~:text=Contract%20management%20is%20a%20continuous,that%20need%20to%20take%20place.

ContraxAware. (2019, May 17). The Difference Between Contract Management & Contract Administration. Contract Management Software. https://www.contraxaware.com/blog/the-difference-between-contract-management-and-contract-administration/.

Greaney, S. (2020, July 16). Contract Administration vs Contract Management? What's the difference? GateKepper. https://www.gatekeeperhq.com/blog/contract-administration-vs-contract-management.

Hanks, G. (2016, October 26). Contract Management Vs. Contract Administration. Small Business - Chron.com. https://smallbusiness.chron.com/contract-management-vs-contract-administration-75571.html.

ProcurePort. (2021, March 11). Contract Management VS. Contract Administration. ProcurePort Blog. https://blog.procureport.com/contract-management-vs-contract-administration/.

Wahnoun, E. (2021, February 17). Contract Administrator vs Contract Manager. Evisort. https://www.evisort.com/contract-manager-contract-administrator-differences/.

World Commerce & Contracting. (2012, October 29). Poor Contract Management Costs Companies 9% - Bottom Line. World Commerce & Contracting. https://www.worldcc.com/Resources/Content-Hub/View/ArticleId/1207/Poor-Contract-Management-Costs-Companies-9-Bottom-Line.

Wright, T. C. (2017, November 21). Contract Management Vs. Contract Administration. https://yourbusiness.azcentral.com/contract-management-vs-contract-administration-27963.html.

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