What is Contract ?
- The definition of Contract is given under S.2 (h) of the Indian Contract Act, 1872 which provides ‘a contract is an agreement enforceable by law’.
- Whereas an agreement has been defined under S. 2 (e) as follows: ‘every promise and every set of promises, forming consideration for each other. When a proposal is accepted it becomes a promise. Thus an agreement is an accepted proposal. Therefore, in order to form an agreement there must be a proposal or an offer by one party and its acceptance by other party.
- The second part of the definition deals with enforceability by law. An agreement is enforceable u/s 10 if it is made by competent parties, out of their free consent and for lawful object and consideration.
- Thus, a Contract = Agreement + Enforceability.
What is Contract Management ?
It refers to the processes and procedures that companies may implement in order to manage the negotiation, execution, performance, modification and termination of contracts with various parties including
A. customers,
B. vendors,
C. distributors,
D. contractors,
E. employees etc.
WHY Contract Management ?
The answer to this question is that contracts need to be methodically managed in order to ensure that financial and operational risk is minimized and performance maximized.
It can be one of the most lucrative areas for building business relationships and generating revenue.
How to manage ?
- First analyze and evaluate all existing contracting processes, and then categorize each by the following criteria:
- Level of Risk – High , Medium and Low
- Value to the Organization- In terms of transaction and volume
- Routine Agreements & Contracts vs. New/Infrequent Contracts
- Draft questionnaire, contract checklists and draft templates accordingly.
Up to execution of the Contract
- Begin with Contract Information and details: Thorough investigation of both the business and legal background for the contract and the proposed transaction and business relationship in which the contract is to be used.
- Drafting, review, discussion, revision and completion of all required items and activities.
- Negotiation of the essential terms of each contract and have a list of questions that will need to be answered in order for the contracts to be completed.
- Approval of parties concerned and their consent.
- Execution of the contract with proper stamp duty and jurisdiction.
Post execution of the Contract
- Revisions and amendments are a common part of the lifecycle of a contract. Track the clauses of the contract which is time specific, performance specific, service specific etc.
- Have periodic audit schedule and checklist, which will ensure obligations are met and value is realized.
- Alerts should be set for deadlines and renewals. Missed renewals mean lost opportunities and lost revenue.
Contract management standards and Documentation
- Such standards should include maintaining accurate documentation from the start to end date of a contract.
- All negotiations documented during the contract
- Keeping complete contract addendums, noting any changes in the contractual arrangement.
- Revision, renewal documents and correspondence in this regard.
WHAT achieved by the contract Management ?
- Expected business benefits and value for money
- Both parties understand its obligation
- No disputes
- No surprises
- Open and constructive environment
- Professional discussion over changes and issues, if any.
- Relationship with trust and transparency
Download PPT on Management of Contract for Corporates in India
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