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What is Contract Administration? Definition, Best Practices, and More
What is Contract Administration?
Contract administration refers to the supervision of the contract lifecycle and the steps taken to achieve the desired business outcomes.
Not only is keen oversight needed to establish contract requirements—but to effectively define, execute, and streamline the contracting process wherever possible, contract administrators must maintain clear lines of communication. Thus, coordination with external counterparties and internal departments (legal, finance, procurement, sales, SCM, IT, etc.) is required at all stages.
Any task involving contract oversight generally falls under the authority of contract administrators. This includes:
- Before a contract is signed: Request and drafting, negotiation, approvals, signature
- After a contract is signed: Storage, renewal, expiration tracking
Contract administration is crucial for ensuring intended business value is realized from commercial relationships but may prove inadequate under manual oversight. In this article, we’ll define contract administration functions, the challenges of manual processes, and how solutions can be found with AI-driven contract management technology.
Key Areas of Contract Administration
To maximize performance, contract administrators require a decisive but adaptable contract administration plan that encourages and simplifies collaboration regardless of the contract type. As a result, contract administration directly benefits from standardized practices that save time, promote contract compliance, and eliminate friction points.
Below, we’ve outlined key areas of contract administration and how they may be improved. Jump to a section:
- Contract Request/Drafting
- Change Management
- Obligation Management
- Termination/Renewal Management
During the creation phase of a new contract, contract administration ensures that the beginning processes are communicated accurately. The primary goal is ensuring the contract request is raised to meet the correct requirements, establish what the desired outcomes are, and define how the forthcoming agreement strives to meet them. To enable this, contract managers, management teams, project managers, key stakeholders, and internal departments must stay informed throughout the drafting process.
This is typically done via email or using legacy tools such as spreadsheets. As these tools are highly inflexible and often depend on one-on-one deliberation, no audit trail is maintained. And as contract terms evolve, it becomes increasingly difficult to review old information without manually searching through old content. For example, if you wanted to see who was involved during the initial process, you would have to search through hundreds of emails.
An automated contract management system, however, can create a single source of truth through a cloud-based workspace. Using contract lifecycle management software (CLM), businesses can keep a historical record of all correspondence. Draft creation is further streamlined with single-click templates that require minimal edits or individual oversight.
A contract’s language is vital to its execution. As ambiguous or undefined contract language is susceptible to contract disputes and other issues, legal teams may deliberate extensively to select the right legal jargon. As a result, contracting may get stalled during the redlining process. Contract administration involves routine coordination with internal teams (particularly the legal team) to avoid this.
Administrators also correspond with key stakeholders. They help guarantee that these individuals promptly review relevant clauses, finalize the terms of the contracts, and agree on final positions and contract language.
Given the scale of contracting, it’s very challenging to accurately track and maintain visibility of all current drafts. Version control quickly becomes unmanageable if multiple people are working on the same draft without the right hand-off process in place.
Automation has drastically reduced time-to-contract thanks to real-time updates and workflows that streamline this legal review process. CLM tools allow internal and external stakeholders to stay up to date on the current stage of contracts and make changes as necessary across the board. To add, the transition from manual processes to next-gen techniques is made easy with MS Word and Outlook integrations.
Depending on the complexity of the terms, the needs of the involved parties, and the requirements of regulatory bodies, contracts can take anywhere from weeks to months to approve. To secure follow through, active and direct coordination with all stakeholders must continue.
That said, delays should be anticipated. If the standard approval hierarchy is not or cannot be followed, it falls on contract administration to course correct and manage expectations.
Supervision may be burdened by slowed correspondence over email, phone, or direct messages. Delays may also create confusion on approver roles or contract language that requires further clarification.
Contract management software offers a simple yet effective solution to this challenge: a built-in notification system.
Thanks to AI-assisted approval workflows, businesses can rely on CLM software to send out automated reminders to all involved stakeholders about pending actions. This will not only minimize delays at every stage of the contract lifecycle, but contract administrators can secure final approval at a moment’s notice by defining contract roles from the get-go.
As with approvals, contract administration is tasked with handling the signing process. During this phase, administrators supervise signatories (CEOs, department heads, and other internal and external authorities) to fulfill all signing requirements.
To facilitate a smooth transition, administrators must maintain and track the sequence of signatories. This sequence is usually pre-defined. For example, if signing a new construction contract begins with the procurement department, then finance, sales, and so on, it’s the responsibility of contract administration to ensure that this sequence follows as designated.
However, if the sequence changes at any point—or if there are multiple contracts to oversee with different processes—it may be difficult to keep signatures in line. The collection of “wet signatures” and back-and-forth emailing further complicate this process.
Companies that leverage CLM technology can expedite this phase. By assigning roles and effectively communicating with key stakeholders, businesses can predefine signing workflows and automate the signature process to enact contracts on time. In addition to onboard electronic signature tools, CLM software can also integrate with other e-signature tools to aid in onboarding.
Another vital function of contract administration is to determine and monitor contract storage and accessibility.
Contracts contain critical information. Therefore, they must be safely stored in a centralized database for both ease of access and tracking. Effective security processes must be implemented to prevent unauthorized use and third-party breaches.
However, if existing contracts number in the hundreds or thousands, maintaining manual contract file cabinets becomes a monumental task that’s ripe for error. This poses a major liability to not only contract management processes (such as in the case of maintaining contract parent-child relationships)—but company security as a whole.
Companies can ensure safe and efficient contract storage by switching over to a cloud-based contract repository.
A contract repository is a digital storage system authorized users can access anytime, anywhere and across multiple devices. With a repository, users can easily leverage AI-powered analytics to search for contracts and the information within. Other benefits include digitization of entire contract portfolios, AI extraction of key granular information, and management of contract relationships.
Contract terms naturally evolve and require a flexible workflow to implement change orders. An effective contract administration strives to maintain an amendment trail of all contract changes. Alterations to the contract language may include changes in the scope/statement of work (SOW), master service agreements (MSA), updates to clauses or pricing, terms and conditions, and any additional annexures.
Much like during the drafting and negotiation phases, it’s the goal of contract administration to guarantee that team members, internal bodies, counterparties, and other key facilitators are aware of and adhere to the latest contract terms.
And as with other areas of contract administration, this function is vulnerable to poor manual oversight. However, with next-gen CLM software like SirionOne, user errors can be minimized. Contract administrators and other contract professionals can roll out mass amendments using cloud workspace tools. Whether an obligation has been changed or a discrepancy resolved, CLM software enables businesses to reflect amendments across all contracts. (The corresponding audit trail is also updated, effectively maintaining a “hard copy” of past changes for future evaluation.)
Obligation management ensures that all terms and service level agreements are adhered to.
In addition to contract compliance, contract administration oversees contract management KPIs to monitor contract performance throughout the life of the contract and ensures smooth resolution of contract disputes.
Traditional methods of contracting pose a significant obstacle to effective obligation management. Without automated contracting tools, contract administration cannot accurately establish KPIs, enforce deliverables, or resolve issues quickly, potentially leading to suboptimal business outcomes.
When a business chooses to deploy CLM software, they gain access to critical performance insights. Using configurable role-based analytics and dashboards for data visualizations, contract administration benefits from a simplified overview to accurately assess contract performance. This same data can be shared with counterparties, paving the way to more transparent partnerships and better post-award outcomes.
In the process of meeting and monitoring contractual obligations, all involved parties must stay informed of milestones and delivery schedules. To ensure continuity and prevent any disruptions, contract administrators track upcoming dates and reach out to concerned stakeholders to plan for satisfactory contract closeout.
As with other key areas of contract administration, emailing and other modes of professional correspondence can fail or obscure the lines of communication. Basic scheduling tools will also prove inefficient if there are hundreds or thousands of contracts to monitor.
All this and more can impair negotiations during contract termination and renewal.
SirionOne provides a multifaceted solution to aid in administration. Contract professionals can employ configurable alerts and automatic notifications to keep concerned stakeholders informed without the need for individual outreach. Auto-reporting and calendar views provide additional clerical support to monitor upcoming renewals, expirations, and other relevant milestones.
Smarter Contracting with SirionOne
Creating a fast, smart, compliant, and secure contracting process is key to developing long-term commercial relationships that achieve desired business outcomes. However, in today’s world, manual processes are ultimately insufficient.
By leveraging SirionOne’s AI-powered CLM software, businesses can transform contract management processes with a next-gen technology that enables them to fluidly perform contract administration tasks throughout the contracting lifecycle.