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🔒[Audiobook] Human Resources | Contract Management
Ever wondered how mastering contract management can transform your business relationships? Discover the secret sauce behind well-managed contracts and why they are essential for any thriving business. We'll unpack the intricacies of contract management versus mere administration and explore the multifaceted roles of a contract manager, from creation to renewal. You'll also get a clear understanding of the four basic contract types and the three crucial elements that make a contract legally binding: offer, acceptance, and consideration. Through the story of Cameron and Daniel, we highlight the pitfalls of unclear contract terms and the potential issues that arise in contract management.
Join us as we delve into the ethical labyrinth of contract negotiation, emphasizing the importance of compliance and the avoidance of conflicts of interest. The story of Jonah and Samantha illustrates the real-world challenges and tensions that can emerge when navigating ethical boundaries. Learn effective strategies for designing and evaluating RFPs, the advantages of automated contract management systems, and the critical need to maintain ethical standards while ensuring balanced and beneficial contracts. These insights will help you navigate the complexities of contract negotiations with confidence and integrity.
In our final segments, we focus on performance assessment and the significance of healthy business relationships, backed by real-world examples and actionable advice. Discover the power of metrics and KPIs in assessing business performance and the necessity of regular contract amendments and audits. We'll also tackle the importance of timely contract renewals, sharing Sarah's cautionary tale as a reminder of the consequences of indecision. To wrap up, we draw wisdom from notable figures, reinforcing the foundational principles of contract management to help you prevent future mistakes and foster successful partnerships.
Sign up for our self-paced courses or instructor-led workshops at www.ht-a.solutions
Sign up for our self-paced courses or instructor-led workshops at www.ht-a.solutions
Sign up for our self-paced courses or instructor-led workshops at www.ht-a.solutions
Contract Management. Module 1. Getting Started. It is easy to overlook the importance of contract management because it seems to be a boring, mundane topic. Contracts, however, are the basis of most business relationships. If contracts are managed well, business relationship will flourish. If they are not, companies face financial loss, relationship harm and damaged reputations.
Speaker 1:Module 2. Defining Contract Management. Every business relationship relies on contracts. Contracts are made with vendors, employees, customers, partnerships, etc. These agreements must be managed carefully, which is where contract management comes into the picture. In order to effectively implement contract management, however, it is necessary to understand what it entails.
Speaker 1:Contract management is not just contract administration. Rather than simply drawing up the contracts, the manager works to ensure that the entire process runs smoothly. The contract manager is involved in not just the planning and development, but also the execution of the contract and beyond, to the point of renewal. Typical contract management activities include contract creation, negotiation, assessment, relationship management, contract amendment, audits, renewal. Over the course of this instruction, you will develop a better understanding of these roles. All contracts are legal documents that establish the rights and responsibilities of the parties involved. Contracts can be created for almost any situation and will ideally involve legal.
Speaker 1:There are four basic contract types, and they are chosen based on the factors and data available. While the list is not exhaustive, it is a good starting point. These common contracts are Fixed price contracts. The price of the item or service is usually fixed and will not change, which benefits the buyer. Variations of this contract include firm fixed price, fixed price with adjustment, fixed price with incentive, fixed price with downward price protection, fixed price with incentive, fixed price with downward price protection and fixed price with redetermination. Cost reimbursement contracts these contracts benefit the seller. The buyer agrees to pay a price fee or partial fee. Common types of these contracts include cost sharing and cost without fee. Letter contracts these contracts allow the suppliers or vendors to take action before the details of the agreement are finalized. The buyer is at risk if liability limits are not clear.
Speaker 1:Partially defined contracts Created when one or more aspects, such as goods, services and deliveries, are not known ahead of time. These include value contracts, quantity contracts and time and material contracts. Every contract is unique, but there are three basic elements. Most contracts need to be considered legal and binding. These elements are the offer, acceptance and consideration. Offer the offer is the promise of goods or services in exchange for agreed-upon rates or exchanges. An offer is different than a negotiation because an offer is the promise of goods or services in exchange for agreed-upon rates or exchanges. An offer is different than a negotiation because an offer is binding once accepted. Acceptance the offer is accepted based on words or actions required by the individual making the offer. A counter-offer occurs when the offer is not accepted but new conditions are proposed. Consideration this happens when the exchange is made based on the accepted offer. Payment is an example of consideration. These definitions are not all-encompassing and there are exceptions to every rule. The legal department should always be consulted when creating a new contract. Still, these elements are useful starting points for all contracts.
Speaker 1:Poor contract management is not just weak negotiation. It can occur at any step of the contract cycle. It also costs business relationships, delays projects, causes litigation and damages the bottom line. Common problems identified by the International Association for Contract and Commercial Management include overcommitment contracts. Lack full scope. Include over-commitment contracts. Lack full scope. Agreement disputes, pricing arguments, subcontractor issues. Effective contract management will address the contract process from its creation through the renewal or end. Preparation and ongoing management of contract relationships are essential to the success of any business. Cameron is looking for vendors for his retail space and Daniel seems to be a good fit with his company. Daniel met with Cameron and they discussed the ideas. Daniel informed Cameron that he wanted 900 square feet of space and signs a contract. Cameron, however, only provided 750 square feet of space in the building. The contract is not clearly worded and Daniel demands an increase in area. Cameron already promised the space to someone else, but he is not sure what his options are. He considers releasing Daniel from the contract to prevent any problems.
Speaker 1:Module 3. Legal and Ethical Contract Management. One of the main problems with contract management occurs when contracts lack scope. Many issues with contracts occur at the beginning of the process, when people are unfamiliar with the laws that govern them. Contract management is rooted in laws and ethics. A contract is not enforceable if it is not illegal. It is essential to have an understanding of the laws that govern contracts and adhere to the ethical standards established in order to avoid problems in the future. Specific contract laws vary between states and localities, so it is always a good idea to have a legal advisor who is familiar with the local laws and any changes. There are, however, standards that apply to most legal contracts Competency Anyone who enters a contract must have the ability to understand the contract, typically minors or individuals who do not have adult mental capacity are not considered competent. There are tests available to determine legal maturity. A contract that lacks competency can easily be invalidated.
Speaker 1:Writing versus oral Oral contracts occur in everyday purchases, as the swapping of money for goods implies a contractual agreement. Oral contracts are legal, but they are not always possible to prove specifically the exact terms. Written contracts are always a safer option. Good faith agreements, letter agreements and understandings all offer additional protection. Many states have statutes requiring written contracts in order to prevent fraud. Contracts that typically need to be in writing include surety or guarantee contracts, contracts lasting longer than a year, land-related contracts, sales or leases sales over $500 and leases over $1,000, sales of bonds or stocks, wills and other bequeathals. These fraud statutes will vary between state governments.
Speaker 1:Modern technology has changed the way that people interact and do business, including contracts. Transactions and agreements are made online daily, and they are governed by federal and state legislation. Online acceptance Online contracts, such as in software, have buttons that indicate an agreement to terms. Clicking these buttons is a legal acceptance according to most court cases. Online commerce the Uniform Electronic Transactions Act and other state and federal laws monitor commerce online and websites. In most cases, the laws require that business names, addresses, refund policies and methods for complaints must be prominent for a contract to be upheld. Electronic signature Electronic signatures are legally valid. However, there are limits for electronic signatures, including family law, health-related actions, evictions and foreclosures.
Speaker 1:As in every other business venture, ethical behavior is an important aspect of effective contract management. The National Contract Management Association has a code of ethics that addresses the general and professional ethical obligations that contract managers have. They have an obligation to be qualified for the work, certification, remain accountable to others, operate in good faith, maintain legal compliance, avoid conflicts of interest, protect confidentiality, remain professional, show respect, practice professional development. Ethical behaviors may be further defined by the state and industry. Government contracts, for example, have strict requirements. It is wise for businesses to have a clear code of ethics for employees and partners to follow.
Speaker 1:Ethical breaches must be avoided at all costs. If someone discovers an ethical violation, it should be reported to the appropriate individual immediately and the appropriate action taken. Ethical violations can vary by state and country, so international companies must be aware of the laws and customs of where they do business and how they relate to federal and local laws. Common breaches include Conflict of interest. Any relationships that can affect the ability to be impartial is a conflict of interest. For example, hiring a family member as a subcontractor presents a conflict of interest. Even the appearance of a conflict can create problems. When discovered, the remedies are recusal waivers with disclosure or divestiture. Fraud Any intentional misrepresentation is fraud. This includes direct communication, indirect communication or the failure to communicate information. Any violation must be reported immediately.
Speaker 1:Gifts Ethically it is tough to accept any gifts without giving the appearance of kickbacks. Small, low-value gifts may be acceptable, but this will vary between location and organization. Gifts should be returned, purchased or consult legal advice regarding how to handle the situation. Kickbacks A kickback is anything exchanged for favors and they must never be accepted or solicited. The Anti-Kickback Act of 1986 bars all kickbacks. Ethical business practices are essential for success. Review business practices and communicate the code of ethics to all employees to ensure that standards are met.
Speaker 1:Samantha was in Jonah's network and put in an RFP for an upcoming project. On Jonah's birthday she sent him a $50 gift card to his favorite restaurant. Jonah returned the gift card the next day without any explanation. Samantha was insulted that Jonah thought she was trying to bribe him and called him outraged. She said that she did not want to work with someone who thought so little of her. Samantha had been Jonah's top choice for the project. Her outburst, however, made it clear that working together would be difficult. He tried to tell her that he thought highly of her but wanted to avoid the appearance of impropriety. After the conversation, he wonders if he should have simply taken the gift card and kept it a secret.
Speaker 1:Module 4. Contract Management Requests RFPs or Requests for Proposal and other requests will determine who partners with you, so they need to be the best. Choose your bidders and design your RFPs carefully. Once you have all the information, carefully evaluate your options, taking compliance into consideration. By doing this, you are more likely to find success in your future endeavors. Open bidding is problematic, causing you to wade through a sea of unqualified candidates.
Speaker 1:Before the issuing an RFP, it is useful to request that the experience and skill sets of companies be submitted early. This is called an RFI. It is useful to request that the experience and skill sets of companies be submitted early. This is called an RFI or request for information. The company issuing the RFP will determine which skill sets and abilities are necessary for the bid to go forward. Before looking through submissions, make a clear list of what you need from a bidder and use it to guide your decision. In the end, you only want to choose from a few select options. This information will also prove useful when evaluating RFPs. Guide your decision. In the end, you only want to choose from a few select options. This information will also prove useful when evaluating RFPs.
Speaker 1:Creating an RFP requires balance. The necessary qualifications and requirements must be clear, but be careful to avoid making the requirements too difficult. People will not bid on unachievable goals. Additionally, be careful to make the RFP equally beneficial for all bidders. Closed and sealed bids will protect privacy and prevent information from reaching bidders ahead of schedule. Fortunately, technology is making it easier to create RFPs. Some companies have automated contract management systems that provide templates of RFPs and contracts. Many of these systems also help monitor the rest of the contract management process, such as scoring. They can help improve the process, but they do not replace the role of the contract manager. When examining bids, avoid the temptation to use the lowest bid.
Speaker 1:Calculating value requires an understanding of the company bidding as well as the benefits it will provide. A company that has a history of compliance issues, for example, needs to be weighed against the bid price. When determining the value of each bid, begin by prioritizing the list of requirements, skills and benefits. Start with your original list of skills. For instance, price, history of quality and certifications might appear on a list. Once your list is made, score each category for each bid.
Speaker 1:There are different ways to score proposals. The simple scoring method uses a basic scale such as 1 to 10, for all criteria. Combined scores with weighting gives greater weight in scoring based on priorities. For example, quality might have a high score of 20 and price a high score of 10. Distinct weighting finds simple scores and weighs the criteria by priority. Multiply the score by the weight. After determining how to calculate the value of different bids, it is important to have more than one perspective. A panel of people from various departments who have unique perspectives will provide a well-rounded evaluation which will reduce bias.
Speaker 1:Rank the bids from the first choice to the last. After the top choice is made, the contract should be negotiated. Do not make a public announcement until the contract is finalized and signed. If the negotiations with the top bidder fail, you can move on to the second choice to negotiate the contract without offending anyone. Bid or fail you can move on to the second choice to negotiate the contract without offending anyone.
Speaker 1:Chris accepted five different bids from vendors for his organization. He was highly focused on keeping the price down, but he also wanted quality service. Mike was in charge of customer relations and gave the first bid the top choice because the employees were highly trained. Chris, however, favored the cheapest bid, bid 3, because he wanted to save the company some money. Chris felt that the customer service would fall in line once the bid was accepted. Mike, however, was not so sure. He knew that the company had a high rate of turnover and offered very little training. After discussing the options with the rest of the panel, they chose bid 2, because it was less expensive than Bid 1, but offered more training to employees than Bid 3.
Speaker 1:Module 5. How to create a contract. We have already addressed some basic contract types and laws related to them. When beginning the contract process, it is important to ensure that the contract created is legal, beneficial for all parties, worded correctly and that the terms for compliance are clear. Fortunately, there are numerous tools available to help improve the contract creation. It is always a good idea, however, to have legal counsel involved in contract development and management. In the modern world, various websites are offering different contract templates, either free or for a price. Given the variety of contracts that businesses use, these sites can be useful, but there is no guarantee that the templates will cover all issues that need to be addressed. Still, they can be a good starting point to get an idea. Templates are also found in contract management software and systems. Systems and software offer more than blank templates. They can also provide information on clauses and other legal information to guide the process. Additionally, the process will create standardized formats that will make issuing contracts in the future easier.
Speaker 1:When creating contracts, you must remain in compliance with federal, state and local laws, and the instructions for remaining in compliance with the contract requirement need to be clear for the chosen bidder. The sections and clauses of the contract should spell out everything and ensure compliance on all fronts. The opening clause will provide the information necessary to identify involved parties and their relationship. The governing law clause will determine which laws apply. For example, a contract in New York will probably be governed by the laws of New York. New York state laws will govern all aspects of the contract, even if the bidder is out of state. Any illegal action will void the contract, so you and your bidder need be aware If, for instance, a city does not permit the sale of alcohol. A contract with a bartender is not in compliance. One way to prevent confusion is to outline compliant requirements in the consideration. A similar clause is the jurisdiction clause. This clause determines which court will have jurisdiction should a lawsuit develop. An alternative is an arbitration clause directing the terms for arbitration in disputes.
Speaker 1:Wording is extraordinarily important in contracts. Contracts need to be written in good faith, which is a sincere intent to act justly in the relationship. Additionally, contracts should use the language that is specific, brief and understandable. While failing to understand a contract does not negate its legality, it can create problems and misunderstandings. Templates, software and lawyers can assist in creating properly worded contracts. The business and scope of the project will determine which clauses are necessary, but the information needs to be clear and accurate. The obligations of each party should be included. For example, the contract could say the first party covenants and agrees that it will provide the following. The governing law clause might read this agreement will be governed according to the laws of New York. Other clauses include Arbitration Binds the parties to abide by the ruling of a third party arbiter in dispute. Example all claims, disputes and controversies will be submitted to binding arbitration according to the rules of blank Integration and merger Prevents parties from arguing that oral agreements invalidate the contract. Example this agreement can only be amended in writing.
Speaker 1:Noncompliance has its risks for all parties involved. Failure to create contracts that are compliant with the laws governing them can void contracts and create other legal pitfalls. Additionally, any vendors who violate laws because of unclear contract terms will have their actions reflect back on the company. It is possible for the company to be cited for violations of vendors, which is why the contract management is so important. If a company suffers legal or operational consequences due to the noncompliance, the reputation of the organization is also at risk. As the company's reputation suffers, so will the bottom line. Alec and Maggie were attempting to draw up a preliminary contract for a new vendor. Alec pulled out a standard contract that he used in his former position in Texas. As Maggie looked over the contract, she realized that some aspects of the contract were not legal under California law, which has much stricter regulations regarding employees and the environment. After pointing the differences out to Alec, they decided to consult the legal department before moving any further with the process.
Speaker 1:Module 6. Contract Negotiations. After crafting the first draft of the contract, negotiations begin. While the goal of negotiation is to create an agreement that is beneficial to both parties. It is also a good time to go over the contract with a fine-toothed comb and identify any non-compliance or potential pitfalls.
Speaker 1:In negotiating contracts, it is important to be prepared, professional and prioritize all terms. Negotiation requires careful planning. Part of the preparation requires determining who will contribute to the negotiation process. It is always wise to assign roles to a team with a diverse skill set. First, determine which points you want to negotiate and what you simply need to clarify. Second, gather information on topics using necessary methods such as a SWOT analysis, so that you can negotiate wisely. Next, determine which of the points you will and will not negotiate. Finally, choose a strategy and agenda for the negotiation.
Speaker 1:In preparing for a negotiation, you will already determine which items are and are not negotiable Before and during the process. However, you will already determine which items are and are not negotiable Before and during the process. However, you will also need to prioritize the terms. Consider the risks and rewards of each term carefully. Which ones hold the most value for you? Rank these from the top priority to the last. The main focus needs to be on your top priorities and not spending too much time on minor issues. Remember that your priorities may change over time, so evaluate them periodically to ensure that you continue to spend your time wisely.
Speaker 1:Emotions can easily impede negotiations. Staying professional and objective will make the negotiation process easier, regardless of the details. Strong-arming concessions and waging personal vendettas are not part of a negotiation. When all is said and done, the contract should benefit both parties. A professional negotiator will always strive for the highest level of success Professionalism in negotiation Tone and body language. Avoid using hostile or sarcastic tones and be aware of what your body is communicating. Dialogue, ask questions and listen. Do not simply make demands. Facts over feelings. Present facts to the other side, regardless of how you feel. Offer compromise. Bring up concessions you are willing to make. Be willing to walk. Do not placate people who are unwilling to negotiate. If progress cannot be made, be ready to walk away from the negotiation and possibly the contract. Negotiations should last as long as necessary to fine-tune every point. Once everyone agrees, the contract can be executed.
Speaker 1:Before signing or executing the contract, make sure that it is the latest and correct version. You do not want to accidentally sign an earlier version. Make sure that the individual who signs the contract has the authority to do so before both of you sign. When signing the contract, be sure to use a signature block with the title. The date should also be included. If any changes are necessary, write them by hand and initial the changes along with the other party. Finally, make sure that you and the other party each have a copy of the signed contract. Sophie and Spencer worked diligently hammering out the details of their contract during negotiations. They were both pleased with the results. When it was time to execute the contract, they did not sign it together. As it turned out, an earlier version of the contract was printed and it favored Spencer more than Sophie. When Spencer sent the contract to her to sign, she read it over carefully and noticed the changes. She immediately believed that Spencer was trying to cheat her. She refused to sign the contract and considered refusing to go forward with the arrangement even when she received the correct contract.
Speaker 1:Module 7. Assess performance. Contract managers should constantly be assessing the performance, determine that goals are being reached and requirements enforced. By creating metrics and measuring performance, it is possible to improve activities and increase the success of the contract. Each contract will cover its own list of performance measures, depending on industry and goals. Any performance assessed needs to be measurable or it will not be possible to compare it to the other data and analyze it. If it is not measurable, then metrics cannot be created to assess the success of the contract as it is being implemented. Examples of performances that can be measured include cost, quality, safety and accuracy, to name a few. Each list of performance measures will vary with the industry and the goals of the contract.
Speaker 1:Metrics and key performance indicators facilitate the performance assessment. A metric can be used for any performance, but the KPI is typically used to measure key areas of performance. An example of a KPI is the sales goal. Your business, contract goals and performance measures will determine the metrics you choose and how you measure them. Examples of common metrics Processes, turnover, roi, retention, revenue, etc. Projects, cost scope, quality, etc. Production Cost, labor, material yield. Benchmarks help assess metrics. Use research from the best practices, along with past performance, to create goals that are measurable and achievable. For example, a sales goal should be higher than the sales from the previous year, while taking other economic factors into considerations. It is important to note that metrics and goals need to be adjusted over time.
Speaker 1:There are different ways to measure performance. Some metrics have simple yes or no answers. Other metrics will have numerical assessments, and others are more subjective. The measures can be taken using audits, inspections, reports, surveys and other feedback. Staying in compliance in some areas is a simple matter of answering yes or no. For example, having all food service employees be certified food handlers is a matter of compliance or non-compliance. Mathematical assessments are easy to assess. For example, an increase in sales can be quickly assessed and compared to the last year's performance. Subjective metrics, such as customer satisfaction, can be assessed using surveys. They should also be compared to proxy measures such as the number of repeat customers.
Speaker 1:Tracking performance using scorecards and other measures will identify areas that require improvement. Scorecards allow for continuous monitoring, which provides the opportunity for continuous improvement. The scorecard should display trends and goals in the different metrics. The actions that need to be taken will vary. Keep in mind that it may be necessary to alter targets that are not achievable. Example KPIs Material cost 35%. Inventory on hand 50% of production. Labor cost 37%.
Speaker 1:Parker executed the contract with Nathan and believed that they made a good deal. Parker trusted Nathan to monitor the employees who would sell her product over the course of a year. After three months, parker began receiving complaints from customers who purchased her product from Nathan's employees. She began looking at the numbers and realized that the sales and repeat customers were beginning to decrease, and it coincided with her contract with Nathan. She immediately called Nathan to discuss his employees and the decrease in customer satisfaction, module 8.
Speaker 1:Relationships Like any other interaction. Contract management requires the careful cultivation of relationships. A relationship that runs smoothly will produce better results for all parties involved. The key to relationship development is treating people with respect. Maintaining a professional relationship is not only good business in the present, but it also creates contacts for the future. Effective relationships share some basic qualities based on respect. In business and contract relationships, there are some basic factors that will develop healthy relationships when they are made priorities and carefully cultivated. The agreement is mutually beneficial. Both parties take joint responsibility for management. Communication is open and honest. There is trust between the parties. When these and other relationship factors are taken into consideration, the foundation for a productive business relationship is built.
Speaker 1:Every relationship faces potential pitfalls, and business relationships are no different. When the risks are not monitored carefully, the relationship can break down. The breakdown is often preventable when individuals are aware of the pitfalls and take precautions. Common pitfalls Dependency. This occurs when one business relies on the contract more than the other. An unequal relationship can build distrust.
Speaker 1:Culture Each corporation has a unique culture. When the cultures are not compatible, conflict can occur. Communication Poor or inconsistent communication will create problems between organizations. Unclear roles and responsibilities Both parties need to understand their roles and responsibilities to prevent any confusion. When people are aware of relationship pitfalls, they can stop them before they start. Paying attention to the relationship will build trust and ensure a long and healthy partnership.
Speaker 1:Trust is the cornerstone of any relationship and relationships through contracts are no different. When one party is secure in the relationship with the other party, trust is present. Trust occurs on multiple fronts Good faith Everyone is acting in the best interest of the contract and the business relationship. Belief in abilities Each party is confident is the capability of the other. Integrity Both parties are honest in word and deed. Commitment Going beyond the basic tasks, focusing on the actions that build trust, will protect the business relationship and facilitate future partnerships.
Speaker 1:Like every other aspect of contract management, it is necessary to assess the relationships when contracts are involved. Aspects of relationships that should be evaluated include the following the frequency and success of communication. How involved each party is. The success of the contract process. Whether any conflicts occur and how they are resolved. How satisfied are both sides with the relationship? Each relationship has its own parameters to assess and improve. Remember that no relationship is perfect, so be realistic, monitor your relationship carefully and be willing to make changes when they are necessary.
Speaker 1:Richard renewed Jack's contract as the vendor for the college dining services. Jack's company relied on the contract. He needed the renewal, but he did not increase his prices to reflect the increase in food cost. He knew that other companies could afford lower prices and he wanted to remain competitive. With his budget tightened, he came to resent being in a contract that was so one-sided he began cutting back on the portions and food quality to keep his profit margin from falling too far. Richard noticed the drop in quality and believed that Jack was merely trying to take advantage of their long business relationship.
Speaker 1:Module 9. Amending Contracts. Even the best negotiated contract agreements can require changes. After a contract is executed, amendments will modify the terms of the original agreement. Many contracts include the clauses that require all amendments be in writing and signed by each party. The amendment only changes specific details, such as delivery details.
Speaker 1:There is more than one way to amend contracts and it is possible to use more than one option at a time. Contracts can be amended using red lines and strikeouts or strikethroughs. A strikeout is what it sounds like. The information that needs to change is struck through, leaving the original information still visible. The new details are typically underlined. The amendment is generally introduced using a simple statement, rather than striking out old data and underlining new. It is possible to replace a clause that needs to change with a completely new one. The amendment will need to be introduced before the new clause is inserted, just like with red lines. Example Original this agreement will be governed according to the laws of New York. Introduction Section 5 is entirely replaced by the following New clause this agreement will be governed according to the laws of California.
Speaker 1:Replacing clauses is particularly useful when multiple changes are necessary. An alternative to replacing clauses or using red lines and strikethroughs is to describe simply the changes needed in an amendment. This method requires examining the current contract carefully to be sure that the changes outlined are accurate and necessary. Example the second sentence of Section 5 is amended by changing New York to California. The third sentence strikes out for 12 months and replaces it with for 24 months. Describing amendments can be faster than the other processes, but there is a higher risk of error when both parties are not careful to compare the original document to the Amendments are not automatically accepted and included in contracts.
Speaker 1:Both parties must agree to and accept the changes. With modern technology, amendments are easy to process and track. Most software and systems have different statuses for amendments created, but they use similar terminology. For example, oracle categorized amendments as pending, ready, completed or canceled. Once an amendment is created, it is pending. It can still be edited or canceled. After checking to make sure that no further edits are necessary, the contract is moved to ready. At this point the amendment can be sent back to pending or canceled. After the ready contract amendment is processed, the status is completed Without the use of technology. Both parties will need to physically sign off on the changes.
Speaker 1:Paxton discovered that the number of people expected at his resort over the summer is higher than his initial projections. He will need to increase the linen that Adam's company is providing. After discussing the change with Adam, he described the amendment that he needed in the contract. When Adam looked over the amendment in comparison to the original contract, he realized that the change was not what they discussed. The change was in the wrong clause, which caused confusion. He immediately called Paxton to inform him of the discrepancy. Adam needed the amendment corrected before he would change the terms of the original contract, module 10.
Speaker 1:Conducting audits Audits are an often seen as unpleasant but necessary tasks. The right preparation, however, such as careful planning, evaluation and execution, will help ease the process and reduce the stress that can occur with business audits. Having a strategy is the difference between a chaotic experience and a smooth transition to the next phase of the process. There are many reasons to audit contracts. An audit will identify any overpayments or other financial mistakes. Additionally, the audit will identify weaknesses in the contract management. Errors found will serve to identify weaknesses in the policies, procedures and controls that both parties have in place. Each audit strengthens the contract process and prevents mistakes in the future. Over time, the auditing process will become easier to navigate. Additionally, the information learned from audits will help to improve future business dealings.
Speaker 1:Going into an audit without a plan is asking for trouble. Like anything else, planning is essential to the audit process. Different topics need to be addressed in the planning phase of the audit process. Before conducting an audit, list all of the goals and steps. Determine the scope and objectives of the audit. Make sure that the necessary resources are available. List who will have the results of the audit. Speak with anyone who will need to be aware of the audit. Make sure that the strategy for the audit is approved by the necessary parties.
Speaker 1:Each audit is unique and so are the procedures involved. The organization, contract, scope of work and objectives will all affect what is necessary in an audit. There are some basic procedures that most audits share, regardless of industry. Most audits include procedures such as risk assessment, identify areas of high risk testing, test and evaluate evidence collected using different techniques. Questioning, make inquiries of people involved, observation, observe the actions, policies and procedures. The roles and responsibilities, as well as the guidelines and policies of the audit, should be established before the audit begins. The auditor should be objective and supervised during the investigation. All of the information collected is analyzed using the tests and techniques chosen. The findings of the investigation must be documented carefully and the documentation must include the investigation findings and analysis. The documentation will support the recommendations made in the report.
Speaker 1:After investigating an audit and discussing the outcome with supervisors, the auditor will need to submit a report. The report needs to include the audit scope and the results of the investigation. Aspects to note include compliance recommendations and corrective actions. The report must be signed and a chief auditor will review the findings. In some circumstances, the perspective of the individual or company audited may find its way into the final report. Ashley needed to audit a contract with Ellie. She focused on the financial aspects of the audit to ensure that it is in legal compliance. She did not connect the finances to other aspects such as the goals or the scope of the contract. She found negligible financial errors and she did not make any recommendations. Ashley relied solely on the paperwork to conduct the audit and did not involve anyone other than her supervisor. She was surprised to learn that Ellie felt that the policies and procedures needed to be improved when the two met to discuss the results of the audit, module 11.
Speaker 1:Renewing Contracts. At the end of the contract management process, it is necessary to determine if the contract relationship expires or if the contract will be renewed. An option to renew should be included in the original contract. The renewal process will be guided by reviews which will focus on accuracy and other factors. With careful planning and execution, the renewal process can be a smooth transition that improves and continues a mutually beneficial relationship. Be a smooth transition that improves and continues a mutually beneficial relationship. The contract review should involve all of the key stakeholders. The contract information should be forwarded to all of the stakeholders who took part in the original decision-making process. Each contract will have its own set of stakeholders and experts. They include departments such as legal and budget, along with the contract management team. All related documentation should be available for the stakeholders to review, as a group and individually. Collaboration between the stakeholders will help identify ways to improve the renewed contract.
Speaker 1:Reviews may be performed more than once. Although most organizations perform mid-contract reviews as well as audits, a pre-renewal review is typically conducted shortly before the renewal deadline specified in the contract. During reviews, it is important to take notes throughout the process. Although reviews are not as complex as audits, they are still part of the contract record. Reviews of finances examine the relevant information for fraud and accuracy. Accuracy using basic accounting practices. Any files, documents, reports, emails and audit findings should also be examined in the review to determine the level of compliance. Besides finances, confidentiality, security and other factors will be assessed, depending on the scope of the contract.
Speaker 1:When key stakeholders work at the review together, an objective and accurate decision can be made regarding the renewal of the contract. When key stakeholders work at the review together, an objective and accurate decision can be made regarding the renewal of the contract. Fundamental contract information must be assessed in the renewal process. Note any inaccuracies as well as any changes that occurred, particularly if they are not already part of the record. Double-check all information to make sure the review is accurate before moving forward. Are the key stakeholders the same? Does the spending match the cost and prices listed? Is the overview still accurate? Are changes needed? Has any contact information changed? Has the focus and scope of the project been altered? Does all of the documentation support the review and report?
Speaker 1:Many contracts will automatically renew and need to be cancelled ahead of time. If a contract renews automatically, you must make a decision early. Failure to make a decision can result in being trapped in a dysfunctional business relationship. If there is no renewal or cancellation, the negotiation process will begin again. If a contract is being renewed, it must be updated to reflect the changes discovered during the review. Additionally, any changes in the goals and contract parameters will need to be reflected in the renewal. The review will determine whether or not a business relationship continues. A vendor who remains compliant will be seen as an asset and is more likely to have a contract renewed. John's contract with Sarah would be automatically renewed.
Speaker 1:Sarah did a mid-year review and was not sure that she would renew the contract. She decided to address the question when it came closer to the time to renew. As the months passed, she kept putting the review on her backburner. Finally, she looked into other vendors. When she went to cancel John's renewal, she discovered that the deadline had already passed. John was going to be her vendor for the following year because she failed to plan the review ahead of time. Sarah was determined not to make the same mistake twice. Module 12. Wrapping Up. Although this workshop is coming to a close, we hope that your journey to learning contract management is just beginning. We wish you the best of luck on the rest of your travels. Words from the wise Sir Henry Main the movement of progressive societies has hitherto been a movement from status to contract. Benjamin Disraeli what usually comes first is the contract. Robert Higgs A valid contract requires voluntary offer, acceptance and consideration. John D Rockefeller A friendship founded on business is better than a business founded on friendship.
