Managing contracts as an object and managing business through contracts is not the same – but they must go hand in hand!

What is Contract Management?

Contract management has traditionally referred to the activities that take place after a contract is signed, aimed at fulfilling the contract in accordance with "all its terms and provisions."

Examples of contract management activities include:

• Contract kickoff meetings where the key points of the contract are reviewed with those involved in its subsequent execution

• Ongoing handling of documentation relevant to the contract

• Monitoring compliance with the contract’s requirements (time, quality, cost) and addressing any breaches (e.g., penalties, remediation, compensation)

• Managing claims and changes

• Closing contract activities at the end of its term

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Contract administration is often used synonymously with contract management. However, both World Commerce and Contracting (WorldCC) and the National Contract Management Association (NCMA) caution against narrowly focusing on contract management as merely administrative or compliance-driven tasks.

It is vital to continually improve an organization’s ability to develop and utilize contracts as tools to achieve the business objectives they are designed to support. This requires collaboration among all relevant stakeholders from a business need arises through the bidding phase, negotiation, contract signing, execution, and closure. It also requires continuous knowledge sharing and reflection on how contracts and management activities can best meet business goals.

The contract, in other words, should be seen as a tool requiring user involvement and serving multiple purposes, all of which must be considered from the start. This demands an “end-to-end” approach, known as Contract Lifecycle Management, where all stakeholders provide input on how the contract can best support relevant business objectives, such as quality, timeliness, financial outcomes, sustainability, compliance, etc. The users of the contract should be placed at the center to ensure their needs are optimally met—before as well as after contract signing.

To understand this in more detail, we can examine some of the key concepts defined by WorldCC in the textbookThe Operational Guide (2011) used by NSCCM in our CCM certification program: Contract and Commercial Management. For example, the main terms contract management, contracting, and commercial management are defined as follows in The Operational Guide, pp. 616-617:

• Contract Management is defined as "the planning, monitoring, and control of all aspects of the contract and the motivation of all those involved to achieve the contract objectives on time and to the specified cost, quality, and performance."

• Contracting process is defined as “a high-performing business process through which successful contracts and trading relationships are formed and managed. Differences in the process will result from the types of contract or relationship that a business wishes to enable; for example, high volume commodities demand a fundamentally different model from complex services or major, long-term projects. The list of tasks remains consistent; the difference is over who performs those tasks, how they are performed, and the time it takes to reach completion."

• Commercial Management “is often used to describe activities that are non-technical and can therefore embrace areas such as sales, marketing, and business operations. Our definition embraces only those areas that are of direct relevance to the structuring, content, and performance of the contract. We see the role of a 'commercial manager' or of the 'commercial process' to ensure that all relevant stakeholder views have been incorporated and evaluated, to ensure that the needs (of the customer) and capabilities (of the supplier) have been aligned. In this sense, we view the contract as a tool to undertake and oversee the 'commercial assurance' of a deal or relationship and this may be from either a customer or supplier perspective."

This evolution from narrowly defined contract management to a broader business-oriented approach, known as contract and commercial management, is increasingly being adopted by organizations because it creates greater value. Generally, leaders and users of contracts should reflect on whether the contract is being used as the comprehensive management tool it has the potential to be—or if it is instead seen as “primarily a legal compliance document best kept in a drawer and only pulled out in case of conflict.”

Recently, the German researchers Prof. Dr. jur. Ralph Schuhmann and Prof. Dr. jur. Bert Eichhorn emphasized the importance of viewing contracts as management tools for users. In their book, Contractual Management: Managing through Contracts (2020), they point out that contracts can relate to management in two ways: the contract can be the object of management, or it can be used as a management tool. The first activity is widely practiced by organizations as contract management. The second approach, focused on contractual management, is still in its early stages of development. This approach views the contract from the user’s perspective—including senior management—rather than from a legal, financial, or other specific discipline’s viewpoint. 

The authors underline that their concept of “Contractual Management” should be distinguished from traditional contract management, which focuses on managing the contract as an object. In contrast, Contractual Management focuses on managing through the contract, using it to help a company, business unit, or individual transaction achieve its objectives. This active view of the contract operationalizes it as a management tool (Contractual Management: Managing through Contracts, p. 25), aligning closely with WorldCC’s approach of combining “contract” and “commercial” management into contract lifecycle management to better achieve business objectives and create more value.

Both WorldCC, NCMA, and Schuhmann & Eichhorn highlight a central issue when organizations define and execute contract management: the need to distinguish between managing the contract as the object it is and seeing it as a tool that supports the purposes its users have.

Our Contract Management approach

NSCCM's philosophy is clear: there is a need to view contract management both as the management of an object and as a tool that can be continuously optimized to support its intended purposes. This requires user involvement from the moment the need arises, through bidding, negotiation, contract signing, execution, and closure. In other words, the two approaches must work together to achieve optimal results.

In NSCCM’s courses and programs, you will gain deep insight into the different approaches to contract management and the related processes and activities, enabling you to improve your organization’s handling of contracts.