There is a common misconception that, once a contract is signed, it is locked away to gather dust, with the cobwebs only being blown off in the event of a dispute between the parties. This is of course a dangerous approach which, as well as limiting a party's ability to maximise the profit it earns on a contract, may expose the contracting parties to liability. Effective contract management acts to ensure that a contract is administered in accordance with its terms, thereby assisting in maximising profit recovery while minimising risk.
Contract management is broadly defined as the administrative activities associated with handling contracts, primarily in the post-execution or operational phase, aimed at maximising operational and financial performance while reducing the financial risk of the parties to the contract. Effective contract management is now far easier due to the development of a number of software programs which work to consolidate contract data, create alerts, as well as a host of other functions, all of which serve to reduce the administrative burden on the contract execution team.
Following the procedure – variation and notice
Two common examples of bad contract management arise in the context of raising variations or giving a notice. Variations often lie at the heart of contractual disputes, regularly arising as a result of poor contract management (e.g. scope of work being unclear or the inability to make timely and prompt decisions).
Following the variation process set out in the contract is also critical in avoiding the likelihood of a party inadvertently waiving any rights it may have in relation to any claim to vary the terms of the contract. Conversely, from a vendor's perspective, intimate understanding of the variation procedure and scope of work is an opportunity to increase productivity on a contract.
The giving of notice is often overlooked as a minor component of a contract. However, ensuring that notice provisions are followed correctly is a good example of effective contract management. Failure to serve a notice in accordance with the terms of the contract provides the counterparty with a line of defence in the event of a claim. While failure to strictly comply with the notice provisions of a contract is not necessarily fatal, it does create the possibility for unnecessary dispute which could be avoided if the contract was managed effectively (i.e. by reading, understanding and adhering to its terms).
Dentons is well placed to assist companies who are experiencing contract management issues and we have prepared a summary of top tips that should be taken into consideration in order to ensure that contracts are managed effectively:
Ensure your contract is well drafted: This is the best advice legal advisers can provide in order to help to ensure that a contract is managed effectively. A clear and concise contract, providing certainty of its terms, will be of significant benefit to the execution team of each party. Cases of bad contract management often arise where the parties are unclear as to the process and procedure in different scenarios. Contract drafting is critical in helping to avert this.
Read and understand the contract (including any schedules/appendices): It is imperative that the execution team has read and understood the contract. The relevant personnel should also be well versed in its terms and query any provision which is unclear. Understanding the schedules/appendices (typically the scope of work, pricing and mobilisation plan (if relevant)) is also crucial in ensuring that the parties are clear on what falls within the scope, and situations giving rise to a variation.
Develop a contract management plan: Once a contract has been signed, best practice dictates that a management plan should be developed, setting out key contacts, milestones, as well as requirements of documentation delivery and performance of specific obligations. The contract management plan effectively breaks the contract down in order to highlight the key points for ease of reference.
Regularly monitor key performance indicators (KPIs): Contracts for the delivery of services frequently contain KPIs and it is critical that these are regularly analysed and measured in order to prevent a potential breach of contract.
Follow the procedure: The contract sets out the procedure for various scenarios (e.g. raising a variation, serving a notice etc.) for a reason – follow the procedure or risk incurring liability or losing a right. The courts (both in Oman and overseas) are littered with cases where a party has lost its claim due to a failure to follow the procedure set out in the contract.
Dentons is a global law firm with strong cross-border capabilities, and has operated in the Sultanate of Oman for 36 years (and in the Middle East for over 80 years). We are experienced in advising clients on how best to manage their contracts, both from procedural and interpretation perspectives. We regularly provide clients with advice as to the correct procedure to be followed or interpretation of a range of scenarios that arise during the life of a contract.
Our associate firm, S&A Law Firm, provides dispute resolution and advocacy services throughout Oman, possessing a deep knowledge in all the main areas of dispute resolution, including litigation, arbitration and mediation.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
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