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Operations Management Checklists

Administering Contracts Successfully


Checklist Description

This checklist outlines ways to help with a successful administration of commercial contracts

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Definition

The essence of every business is contracts based. Any company or business, however simple or complex, enters into contracts with suppliers, customers and contractors. For a successful result these contracts have to be properly managed and understood. Each contract has specific terms and conditions that have to be respected and complied with. It is essential therefore, that each contract is dealt with and that procedures are put in place to supervise and control the progress of every contract.

The accounts department will deal with the payments of utilities on time and the invoicing department will send invoices to customers. Accounts should monitor the cash flow of the business and the payment and receipt of invoices. Some companies will have a debt recovery team that will chase unpaid invoices and if necessary will ask the company’s solicitors to deal with any unpaid invoices.

Ordering procedures of a company for any goods, materials or services are as important as the payment procedures. Any equipment needs to be maintained and the company may need to set up equipment maintenance contracts that also need to be monitored. Running contracts successfully will involve a set up of good management reporting procedures and good communication between the teams and departments of a company.

Defaults on any contracts as a result of poor monitoring of their performance will have a negative impact on the business and reputation of a company. Any ongoing litigation will affect the performance of the business, waste resources, and will take its financial toll on the business.

In certain circumstances, a company can appoint a specialized contractor whose sole role is to administer the contracts that the company enters into. This is expensive but in certain circumstances beneficial.

Managers of a business should actively communicate with the employees in order to find out any difficulties they may have in the performance and monitoring of the contracts.

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Advantages

  • Will render a business successful.

  • Will provide an active and good cash-flow.

  • Will ensure that customers are satisfied with the performance of the contracts.

  • Will increase the reputation of the business and its potential growth.

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Disadvantages

  • In fairness, there are not many disadvantages that come as a result of a successful administration of contracts by a company except maybe cost related. In certain situations training of the staff and establishing a good procedure of administration will increase the costs of a business.

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Action Checklist

  • Always check the terms of a contract you enter into in order to understand and be ready to comply with it.

  • Make sure that you put in place a timetable of deadlines of all the contracts you enter into in order to allow you to follow and respect their terms.

  • Consult your customers frequently to assess if they are happy with your services and contracts you offer.

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Dos and Don’ts

Do

  • Set up a procedure to deal with all the contracts of the business that will include a checklist of how to supervise and monitor the performance of the contract.

  • Train the employees to deal with and administer contracts.

  • Understand the terms and conditions of each contract.

  • If necessary invest in contract management software that will improve the administration process.

  • Review invoices regularly. If any problems occur and payment might be delayed, contact the supplier and discuss any problem.

Don’t

  • Don’t ignore the need to properly administer contracts.

  • Don’t underestimate the need for proper procedures and professional advice if necessary in understanding the terms and condition of any commercial contracts.

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Further reading

Book:

  • Attree, Rebecca. International Commercial Agreements. Thorogood Professional Insights Series. London: Thorogood, 2002.

Article:

  • Cook, John A., Theresamarie Mantese, and Christine L. Pfeiffer. “Contract is signed: Now what?” Michigan Bar Journal (September 2005).

Websites:

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