MANAGEMENT CHAT

Nine Steps to Why It Matters

Contract management is the set of techniques, processes and functions that allow you to manage contracts in a company, from the preparation of the first proposal to the execution. Every organization needs to deal with contracts, which are basically agreements signed between two or more individuals or legal entities that establish rights and commitments between the parties.

In the case of a company that provides recurring services, contracts are closed directly with customers, but it is also necessary to hire suppliers, partners and other entities. Therefore, every business needs to apply contract management to ensure that agreements are fulfilled, services are provided correctly and deadlines are obeyed. This management should cover each of the stages of the life cycle of a contract, ranging from request to termination or renewal.

It is possible to keep hiring up to date, avoid errors and optimize business processes. Objectives of contract management are to ensure compliance with the terms and clauses of all contracts, streamline contractual procedures in the company, monitor all stages of the life cycle of contracts, manage the storage and history of contracts, control expiration dates, renewing contracts (including, to optimize sales strategies), identifying the need for addenda and contractual amendments and promoting communication between the parties. During all phases of the contract, the responsible manager must ensure that the signed conditions are fulfilled and/or modified when necessary, avoiding errors, inconveniences, delays and other problems that may harm the company’s relationship with its partners and customers.

Contract management is essential for companies of all sizes that deal with this type of instrument, as it ensures that the agreements are fulfilled and both parties are satisfied with the negotiation. For service providers, a well-managed contract means a satisfied customer and possible loyalty, in addition to the guarantee of recurring revenue, in the case of services provided continuously. In addition, contract management is an essential part of strategic planning, as it allows the company to act at each stage of contracting to expand business opportunities and improve service performance. The greater the flow of company contracts, the more important this management work is, as missed deadlines and inconsistencies with clauses are common problems when there are many documents to control.

The life cycle of each contract is formed by the phases of pre-contracting, contracting and postcontracting and different stages for each of these.

The first stage of a contract’s life cycle is planning, which determines the object of the agreement and its conditions. The document can be created at the request of a customer, the company’s purchasing department, a supplier, or any other situation that requires a written business agreement. In this beginning, the clauses, objectives, risks, sanctions, rights and obligations of the parties are defined, as well as the deadlines. In larger companies, it is common to have a position dedicated to collecting information and drafting contracts. In the smaller ones, this task can be delegated to the legal, financial, commercial or the entrepreneur himself.

The second stage with all the conditions defined, the contract begins to be drawn up at the writing stage. The company can use a template or use the legal department (or external legal services) to write the document from scratch. When the flow of contracts is high, it is possible to reproduce the same models and use patterns to speed up the creation. Anyway, this initial text is just a draft, as the contract must still pass approval and review to be validated.

The third stage is the negotiation stage where it is decisive for the contract, as it is when the parties analyze the conditions and reach a definitive agreement. For example, in a service provision contract, the client receives the previous version of the document and has a deadline to analyze each of the clauses in detail, as well as their deadlines and execution schedule. Then, company and client can discuss the contractual determinations to reach the best agreement for both parties.

Depending on the details of the contract, the process can be time-consuming and several clauses can be changed between concessions and requirements of each party. At this point, it is important that the company has an efficient communication channel to streamline the negotiation and reach the final version of the document as soon as possible - after all, time is money.

The fourth stage, approval and review, is when the parties reach a final agreement and the contract is approved and reviewed. For this, it is important that the document goes through the legal sector again to ensure that there is no legal loophole, inconsistency or irregularity with the clauses. With the signature of the parties, the contract is officially approved and becomes legally valid.

The fifth stage is the execution of the signed contract, which varies according to the agreed conditions and details. If an agricultural aviation company works with a subscription model, the contract can provide for the delivery of services during the season, making its management more complex. In that case, the company must closely monitor the execution process and ensure that all clauses are complied with by all parties.

The sixth stage is the retention where contracts with legal and fiscal validity must be stored safely for future consultations soon after the signatures. In the case of long-term contracts, it is even more important to have easy access to the document to review its clauses at any time. But, even if the agreement has already been closed, it is still important to keep the document as evidence of the negotiation. For the company, maintaining a contract file is essential to understand the history of services, consult past negotiations and protect yourself in case of legal proceedings.

In the seventh stage, reviews and additions, it is not uncommon for contracts to be changed during their execution phase, as new demands arise along the way. Fortunately, they are dynamic instruments that can receive corrections and changes and addendums (content additions) at any time. Remember, it is necessary to make the changes and attach them to the original document.

The eighth stage is the closure or renewal of the contract, when the agreed expiration date arrives, the contract is terminated or renewed, according to specifications of the contract. For service providers like ag operators, it is a decisive moment to achieve renewal and retain customer loyalty for yet another season. In other cases, the contract can simply be terminated and archived, as long as all the clauses have been complied with and there is nothing pending.

The ninth stage is for post-contract performance analysis. It is important to analyze the performance of contracts to understand which points can be improved and if there are flaws in the process of elaboration, execution and closure. This step is part of good business practices and allows continuous improvement of the life cycle of contracts, seeking maximum efficiency and productivity.

Technology through digital devices is the most efficient way to implement contract management. Today, there are ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) software with exclusive modules for managing online contracts, in addition to facilities such as electronic signature (digital certificate) and digital document sharing. With these technologies, you can concentrate all contracts in a single system and can easily monitor their terms and conditions, in addition to having instant access to any document.

If you become confused between dates and clauses, it’s time to use an intelligent system to manage your contracts. With certain online management platforms, you can manage all your service contracts in a single environment with much more agility and productivity. These systems allow you to monitor the contracting process from the commercial proposal to the receipt, providing a complete view of orders under negotiation and agreements already closed. In addition, contracts are integrated with customer and financial records, making clear the performance of sales and the generation of profit for your agricultural aero company. The module can also serve to manage administrative contracts with suppliers and partners, helping to control deadlines and forecast demands. In addition, you can still manage fees and discounts to improve customer loyalty and have full control over previous negotiations. So, now are you convinced about the importance of contract management?

Rafael Corrêa da Costa, Cuiabá Brazil, Bachelor of Aeronautical Science, Post-graduate degree in operational safety 13 years experience as an executive and agricultural pilot. Ten years as an operational security manager for ANAC (Brazilian FAA). Rafael has served as flight coordinator and air operations manager, in addition to acting as a pilot, and managing six agricultural aviation companies with aeronautical advice. He is currently CEO of Agrofly Sistemas.