How Contract Management is Used in Project Management
Most of the time, before there is a project, there has to be a contract. The exception is that there are still projects that are self-initiated within the company, especially during the set-up stage. But even internal company procedures can be considered as being within the definition of employees fulfilling the duties of their employment contracts with leadership, so even that loose analogy still holds.
The fields of project and contract management have some overlap, but also distinct duties. Contract management involves negotiation, modification, review, and decisions about when to fulfill, renew, and cancel contracts. Project management starts with the contract as a goal and manages the workflow to fulfill those obligations. But both contract and project managers also review contracts and draw scheduling and prioritization of functions from them.
But then you might ask: what is contract management? If a company can be compared to an army, then contract management would be within the domain of the generals. It is mostly an executive function. Contracts lay out the way forward for a company, mapping out how it does business with other business entities. Of course, no general goes into battle without being briefed, so a legal, sales, or accounting team might advise the contract management department. If contract managers do not make the final decisions for the company, they at least hold the keys to the most crucial information to make those decisions.
What is project management?
To continue the military analogy, project management falls to the sergeants. It is their duty to take the plans laid out in the contract and implement them in such a way as their duties are fulfilled. The sergeants have almost no say in the overall decision-making process. They are handed an objective and their job is to fulfill it, or they have failed.
The nerve center of a business
The relationship between managing contracts – laying out the goals a company undertakes – and managing contracts – being sure to fulfill said goals – is the determining factor is a company’s smooth operation. It is the point at which the clearest possible communication between the two functions is essential. Because business obligations fall under the domain of the legal department, most of the time contract management is seen as a legal function.
But there’s a broad variety in how companies manage this function. In fact, some statistics about companies’ approaches to contract management reveal interesting insight into the challenges of this function. Law professionals are split three ways about whose responsibility it is. Two-fifths of companies don’t rely on a legal team for contract management at all. And only two-fifths of legal departments have any contract management automation installed.
There’s a huge amount of fluctuation in how companies manage contracts, from having a dedicated team that takes the work as their chief function to having nobody really assigned to this function at all. In cases of small businesses, sole proprietors, and indie start-ups, contract management is a floating responsibility likely shared by the general leadership. But for any kind of larger business, lack of contract oversight is a severe shortfall.
How businesses fail
When a business fails at its objectives, is the relationship between contractual obligations and project fulfillment always the faulty gear? There are, of course, other reasons businesses fail, such as being squeezed out by competition, misreading the market, or stumbling upon some external roadblock. But whenever a business failure is blamed on “faulty, incompetent management,” that’s usually code-words for “they stumbled between the contract and the project.”
In summary, deciding how a company manages both projects and contracts is something that should be hammered out early, clearly, and definitively. It matters in any industry. Regardless of whose responsibility it is, which department runs within the other, or even if the same people share responsibility, contract and project management must work together seamlessly. Every step a company takes to facilitate the smooth operation of this relationship is a solid fortification against failure.
