Contract Management: A New Regulatory System

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The blog aims to provide the readers with the recent developments in IT-Based Contract management to deal with modern business complexities.

Introduction

Contractual obligations are not instantly fulfilled, to fulfil the obligations, the parties need to arrange the responsibilities in such a way that it satisfies their contractual needs. In modern days, the introduction of new technologies and technical opportunities have dramatically changed the whole scenario of managing contracts. Therefore, contract management becomes one of the important and dominating themes in the practice of contracting. New concepts such as contractual lifecycle, senior responsible owner and visibility of contracts symbolize these changes.

In recent days, contract management has developed into a form of business, particularly in the areas of transnational companies increasingly professionalize the negotiation, termination and review of the contract by using standardized procedures based on information technology. Contract managers are wholly responsible for such contracts. Contract management has different aspects and there is as such no uniformity in the procedure. Common features are electronic documentation of the contract and the events, which are mainly in the contractual life cycle.

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These contracts are also closely connected to compliance, as one of the goals is to fulfil the contractual work on time. It ensures that the contracts are carried as per the plan and the gap between the contractual obligation and contractual practice is narrow. Non-compliance with the terms and conditions specified in the contract takes it to the major risk. So, working on contractual obligations is the motivation in the favour of contract management.

To regulate contract management, there are two kinds of requirements: Formal and Substantive. The formal requirement provides certain procedures which must be worked on in the administration of contracts such as the establishment of a customer complaint system. Having such a thing does not change the content of the contract but it provides the way for the administration of the contract.

Another requirement i.e. the substantive requirement concerns the contractual content. Unlike the other management of contracts, the substantive requirement creates rights and duties between the parties and its clients. this requirement might, in case prohibit the cross-subsidy between different consumer group or classes of customers. As the result of the interdependent nature of one another contract, these requirements form part of the contract management regulation and not of the contract law.

Rise of Contract Management

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The growth or rise of the management of contract may be traced to at least three factors. The important factor that makes the management contract important is that central and standardized management is necessary. Particularly in the companies where there are a large number of clients, which makes it difficult to individually negotiate, monitor and implement every contract.

Therefore, making it simple these companies use a computerized contact management system. Take an example of the telecommunication industry. Contract management extends the standardization of the contractual process from the preparation of contracts to their review and termination.

The second factor for the rise of the management contract is the growing length and complexity of contracts. The last is globalization, which has increased the need for a contract management system. As the companies grow, it becomes more active in the different markets and thus it becomes difficult to have attention, overall the existing contracts with their terms and conditions, and other stuff.

A contract management system eases the retrieval of this information worldwide. The system helps to spread the information within the companies. It enhances the exchange of information about the existing contracts and shows their interdependency.

Legal Duties to Manage contracts

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The contract management system helps to monitor, better creation, implementation and changes the contracts. It the form of the business wherein the costs to establish such a system exceeds the gains inefficiency. The contract of management can become a matter of legal concern through contractual obligation. The parties are free to agree on the goods and service as well as they are free upon the accessory obligations which helps for the fulfilment of the obligation. For example, in the case of a construction project, the client might want to monitor the main contractor by the reporting system. For such a purpose, the main contractor might have to create a contract management system, which will allow the client as well as him to monitor the contractual procedure.

However, if the parties do not expressly state the creation of such a system in the contract, implied duties might be there to do create such a system. Such implied condition should also be read with the contract itself only. For example, in the case, where the contract requires the management of a great number of subcontracts, a contract management system (IT-based) might be only meant to keep the eye on the state of these subcontracts and therefore to fulfil the contractual duty.

But if there is a failure to establish such a system, then it might constitute a breach of the contract and might have procedural consequences in the context of litigation. The contract management system requires a proper system with documentation of all steps, which were taken while implementing the contract. This might be useful to find out the defaulter.

Apart from the procedural law, there might be other legal norms that might require the creation of a contract management system. For various reasons, contract management can be legally necessary. The law can have a minimum requirement for the sales, purchase and legal department co-operate and communication decisions.

Advantages and Disadvantages of contract management regulations

Advantages

  • The contractor can focus on the general decisions about various contracts that are created.
  • The contract management regulations adapt, new contracts and there is a change in factual circumstance.
  • Contract management regulations have transparency with the companies.

Disadvantages

  • The contract management regulations are concerned only with a limited set of questions-
  • The cost incurred in having a contract management system depends upon the circumstances and this cost might increase
  • The regulation of contract management in its premature state might harm the development of new types of contracts.

Conclusion

Managing contracts has changed dramatically. Now, there is more negotiation, implementation, review of contracts is carried out with standardized procedures which are based on information technology. This creates new opportunities in organizing a business as well as creates new opportunities for the legislator in the regulation of contracts.


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