Contract Management Procedures are Essential for Good Contracts and Monitoring Clients’ Duties and Responsibilities
Contract management, sometimes referred to as contract administration, refers to the processes and procedures that companies may implement in order to manage the negotiation, execution, performance, modification and termination of contracts with various parties including customers, vendors, distributors, contractors and employees. While business people often dismiss contract preparation as “lawyer’s work” that has little or nothing to do with the important aspects of the working relationship between the contractual parties, contracting is actually one of the crucial activities in determining the success of any business arrangement. While the essential steps in the contracting process will vary depending on the type and scope of the transaction, and the point at which counsel is brought into the discussions, contract formation and management typically involves most or all of the following:
- Investigation of the business and legal background for the particular transaction and determination of the role that counsel is expected to play in the contracting process.
- Identification of the contracts and related documents required to complete the transaction and establishment of a time and responsibility schedule for drafting, review, discussion, revision and completion of all of the required items.
- Review and evaluation of the related contracts and existing obligations of the company that might be impacted by the specific contract currently under discussion.
- Collection and review of information regarding the business and legal affairs of the other party to the proposed transaction.
- Preparation of the initial draft of each of the required contracts and related documents or, in cases where the opposite party is responsible for drafting, review of the initial draft of such items prepared by the opposite party.
- Discussion of necessary changes in the initial drafts, negotiation of the same and preparation of the final drafts of the contracts and related documents for signature.
- Preparation for, and completion of, the closing of the transaction at which time all contracts and related documents are executed and exchanged and any required performance at the closing (e.g., cash payments) is completed.
- Ongoing review of the performance of each of the parties under the terms of the contract, at least in those cases where the contract is long-term and calls for continuous performance over an extended period of time.
The timing and sequence of these steps may be impacted by other conditions unique to the transaction. For example, while the parties may quickly reach agreement on the content of the contracts, the actual closing may be deferred pending receipt of approvals from governmental officials or completion and delivery of various reports and opinions from third parties.
This month’s supplement to Business Transactions Solution on WESTLAW includes a new chapter on Contract Management (§§ 227:1 et seq.) that covers the creation and use of procedures relating to negotiation, formation and management of effective and enforceable contracts. The chapter describes the essential steps in the contracting process; investigation of business and legal issues; defining the role of counsel in the contracting process; and establishment and administration of a contract review and signature authority policy. The specialty forms library includes various forms for use in creating and administering a corporate contracting program including policies and procedures for negotiating and entering into contracts or leases, a contract review summary, procedures for review and approval of proposed contracts, a memorandum to officers, managers, and employees regarding contract review and approval procedures; and a memorandum from the general counsel to members of the corporate legal department regarding guidelines to be followed for effective contract management. The chapter also includes a contract formation and administration checklist, client executive summaries regarding contract management and basic procedures for contract review and approval, a slide deck presentation on contract management to be used for law firm and department training purposes and a memorandum on steps that attorneys can take to develop their own library of forms in order to be a more efficient contract drafter. For issues relating to drafting of particular types of contracts, reference should be made to the materials for the specific transaction in which such contracts are commonly used. Related information is included in Contract Formation and Performance (§§ 100:1 et seq.), Compliance Programs (§§ 223:1 et seq.) and Records Retention (§§ 228:1 et seq.).