Any company manages its business activities through supply, service, employment, and other contracts.
Managers can create some standard contracts automatically with a few clicks. But more complex contracts require days of preparation. Errors and vague wording in such arrangements are especially dangerous because they jeopardize the agreements’ outcomes and waste the time of the people who prepared them.
But what if we say we know the secret to avoiding these mistakes? It’s a contract administration plan.
Read on to find out how to create a perfect administration plan — its purpose, structure, and best practices for writing.
What is contract administration?
Contract administration is the process of management and preparation of a contract before signing. A contract administrator plans the agreement, describes the terms of the deal, and provides all the details. This way, involved parties can sign a contract with clear, achievable goals.
Contract performers, negotiators, and administrators are usually different people. The administrator is responsible for ensuring that all participants and performers understand the contract terms, their obligations, and the consequences of any violations.
A contract administrator plans the agreement, describes the terms of the deal, and provides all the details.
Important thing: contract administrators and contract managers have different roles. Administrators prepare and plan everything to sign a contract and ensure that parties are ready to implement it. Managers control and monitor that they actually perform their work according to agreements.
A contract administration plan is the best tool to fix and explain all these conditions.
We’re here to help you learn everything about it, starting from the basics.
Contract administration plan and its purpose
A contract administration plan is a document that keeps the parties aligned on the objectives. It wraps up the contract terms in laconic, simple language.
The plan contains more explanations but is much shorter than the contract. Some call it a summary of the whole contract, but we’d say it summarizes every step of the parties’ cooperation.
Don’t worry if you feel a little lost — everything will become clear once you read about the goals of the administration plan:
- Explain legal terms in plain language to clarify the objectives and responsibilities of the parties before signing the contract.
- Convey the contract conditions to employees who didn’t take part in contract drafting or discussion but are involved in its implementation.
- Clearly define any terms that might be misinterpreted.
So, rephrasing one very dark wizard, the administration plan is the contract’s “past, present, and future, Harry Potter.” Administrators use it to clarify all the details before a contract is finally signed and it’s time to implement it.
Now that you know the basics, we offer you to move on to the most exciting part — creating the contract administration plan.
How to create a contract administration plan
Creating a contract plan is like writing any guide: prepare it, write it, and get it approved. Let’s look at its structure before exploring the best practices of contract administration.
These are the typical parts of the plan.
List of contacts
List people involved in signing and executing contracts along with their work titles and contacts on the first page. Usually, they include:
- negotiators
- managers responsible for contract implementation
- contract managers
- executive team members
This information ensures you are always in touch with the other party to resolve or discuss any problems. And even if the employee is no longer working on the project, the title will tell you who you need to engage. Employees may change, but roles remain relevant.
The project’s scope
In this section, you need to summarize the contract without omitting any necessary details. In other words, you must give an overview of the parties’ actions to achieve the agreement’s objectives. Keep it simple but clearly inform the readers about the purpose of cooperation.
A detailed description of deliverables
This section should be dedicated to explanations that help you avoid misunderstandings. First, include a list of all items or services you or your vendor must provide. Then describe their quality, quantity, and technical characteristics.
If your vendor or supplier hires a contractor or commissions third-party services, don’t forget to name preferred organizations or products. Or you should at least mention your budget and the qualification of the people you want to involve.
Milestones
Contracts rarely mention project milestones, but they are necessary for a well-coordinated implementation. Clarify them with the manager responsible for executing the contract and check if they agree with its terms. If they do, briefly describe these milestones. For example, if this is an IT product, you can define the functions developers should build first.
Detailed timeline
Once you outline milestones, you need to decide on the deadlines and the project start date. Remember to set deadlines for both parties. For example, include the time the client will take to approve and pay for the work performed.
Financial details
In this section, you should describe everything related to finance and accountability, including:
- How to calculate price (pricing methods) — for a month, for every milestone, hour, service, amount of goods, etc.
- How to pay (payment methods) — bank account details, invoice details, currency exchange rate if needed, etc.
- When to pay — actions that trigger payment, how many days the parties have to send an invoice and pay, etc.
You should also specify the penalties for contract term violations. You can do it in this section or draft a separate one. In any case, you must clearly explain things related to issuing, billing, and paying fines.
Monitoring and reporting requirements
This part shall specify requirements for reporting. You should determine who and how often must provide reports on your cooperation and what kind of data you want to see. For example, you might need weekly reports on project progress or just one presentation on each milestone.
Risks and their mitigation
Last but not least, you need to define all risks your contract might entail and ways to prevent or mitigate them. Sure, you cannot predict everything. But, for example, demanding that employees use protected communication channels lowers the risk of data leakage.
This section also helps to see who is responsible for damage if one side did nothing to prevent these risks.
You can add any other necessary points to this list, such as a general workflow description or information about third parties. Just google some examples and find a few fitting your needs.
Best practices for creating a contract administration plan
Before you start writing your contract administration plan, we want to give you a few tips to make it easier for you:
- Clarify all details with the people involved in creating and implementing the contract. A negotiator can zero in on crucial terms, while the legal department can explain clauses. Meanwhile, managers can describe how they plan to act on agreements.
- Stay in contact with contract managers. These people know the other party since they closely cooperate with them. So they can give you all the information to make a perfect document.
- Avoid ambiguity. If you see that some term or phrase has a double meaning — clarify it. An extra explanation can save you from misunderstanding.
- Explain things that are not mentioned. Implying things is not enough; write it down if the contract covers or doesn’t cover something.
- Use software where possible. For example, you can generate reports on similar agreements. Or find few-year-old contracts with the same client in the contract management system with a click or two.
- Use plain language and clear structure. People will often skim the document to find necessary explanations — make it easy for them.
That’s all. We shared all the essentials to write a perfect contract administration plan with you, and you are ready to start.
Conclusion
Contract administration plays a critical role in preparing and signing successful contracts. And a contract administration plan is the central document behind this success. It explains and summarizes all terms helping the parties agree on achievable goals. These explanations also allow them to avoid ambiguity and mitigate risks.
Administrators should cooperate with all involved people to prepare a helpful document. Clear definitions and good structure are also key for a comprehensive plan.
Experience is the administrators’ primary tool in this process, but the software could help in many cases. For example, CLM-generated reports on the previous cooperation might give some valuable insights. Contact us to learn more about automation’s benefits and see how AXDRAFT can help you with contract management.
A contract plan is a document that helps people drafting and executing the contract navigate its terms. It also makes it easier for them to agree on mutually beneficial objectives and achieve cooperation goals.
You should address the following elements in your contract administration plan:
- Contacts of involved employees and executive team
- The project’s scope
- Deliverables and expected results
- The project’s milestones or stages
- Timeline and deadlines
- Financial details
- Risks and ways to mitigate them
- Monitoring and controlling details
Contract administrators plan and prepare the contract to clarify and explain its terms to involved parties before signing. These actions help them reach contract goals without any misunderstanding.
The contract administration phase includes planning, discussing, clarifying, and negotiating the details of a contract before signing. It sets realistic conditions for its implementation.