Best Practices for Contract Review

Contract management and review are important, and often neglected disciplines. According to research done by the independent International Association for Contract & Commercial Management, good contract management practices could improve profit by 9% of annual revenue. Contracts can leak, costing money through outdated pricing, or misunderstandings and breakdowns in communication that lead to losses. 

Contract review is the process for determining customer requirements prior to the supply of a product, and proof that the organization has the ability to meet the defined requirements. Contract review should be part of your company's business management. Attention must be paid to the requirements related to products, supply and management of information. Your company will determine the specific needs of the customer including delivery and post-delivery activities, such as warranty and maintenance services. You also need to consider requirements that are not explicitly stated by the customer, but are still necessary. You need to know any regulatory requirements that apply to the product.

Before your company commits to a contact or order, or any changes to existing contracts you need to consider several factors including:

• Clear and defined product requirements.
• Contract terms, especially anything that is changing from a previous agreement.
• Your company's ability to maintain the agreement including records of the review and actions taken in response to the review.
• If no documentation of requirements in provided by the customer your company needs to outline them.
• When requirements are changed documentation, needs to be updated and any relevant personnel must be informed.
• In some situations, a formal review is not practical, but product information should still be looked at.
  

Communication is also critical to success. You will need to determine effective means of communication in relation to product information, contracts, order handling, feedback and complaints. This is all part of your customer relations management processes and determining customer requirements. If contract review is ever done offsite, you need to link the activities to your on-site quality management system.

You must conduct risk analysis before committing to a contract. Consider whether taking on additional obligations will affect your supply chain, for example. Manufacturing risk analysis will help you assess your ability to effectively provide the specified product. Do you have the resources needed to fulfill the obligations? Can you meet timing demands? Are there additional developments costs and investments? Look at potential failures in processes, including suppliers. Is there solid potential for increased profits? Considering all of these factors will allow you to enter into contracts that are efficient and effective, which is good for your bottom line.

For more information on how Accupoint can help improve your contact review process, contact us today.