Contract Administration Explained
Contract administration is a vital part of the project management and delivery process. As part of contract administration, a fully engaged contract administrator ensures that each contract is executed in accordance with its terms and that it is carried out efficiently. Engaging in contract administration involves compliance, on two levels.
First, the contract administrator must ensure that the parties adhere to the contractual obligations they each agreed to. On a broad level, this means that the contract administrator must ensure that the parties perform the activities they agreed to in accordance with the schedule they established.
The day-to-day administrative activities of managing a contract are typically the responsibility of the contract administrator, who also assists the project manager in overseeing the project.
Second , the contract administrator ensures that the contract meets the applicable terms and conditions that govern the contracting process itself. Often these terms will set forth the responsibilities of the parties, performance deadlines, and benchmarks for quality control or deliverables.
Of course, the contract administration process often requires that the administrator identify issues of non-compliance or potential compliance as they arise. Depending on the severity of the compliance issue, the contract administrator will follow the strategies that have been implemented to manage it. For minor issues, it may be appropriate to work with the contractor to resolve the compliance issues without issue. In other cases, more formal dispute resolution measures may be required.
What is Contract Management?
Contract management refers to the broad range of administrative and strategic activities required to manage contracts and their lifecycle from contract formation to performance through to renewal and termination. Its purpose is to ensure that the full value of a contract is realised and that the relevant risks are, so far as possible, managed and mitigated during the lifecycle of a contract.
Contract management covers the receipt and review of contracts, their approval and execution, contract administration, monitoring compliance with contract terms and conditions, and management of amendments and controls over third party consents, claims and disputes. Contract management is not simply a post-execution function, but continues from the pre-execution stage of negotiation through execution of the contract, performance of its terms, and during renewal and termination. Contract management therefore provides a constant and ongoing set of measures for managing performance, risk and the legal aspects of the relationship with the counterparty to a contract.
On the commercial side, effective contract management provides assurance that contracts remain compliant with the legal framework at all stages of performance and that all contractual obligations are being fulfilled in accordance with the terms of the contract, thus protecting the value of the contract and minimising the risks associated with non-performance. On the legal side, effective contract management promotes consistency and control in the use of contractual documentation, general terms and conditions, standard precedents and amendment clauses, and makes proactive management of the position in relation to risk and compliance possible during the lifetime of a contractual relationship.
Fundamental Differences in Contract Administration and Management
There are several key differences between contract administration and contract management functions. The most notable difference between the two is the scope of their remit. Contract administration functions are most commonly linked with managing the execution of contracts, whereas contract management is more comprehensive in nature. Contract administrators tend to be responsible for a significantly narrower range of tasks than contract managers usually are. For example, contract administration functions will typically make use of an online contract management system (so that all key contracts can be accessed in one place, increasing visibility over how contracts are being executed by all parties) to monitor all contract milestones, payments and other important developments and activities in respect of the contract – to ensure that none of these external influences have been overlooked and to therefore minimise the exposure of the business to risk. However, it is contract management, rather than contract administration, which encompasses the more complex tasks of pricing and financial modelling (to ensure process and procedure enlisted during contract negotiations is adhered to), and end-to-end contract lifecycle management – which means managing the contract from negotiation to expiration (or termination) – ensuring every contractual obligation is fulfilled on time, and at an acceptable standard of quality. Contract management functionality also includes contract modification: in the case of a change in price, scope of work, individual involved in providing the deliverable, or some other external factor which means the contract has to be amended to more accurately reflect the current state of affairs. Above all, the key difference between contract administration and contract management is in the level of granularity: contract administration involves the day-to-day management of the contract, whereas contract management is far more holistic, and encompasses the entire lifecycle of the contract.
Essential Skills for Contract Administrators and Managers
The skills required for the roles of contract administrator and contract manager vary somewhat, but there is considerable overlap. The observant reader may have noted that we said "contract professional" in both cases, rather than "contract manager" and "contract administrator". This is intentional. The evolution of the procurement field has led us to decide that it’s simply more meaningful to speak of persons engaged in the procurement process as simply contract professionals.
Because contract administration and contract management tend to overlap in terms of skills and experience, we’ve addressed them together here.
Both positions require basic skills in contract administration and management. Experience with the federal contract lifecycle is very valuable. Experience with FAR and almost always DFARS are also essential. Experience with bid and proposal functions and / or solicitation evaluation may or may not be required. In either case , many positions list this as a "preferred" qualification.
The contract administrator role may require focused knowledge and skills where you interface with the contracting officer and the contractor. Knowledge of the following is essential for the contract administrator role:
Similarly, contract management requires knowledge and skills in the following areas:
It’s easy to see that these skills and knowledge are largely interrelated from both perspectives. The contract administrator acts as a gatekeeper and authority in dealing with contractors. The contract manager must draw on the contract administrator role in order to accomplish this.
The Role of Technology and Tools in Contract Administration and Management
Contract administration has become increasingly automated. Contract lifecycle management (CLM) software is one such automation tool. For those without a CLM, other software products can be used to aid in the contract lifecycle by combining contract databases with tools that facilitate analysis and document assembly. Some standout tools are:
Contract Lifecycle Management Software
93% of $1 billion-plus companies use contract lifecycle management (CLM) software. Average cost savings for organizations using CLM is 18%. CLM encompasses the entire contract lifecycle, from strategic initiation, through authoring, negotiating, and approval, to management and renewal. These systems automate each step of the contract lifecycle, typically covering the following areas:
Contract Management Software
The market for contract management products is anticipated to reach $2.5 billion by 2029. The contract lifecycle consists of four phases: pre-award, award, post-award, and close out. Contract management software simplifies the processes of creating, tracking, and executing contracts.
Data Analytics for ContractTerm Analysis
Data analytics can be used to improve the way contracts are drafted, maintained, and negotiated. Artificial intelligence, natural language processing (NLP), and predictive analytics can work together to streamline contract administration by integrating contracts within business processes. NLP technology can also be applied to contract text to identify business opportunities and risks, as well as trends in negotiation strategies.
Contract Authoring Tools
Contract authoring systems are cloud-based software products that use templates, user guidance, and artificial intelligence to assist legal and business professionals in efficiently drafting contract documents. Commonly, contract authoring systems are combined with software that provides for collaboration and negotiation between parties.
Should You Choose a Career in Contract Administration or Management?
Career path considerations for choosing between contract administration and contract management
When it comes to getting into the contract administration or contract management field, either path will lead to long-term job security. The job stability outlook for both positions is quite positive. In fact, it’s expected that they will be in demand through 2028.
That’s the good news. The not-so-good news it that contract salaries are lower than those for contract managers. In 2018, the average base salary for contract administrators, hired in entry-level roles, was $44,325, according to Payscale.com . That same year, contract managers earned between $50,689 (for contracts specialists) and $113,008 (for contracts manager). In some areas of the country, salaries may be higher or lower. Contract administrators do not need a bachelor’s degree and are not required to have a professional certification.
Researching current contract administration or contract management job openings in your area should give you an idea of the salary range. If you’re looking for a job in contract management, you can expect to earn a higher base salary when compared to contract administration jobs. But contract administration salaries will vary based upon location, education level, and field of employment.