All the Ways Poor Contract Management Can Set You Back

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.
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Contracts play a huge role in successful businesses. They work as formal agreements between the company and its suppliers in making purchases or selling goods and services. It takes skills and experience for these contracts to be managed efficiently and effectively throughout the contract lifecycle.

However, most businesses focus on them only during front-end negotiations. After that, many agreements are left to collect dust at the side until it’s time for renewal. Leaving contracts unattended can become a company’s biggest mistake. Mismanaging contracts lead to poor performance from the contractor, who may not live up to the deliverables promised in the original agreement.

Poor Contract Management and its Impact on the Business

Poor contract management is defined as not monitoring the contract after it’s signed. The scenario often happens to those in leadership or managerial positions who negotiate contracts and forward them to the operational level. 

In effect, poor contract management results in losses. However, resolving this gap should result in a more robust long-term relationship with customers and vendors and overall success in the business.

1. Underperforming Projects

There are instances where contractors fail to deliver work as promised. While most of them follow the rules, others take advantage of long-term contract situations. Other potential contractors get upset over instances they find unfair as projects are awarded to suppliers based on their value-added promises, which they never deliver.

2. Missing Renewals

In extreme cases, companies may fail to realize when a contract is about to expire. Missing out on contract renewals can disrupt the service or delivery of products that are fundamental to the business. Some companies fail to get discounts or lower rates simply because they were unable to renew contracts in a timeframe required by suppliers and contractors. It’s essential to keep track of contracts to ensure that deadlines are met and that nothing gets interrupted.

3. Breach of Contract

There are many reasons why a breach of contract occurs, but most of them happen due to mismanaged contracts. A breach of contract destroys business relationships and adds costs to a project. Instead of paying only for materials and labor and other legalities, you’d have to pay for damages and attorney’s fees. Breaches are commonly the result of poor communication with contractors, which leads to issues later on.

4. Opportunity Cost

A simple mismanaged contract results in opportunity costs. Businesses lose money and time when they can do so much more with contractors who do their job successfully, within the budget, and on time. The budget that goes to underperforming contractors is money wasted.

5. Scope Creep

Monitoring a contract prevents the occurrence of scope creep. It is a situation where contractors extend their work beyond what they were asked to do for various reasons. In effect, scope creep can overwhelm companies with additional costs by increasing the scope of projects.

Conclusion

Contract management is a complex task. However, it is an integral part of doing business. To avoid falling into the risks of poor contract management, it’s essential to appoint someone to handle the company’s agreements. Create a position that’s solely intended to monitor every contract from start to finish. It also helps to hire an agency that can do all the work for you. In the end, hiring someone to monitor contracts may cost you more. But it costs you less than a failing business.

Anapact uses the power of technology to provide contract management solutions. Businesses can track down contracts through our contract management software while reducing risks, ensuring compliance, and making the most out of their contract documents. Get a demo today and change the way you do business.

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- About the Author

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.