Contract administration is a process that manages the legal agreements that a business or an organization has made with customers or other parties (Lawrence & Lorsch, 1986). Contracts can be either verbal or written. Contracts are very important to a business, and most of the parties spend a lot of time in choosing the contract from which they will reap the maximum benefits.
Once a contract is finalized most of the businesses fail to follow its implementation, and therefore they find that at some point they have breached the contract which results to some serious issues such heavy fines, expensive court cases and breaking down of relationships thus negatively affecting the organization. A good contract is key towards the success of any business.
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Administering a contract serves the following purposes
• Maintaining good relationships with the stakeholders – contract administration is important in keeping good relationships with anyone in a business environment, for example, a business may enter into a contract with suppliers, the contract may contain details about what items to be supplied, and the money to be compensated for the service (Spurgeon Hicks, Field & Barwell, 2005) . If one party breaches the contract, the other party has the rights to sue the one who breached the contract seeking compensation for the inconveniences caused by the breach (Scarborough, 2016) . Contract administration ensures that the parties in a contract adhere to what they promised to do.
• It helps in safeguarding your position – you may enter into a contract with another party, both of the parties are expected to work within the framework of the contract. Keeping the contract documents helps in safeguarding the position of the business if some misunderstandings were to arise.
• It helps in resolving conflicts – when a business makes a contract with other parties it should ensure that the contract is within the legal framework. In case a problem arises the business can sue the other party and prove that it has worked within the means provided in the contract.
• It helps in keeping a happy workplace – a business signs contracts with its employees, suppliers and other parties, the contracts state what each party is expected to do. Adhering to the terms of the contract makes everyone feel comfortable thus bringing happiness to the parties.
Statement of Work
This is a section of the contract that defines the work specifications, performance, and expectations as per the design of a project ( Lorsch, 1986) . A statement of work defines the responsibilities, work agreements and liabilities between the two parties getting into a contract. There are some cases of misinterpretation of terms and conditions in the statement of work, and therefore it should be written in a language for each business setting. When writing the statement of work, the details can differ from one industry to another. However, there are some set guides that should be followed when designing a statement of work and they include:
• Define success – it illustrates what is considered a success or a failure which means it elaborates when something is completed successfully.
• Includes timetables – statement of works defines how the periods on each task should be finished.
• Creates milestones- statement of work helps in creating milestones for vendors, for instance, a business may promise to give certain incentives if the work is to be submitted within the set time.
• Uses a language that everyone can understand- All parties to a contract should understand what the statement of work is, the language should be free from jargons and other complex terms. It should be kept as simple as possible.
• Be specific- any information in the statement of work should be quantifiable for example, instead of saying that a task will take some time to be finished, you state the exact amount of time required an example is the task will take three months to complete.
There are several types of the statements of work, and they include design, performance-based and the level of time statements. The statement of work is very important in setting terms and is also valuable when: a business is planning a big internal project and when it enters into a new contract with third parties. Writing a statement of work is not as easy as it seems because; it requires expertise, it is very complex, and there are risks involved such as financial and legal battles.
Stakeholder’s requirements
These are the views of customers, users, and acquirers who are either at the business or enterprise level (Harmon & Trends, 2010) . These requirements describe the purpose of a system. The following are the importance of the stakeholder’s requirements: it serves as a means of communication between the junior staffs, finance department and the management and also it is the basis of validation of the system.
Fixed price format
It is a contract between the buyer and the seller which states the goods or services to be supplied and their respective costs. These contracts help in reducing time wastage which is experienced through lengthy negotiations and also reduces time wastage by the management. However, the seller should be careful when getting into these contracts because it may require a lot of resources and may be time-consuming.
These contracts are not flexible as goods or services must be delivered and availed strictly on the set time. Fixed price contracts are negotiated when the cost can be estimated. The fixed price contract is the best option as it helps businesses in many ways such as, in managing the cost of a contract, eliminating the cost of business and in doing away with any potential disagreements.
Uniform commercial code
The following terms are distinct as per uniform commercial code and laws of contracts which are essential for a contract to be formed. This information is of paramount importance to both buyers and sellers. These terms include:
• Competent parties
• Mutual consideration
• Valid legal subject matter
• Agreement of the parties
References
Harmon, P., & Trends, B. P. (2010). Business process change: A guide for business managers and BPM and Six Sigma professionals . Elsevier.
Lawrence, P. R., & Lorsch, J. W. (1986). Organization and environment: managing differentiation and integration (Harvard Business School Classics).
Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management . Pearson.
Lorsch, J. W. (1986). Managing Culture: The Invisible Barrier to Strategic Change. California Management Review , 28 (2).
Spurgeon, P., Hicks, C., Field, S., & Barwell, F. (2005). The new GMS contract: impact and implications for managing the changes. Health services management research , 18 (2), 75-85.
