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January 2014 Edition

A checklist for becoming an effective contract manager

Alan S. Gutterman, Gutterman Law & Business

Alan S. GuttermanContract management, sometimes referred to as contract administration, refers to the processes and procedures that companies may implement in order to manage the negotiation, execution, performance, modification and termination of contracts with various parties including customers, vendors, distributors, contractors and employees. While businesspeople often dismiss contract preparation as "lawyer's work" that has little or nothing to do with the important aspects of the working relationship between the contractual parties, contracting is actually one of the crucial activities in determining the success of any business arrangement.

One of your roles as a member of your legal department will be assisting your internal clients with contract preparations and it is absolutely essential that you work closely with your clients to establish well in advance your mutual expectations regarding the role that you will be expected to play in the negotiation, drafting, finalization and monitoring of a particular contract. In most cases, you should expect to be responsible for drafting the contract and all related documents, including certificates and other documents that may need to be delivered at the time that the main contract is executed and the deal is "closed," and for spotting and resolving specific legal issues.

For their part, managers in other departments will typically be responsible for identifying and resolving all of the business and risk management issues associated with the creation and performance of the contract and the underlying relationship between the parties; however, depending on the situation you may become heavily involved in negotiation of business issues and have a great deal of input into the strategy goals and objectives of a particular contractual arrangement.

For each proposed contractual arrangement you should get in the habit of going through a checklist of the actions that you might be expected to take in order to assist the company. You'll eventually develop your own checklist that you can refer to as time goes by; however, when you are first starting out I recommend that you consider each of the following steps for effective contract management:

  • Make sure that you begin with a thorough investigation of both the business and legal background for the contract and the proposed transaction and business relationship in which the contract is to be used.
  • Working with the appropriate representatives of the company, you should identify the steps that need to be taken in order to comply with the requirements of any contract review and signature authority policies and procedures that have been established by the company.
  • Once you have a good understanding the scope of the proposed business relationship you should identify the contracts and related documents required to document the relationship and complete any immediate transaction and then proceed with collecting and reviewing examples of the necessary contracts to expedite the drafting process and isolate specific questions that the company will need to answer in order for the contract to be complete and accurate.
  • If warranted by the complexity of the proposed transaction, you should prepare a time and responsibility schedule for drafting, review, discussion, revision and completion of all required items and activities.
  • Taking into account discussions with company representatives regarding your role, you should participate in the negotiation of the essential terms of each contract and, if appropriate and useful, prepare a term sheet or letter of understanding to be sure that the parties are in agreement regarding the essential terms before time and effort is spent on contract preparation.
  • Once background information has been collected and preliminary agreement has been reached on the essential terms, you should prepare the initial draft of each of the required contracts and related documents or, in cases where the opposite party is responsible for drafting, review the initial draft of such items prepared by the opposite party; discuss and negotiate necessary changes in the initial drafts and make sure that revised drafts are circulated for review and finalization.
  • Once the documentation is finalized you should prepare for the closing of the transaction, including pre-closing meetings and preparation of closing checklists and memoranda.
  • Once all conditions to consummation of the proposed business relationship have been satisfied or waived, you should oversee completion of the closing of the transaction at which time all contracts and related documents are executed and exchanged and any required performance at the closing (e.g., cash payments) is completed.
  • Once the closing is completed you should make sure that all of the closing documents are organized and that copies are delivered to all interested parties.
  • Working with company representatives in the departments responsible for performing the contract, you should establish a plan for ongoing review of the performance of each of the parties under the terms of the contract, at least in those cases where the contract is long-term and calls for continuous performance over an extended period of time, and make sure that you make a note of any dates identified in the contracts that may require follow up action, such as performance milestones and option elections.

Contract management is an important task and, when done correctly, can actually be one of the most interesting things that you do for your internal clients. I've collected a lot more tips and practice tools for you to use in Gutterman, Business Transactions Solutions, Contract Formation and Management (§§ 47:1 et seq.).


About the Author

Alan S. Gutterman is the founder and principal of Gutterman Law & Business, a leading provider of timely and practical legal and business information for attorneys, other professionals and executives in the form of books, online content, newsletters, programs, training and consulting services. Mr. Gutterman has three decades of experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. His publications are available on the Legal Solutions website or at Westlaw Next at Business Counselor. Mr. Gutterman can be reached at agutterman@alangutterman.com.


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