5 Steps to Successful Third-Party Contract Management

Vendor contract management is the administration of written agreements with third parties that provide your organization with products or services. Vendor contract management includes negotiating the terms of contracts and ensuring compliance, change management and ongoing maintenance of the relationship. It’s a complicated but crucial process which involves coordinating contract creation, execution and analysis for the purpose of financial benefit, service delivery and risk management for your organization.

5 Steps to Managing Vendor Contracts

Here are the five steps you’ll want to make sure you absolutely don’t miss while managing your vendor contracts:

1. Plan internally. Decide who should be involved in the review of the contract as well as who is authorized to change the agreement and what department will lead the contract negotiations and review.
   
   
2. Negotiate. Many vendors work with standard contracts; however, contracts do have to be changed as negotiations progress. It’s a critical part of the process to ensure that the needs of all parties involved are being considered and addressed.

Pro tip: The function of contract negotiation tends to be the responsibility of the legal department or a shared responsibility between the legal department and the line of business.

Here are a few areas you might consider negotiating:

• Performance standards – or service level agreements (SLAs)
• Security & confidentiality provisions
• Due diligence language.
• Term & pricing methods
• Exit strategy

3. Approve and execute. Choose who within the organization is authorized to approve and execute the agreement. Make sure they understand the terms of the agreement as well as the associated risks.
   
   
4. Consider storage. Ensure your contracts are housed in a centralized location that can be easily accessed by multiple areas within your organization as needed so important dates do not lapse, such as contract non-renewal notice period.

Here’s a handy storage checklist to run through to make sure you have your ducks in a row:

• Are your contracts housed in a centralized location that can be easily accessed by multiple areas within the organization as needed?
• What dates and timeframes are key to remember?
• Have the key dates and timeframes been tracked? Some of the most important include:
  • Effective date of the contract
  • Termination date of the contract
  • Renewal date of the contract
  • A set renewal notice timeframe
  • Nondisclosure agreement date
  • Dates of documents that are incorporated into the contract by reference or that are signed after the agreement (e.g., exhibits, statements of work, work orders, purchase agreements, amendments, etc.)
  • Timeframes associated with non-renewal, breach or remedies and notification periods are established

5. Manage your contracts. Review product and service delivery and assess the relationship on an ongoing basis. Make sure to take notes around any changes, issues, risks and performance level issues over time.

Remember, the contract management function is not simply about trying to negotiate the best financial and legal terms, it’s also a key component of managing the risk associated with your vendor relationships. Long story short, it’s not an area you want to gloss over!

Dive deeper into how to master vendor contract management. Download the eBook.