Contract Management Guide

What is Project Contract Management?

Contract management is the overseeing of a project’s contracts from their initial pre-award phase through to completion. Proper contract management ensures that the project’s budget and resources are in alignment with its overall objectives. Tracking contracts as they progress and identifying and managing any issues as they come up is an important project management process.

Contract management, as a part of the project management, deals with the vendors, sellers, and/or suppliers, and the managing of procurements according to the terms and conditions set within contracts.

Contract management systems can ease the workload needed to get to contract creation and its following stages of contract management. Contract software often has a contractor database built-in, can generate Request for Proposals (RFPs), and perform bid analysis. Once a contractor is selected, contract systems help project organizations to award the contract, send letters of regret to those not chosen, and manage contractor changes and invoicing all within the software.


The Phases of Contract Management

  1. Contract creation
  2. Contract negotiation
  3. Contract approval
  4. Contract finalization
  5. Contract change management

Phase 1: Contract Creation

It’s important that contract management systems are able to incorporate standardized procedures with details specific to organizational objectives. This contract management stage involves identifying the contract type and who will be responsible for each task. The planning process includes resources, objectives, and staffing, while developing a run-through of potential project risks and challenges.

Phase 2: Contract Negotiation

All project contracts ought to be written in a manner that reflects the organizational objectives and values. Negotiation helps to establish trust between the contract’s two parties. After the initial contract is drawn up, negotiation occurs in which line items are discussed, changed, updated, or completely removed.

Phase 3: Contract Approval

Contract approval often involves multiple sign-offs from various managers and departments, as well as contractors and vendors. All may have to give approval on the contract’s specifications before the final deal is made.

Phase 4: Contract Finalization

The process of contract signing between the involved parties is the final step to getting the project started. This is why the ability to get signatures from all involved parties quickly, regardless of distance or location, is crucial to avoid delays.

Phase 5: Contract Change Management

Project changes are guaranteed to occur throughout the project lifecycle once the work begins. Project changes need to be managed carefully and all changes need to be communicated to the appropriate parties. All data and information regarding changes to contract deadlines, budgets, expenditures, etc., must be fully tracked and shared with the teams involved.

Contract Managers vs Project Managers

Contract management and project management have a lot of overlap. While the responsibilities between project managers and contract managers vary widely, contract managers focus on managing the entire contracting process throughout a project’s lifecycle.


Primarily, contract managers are in charge of anything related to writing, approving, signing, modifying, and canceling a contract, while project managers are in charge of anything related to actual performance and meeting the contract objectives. Both roles operate best when there is a clearly defined process for both.

Project managers can aid contract managers’ efforts by providing critical insights into the value of certain requirements and the realistic opportunities of achieving the customer’s desired result. For example, project managers can assess whether cost and schedule estimates are realistic, analyze the risks and opportunities the project provides, and recommend special terms and conditions for tailoring the contract to the project goals.

It is important for project organizations who enter into projects with contractors or firms that the contracting cycle is monitored and controlled. Poor contract negotiating, insufficiently written contracts, and/or a lack of oversight can result in issues which often lead to costly disputes or project delays. Contract management requires time management, attention to detail, risk management, and compliance. Having contract management tools and processes in place helps make managing contracts easier and more efficient.

Why Contract Management is Important

Project contracts establish and provide parameters for key project business strategies, processes, and relationships. Effective contract management can help enterprises and project organizations to better compete globally, especially those with distanced teams, and/or those with varying time zones and cultures.

Because project contracts include payment terms, negotiations, workflows, service expectations, and compliance obligations, contract management helps minimize project risk by ensuring compliance when and as necessary. Efficient contract management also provides project organizations with monitoring and tracking. Contract management tools that allow real-time visibility into all contract aspects over time allows management to make smarter project decisions and take action early on.

It is important that initiated contracts reflect objectives, schedule timelines, project budgets, and available resources. They should also reflect regulations, specifications, and potential risks. Having a contract management tool in place links all aspects of the project to each other, providing an audit trail during revisions, and guaranteeing communication with the appropriate people at the appropriate time.

Contract management helps project organizations to take into account how project productivity, performance, labor, and inventory affect their growth and profitability throughout the project. It keeps tabs on communication, tracking, change control and other tasks.

Contract Management Challenges

Contracts have a lot of stages and parts within. This means that tracking and managing all the parts of a contract can lead to a lot of challenges, and even more so when there are hundreds of contracts on a project. Global projects and megaprojects often involve large and complex contracts that involve joint ventures, many contractors, and sub-contractors.

Manually handling contract management processes can yield critical challenges, including:

  • Contract Execution: Poor contract management often leads to lost or missing files, and final contract approvals and signatures take significantly longer to obtain.
  • Contract Tracking: Monitoring and tracking signed contracts that are then passed along to other team members or departments who may not be familiar with them is crucial to avoiding delays. Project delays lead to project overspending.
  • Contract Revisions: Managing contract changes before and after contract approval is important to project success. Having a tool in place to help track changes across time zones, regions, and teams aids in ensuring version control and timely, proven delivery. All of this helps to minimize risk, delays, errors, etc.
  • Contract Compliance: Contracts help ensure compliance within the parameters agreed upon. Effective contract management establishes compliance and regulation across the project in ways that help organizations avoid legal issues and consequences.

Contract Management System Benefits

An effective contract management tool ensures a professional approach to contract management that better facilitates risk management, profitability enhancement, and provides a clear return on investment (ROI) on the cost versus benefit of the contract management activities. Contract management best practices, like implementing contract management software, improves customer relationship quality and preserves an open line of documented contract communication. This helps avoid contract conflict and escalation.

Additional benefits of contract management:

  • Streamlines your RFP process
  • Vendor and bid management
  • Improves bid analyses
  • Transforms contract administration
  • Contract change management
  • Procurement and resource planning
  • Enhances communication and collaboration
  • Audit trail and documentation records
  • Compliance
  • Delivering projects on-time and within budget

Contract management software like PRISM Contracts, provides enterprises with contract automation, an auditable single source of truth, and a real-time view of project progress and contract activity.

Having an integrated system between contract management and project controls alerts project professionals where overruns in cost or schedule might occur. Projects with integrated contract management and cost management systems are able to effectively collect contract bids, perform bid analysis, and award contracts. Contract changes can be added and updated commitments can be sent to the cost management team for project reporting. Additionally, a good contract management system is able to evaluate contract performance and calculate accurate progress.

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