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Importance of Contract Management
Contract management is the process of systematically and efficiently managing contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk (Minnaar, Vosselman, van Veen-Dirks, & Zahir-ul-Hassan, 2017). Contracts in partnerships are arranged because the parties can benefit from them in several ways. First, contracts help to coordinate transactions between parties. They facilitate this by influencing the process of cooperation since management control structures and processes are described in the contract. Second, contracts enable partners to control whether the activities and outputs are in accordance with the contractual rules. This makes it easier to control opportunistic behavior. One way to control opportunistic behavior is by aligning the interests of the different parties. In essence, when parties have similar interests, they act without compromising the interests of the other party. Third, contracts help to reduce mistrust through negotiating credible agreements (Malhotra & Lumineau, 2011). Moreover, mistrust emerges when opportunistic behavior and conflict of interest are present in the interfirm relationships.
Elements of Contract Management
Successful contract management relies on various key tasks that must be undertaken, maintained and monitored throughout the duration of the contract. The achievement of these elements leads to the attainment of the contractual goals. First, managing service delivery is an essential element that ensures that the agreed services are being delivered to the set standards of quality and performance (Bruin, 2016). In particular, it involves monitoring whether or not a service being availed is being delivered to the exact wording of the specification. However, this assessment should be in terms of levels of satisfaction. Second, managing the relationship ensures that adequate levels of communication are set to enable a free and fast flow of information between parties. Good communication reinforces mutual trust, increases understanding, and openness needed for the interfirm relationship to work to its anticipated degree. It is important to note that the technique of managing the relationship varies depending on the type of contract. Third, contract administration relates to the actual mechanics of the interfirm association and the implementation of the procedures that define the boundary between them. This ensures that the operations run seamlessly throughout the duration of the contract (Bruin, 2016).
Oversight and Management
Leaders that best exercise oversight are those with responsibility for contract implementation. Required multidisciplinary skills and knowledge include that these leaders must possess include financial management skills, technical knowledge, procurement expertise, project management skills, and legal knowledge. Similarly, despite the use of contracts to facilitate coordination and control, interfirm disputes still occur (Charkoudian, Ritis, Buck, & Wilson, 2009; Gulati, Sytch, & Mehrotra, 2008). Resolving conflict between partners requires three leadership competencies namely; conflict management, negotiation, and effective communication (Almeida, 2017). In addition, leaders should have collaborative leadership skills, neutrality, impartiality, and credibility and legitimacy skills.
Almeida, J. (2017). Leadership in conflict management. The case of tourism versus territory conflict. Finisterra, 52(104).
Bruin, B. J. (2016). Learning to manage and control interfirm relationships.
Charkoudian, L., Ritis, C. D., Buck, R., & Wilson, C. L. (2009). Mediation by any other name would smell as sweet-or would it? The struggle to define mediation and its various approaches. Conflict Resolution Quarterly, 26(3), 293-316.
Gulati, R., Sytch, M., & Mehrotra, P. (2008). Breaking up is never easy: Planning for exit in a strategic alliance. California Management Review, 50(4), 147-163.
Malhotra, D., & Lumineau, F. (2011). Trust and collaboration in the aftermath of conflict: The effects of contract structure. Academy of Management Journal, 54(5), 981-998.
Minnaar, R. A., Vosselman, E., van Veen-Dirks, P. M., & Zahir-ul-Hassan, M. K. (2017). A relational perspective on the contract-control-trust nexus in an interfirm relationship. Management Accounting Research, 34, 30-41.
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