Introduction to Contract Management: Types of Contract
Contract management in today’s market plays a huge role for every business across the globe. Put simply, this is a company’s management of contracts between themselves and employees, vendors, customers and partners. It is imperative that every party understands the expectations, cost, risk and success of each business move at all levels.
Generally, the use of contract management boasts four main benefits:
• Reduced administrative costs
• Better accountability
• Enhanced forecasting
• Happier customers
Before you go rushing in to purchase your contract management software you should make sure that you understand it all completely. Here we will run through the various types of contracts that crop up time and time again alongside the different applications you may need.
Different types of contracts
A contract can be defined as a legally-binding agreement, oral or written, that is accepted by two parties under the premise that they can fulfill the terms and conditions of their initial agreement. Previously, this was enforced by the signature of a written contract but, as with everything, the world of contract management has expanded.
There are various types of contracts that can be signed between parties, and these include:
• Sales contracts – This is probably the most common form of a contract; where the company agrees to sell services and/or products to the buyer (customer). As a result, the customer is thus obligated to pay for these products or services.
• Purchasing contracts – This is the opposite to a sales contract, whereby the company is the buyer and they agree with a supplier to sell their services and/or products under agreed terms and conditions. As a result, the buyer acknowledges these services or products and pays for the liability.
• IP – An Intellectual Property contract is a contract between institutions that explains the responsibilities and rights of each relating to the intellectual property that arises through collaboration.
• Real Estate – Simply, this is the contract between parties for the sale and purchase of real estate. These are usually agreed by two parties, specifying contract law and enforced in writing.
• Employment – This is the employee/employer contract and one that attributes responsibilities to two parties through labor law.
• Government – Similar to commercial contracting in its principles, government procurement is a diverse and intricate process. As it includes the use of public funding, accountability and transparency are vital.
These are the main contracts that you will probably need to deal with. However, other contracts include:
• Trade agreement – Also known as a trade pact, this is usually where free trade and preferential types are agreed to reduce quotas, trade restrictions and tariffs between signatories. This can be a complex type of contract and ranges widely.
• Partnership agreement – Articles of Partnership often involve multiple components and sections and is a voluntary contract which means that partners understand there will be a division of losses or profits among the partners who give their labor, capital and skills to a business.
• Insurance agreement – Customers want the cheapest premiums and the biggest payouts whilst the customer wants it to work the other way. Insurance contracts are often managed by underwriters who determine the details.
• Reimbursement – There may come a contract in which the contractor is unsure whether he or she can fulfill the terms of the agreement. In this case, a reimbursement contract which promises a monetary return in the event of an unfulfilled contract may be written up.
• Legal – Another form of contract management is a legal dispute. When there has been a disagreement over a contract it will go to court and the judge will rule the outcome.
• Management – This is given to the manager who agrees to supervise a certain project under specific conditions. Monetary compensation is promised upon completion, and this type of contract is often managed by both parties.