The terms contract management and contract administration are often used interchangeably by organizations because at a broader level; they share several similarities. They serve complementary functions and are critical to every organization. This is because both contract administration and contract management protect the resources of a business entity.
Both terms are used to define the process that manages contracts with employees, partners, vendors, and customers. The officials have to negotiate the many terms in the contract and ensure compliance. It also has to document the terms and conditions and agree to changes that will arise later at the time of implementation. It is a systematic process to manage the contract in its creation, implementation and analysis stage for the sole objective of boosting operational and financial performances and productivity.
Creating a viable contract that is legally sound and applicable is critical to both the involved parties. It is equally important that it proves advantageous to both of them in terms of financial benefits.
The department that deals in contract administration has a very vital role to play as it deals with the initial stage, and if anything goes wrong over here, the impact will be felt directly on the latter stage. The implementation and working relationship in the contract is entirely dependent upon the terms and conditions that have been set at the onset by the contract administration team.
Difference between contract administration and contract management
If both contract management and contract administration are so similar and handled by the same team, then what is their point of difference. The most obvious one is that contract administration is the first stage and contract management is the latter stage that deals with the contract.
The contract administration team is involved in the work that is related to all the aspects before signing the contract and the contract management is the work that starts once the contract is signed and is ready to be implemented. Each of the processes has its role, responsibility, and workflow in the contract process that does not overlap with each other.
Contract managers are often in regular and direct contact with the contract administrators. This is because they may require pertaining details about the original negotiation deal and the intent of the language in the contract.
It is the responsibility of both the contract administration and the contract management to make sure that all contractual obligations made with outside parties proceed smoothly because no one is interested in getting tangled in litigation.
This is why it is essential to have open communication channels between the two teams. Even if their workflow is separate, they need to remain in contact to smooth out any issues that may occur during the contract process.
Contract administration vs contract management
Contract administration is the phase where the contract team is involved with the planning of all aspects and the development of contracts. The planning phase of the contract is all about finding the contracting partners that will prove a good fit for the company. It sends out requests to various sources for the proposal.
The people involved in the process must have in-depth knowledge and understanding of all the essential aspects of the contract, for instance, the effective date of commencement, date of payment disbursement and the terms related to the acceptance as well as dissolving of the said contract.
The contract administration team is responsible for looking at the details and ironing out any differences or matters about further information at the initial stage. The administration team works with potential partners to negotiate topics like performance expectations, delivery schedules and pricing.
Although the initial stage in the contract cycle is administrative in nature, it also requires a good deal of strategy to negotiate terms and conditions that are fair and in favor of your business. He is responsible for finalizing the contractual language and deal with various revisions that have been requested.
It is the responsibility of the contract administration team to work with both the involved parties so that the terms and conditions can be set and procedures can be lined to measure the performance at periodic intervals and see whether both the parties are holding up to their part of the contract. It also is responsible for looking after the automatic renewal clauses and defining what the material breach of the contract is.
The role of the contract administrator is over once the contract is signed.
Example of contract administration
ABC Limited is a company that is bidding for a project. It is now the responsibility of its contract administrator to send out a request for a contract proposal to the potential vendors or contractors.
When the company selects a particular vendor, it invites him to the negotiating table. It is the responsibility of the contract administrator to work on the language to set the terms and conditions for the contract.
The contract is signed when both the parties agree on the terms and conditions related to the contract. It is from here that the role of contract management starts. The team involved in the process of contract management has the responsibility of implementing the process in such a manner that all contractual obligations are met within the set timeline of the contract.
It is the function of the contract management team to verify all the following details related to fulfilling the terms of the agreement. It is this team that is responsible for the appropriate utilization of the resources like personnel, equipment and the relevant expertise needed for completing the contract.
If a business entity is involved in making a product and has contracts to sell the said product with retail partners, then it is the responsibility of the contract manager to ensure that the retail partner has the necessary marketing materials and signage that it needs. It is this team that is responsible for making the salespeople adept at handling their duties by arranging training or education sessions.
During the implementation phase, circumstances might change, and this can result in several modifications that become necessary for completing the project in time. An essential function of the contract management team at such times is to be on the look-out for any amendments or modifications because it is the team’s responsibility to facilitate any such revisions or changes in the existing contract. It is this team that is in the best position to know what are the changes required in the agreement for its successful completion.
Example of contract management
When the contract is signed between ABC Limited and the vendor, then the responsibility of the contract management team is to implement the contract terms faithfully. It ensures the products reach the retailers and the retail outlets as per the set terms of the agreement and that the retailer has the necessary tools to sell the product.
It is the responsibility of the contract management team to track sales and figure out the way of dispersing revenues.
Planned Obsolescence is the purposeful introduction of limited life artificially for a product or a design of the product so that it becomes no longer functional or out of fashion or in other terms, obsolete after a certain fixed period.
It is a familiar concept used in economics or industrial design, and the purpose behind this strategy is to generate repeat business or long-term sales. Having a definite Obsolescence reduces the time between repeat purchases, which is also known as reducing the replacement cycle.
Planned obsolescence is the only reason for perceiving this strategy is to increase sales revenue and the sales volume. This strategy is considered to generate more revenue than the average sales cycle. It works best when the manufacturer has oligopoly.
Implementing the planned obsolescence in the organization increases the opportunity cost, and it is considered a risky policy because the customers will not buy if they notice this kind of strategy.
It is mandatory that before introducing the approach of Planned Obsolescence, the customer should be aware of the probable replacements that they would require from the producer. Information Asymmetry is when the customer does not know how long the product is going to the last but the manufacturer is aware of it. This is a very common planned obsolescence.
It is seen that when the market becomes very competitive, the life span of the product increases. This is the scientific concept; many people believe that it is a conspiracy theory. The entire idea is to have a product that does not last forever so that the customers keep coming back.
Planned obsolescence is also known as dynamic obsolescence or built-in obsolescence.
Types of planned obsolescence
Following are the types of Planned obsolescence:
1. Prevention of repairs
The primary examples of prevention of repair designs consist of single-use variations of traditional goods, which include but are not limited to the disposable cameras in which the customer is expected to purchase the entire product after a single-use. These products are categorized as impossible to service type in which there are products like cheap throwaway digital watches, which will have a casing which is sit in the factory but has no access for the user.
The user will have to discard the watch entirely to reach the interior parts, which are nothing but a type of prevention of repairs. The manufacturers after a limited period, make the replacement parts either expensive or unavailable so that the product becomes costly to repair.
An example is of inkjet printers in which the printhead eventually fails, and the cost of replacement of that head is so high that it forces the customer to throw away the product and buy a new one instead. On the other hand, there are companies such as Apple which use so-called “Tamper Resistant” Penta lobe screws Which cannot be removed easily with the help of standard consumer tools available.
Another example of such a category is frontloading washing machines, which have a drum bearing which is prone to wear and tear. It is permanently molded with the washtub and has a sealed outer tab, which makes it very difficult to replace the entire tub. The cost of repair is much higher than the value of the appliance, which ultimately forces the customer to scrap it and purchase a new one.
2. Contrived durability
This is a strategy of reducing the lifetime of the product before it is released into the market by ensuring that the design is such that it deteriorates quickly. An expected lifetime of all consumer products includes all stages of development right from the production even before the product is bought by the customer.
That is why early decisions regarding the complexity of the product should be taken to ensure how long it is designed, how long is the design going to last. The related components, spare parts, and accessories can be designed accordingly.
The entire matter is of entropy, and it is expected that any designed object cannot function forever because all products and their parts will ultimately break down no matter what steps are taken. Every product has a limited lifespan and it is acceptable. Still, the only difference between a limited lifespan and planned obsolescence is that the life of the product is made artificially shot by introducing such a design that does not last for an expected time. This strategy is generally not prohibited by any law and the durability of the products is set entirely by the manufacturers.
One of the strategies of introducing contrived durability is to use inferior materials in essential parts or the layouts which can cause excessive wear and tear. Use of cheap plastic and soft screws instead of metal in functional components the load-bearing will increase the speed of the deterioration and wear and tear. The product will be out of operation lesser than the average life of the product.
This will make the product prone to breakage. One of the examples is the short life expectancy of a smartphone and other electronic devices owing to their constant usage is the damageable components and fragile batteries. The best example of Contrived durability is the iPhone, which is launched every year and makes the last year’s iPhone look obsolete.
Even though software updates are given for the previous phones, they are purposefully slowed down so that the experience of the user functionally goes down and has tempted to buy the newer version.
3. Irreplaceable batteries
Products such as laptops and mobile phones or electronic toothbrushes have lithium-ion batteries that are not replaceable by the end-user. This trend has started in the late 2000s because the phones from earlier than 2000s had replaceable batteries. The aging battery is left trapped inside the device, which hampers the usability of the product eventually.
The reason given by manufacturers to use a non-replaceable battery is to make the device dinner but this also makes the device difficult to repair and the customer is often left with the choice of purchasing the new device rather than fixing the old one. A manual battery replacement for a product that has a non-replaceable battery, Will make the water-resistance null and damage the water protecting seal.
Only a manufacturer will be able to replace the battery at a very high cost, in which case the warranty of the device could be void. The iPhones of Apple have started this practice and this has been spread out to most of the mobile phones, most noticeable Samsung phones, which started this process in 2015 with Galaxy S6.
Are there to 2015 Samsung Galaxy S5 had openable back covers, and the user was able to replace the battery and those phones had water-resistance as well?
4. Systemic strategy
Systemic obsolescence is a deliberate try to make the product obsolete by changing the system in which it is used, which makes it very difficult to use. A typical example of the planned systemic obsolescence is not accommodating the forward compatibility in any software or changing the screws routinely so that they cannot be operated with the existing tools.
This design is intentionally introduced to cause obsolescence. One such example is that of television sets, which have recently come up with different ports. Audio-video converter ports were not present in earlier televisions. Still, the CD and the DVD players wear connectable only with the help of an audio-video converter, which made the existing television sets even though working correctly and fully functional obsolete.
Because of the absence of forwarding compatibility in the products, the products are deemed to be outdated.
It is also known as stylish observations when the designers change or modify the styling of their products so that the customers are pushed to purchase the products more frequently because of the perceived reduction in the desirability of fashionable products. More than the functional reasons, many products are desirable because of their aesthetic looks. One such example is that of clothing.
These products have a cycle of desirability, which is also known as the fashion cycle. By continuously introducing new features and aesthetics and re-targeting the older designs, the manufacturer can promote the fashion cycle and allow to increase in sales of the product even though the original products remain fully functional. This is simply because the customers perceive the product as obsolete. One of the famous examples in the fashion industry is that of sneakers.
Nike produces sneakers and is providing the same for many years, but the material and the color combination are changed every few months and offered in different markets so that the products are perceived to be new and “in trend.” Fundamentally the product remains the same, but because the aesthetics’ are changed, the customers are tempted to buy and this increases the size of the product.
This trend is also seen in some of the electronic products where are the manufacturers release a slight update of the product at predetermined regular intervals. This emphasizes its value as a status symbol. Apple products for than this category also wearing new generations of the phone are introduced every year with an S – like iPhone 6S or iPhone 5S and recently with Pro – like iPhone 11 and iPhone 11 Pro.
Following this trend, Google has also picked up and applied it to their Pixel phones, including Pixel 3, Pixel 3A, Pixel 3XL, Pixel 4, and Pixel 4XL. The upgrade is a very minor compared to the previous year’s phone models but it is presented as though the product is revolutionary and the customer has to buy the new product.