What Is Contract Performance and How Can You Manage It?

Contract performance is a vital part of building successful partnerships.  To ensure you and your  partners achieve your business objectives, you’ll want to set clear expectations from the beginning. Therefore, it’s important to outline those expectations by drafting and negotiating a contract that can be regularly assessed by both parties for performance, risks,  and overall financial value. 

Let’s dive into what contract performance is, what the benefits are, and how to monitor it when you negotiate your own contracts. 

What is contract performance?

Contract performance is the execution of obligations which are agreed upon in a contract. Successful contract performance means all parties adhere to the specified terms, conditions, and timelines. Moreover, failure to meet these obligations can result in the termination of the contract.

Why should you manage contract performance?

Managing and tracking contract performance is beneficial for any sort of legal agreement.  Here are some reasons why: 

Keep stakeholders accountable

Breaches or failures to meet the terms and conditions of a contract can result in serious legal repercussions, including high penalty fees and lawyer fees. It can be a messy and expensive process . You can leverage these potential consequences as a safeguard to deter stakeholders from breaching a contract.

Build strong relationships

Effective contract performance management can also help you build strong relationships with partners and stakeholders. By fulfilling your part of the deal, you demonstrate trustworthiness and competence to the other parties. As a result, they may be more likely to renew contracts, invest in your products and services, and work with you in the future. 

Manage risks

Identify and manage potential risks, ensuring a smoother contract execution and minimizing disruptions.  When all parties meet their legal obligations, you reduce the risk of legal disputes and penalties.

Reduce costs

Similarly, you can reduce or completely avoid the costs associated with these potential penalties, fines, and litigation. Contract breaches are less likely when all stakeholders are clear about the rules. 

Track metrics

Contract performance management enables you to  track and measure the performance of contracts against set standards, so you can determine areas of success and improvement. This insight can help to fuel continuous growth and innovation. 

How can you track and manage contract performance?

It’s important to understand best practices for how to manage contract performance. By following these steps, you can effectively track contract performance, ensuring that all parties meet their obligations and that your contracts contribute positively to your team’s goals.

Set clear terms and conditions

Draft and negotiate clear, comprehensive contract terms and conditions to minimize misunderstandings and disputes. Everything from payment obligations to the quality of deliverables need to be outlined. 

Review and update contract as necessary  

In case there are changes in business needs or compliance requirements, regularly review and update your contracts. Additionally, all parties should agree on these changes; so make sure you maintain open and transparent communication with them. Promptly address any concerns or issues they may have to prevent disputes. 

Conduct regular audits

After you’ve signed a contract, perform regular audits to document any findings and to check for compliance with the contract’s terms. This also includes risk assessments to address potential problems  before they become real problems.

Define key performance indicators (KPIs)

To assess contract performance, create criteria for relevant KPIs that align with your business objectives.  These might include compliance rate, average time to close deals, and number of contracts signed. 

Set up a monitoring system

After you’ve signed a contract, regularly review and monitor contract performance against these defined KPIs. You can even use software to automatically create reports that visualize performance data and identify trends such as Concord’s CLM software. 

Implement a dispute resolution process

Establish a clear process for handling disputes and resolving issues, including documenting all disputes and their resolutions to improve future contract performance.

Train your team

Equip your team with the necessary skills and training for contract performance management, including relevant tools and processes. 

Metrics to track the performance of contracts

For effective contract performance management, you’ll want to define what criteria you’ll be using to measure performance. Below are some KPIs to include in your contract performance evaluation: 

Average time to close deals

 It’s crucial to measure the time it takes to secure a contract from the initial negotiation to the final signature. This is a good indicator of how efficient and effective your negotiation process is. If a deal is taking longer than usual to close, find out where this delay is coming from and try to resolve any issues. 

Number of contracts signed

The more your business grows, the more contracts you’re likely to execute. This metric provides insight into the demand for your services and your capacity to meet this demand.

Frequency of contract renewal

Like the number of contracts signed, a high contract renewal rate indicates that you’re meeting expectations and fostering long-term partnerships with people who want to continue working with you. 

Compliance rate

You can also track how often your contracts meet their set terms and conditions. High compliance rates means fewer legal issues and stronger partnerships. 

Contract value

This metric measures  the financial value of individual contracts and the cumulative value of all contracts.  By measuring value, you can see how they contribute to the financial gains contract of your business.

Dispute frequency

If you track the number of disputes during the contract cycle, they can help you  identify areas for improvement in the contract terms and conditions. That said, if the disputes arise from a stakeholder’s failure to meet obligations, you can decide whether or not to pursue further partnerships with them.

Useful tools for contract performance management

Contract management software can automate and streamline your contract performance workflows.  For example, here are some helpful tools  that Concord’s CLM software offers: 

Centralized contract storage 

As you track and manage multiple contracts, Concord’s central repository provides a single, secure location to easily store and access all of your contracts. You can also use accompanying security features, such as encryption and access controls, to protect confidential data and information. 

Smart search 

In addition to centralized storage, you can easily find contracts and other documents by using our AI-powered search tool.  Filter contacts by name, date, or external third parties. 

Alerts and reminders

Use automated alerts for key contract deadlines, like renewals or expiration dates. This way, you and other parties don’t miss important deadlines, reducing the risk of delays or accidental renewals.

Automated data extraction

When you create or import a contract or document, Concord’s AI extraction tool automatically collects and enters key terms and information into a central database. You can access this database and track whatever is relevant to your contract performance management.

Contract reporting and analytics

Gather insights on contract performance with customizable reports on various KPIs. You can directly share your reports with your team or export them to external tools like Excel to perform additional analyses. These insights can inform future contract performance strategies. 

Improve  contract performance management for you and your team by choosing software equipped with features like performance tracking, automated alerts, and robust reporting capabilities. These tools can streamline your processes, reduce manual workload, and provide valuable insights into contract performance.

Accurately track contract performance, with Concord.

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