• First Reference
  • About us
  • Contact us
  • Blog Signup 📨

First Reference Talks

Discussions on Human Resources, Employment Law, Payroll and Internal Controls

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies
You are here: Home / Business / Contract administration – beyond the handshake agreement

By Jeffrey Sherman, MBA, FCPA, FCA | 3 Minutes Read September 21, 2012

Contract administration – beyond the handshake agreement


(Updated with additional information December 15, 2015)
All organizations enter into business contracts at some time in their life cycle. Common commercial contracts include employment agreements, sales contracts and invoices, purchase orders, utility contracts, construction projects, goods or services that are highly regulated or with detailed technical specifications, intellectual property (IP) agreements and international trade.
Unfortunately, it is not unusual for not-for-profit organizations to find they have entered into a contractual relationship that did not receive the required level of oversight, discussion and approval. Such contracts dramatically increase the risk of harm to your organization.

Reducing the risk of bad contracts

While necessary, these contracts can bring about exposure to financial and legal risk if implemented improperly. Common errors include, but are not limited to, inaccurate invoices being paid, insufficient documentation and basic contract terms not being enforced. These errors can result in unnecessary costs, onerous obligations or expensive and draining litigation, but they can also be minimized with responsible contract administration.
Contracts can be explicit—written down and signed—or implicit, as in the proverbial handshake deal. When you agree on a simple exchange with a friend and “shake on it,” the two of you have entered into a contract together and, hopefully, an amiable one! In such a circumstance, you might not think to articulate every potential circumstance that may occur under your handshake contract, which would be understandable.
However, when it comes to commercial contracts, an organization must take great care to protect itself, its directors and staff, and its interests. Contract law is a complex and varied discipline upon which tens of thousands of pages have been written and just as many lawyers make their living!
Employment contracts are especially important in light of recent changes to the common law regarding terminations, off-duty conduct, consideration and restrictive covenants.

Contracts done right

Contract administration can work to protect the organization and to create mutually beneficial exchanges between the organization and contracted parties.
Essentially, effective contract administration means that your organization treats the execution of contracts as an important event and subjects the process to special controls. In other words, to effectively manage contracts, you must go beyond the handshake.
Have a look at the process below. Are all the points familiar?

  • Understanding or articulation of the organization’s priorities, interests and needs
  • Identification of risks and opportunities
  • Identification of the type of contract required
  • Exploration of potential suppliers
  • Development of a request for tenders, quotes or proposals (RFQ, RFP)
  • Articulation of RFP/RFQ or tender assessment criteria
  • Assessment of tenders, quotes or proposals
  • Supplier credit and reference checks, if appropriate
  • Contract discussions or negotiations
  • Development of contract language
  • Development of contract fulfillment characteristics (e.g., milestones, deliverables)
  • Communication of contract terms
  • Contract extension or change controls
  • Approval processes
  • Contract fulfillment tracking
  • Payment controls
  • Contract completion
  • Supplier records and management

This is the foundation of a strong contract administration process. Such controls are essential for basic due diligence, whether it’s reporting to your board of directors, your members, the public in annual reports, or the Canada Revenue Agency.

Contract essentials

Clear language, carefully outlining the specific terms of a contract is essential.
Contracts that are strategically or financially significant to the organization should have the benefit of expert advice.
The guidance of a seasoned professional in contract law can make your contract administration much easier for you and your organization and save you undue worry as well as potential financial loss.

How do your contract administration processes measure up?

Comply with contract law. Try Not-for-Profit PolicyPro free for 30 days!Before you jump to google to search for a contract lawyer, why not review the Legal and Regulatory section of Not-for-Profit PolicyPro?
You can try it free for 30 days!

  • About
  • Latest Posts
Jeffrey Sherman, MBA, FCPA, FCA
CFO at Atrium Mortgage Investment Corporation (TSX:AI)
Jeffrey is CFO of Atrium Mortgage Investment Corporation (TSX:AI), a director of several companies and has had over 20 years of executive management experience. His interests include corporate governance, risk management, accounting and finance, restructuring and start-up enterprises.

Jeffrey is a popular presenter, and was an adjunct professor at York University for 15 years. He is a frequent course director and course author for many organizations, including provincial bodies of Chartered Professional Accountants across Canada.

He has written over 20 books including: Canadian Treasury Management, Canadian Risk Management, and Financial Instruments: A Guide for Financial Managers (all published by Thomson-Reuters/Carswell), as well as Finance and Accounting PolicyPro and Information Technology PolicyPro (guides to governance, procedures, and internal control), and Cash Management Toolkit for Small and Medium Businesses (all published by Chartered Professional Accountants of Canada [CPA Canada]).
Latest posts by Jeffrey Sherman, MBA, FCPA, FCA (see all)
  • How does IT recovery planning differ from business continuity planning? - August 4, 2015
  • How to manage bank accounts: the basics - July 6, 2015
  • Refresher on financial statistics and metrics - April 6, 2015

Article by Jeffrey Sherman, MBA, FCPA, FCA / Business, Finance and Accounting, Not for Profit / business contracts, commercial contracts, Commercial transactions, Contract administration, contract law, contractual relationship, employment contract, exposure to financial and legal risk, Internal Controls, not-for-profit policypro

Share with a friend or colleague

Get the Latest Posts in your Inbox for Free!

Electronic monitoring

About Jeffrey Sherman, MBA, FCPA, FCA

Jeffrey is CFO of Atrium Mortgage Investment Corporation (TSX:AI), a director of several companies and has had over 20 years of executive management experience. His interests include corporate governance, risk management, accounting and finance, restructuring and start-up enterprises.

Jeffrey is a popular presenter, and was an adjunct professor at York University for 15 years. He is a frequent course director and course author for many organizations, including provincial bodies of Chartered Professional Accountants across Canada.

He has written over 20 books including: Canadian Treasury Management, Canadian Risk Management, and Financial Instruments: A Guide for Financial Managers (all published by Thomson-Reuters/Carswell), as well as Finance and Accounting PolicyPro and Information Technology PolicyPro (guides to governance, procedures, and internal control), and Cash Management Toolkit for Small and Medium Businesses (all published by Chartered Professional Accountants of Canada [CPA Canada]).

Footer

About us

Established in 1995, First Reference is the leading publisher of up to date, practical and authoritative HR compliance and policy databases that are essential to ensure organizations meet their due diligence and duty of care requirements.

First Reference Talks

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies

Main Menu

  • About First Reference
  • Resources
  • Contact us
  • 1 800 750 8175

Stay Connected

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

We welcome your comments on our blog articles. However, we do not respond to specific legal questions in this space.
We do not provide any form of legal advice or legal opinion. Please consult a lawyer in your jurisdiction or try one of our products.


Copyright © 2009 - 2023 · First Reference Inc. · All Rights Reserved
Legal and Copyright Notices · Publisher's Disclaimer · Privacy Policy · Accessibility Policy