With large, complex commercial real estate projects there are indeed two sides to the coin. There is the physical side: the construction or renovation processes where results are mostly tangible via phase-specific and final property inspections. And there is the abstract side: managing contracts where mistakes might not be so obvious to the naked eye.
Superior contract management skills are predicated on a major overlying theme, which is attention to detail. All parties are typically anxious to get to the signature phase but it’s always a sound practice to make sure certain provisions that favor owners and investors always apply to the contract. This includes concepts like risk transfer, where the largest possible quantity of that unknown variable is ideally shifted to contractors. Also, analyzing each pricing option that provides optimal protection for stakeholders is an effective practice.
Assuming you have all the bases covered can be a fatal error. Take a look at these common and potentially costly mistakes that can be made from the contract management perspective.
Not Having a Consistent Approach
Turnover, intra-company employee transfers, a shift in external legal resources— each scenario could have a disruptive effect on the way you manage contracts. One negotiator may have a technique that is completely different from someone else who may be taking over or transitioning in during the contract management process.
An inconsistent methodology with contract proceedings could result in cost overruns, lost profits, or costly legal proceedings. Relegating the process to a single-platform, companywide approach to contract management will minimize exposure to all these possible pitfalls. Specific CRE industry software applications help ensure that all teams utilize the same tools across the entire contract process, minimizing the likelihood of errors that result from stylistic differences.
Using Outdated Tools
It’s a great accomplishment to secure an executed contract but much of the heavy lifting still remains. Efficiently managing the activities of contractors and suppliers is difficult to accomplish if you’re revising, cutting, and pasting— or using Excel.
Inaccurately tracking change orders, draw requests, retention, etc. can mean a huge hit to the bottom line, and at the end of the project, little can be done to account for undiscovered accounting errors made midstream. Adopting a software solution that is specifically designed for the CRE space will reduce the number of mistakes during the construction phase, helping to preserve projected return on investment.
A Lack of Predictive Insight
There are undoubtedly many projects for which you’d wished you had a crystal ball. Estimating, forecasting, and timeliness all play an essential role in an effective contract management system. Yet, intuition is often not enough to predict future results based solely on past perception.
In today’s CRE environment, forsaking the troves of data available for decision-making around critical metrics, such as time to completion and volatile swings in the cost of labor and materials. Being able to collect, analyze and apply not only internal trends but also regional and nationwide movements in these variables helps fine-tune projections within the contract management process. An industry-appropriate CRE software suite will help leverage data in real-time to help assure contract pricing is congruent with market movements.
Minimizing Risk with Good Contract Management
Risk is inherent in any type of endeavor but liabilities loom larger when it comes to complex CRE pursuits. Automating the contract management process allows a comprehensive software solution to address all details of the deal that include tracking contractor insurance certificates and clearly defining the scope of work for third parties.
The key to understanding and factoring risk into the contract management process involves adopting an automated and predictive solution that is geared specifically toward real estate development projects. Anton Systems does just that with its suite of real estate development and property management software. Contact us today to find out more about how we can keep you on the path to profitability.