The aviation industry is one of the world’s most complex and regulated sectors. Contracts in the aviation industry are often high-stakes and significantly impact safety, performance, and profitability. Furthermore, given the industry size, the contracts and procurements in aviation are more complex than in other industries. This article will explore the most common contract management challenges in aviation industry and how to overcome them.
Aviation Contract Management Challenges
Aviation industries face diverse contract management challenges like regulatory compliance, risk involvements, and contract complexity in addition to the regular ones such as longer turnarounds. Here are the most frequent contract management challenges the aviation industry faces.
1. Contract Disagreements
One of the most crucial contract management challenges in aviation is the disagreement over contracts. The MoU, technical specification, and service terms can usually nullify contracts, terminate them, and cause disputes. Stakeholders should inspect the cause for disagreement and take appropriate remedial measures to keep the contract moving as expected.
2. Regulatory Compliance
Governments and other bodies highly regulate the aviation industry, and contracts must comply with applicable rules, regulations, and standards. These regulations include FAA, EASA, ICAO, and other national and international standards. Fulfilling these checks can be cumbersome and add to the contract management challenges for aviation.
3. Risk Involvement
The aviation industry is one of the industries that work amidst high risks like performance failures, pricing challenges, contract proceeds, and over-commitment. These can further contribute to the existing contract management challenges for the aviation sector. In other words, contracts in the aerospace or aviation industry carry a high level of risk due to the potential impact on safety and performance.
4. Contract Negotiation Process
Negotiating is a deciding factor in aviation contract management. In practice, aviation contract negotiation can be challenging due to the complexity of the contracts and the high stakes involved. The negotiation process can become time-consuming and demands participation from multiple stakeholders. These factors cause a whole new set of contract management challenges for aviation:
- Cost fluctuation while the negotiation is underway
- Disputes and misunderstandings of the clauses
- Unprecedented delays in negotiations.
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Best Practices for Aviation Contract Management
- Develop an end-to-end aviation contract management strategy that caters to the goals, objectives, specifications, clauses, and processes for contract management. The strategy must identify the key stakeholders, clarify their roles and responsibilities, and the metrics for measuring performance and productivity.
- Make provision for a 360-degree view of the contract cycles, services, technical specifications, and cost variations. The contract must also provide space to fulfill the value proposition based on customer requirements.
- Since aviation contracts involve many risks, a constructive risk management plan should be in place to identify and mitigate potential risks. The plan must be comprehensive and include risk assessment, mitigation, and monitoring to evade aviation contract management challenges.
- AI can minimize contract management issues in aviation. AI-driven contract management systems can automate critical processes such as contract terms, approval, monitoring, tracking performance, and keeping the contract alive. They help reduce the time, cost, and resources required for contract management and improve accuracy.
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The aviation sector is complex with numerous rules, regulations, compliances, monitoring, safety, and concerns. Improving contract management in the aerospace industry requires a well-defined strategy, advanced technology, standardized process, compliance, and an effective risk management plan. By addressing these challenges head-on, organizations can improve contract performance.
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