Contract management is the process of keeping track of agreements from the time they are made to the time they are carried out by the chosen party to the time they are no longer valid. Contract management includes analyzing performance against the terms of a contract to improve operational and financial performance, as well as reducing financial and reputational risks that could come from not following through with contractual obligations.
Key activities in contract management include tracking deadlines and milestones, flagging potential risks, securely storing, organizing, and retrieving all contracts, and generating reports. The main features/functions of contract management software include creating, storing, and managing contracts; tracking who has access to each document; generating PDFs or XLS files for electronic signatures; exporting data into other formats; importing data from other sources; managing permissions levels; and more.
When choosing a contract management solution, it’s important to consider your needs and budget as well as features like ease of use, integration capabilities, security, scalability, etc. Some popular contract management solutions on the market today include Adobe Sign (formerly Acrobat Sign), DocuSign CLM (formerly Clarify Legal Documents), IBM EmptorisCLM (formerly Sterling Software Solutions), Oracle Contract Management Cloud Service (formerly SunGard Contract Management Suite), SAP ParaView (formerly Sybase Central Contracts).
What are the benefits of an effective contract management process?
Contract management can help improve operational and financial performance. By tracking and managing contract commitments, businesses can ensure that they are meeting their obligations and avoiding any potential financial or reputational risks.
Additionally, contract management can help to ensure that agreements are carried out as intended by ensuring communication between all parties involved is effective. Contract management can also help to streamline the process of making changes to an agreement – ensuring that all relevant information is readily available for both parties to review.
In summary, effective contract management can provide many benefits for businesses in terms of improved operational efficiency and risk mitigation.
A repeatable and standardized process for contract preparation, negotiation, and implementation
The benefits of a documented and formalized process to prepare, negotiate and implement contracts span through a variety of business areas, including:
- Improved efficiency and productivity – A formalized contract management process can help to improve the efficiency and productivity of an organization by providing a clear and standardized framework within which contract-related activities can be carried out. This can help to reduce the time and resources required to complete each stage of the contract management process, as well as helping to ensure that all relevant parties are aware of their responsibilities and deadlines.
- Eliminate ambiguity and confusion – Having a clear and concise contract management process can help to eliminate ambiguity and confusion surrounding the roles and responsibilities of each party involved in the contract. This can help to ensure that all parties are aware of their obligations under the agreement and can help to prevent any misunderstandings or disagreements from arising.
- Improved communication – A formalized contract management process can help to improve communication between all parties involved in the contract. This can help to ensure that all relevant information is shared in a timely and efficient manner and can help to prevent any misunderstandings or miscommunications from occurring.
- Improved decision-making – A formalized contract management process can help to improve decision-making by providing a clear and structured framework within which decisions can be made. This can help to ensure that decisions are made in a timely and efficient manner and can help to prevent any delays or costly mistakes from occurring.
Lower operating costs due to process optimization
When it comes to contract management, process optimization can be a huge help in keeping operating costs down. By streamlining the process and making sure that everything runs smoothly, you can avoid delays and mistakes that can end up costing your business money.
In addition, taking the time to optimize your contract management process can save you time and resources in the long run, making it well worth the effort.
Reduced risk with the use of contract management software
When it comes to risk management, one of the most important things that businesses can do is to have a good contract management process in place. This is where contract management software comes in, as it can help to automate and streamline the process, making it more efficient and effective.
There are a number of benefits that come with using contract management software, one of which is reduced risk. With all of your contracts in one centralized location, and with features such as alerts and reminders, you can be confident that nothing will slip through the cracks. You’ll always be aware of upcoming deadlines, and you’ll never have to worry about losing track of an important contract.
Faster execution of contract management-related tasks
As we’ve already seen, contract management software can help to automate and streamline the process, making it more efficient and effective. This can lead to faster execution of contract management-related tasks, as there will be no need for manual input or tracking.
This can free up your time so that you can focus on more important things, and it can also help to improve communication and collaboration between all parties involved.
Reduced reliance on legal department oversight
As businesses move away from traditional models of centralized control, they are increasingly relying on contract management processes to help them govern their affairs. This shift has a number of benefits, chief among them being reduced reliance on the oversight of the legal department.
In a traditional business model, the legal department is responsible for reviewing and approving all contracts before they are executed. This process can be time-consuming and expensive, as attorneys must review each document for compliance with company policy and applicable law.
However, by using a contract management system, businesses can reduce their reliance on the legal department and instead have employees self-manage their contracts. This can save the company time and money, as well as improve employee productivity.
Improved supplier relationship management
The contract management process is a critical function for any organization that relies on outside suppliers. An effective contract management system can help you streamline your procurement process, improve communication with suppliers, and ensure compliance with contractual terms.
A well-managed contract management system will give you visibility into your organization’s spending, help you negotiate better deals with suppliers, and make it easier to track and manage supplier performance.
In short, an effective contract management system is an essential tool for any organization that wants to optimize its use of external suppliers.
The 5 steps of an effective contract management process
A well-defined contract management process allows for the successful and timely execution of contracts while ensuring compliance with all relevant legal requirements.
A formalized contract management process involves the following five steps:
Step 1: Defining the contractual obligations of both parties
In any contract, it is essential to first identify the roles and responsibilities of each party involved. In other words, what each party agrees to do (or not do) under the terms of the contract. This helps to ensure that both parties are clear on their obligations and can avoid any misunderstandings or disputes down the road.
To do this, start by creating a list of all the deliverables that need to be met under the contract. These could be products, services, or outcomes.
Both parties should agree on this list of deliverables and sign off on it before work begins. This will help ensure that everyone is clear on what needs to be delivered, by when, and how.
If there are any specific requirements for each deliverable (e.g., quality standards), make sure to include these in the contract as well. This will help avoid any misunderstandings or disputes down the line.
Step 2: Negotiating the terms of the contract
In the second stage of the contract management process, the parties involved negotiate the terms of the contract. This usually happens after both sides have agreed on a basic framework for the agreement and are ready to discuss specific details.
The negotiation process can be complex, and it is often helpful to have a lawyer or other professional help with this step. During negotiations, each side will try to get the best possible deal for itself, so it is important to be prepared before starting talks.
There are a few things you’ll need to keep in mind when negotiating the terms of a contract:
- Make sure both parties are happy with the agreement. It’s important that both sides are satisfied with the final outcome of negotiations. If one party is not content, it could lead to conflict down the road.
- Be clear about what each side is responsible for. Each party should know its roles and responsibilities within the contract. This will help avoid any confusion or misunderstanding later on.
- Put everything in writing. Once you’ve verbally agreed upon the terms of the contract with the other party, it’s important to get everything in writing. This will help to avoid any misunderstandings or discrepancies later on.
Step 3: Drafting the contract
After you’ve identified the key terms and conditions of your agreement, it’s time to start drafting the contract. This is where you’ll put all of your agreed-upon terms into a legally binding document.
If you’re working with an attorney or using a contract management software, this step will be fairly straightforward. However, if you’re drafting the contract yourself, there are a few things to keep in mind.
First, make sure that all of the essential elements of a contract are included in the document. These would include, but are not limited to:
- The names of the parties involved in the contract
- A description of the services being provided
- The duration of the contract
- The payment terms
- Any other relevant details
Once you have all of this information, you can start drafting the actual document. If you’re not sure how to format a contract, there are plenty of templates and examples available online. Just make sure that all of the information that you have gathered in the previous steps is included.
Once you have everything drafted, it’s time to move on to the second last step in the contract management process: approving the contract.
Step 4: Approving the contract
The second last step in the contract management process is approving the contract. Once all of the negotiation and paperwork are complete, both parties will need to sign off on the agreement. This step is important to ensure that both parties are happy with the terms of the contract. After all, a contract is only binding if both parties agree to it!
Once the contract is signed, it’s time for the final step in the contract management process: implementing the agreement.
Step 5: Executing and monitoring the contract
After the contract is signed, it’s time to start executing it. This step involves putting all of the agreed-upon terms and conditions into action. It also includes monitoring the contract to ensure that both parties are upholding their end of the bargain.
If any problems or issues arise during the execution and monitoring stage of the contract, they will need to be addressed and resolved as quickly as possible. After all, a successful contract is one that is executed smoothly and efficiently with no hiccups along the way.
In order to ensure that the contract is executed successfully, it is important to have a system in place for addressing and resolving any issues that may arise. This system should include clear procedures for escalated communication and decision-making in order to resolve problems quickly and efficiently.
As we have seen, when a company takes the time to develop and implement a solid contract management process, it can reap many benefits. A well-managed contract portfolio can help a company save money, improve efficiency, and mitigate risks.
Furthermore, a good contract management system can provide visibility into performance and enable better decision-making.