Managing contracts sometimes feel like chasing after a swarm of hyperactive puppies. While you are putting one paper where it belongs, another is scurrying off somewhere else. But don’t worry, these puppies are easier to herd than you think. You may learn how to manage contracts efficiently if you have the correct resources and attitude. By the end of this book, you’ll be a qualified “Contract Whisperer.”
How your business manages its contracts—from the systems it uses to how teams work together—will ultimately influence its levels of visibility, control, and compliance. With this being known, let’s get into the full antics of figuring out what it is all about.
What is Contract Management?
Contract management, often known as contract lifecycle management (CLM), is the process of managing contracts from their inception until their termination or renewal.
Contract management duties include contract drafting and clause negotiation, performance analysis to maximize operational and financial performance and risk reduction, both financial and reputational (e.g., business relationships are harmed when contract provisions are not met).
Why Contract Management Is Important
Contract administration is critical because how you handle your agreements from start to finish has an impact on the agreements’ results. The CLM method is intended to assist businesses in maximizing the value of contracts while being compliant with rules and in control of relationships with third parties.
Building standardized and collaborative contract management practices throughout your organization is critical because it aligns all parties. Your company may expect to achieve its negotiated outcomes on a regular basis – as well as identify possibilities to strengthen its position.
What Is The Purpose Of Contract Management?
Using applicable contract management principles and practices throughout the contract lifecycle will provide chances to regain visibility, reclaim control, ensure compliance, and build more meaningful relationships with your contractual vendors.
The contract lifetime is divided into seven high-level stages, which are as follows:
- Inception
- Negotiation
- Execution
- Start-Up
- Operation
- Renewal
- Closeout
You may also notice that the stages of the lifecycle are divided into two categories:
- Pre-signature. A concise word encompassing the period and events preceding the signing of a contract. Contract authoring, templating, redlining, and negotiation are all steps involved.
- Post-signature. A general phrase that refers to the time period and events that occur after a contract is executed. Items such as obligation tracking, performance and compliance management, dispute resolution, and contract renewals are included.
However, focusing on the seven stages, each represents an opportunity for a company to maximize the value of its contracts and protect or manage its interests.
#1. Initiation/Inception
When the need for a new product, service, or partner becomes obvious, having a clear process for everyone to follow is critical. It is now time to collect the requirements and details of possible partners, as well as to agree on sign-off parties.
#2. Contract Negotiation
Contract managers, understandably, place a high priority on cost reduction and control. However, it is critical that both sides are satisfied with the conclusion and that neither party feels disadvantaged.
#3. Execution
Once an agreement has been made, the paperwork must be signed by all parties involved. Documents must be finalized, with all agreed-upon changes, and distributed to relevant stakeholders.
#4. Start-up
Key contract metadata must be extracted and added to the central contract registry during this foundational stage. If there is haste to get the contract up and running, this stage is often missed. This can lead to serious issues down the road.
#5. Monitoring
Regular check-ins and continuing contract performance monitoring are required to guarantee that targets and milestones, especially in terms of cost and income, are reached. Contract monitoring may also assist organizations in ensuring that compliance is constantly maintained, which is especially important in a world where regulations can change quickly.
#6. Renewals
Contract renewals provide a huge chance for cost control and reduction, improved terms negotiation, and deepening connections with suppliers. However, it is an opportunity that is far too often squandered due to ineffective contract management systems.
#7. Close-out/Completion
Again, due to competing demands, it is easy to skip this stage. When you no longer deal with a contracted party, it can be tempting to disregard any lingering processes and simply move on.
However, you never know what information and data will be required in the future. This is why it is critical to properly close out contracts.
How Do I Start To Manage Contracts
Effective contract management is a set of concrete steps that aid in the successful execution of contracts. The following are some of the actions to take:
#1. Do a thorough background check
Before engaging in a contractual partnership with another party, conduct a comprehensive background check to ensure that it is lawful. Find out if they’re already in a contract that could render yours null and void or make it difficult for them to fulfil the new contractual agreement. Interview the other party’s representatives if feasible to learn about their previous commitments and how they may affect the contract. To avoid legal concerns, make sure to follow the state law requirements when performing the checks.
#2. Have a contract lifecycle outline
The contract management cycle begins with the contract proposal and ends with the completion of deliverables. Contract agreements must be prepared, signed, and tracked. Outlining the contract lifecycle may assist in clarifying both parties’ obligations so that there are no misunderstandings. Outline the complete contract deliverables and their qualities, as well as the contract’s goals and objectives. Include the required papers as well as any other material that both parties can present to establish the contract terms. This aids in determining the contract’s success.
#3. Determine the contract signing method
Without an efficient process for immediately signing contracts, paperwork may sit in the office for weeks or months without being reviewed. After a contract is executed, businesses can begin to realize its worth. As a result, it’s critical to figure out how to sign and manage contracts early on. One suggestion is to identify the contract’s decision-makers. Rather than waiting for an employee to approach the decision-maker, approach the individual directly and obtain their contact information so that it is simple to obtain a decision followed by contract signing.
#4. Store in a centralised location
As part of the contract management process, ensure that all contract documents are centralized so that shareholders may quickly access them. They can access various contracts or sections of contracts from a single point. This can save time and effort while also accelerating contract execution. You can keep it in a file cabinet or with management software.
#5. Track milestones and deadlines
Tracking assists businesses in meeting contract milestones and deadlines. Failure to track could result in financial or even legal implications, which could harm the company’s reputation. Manual tracking may be feasible if the company is small and has few contracts to execute or manage. However, as it grows, it will be vital to employ contract management software to examine milestones and deadlines and verify that all parties involved meet them.
#6. Evaluate performance
Assess the performance of the contract management process using key performance indicators (KPIs) to assist you identify areas for improvement and gain insight into essential contract information. Use indicators such as the relationship between contract parties, fulfilling milestones and deadlines, contract cycle length, and cost-effectiveness. Learning about the contract’s issues aids in the modification of future agreement clauses to better fit the organization. Learning from past accomplishments aids in finding opportunities for future automation. Assessing performance allows you to quickly execute contract phases so you may focus on other profitable business elements.
#7. Keep contracts in a secure place
The next step is to secure the original and copies for future reference in the event of a contractual dispute or to verify a required contract clause. Physical storage, computer storage, and cloud storage are the three options for storage. Physical storage entails storing documents in fireproof or lockable file cabinets. Consider keeping the original document separate from the copies. Additionally, save the contract on a computer. Convert it to PDF before saving it, and make sure the machine is password-protected to prevent illegal access. Make backup copies on an additional hard disk.
#8. Plan the review process
It is critical to have an agreement on the evaluation performance of both parties under the contract provisions. This is especially important for long-term contracts when consistent quality performance is desired. The timing and length of the reviews can be agreed upon by both sides.
What is Contract Management Software?
Contract management is traditionally associated with a filing cabinet and dozens of folders.
You’re not alone if you still manage your contracts in a filing cabinet, on a shared drive, or by delivering scanned copies of the final form through email. It’s amazing how many multibillion-dollar corporations still use paper.
However, as you’ve already guessed, the manual method is riddled with inefficiencies and hazards that detract from the amazing value that contract management can provide. Contract management software provides an electronic solution to all of these laborious issues.
Contract management software may remove friction from the whole contract lifecycle by organizing documentation, drafting contracts, negotiating and redlining, maintaining dates, reporting on performance, and automating workflows.
Modern AI-powered contract management can even employ AI to improve clause authoring, risk management, and prescriptive analytics.
Integrated contract management software may save countless man-hours by automating all of the activities connected with contract lifecycle management, resulting in increased bottom-line value for your firm.
Who Uses Contract Management Software?
This program will be used largely in departments that deal directly with the creation, tracking, and signing of contracts. This is frequently delegated to the human resources department, which administers the line of employment accounting. Managers who must fulfil critical processes can also be included in the software. Because it integrates with calendars and communication tools, HR may employ the software suite’s heavy-lifting components while the rest helps to loop in managers and personnel who are needed for certain areas of signing or negotiating.
What is Meant by Managing Contract?
Contract management refers to the process of managing contracts, deliverables, deadlines, contract terms & conditions, and client satisfaction. Both public and private sector businesses understand that purchasing does not cease when a contract is awarded.
What Skills Do You Need to Manage Contracts?
The top skills needed to manage contracts include:
- Collaboration.
- Depth of Business Knowledge.
- Technology & Innovation.
- Pulse on Your Agreements.
- Communication & Project Management.
- Negotiation.
- Attention to Detail.
What are the 4 Stages of Contract Management?
Contract management is divided into two stages: pre-signature (creation, negotiation/collaboration, and review/approval) and post-signature (administration/execution, renewal/termination, and reporting/tracking).
What are Examples of Managing Contracts?
A management contract is a contract between a hotel owner and a management company in which the management company manages the hotel’s daily operations on behalf of the owner.
Who Manages Contracts in a Company?
Regardless of organization type, contract managers are the principal individuals responsible for the formulation and management of all contracts used by those companies. Contract managers must be skilled in a variety of areas in order to successfully oversee contracts from drafting to execution.
What are the Duties of a Contract Manager?
Discussing, creating, analyzing, and negotiating commercial contracts. Setting budgets and timelines with clients. Managing construction budgets and timetables. Managing any unforeseen costs.
What is the Best Qualification for a Contract Manager?
Although there is no specialized degree for contract management, a degree in business, pre-law, or human resources may be a useful approach to preparing for this career path and gaining appropriate job experience.
Conclusion
To manage contracts is to manage your agreements from beginning to conclusion. If your company is still relying on manual processes and fragmented systems, it will struggle to perform in areas such as visibility, control, and compliance. Weaknesses in any of these areas put your company at risk and hinder its ability to recover the full value of its contracts.
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