Contract management, also known as contract lifecycle management (CLM), is the comprehensive procedure of handling contracts, from creation to implementation and eventually to renewal or termination of the contract. Furthermore, fundamental activities incorporated in contract management comprise clause negotiation and contract drafting, maximizing functional and economic performance, and performance analysis and risk mitigation, both reputational and financial (e.g., business associations get sabotaged by defaulting on contract provisions).
The part played by contract management is rapidly evolving and is more than registering documents. Contract management comprises understanding every aspect of a contract’s lifecycle to obtain significant data insights. Hence, more companies are engaging in contract lifecycle management to streamline their performance.
Five Contract Management Examples
A contract is a lawfully conclusive document representing two or more peoples’ or companies’ duties, responsibilities, and privileges. Contract management is the extensive procedure of managing and carrying out a contract’s responsibilities for suppliers, clients, workers, or others. Below are some common examples of contract management.
1. Contract Preparation
Contract preparation is a crucial aspect of creating a contract, and it helps you regulate the initial proposals of the people involved in the contract. Below are some of the elements included in contract preparation:
· Objectives: People under a contract’s responsibilities can define their objectives for the contract, which can assist you in determining what to incorporate.
· Requirements: Each person can define their needs from the contract, which can help you ensure that the agreement will remain effective.
· Expectations: It is essential to comprehend each person’s expectations for transparent communication when preparing a contract.
· Threats: Determining threats can help people ensure that the contract will reduce risks as much as possible.
For example, suppose a residential property leasing business wants to enter into a contract with a carpet cleaning company to clean residential properties before new residents move in. In that case, these two organizations can determine the risks of the agreement and discuss their anticipations and requirements to decide whether they’re interested in working with each other.
2. Contract Drafting
Once both the companies stated in the above example express their requirements in the contract preparation stage, you can make a primary draft of the contract that mirrors their objectives and mitigates threats.
For example, if the residential property leasing business wants to enter into a contract with the carpet cleaning company, a contract management professional can draft a preliminary contract. A draft will allow each party to evaluate whether the agreement covers their needs.
3. Contract Negotiation
The parties involved in a contract can utilize the primary draft as a beginning point to mediate the provisions included in a contract. For instance, the carpet cleaning business could decide to become a residential property leasing business supplier if the leasing company can provide them with a rate of $50 per regular carpet cleaning and $95 for specialty cleaning assistance.
Next, the people involved in a contract can determine what specialty and regular cleaning might comprise and bargain until they agree on the same provisions. And in this situation, the leasing business asks if $40 and $85 rates for the specialty and routine services would be allowable, and the carpet cleaning business agrees.
4. Contract Approval
After mediating their provisions, parties involved in a contract can sign the latest version and decide when it will be effective. Many businesses incorporate online contract authorization mechanisms that can make the authorization step of the contract process more effortless to handle.
For instance, suppose the residential property leasing company and the carpet cleaning business are delighted with the agreed-upon prices in exchange for assistance. In that case, they can enter into the contract and decide to start their partnership at the beginning of the coming month.
5. Obligation Administration
When you implement a contract, a contract administrator can start handling parties’ compliance with responsibilities. This approach can allow everyone concerned to guarantee that the contract maintains its significance.
For instance, after a few months, the residential property leasing company needs help with the timing of carpet cleaning assistance. The leasing business must stick to a rigid schedule to prepare the property for new residents. In this circumstance, it may be essential to modify the agreement.
What are the Key Benefits of Contract Management?
Contracts are the basis of business associations and spell out every facet of a trade deal or vendor association from beginning to end. Below are some fundamental advantages of contract management.
- Improves Functional Efficiency
High-quality contract management strategies concern using different tools or software that automate the contract management procedure. In addition, decreasing manual actions enhances enterprise efficiency and the scope of mistakes. Besides, your team can concentrate on more strategic elements of contract administration, like identifying areas for improvement, assessing contract performance, etc.
- Reduces Inefficient Spending and Improves Spend Visibility
Contract management streamlines performance and transactional tracking by structuring a company’s engagement with its stakeholders, particularly vendors. As a result, it improves spending visibility and the transparency of where your fund flows. Furthermore, inefficient spending is a pressing problem troubling companies, and higher spending visibility will assist you in limiting undocumented expenses. And contract management can help you determine higher expenditure savings possibilities for your company by improving spend visibility.
- Ensure Team Cooperation Throughout the Contract Lifecycle
In most business issues, the legal division manages the contract management procedure. It further ensures there are communication procedures and channels for agreements to represent the stakeholders. Moreover, a contract produces desired outcomes with minimal threats through communication and collaboration between the legal and other enterprise units. It also restricts the complete dependency of the other enterprise units on the legal department.
- Standardize Contract Management Functions Without Demanding Rigidity
Standardizing contract management will decrease related inefficiencies and cycle times. Organizations can retain standardized templates, as most agreements have common structures. And pre-approved contract templates help stick to regulatory/lawful prerequisites. Every company should have a contract management system to follow a standardized contract process.
ConclusionContract management is an established method to share the responsibility of handling your business, especially when you lack resources in a specific area or time. In addition, the management business will obtain an agreed price for its assistance, so you understand the upfront cost burden while ensuring that jobs are completed to the highest benchmarks.
If you are interested in making it easy to search through your contracts, LawInsider’s contract repository makes it easy for you to upload your documents and find the hidden contracts among them. From 100 to 100,000 contracts, there are no limits and no hidden fees for the amount of documents that you can organize. With secure access and encryption for all files, you can be sure that your contracts stay safe and private.
References:
- https://www.indeed.com/career-advice/career-development/management-of-contract#:~:text=Contract%20management%20is%20the%20process,terms%20of%20use%20for%20software.
- https://www.upcounsel.com/contracts-management
- https://smallbusiness.chron.com/advantages-disadvantages-management-contracts-18886.html
- https://www.zycus.com/blog/contract-management/contract-management-guide.html
- https://www.jaggaer.com/blog/what-is-contract-management/
- https://www.contractscounsel.com/t/us/contract-management-agreement
Tags: Contract Management, Contract, Management