Process Of Contract Management: What You Need to Know

The process of contract management defines a company’s relationships with its stakeholders, suppliers, partners, and customers. The most effective contract management builds strong ties and creates long-term benefits for your company. The success or failure of the organization depends on the contract management procedure that will direct the contracts throughout their lifecycle.

What is Contract Management?

The contract management process involves creating and monitoring a contract between two parties. For example, procurement contracts include a request for commencement, writing, negotiation/redlining, approval, execution and signature, obligation monitoring, renewals, amendments, and the contract’s expiration. With so much information, every company should use the best contract management software to administer all contracts with suppliers, customers, and third parties. 

Seven Steps in the Process of Contract Management

1. Request a New Contract. The capacity for an organization’s users to request a new contract, or possibly the evaluation of an existing agreement, is known as the first step, request, or initiative. Depending on the situation, this request might be forwarded to Legal, Procurement, or another appropriate department, to keep a central location for reviewing and processing all contract requests.
2. Contract Development and Authoring. This step entails putting a contract together from pre-approved templates following operational guidelines. This self-service option enhances the speed and effectiveness of the contract cycle time by enabling users to draft contracts within the constraints established by the legal team.
3. Negotiating and Redlining. After the initial draft is completed and sent to the opposite party, the process of approving or declining changes begins. At this vital stage, it is essential to cooperate with all parties while maintaining your vision. A smooth procedure requires effective document comparison, change tracking, version control, and audit trails.
4. Establish Workflows. Set workflows ensure that everyone who should examine and approve each draft does so promptly, keeping the process moving quickly and effectively from one party to the other until both sides agree and the contract is complete.
5. Contract Signatures. E-signature contract execution has been around for years but only became popular during Covid. Then, it was common for both sides to meet and hand sign. E-signatures are quick and efficient.
6. Active Contract Management. The post-signature contract process is just as important—if not more so—than pre-signature events. The contract lifespan can extend for several years and numerous payments, responsibilities, rebates, discounts, and milestones. It’s essential to comprehend, monitor, and finish those tasks. As legislation changes or the company evolves, assessing risk is essential. Some contracts may need to be modified to consider the changing environment.
7. Possible Contract Amendments. Whether we like it or not, contract amendments may be a necessary element of a contract’s lifecycle, and your contract management should be ready to renegotiate when necessary. Software tools for contract management streamline the process and keep track of modifications.

Five Advantages of Contract Management

• Supports Business Operations

Effective contract management streamlines organizational operations by structuring business contracts to benefit your company and your vendors. The insights gained from contract management can also be used to pinpoint opportunities for maximizing income and cutting costs.

• Enhances Operational Effectiveness

Best-in-class contract management strategies incorporate several tools or programs that automate the management of contracts. Contract management software  increases corporate efficiency and decreases the range of errors by eliminating manual efforts. The staff can concentrate on more strategic facets of contract management, such as assessing contract performance and pinpointing development opportunities.

• Increases Spending Transparency

Contract management improves the transparency of where your money is going, which can assist you in finding greater cost-saving options for your company.

• Increases Suppliers’ Visibility

Suppliers are an essential component of most businesses because most organizations depend on suppliers to provide the goods and services that support their operations. Tracking suppliers, analyzing their performance in light of the contract’s conditions, and assessing supplier risk are all made easier by contract management. Additionally, it serves as a tool for establishing long-term, mutually beneficial relationships with suppliers that provide beneficial synergies.

• Enforces and Enhances Compliance

The level of compliance among the important stakeholders is improved by having a contract management system that specifies terms, conditions, and procedures to be followed. An increase in compliance always aids in the reduction of negative issues within the company and its vendors.

 

Five Challenges With Contract Management

• Speed vs. Accuracy

The age-old issue of getting a contract out quickly to ensure the company doesn’t lose market or money, while maintaining a high standard of writing, which takes time, to ensure the contract is correct and legal. 

• Government Compliance

Contractual provisions must be consistent with the most recent revisions to the management and senior leadership teams’ established commercial and legal policies, which are subject to ongoing change.

• Maximizing Cross-selling and Upselling Bundling   

It is quite challenging to generate contracts that maximize revenue opportunities by offering the right product mix. Maximizing revenue is also easily overlooked due to tight timelines while negotiating a competitive deal.

• Coordinating Departmental Approvals

It is complicated to obtain approvals from several departments and resolve discrepancies. It is challenging to keep a single source of truth that accurately reflects the state of the contract at any one time. After a negotiation, there will frequently be numerous “final” copies of a contract.

• Streamlining Communication Between Parties

Prospects may need to ask their internal managers for approval when making revisions to contracts. It can be difficult to maintain open and effective communication so that the agreement can move forward.

Conclusion

Effective contract management helps firms manage the contract lifecycle at every level by detecting inefficiencies and bottlenecks. Companies should develop plans to handle the particular difficulties presented at each stage.

 

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:

1. https://www.ivalua.com/blog/what-is-contract-management/
2. https://ironcladapp.com/journal/contract-management/what-is-contract-management/
3. https://www.medius.com/glossary/what-is-contract-management/