Contract management is the process of managing contract creation, execution and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and improve company performance. Contract management proves to be a very time-consuming element of business, which facilitates the need for effective and automated contract management system.
The fundamentals of contract management
When two companies wish to do business with each other, a contract specifies the activities entered into by both organizations and the terms through which they will each fulfill their parts of the agreement. Contracts affect business profitability in a very large way due to the emphasis on revenue and expenses. When a contract is phrased poorly, one organization might lose countless thousands of dollars over a simple technicality they lacked the resources to identify. Effective contract management can ultimately create a powerful business relationship and pave the road to greater profitability over the long-term, but only when managed correctly.
Elements of successful contract management
It isn’t enough that an organization has professionals in place to handle contract management. Employees must be augmented with the presence of processes and software companions to satisfy increasing compliance and analytical needs. When a contract management strategy is successfully implemented, organizations can expect to see:
- The expected business benefits and financial returns are being realized
- The supplier is cooperative and responsive to the organization’s needs
- The organization encounters no contract disputes or surprises
- The delivery of services is satisfactory to both parties
Activities that make up good contract management
The foundation for contract management relies on the implementation of successful post-award and upstream activities. During the pre-award stage, employees should focus on the reason for establishing the contract and if the supplier can fulfill the terms of the agreement. Additional consideration is needed to understand how the contract will work once awarded. Avoiding unwanted surprises require careful research and clarity of purpose in the actual contract.
Contract management requires a level of flexibility for both parties involved and a willingness to adapt contract terms to reflect any changing circumstances. Problems are inevitable, which means organizations must be prepared for the unexpected and be able to adjust contract terms when needed.
Stages of contract management
Contracts play a significant role in the end-of-quarter crunch and are broken up into stages to organize efforts and structure the typical contract process. When done manually, creating a contract can prove quite time consuming. The process includes the following steps:
- Initial requests. The contract management process begins by identifying contracts and pertinent documents to support the contract’s purpose.
- Authoring contracts. Writing a contract by hand is a time-consuming activity, but through the use of automated contract management systems the process can become quite streamlined.
- Negotiating the contract. Upon completion of drafting the contract, employees should be able to compare versions of the contract and note any discrepancies to reduce negotiation time.
- Approving the contract. The instance in which most bottlenecks occur is getting management approval. Users can preemptively combat this by creating tailored approval workflows, including parallel and serial approvals to keep decisions moving at a rapid pace.
- Execution of the contract. Executing the contract allows users to control and shorten the signature process through the use of eSignature and fax support.
- Obligation management. This requires a great deal of project management to ensure deliverables are being met by key stakeholders and the value of the contract isn’t deteriorating throughout its early phases of growth.
- Revisions and amendments. Gathering all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.
- Auditing and reporting. Contract management does not simply entail drafting a contract and then pushing it into the filing cabinet without another thought. Contract audits are important in determining both organizations’ compliance to the terms of the agreement and any possible problems that might arise.
- Renewal. Using manual contract management methods can often result in missed renewal opportunities and business revenue lost. Automating the process allows an organization to identify renewal opportunities and create new contracts.
Contract management software
While the tradition is normally to manage contracts manually through folder and file cabinet storage, the practice is riddled with inefficiencies that can only detract from an organization’s overall efficiency. Integrating with an automated contract management service will help free up countless man hours and automate countless processes associated with managing a contract, thus creating more value for a company.