Contracts are frequently a crucial pillar supporting business operations for success and growth. These agreements between two or more parties reach a mutual understanding that outlines specific legally enforceable rights and obligations.
Effective management of contracts is essential to the success of an organization. Ironically, in almost 40% of organizations it is unclear who has responsibility for creating accurate contracts for their clients.
Contract management by individuals can only achieve an accuracy of 97%; however, employing AI techniques can boost this score to 100%. A company employing AI-based contract management strategies gets immense help with the implementation and administration of a contract at every stage.
According to Superlegal AI, AI reviewed the contracts in 26 seconds, while the lawyers required an average of 92 minutes to complete the process. It is increasingly crucial for prospective legal professionals and businesses to understand contract management tactics to improve the workflow.
This article will detail the importance of having a contract management strategy in legal and business operations and how to handle contracts effectively.
What is Contract Management?
The practice of efficiently organizing, coordinating, and overseeing business agreements with different parties, including suppliers, partners, clients, and staff members, throughout each phase of their interaction with a company, is known as contract management.
Contract management is essential for a contract to be profitable for business growth.
The business drafts a contract outlining the task’s parameters, deadlines, deliverables, and other pertinent information. The contract starts when the selected vendor accepts it, and both parties sign it. From then on, performance is managed.
This illustrates the ways in which contract management covers every stage of the contract lifecycle, from planning and development to carrying out and reviewing. Good contract management is important in establishing the long-term viability of any business deal.
What Contract Management Strategy is Needed?
There are many benefits to establishing an effective contract management strategy. Maintaining control over each contract in your business workflow in this increasingly digital world is vital.
Another crucial part of the requirements for contract management is documentation security. The likelihood of hacking and other cyberattacks is decreased by using a multi-level password access system.
An essential part of a company’s contract management strategy is a central repository that holds all the contracts and associated papers and is easily accessible by authorized individuals. Liabilities are decreased since it removes confusion brought on by out-of-date information.
When a business implements best practices for contract management, it can accomplish the following:
- Improved contract outcomes due to departmental cooperation.
- Greater operational efficiency as a result of the company simplifying its contracting procedures.
- A thorough awareness of the contract portfolio, including necessary deadlines for taking action, possible risks, and general performance level.
Effective Contract Management Strategies
A checklist of procedures should be created to ensure that the contract management procedures are precisely defined and adequately documented.
Establish Clear Objectives and Expectations
Simplifying the business operations requires having clear objectives and expectations from a contract. For the following reasons, teams ought to incorporate this into their overall contract management plan:
Promotes continuity: Consistency is a vital component of a successful contract management approach. Organizations can effectively continue the Contract Lifecycle management even in unforeseen disruptions when they have a well-defined plan.
Provides sufficient resources: Establishing precise objectives facilitates allocating suitable resources for contract management. This holds for everything, including resources like money, staff, and supplies.
Also Read: Top Contract Management Software for Businesses to Simplify Your Workflow
Identify Key Terms and Conditions
Key Terms and Conditions constitute the central component of any contract management strategy. Terms are responsibilities that either party or both must meet to avoid breaking the terms of the agreement. By evaluating each party’s key terms and conditions, you can decide the contract’s core.
For instance, a contract for the sale of products can include that the items must fulfill a particular quality requirement for the vendor to be paid. Buyers can decline product payment if the vendor fails to perform the required standards.
The aggrieved party may affirm or cancel the contract in response to a broken condition. They may file a lawsuit for damages in each scenario.
In that case, it is best to conduct a background investigation on the other party, designate a point of contact for each party, set up the contract lifecycle, decide on the review procedures, specify the repercussions of delays, and maintain records of all process steps.
Document all Changes and Agreements
Your plan for managing contracts is adaptable and includes procedures that cover all kinds of business changes and agreements, from typical employment contracts to the documentation of extraordinarily complicated and specialized transactions.
You must complete all contract review stages and document all changes and agreements. Call a team gathering to discuss internal issues, identify sources of pain, and assess the solutions employed.
A project’s participants may discover that more activities, features, or services are required as it moves along. They may also find that some components they once considered essential are no longer applicable. It is possible to ensure everyone is on the same page and that the project can adapt to changing needs by documenting the contract agreements to reflect these scope changes.
Also Read: Best Business Contract Templates for Small Businesses to Ace Your Deals
Thoroughly Review and Negotiate
During the initial meeting, it is essential to thoroughly review the period’s duration and ensure that all parties are held accountable for timely revisions. It should be evident that any extra time spent on review will impact future procedures and due dates. Additionally, every one of these agreements needs to be put in writing.
Examine each document thoroughly before entering into a negotiation. Prepare any deliverables you intend to provide and review your notes one more before each meeting. This can assist with all of the contract’s issues. As evidence of an agreement, use the negotiation process to get everything documented rather than depending solely on verbal compromises.
Develop Mitigation Strategies
One approach to identifying, assessing, and reducing exposure for the entire company is through contract mitigation measures. Reducing exposure to a manageable level is the goal of your contract management strategy, regardless of whether the firm is going into a new vendor, supplier, or other business arrangement.
You can develop mitigation strategies by:
- Include and standardize vital clauses.
- Establish a strict foundation for compliance.
- Regularly work together with thorough evaluations.
- Accelerate Contract Lifecycle Management procedures by adopting new technologies.
- Use alerts and notifications to ensure that all deadlines and milestones are met.
Monitor and Track Risks
Throughout the process, every possible risk that a business might encounter while conducting business is strategically estimated to reduce the probability and severity of any unfavorable occurrences.
You may prepare for many contingencies to mitigate risks, even if it is impossible to control or foresee them all. Recognizing and monitoring all potential risks, creating workable mitigation plans, and keeping an eye on the plans’ execution are all part of this all-inclusive approach to an effective contract management strategy.
Compliance and Legal Considerations
A key component of contract management strategy is effective contract compliance and legal considerations, which strive to guarantee that contracts are carried out successfully and efficiently at all phases, from pre- to post-signing. Requirements for compliance can also originate from a number of places, such as external regulations established by governments and business associations, as well as internal stakeholders.
How can you gauge whether your company is continuing to comply? You may make sure you’re fully complying with the agreement by evaluating how well you’re reaching the precise objectives and milestones outlined in your contract.
Everyone involved in the launch meeting must understand who has the last say on choices. A senior manager or board of directors member may be absent at some meetings, but it must be evident who is authorized to represent them. Being direct about the review route is necessary to reduce misunderstandings and expedite evaluations.
Spend some time establishing the points of the contract that the approving officer must respond to specific queries to finish the contracts. In this manner, delegates will be informed and able to assist in obtaining the required responses.
Utilizing Technology
Technology can help manage contracts by standardizing and optimizing the processes involved in contract negotiation, execution, and management. It can assist in doing away with manual contract processing and improve the procedure’s accuracy and productivity.
Here are a few ways that technology can make contract management easier:
- Contract document repository.
- Robust search engine capabilities.
- Security according to roles.
- Automated alerts and recollections.
- Simple templates for workflows.
Performance Monitoring and Evaluation
Managers of both contracting parties can measure progress, make adjustments to work with contracts and accomplish goals against contracts with the use of performance monitoring and evaluation.
The following methods and procedures are used for contract monitoring and assessment:
- Scheduled examinations of the work the contractor does on a regular basis.
- Sampling at random from regular functions.
- Usage of user reports and contract monitoring.
- Evaluation of the contractor’s quality control reports and program on a regular basis.
Contract Renewal and Closure
Contract renewal and closure serve to maintain an ongoing business relationship and guarantee that the parties can still take advantage of the initial arrangement.
The parties have the chance to review the contents of the original contract and make any required updates or changes throughout the contract renewal procedure.
In the renewal process, new terms like price, payment plans, or service levels may need to be negotiated.
Contract renewals require mutual consent from both parties and are not automatic.
Effective Communication
Contract managers need regular and consistent access to effective communication to oversee the portfolio efficiently and ensure that the current contract processes appropriately represent and augment the company’s aims.
A company’s contract portfolio size and scope determine how often updates are sent out. Ideally, these updates should happen every month. More collaboration and communication are ideal since regular oversight will allow contract managers to keep ahead of problems and seize opportunities as soon as they arise.
Best Contract Management Software
#1. PandaDoc
PandaDoc enhances efficiency by automating contract drafting, revision, and collaboration in one tab. Easily create and modify flawless contracts by adding pre-approved content to editable templates.
Features:
- By setting notifications, you can be sure to know when it’s time to review contracts and start the renewal process.
- Use e-signature technology that complies with ESIGN to finalize all contracts.
#2. DocuSign
Contracting procedures can be expensive, ineffective, and complicated. DocuSign CLM makes the process simpler, quicker, and less risky—whether you’re buying something your company needs or closing the next big transaction with a customer.
Features:
- Automate the process of routing contracts for thorough version control, both internally and externally.
- AI-assisted negotiation capabilities can expedite the examination of contracts.
#3. Zoho Contracts
Intending to facilitate better business outcomes, Zoho Contracts enhances the effectiveness of your legal operations and approaches contract administration holistically. It is an appealing option for companies of all sizes due to its comprehensive capabilities, scalability, and straightforward design.
Features:
- Use the wizard for contract creation to create contracts quickly.
- Collaborate intuitively with tools like comments and track changes.
#4. ContractWorks
You can take command of your contracts with the help of ContractWorks. Drag and drop the files to arrange your contracts into a single, safe, expandable contract repository. Ensure your contracts are error-free and compliant, then finalize them the same day.
Features:
- Documents with an integrated electronic signature can be sent, signed, and filed from any location.
- OCR and advanced search options let you find the contact details you need quickly.
Future of Contract Management
Business contracts with AI is still a relatively new technology. There is a system that automates the process of reading the contract, extracting data, filling out the form, and tracking the obligations—instead of requiring human intervention. More AI bots will be introduced, capable of entering data and posing a series of contract-related queries.
The advent of this new technology is creating an abundance of new options, much like every other industry going through a digital transition. Of course, in addition to overcoming challenges and taking down barriers, digitalization is also replacing some roles and occupations. But we believe that for every job that this technology removes, it will create five more opportunities.
Along with the professionals who use it, the papers it processes, and the people who develop it, contract management technology is constantly changing. People still influence technology far more than technology influences them. The need for increased efficiencies will persist as legal departments and businesses face additional challenges.
FAQs
What are the 4 stages of contract management?
Contract management is divided into four stages: pre-contract, contract award, implementation, and close-out.
What are the contract strategies?
Contracting strategies are used in business to manage and implement contracts at every level to reduce risk and boost efficiency. It includes deciding how the contractor will be paid and the owner’s oversight role. They also explain how the owner will approach the market for these services based on external factors and internal owner capabilities.
What are the four 4 blocks of good contract management?
Delivery, development, strategy, structure, and resources are the four blocks of good contract management.
What are the 3 P’s of a contract?
The 3 P’s of a contract are:
Parties: The organizations meant to carry out and be obligated by the terms of the agreement.
Property: A legal description of its address.
Price: The cost of the property after all taxes, deposits, and other modifications have been made.
What are the key elements of contract management?
The essential elements of a contract management strategy are:
Roles and responsibilities that each contracting party has been given.
Goals and objectives of the agreement.
Important dates and due dates.
The structure and indicators for performance management.
Techniques for risk minimization and management.
Wrapping Up
Any business’s success greatly depends on the discipline of contract management. Its many advantages are the optimization of contract procedures, risk reduction, workflow optimization, and increased compliance.
Contract management helps organizations make wise decisions, seize opportunities, and improve their bottom lines by decreasing contract cycle times and boosting negotiating efficiency. An effective contract management strategy should be invested in if business success and competitive advantage are to be attained.
