Lifecycle. Process. Whatever you call it, effective contract management doesn’t only involve developing agreements and getting them signed – it’s a series of actions that guide you from the earliest stages of developing holistic processes for handling each and every company agreement, through to the steps to seeing contracts through to their conclusion.
Having a clear understanding of what happens at each stage is an important way to ensure your contract management processes meet all of the requirements and objectives to deliver optimal results.
Contract management describes the contract process from the moment contracts are created to their eventual termination. The goal is to maintain control over the planning, implementation, and termination. This also includes any and all steps that are taken to ensure proper reporting and obligation fulfillment.
Contract management also involves any legal actions undertaken to address breaches of contract. For instance, those who are responsible for managing the contract process may provide non-compliant parties with a course of action to become compliant, or they can simply choose to terminate the agreement and find another party to work with.
Contract management is frequently confused with its cousin – Contract Lifecycle Management (CLM). It doesn’t help when some introduce the term “contract management lifecycle” while referring to the former. This only adds to the confusion.
While both contract management and CLM are similar and share the same “big picture” goal (i.e. managing contracts), there is a critical difference between them.
Contract lifecycle management divides contract operations into clear, defined stages whose actions are optimized to ensure maximum efficiency. Legal agreements are ferried through the entire contract lifecycle in accordance with designated workflows and conditions. This is frequently achieved by leveraging legal technology that adjusts actions to accomplish each stage of the contract lifecycle.
Contract management, by comparison, is a blanket term that can be applied to all activities associated with contracting. The term can even apply to situations when a contract is never fully executed and is abandoned in the early stages of its life.
In simpler terms, CLM is simply one approach to contract management. It combines people, processes, and technology in a way that allows organizations to get the most out of their contracts. Similar to how a square is a rectangle but a rectangle is not a square, CLM is a type of contract management while contract management is much more than just CLM.
One of the purposes of breaking contract management into distinct stages is to make it easier to analyze contract workflows and processes. Since the entire process is separated into recognizable steps, this allows managers and teams to identify broad trends and locate areas of improvement.
Here are the seven essential stages of contract management.
Before you can implement a process, it’s important to develop a system that will best suit your company’s needs and resources. To keep things streamlined and organized, it’s also important to develop contract management processes that can be implemented company-wide.
Your contract management strategy is a flexible roadmap consisting of processes that account for all types of company agreements, from standard employment contracts to the paperwork from highly specific and complex deals. The first step to developing your strategy is to determine your needs, including answering the following:
Understanding the remaining stages of contract management will help to inform your processes. If you’re currently unable to answer the questions listed above, you may need to adjust your contracting processes. Check out our change management checklist to learn how.
Once you have outlined your contract management workflow, you will need to implement your plan before you can start using it. This includes deploying contract lifecycle management software to help you to execute contract-related tasks, as well as migrating your contracts to a centralized repository.
A crucial part of your implementation plan is onboarding – making sure everyone involved understands your vision and objectives for contract management and is comfortable with the CLM software they will be using.
Now that you have your contract management foundation set up, you can begin to implement it for new contracts. That means developing new contracts or implementing boilerplate agreements for more standard situations. The key challenge of this stage of contract management is developing a specific document that will deliver what you need and reduce your risks.
For standard situations, this stage may be as simple as finding the right contract type, entering the relevant information, and perhaps making a few tweaks. More unusual or complex contracting scenarios may require the development of a whole new document. Developing a contract from scratch can be made easier by looking at other agreements that might be applicable and adapting those terms. Leverage ChatGPT or another GPT-3 technology to speed up specific steps of drafting and contract creation. Don’t forget to carry over any important requirements such as compliance obligations or branding standards. Once you have agreed on the terms and developed your contract, e-signatures can keep things moving.
It’s common – especially in larger companies – that the individuals involved in executing a contract are not the same as those who negotiated it. Thus, in order to ensure the contract is fulfilled as expected, it’s important to ensure a smooth handover. Rather than assuming stakeholders have everything they need, it’s useful to spend some time walking through all of the contract details and confirming roles, responsibilities and milestones.
The contract stage is when all of the goals of your contracts come to life, assuming you manage them properly. And the previous contract management steps you’ve completed so far are setting you up to do just that.
But the contract stage doesn’t manage itself – it’s here where you must play close attention to all of the terms laid out within your agreement and perform regular monitoring to make sure everything is happening as it should. It’s useful to have a plan for doing so, with a clear sense of key milestones and performance metrics that will let you confirm everything is on track – or provide an early warning system if any problems arise.
Nothing lives forever – not even your contracts. But there are several ways your agreements may come to an end: one-off agreements may wind down to a natural conclusion, you may renew an agreement, or choose to terminate it. Often there are specific terms – and even possibly penalties or default actions, should you fail to do anything – that can affect the outcome, which is why it’s important to start thinking about the end of your contract in a proactive and timely manner. Now is the time to evaluate how your contract performed and decide whether you want to renew and/or make any changes. Make sure all stakeholders are aware of termination and renewal dates and that you have enough time to consider all the information before you get locked into any decisions.
Once a contract ends, there is still some housekeeping to do to ensure that everything is wrapped up properly. This includes ensuring termination conditions have been met, issuing or paying final invoices, and archiving your contract. It’s also useful to perform a contract post-mortem, which can provide valuable information and learnings that can improve the results of future contracts.
When manually managing contracts, many companies rely on Microsoft Word to draft contracts, Microsoft Excel to analyze data, and Microsoft Outlook to share documents and information. Even if they don’t use Microsoft, they turn to another major provider like Google or Apple.
On the one hand, relying on familiar software removes the need to train people on how to use specialized software as most employees probably grew up using Microsoft, Google, or Apple (or, most likely, all three). This appeals to companies since new employees can start doing meaningful work from Day 1.
On the other hand, generalized software lacks the power and capabilities of specialized software. And most document actions have to be carried out manually, which creates opportunities for errors and typos.
Successful contract management isn’t easily achieved. In fact, it can be brought down by a simple spreadsheet cell.
According to Forbes, 88% of all spreadsheets contain “significant” errors, and even the best spreadsheets have an error in 1% or more of their cells. To top it off? Most were made by a human.
For massive, multi-billion dollar corporations, errors in spreadsheets could cost them millions in lost revenue. That’s the best case. In the worst case, mistakes could expose companies to a legal fall that ruins countless careers, if not send the company into bankruptcy (and regulatory lawsuits).
Consider that JPMorgan Chase once lost over $6 billion during its “London Whale” fiasco, which they reported was in part due to spreadsheet errors that appeared from poor copy-pasting of information.
Barclays had a similar issue when they were forced to spend millions on worthless contracts during the Lehman Brothers bankruptcy proceedings in 2008. Instead of deleting contracts they did not intend to buy, they simply “hid” the contracts in their Excel spreadsheet. Then, when the spreadsheet was exported to PDF and submitted to the court, the hidden rows were included, causing Barclays to be legally committed to buying contracts they didn’t want.
Even non-banking institutions can fall victim to manual spreadsheet errors. The London 2012 Summer Olympics organizing committee is one such case.
The committee planned to sell 10,000 tickets to a synchronized swimming event, but a single missed keystroke by an employee caused 20,000 tickets to be sold instead of 10,000. After greatly overselling tickets, the committee had to take action to make amends.
The lesson from these real-life examples is that not only can errors in management lead to massive losses, but many of the smaller errors can be challenging to spot. For example, if you submit a purchase order to buy pencils at $.10 each only to miss the decimal point, you could find yourself on the hook for paying $10 per pencil.
Manual contract management can be with peril. As mentioned in the examples above, bad contract management will create massive headaches, as well as financial and reputational losses that can be difficult to recover from.
This defeats the purpose of good contract management, which is to control costs, manage funds, reduce risk, and ensure high-quality performance.
Still, if your organization does suffer from below-average contract management, it’s not the end of the world. Poor processes can be overhauled into workflows that do the job.
But before you can reform your processes, you first need to identify the issues that plague them. Here is a short list of some of the more common contract management problems:
These are just a few of the potential snags and bottlenecks that can affect contract management. To identify what problems hinder your own processes, you’ll need to conduct a thorough analysis of your workflows.
One of the most straightforward options for streamlining contract management is to adopt a specialized contract management software that boosts contracting efficiency while reducing unnecessary bureaucracy, expenses, and red tape.
In addition to contract management software, here are some actionable tactics that will speed up and facilitate your contract management workflows:
This is just the tip of the iceberg of what you can do. There are many more steps you can take to accelerate your contracting.
If you’d like to see this in action, take a look at our 5 tips for managing sales contracts.
Contract management contains a lot of moving parts and elements. Although it can be challenging at first to map out a clear contract management process, especially if there’s little to no documentation that indicates current practices, the benefits far outweigh the investment.
There are several routes to easing the friction of implementing contract management, such as the introduction of specialized legal technology, digitalization of storage, and document automation.
To find out how ContractWorks can empower your contract management processes, contact our team for a demo. They’ll show you how our platform can help you take – and stay – in control of your contracts (without the big price tag).
Tips and best practices for a successful contract management process.