The Ultimate Guide to Contract Management in 2021
Contract management refers to all business processes that manage the creation, implementation, and evaluation of contracts. The goal of contract management is to create and implement safe contracts, minimize risk, and maximize performance.
Contracts are a vital part of business. They determine everything all the stakeholders need to know about the business relationship, including pricing policy, the scope of work, rights and obligations of all parties, timelines, and so on.
Naturally, effective contract management can dramatically improve the performance of your firm. In the opposite case, an ineffective contract can lead to financial risk and overall dysfunction.
Contrary to popular belief, contract management is more than just writing and signing contracts. You must draft the contract, negotiate with stakeholders, audit your contracts, and check that they comply with laws and regulations regularly. Finally, a contract’s life doesn’t have to end when the contract reaches its end date. It can be renewed, terms can be renegotiated, or the contract can be analyzed and used as a learning tool for the future.
If you are new to the legal profession or contract management specifically, this guide is just for you! To get a better understanding of what contract management actually is, what it consists of, and which processes can be optimized, keep reading!
Stages of Contract Management
There are several stages to contract management. The stages may differ based on the contract, the software you use, and other factors, but there are some general guidelines everyone can follow. It’s important to have a process and follow it closely for maximum efficiency. If you have a procedure in place, you can handle more contracts at once.
Identify your expectations
In other words, what are your objectives regarding this contract? What is the appropriate level of risk you’re willing to take? Before you even get to drafting the contract, you have to make the goal of said contract abundantly clear. That applies to all stakeholders. What does each party want to get out of this?
Identifying your objectives allows all parties to fulfill the requirements set by the contract and balance their expectations. Defining the level of risk you’re willing to face will put you on the right track with performance expectations.
Prepare your team
This step might be unnecessary, depending on the size of your firm, your employees’ experience in the company, and other factors. Before you draft the contract, you should begin to implement your contract management tools. That means familiarizing your team with the contract management software you’ll be using to keep track of deadlines, deliverables, and so on. This will save you lots of time in the future.
Draft the contract
Once both parties have made their goals and expectations clear, you can draft the first version of the contract. Don’t worry about it too much just yet; it will likely be amended before being finalized. However, you should acknowledge the importance of this step. An ambiguous contract on your part can put you at a disadvantage in the future. Strive to cover all aspects of the business.
In 9 out of 10 cases, there is no need to write a new contract from scratch. Use a template that you’ve worked with before. At this stage, you should also gather all the documentation you need for the contract.
Negotiate with stakeholders
This is when your stakeholders can tell you what they don’t like about the contract you’ve written. Remember, it’s a negotiation, so you can and should share your opinion too. Together, you decide what needs to be amended, what needs to be included, and what you can erase. Once again, that concerns everything regarding a pricing policy, terms and conditions, rights and obligations, timelines, and so on. Be as exhaustive as possible to avoid any misunderstandings in the future. Agree on all the changes that need to be made to finalize the contract.
This is a crucial step that will set the tone for your relationship with the stakeholders. Ideally, everyone should be as open and honest as they can be. The relationship you build can last for many years.
Finalize the contract
Make the changes that were agreed upon and send the contract in for approval to all relevant teams. Once all the changes have been finalized and the contract approved, the signatures of all stakeholders mark the start of the contract. At this point, all parties must act in accordance with the contract and hold up their ends of the deal.
Contract maintenance
Even though it may seem like it, the work doesn’t end there! While the contract is in effect, you have to be making sure all parties are acting in accordance with the contract. If one party fails to meet a deadline or follow their obligations in any way, that may result in a contract breach.
Audit
All contracts need to be audited regularly to identify potential risks and measure their effectiveness. This process can point to weaknesses in contracts and help you do better in the future. Additionally, the audit process will help you see if you need to take action to keep your contracts compliant.
Contract termination and renewal
As your contract comes to an end, you have the choice to end it or renew it. Don’t miss an opportunity to renew your contracts on time. Failing to do so may result in a loss of a business relationship. At the same time, you can renegotiate the terms of a contract or end it altogether. A contract that hasn’t been renewed signifies the end of that relationship.
Best Practices in Contract Management
Use these tips and tricks to increase efficiency and improve your contract management processes.
Use contract management software
Contract management software can serve as a centralized repository for all your contracts. Ensure all relevant stakeholders and employees have access to them. That includes monitoring security and access. Contract management software also allows you to track deadlines, and schedule contract alerts and notifications. Save yourself the trouble and manual work!
Another great thing about contract management software is that you don’t need to handle physical documents. Use your electronic signature for approvals; it’s just as legally binding as a wet signature!
Measure KPIs
Set up contract management KPIs and measure them regularly. This allows you to see all areas in which you’re being ineffective and foresee potential risks. You can meet your KPIs by reducing risks and cutting unnecessary costs.
Keep all relevant teams informed
Usually the legal team takes care of contract management. That often leads other teams to rely on the legal team completely. In order to avoid that, familiarize all the relevant teams with contract management procedures. Enable communication channels between relevant teams and stakeholders.
Use deadlines and time tracking
Deadlines are incredibly important in any line of work, and even more so in contract management. You must track all relevant deadlines.
Before a contact can become effective, it has to go through all stages of approval. The quicker it can pass through each stage, the quicker you can start to yield its benefits. Implement a system for contract approval time tracking. This will ultimately help you understand your pitfalls and find ways to speed up the process.
Check compliance
As a legal practitioner, you can appreciate the importance of compliance with all relevant laws and regulations of your country, state, and city. Introduce compliance management into your contract management to prevent potential losses and reduce risk. Monitor federal and state regulations regularly to make sure your contract is still compliant. That will help you avoid penalties and fines.
Use templates
If you have templates you’ve used before, you can continue to reuse them with new clients and vendors. It will save you lots of time. You should still make sure that your templates are relevant and comply with current rules and regulations. Having a system you can fall back on is great; that applies to all parts of business. Streamline your processes for maximum efficiency.
Review contracts regularly
Your business needs may change with time. At some point, your current contract may no longer suit you and will require amending. You need to anticipate this moment and suggest changes to the contract sooner than later. Before you renew any contract, consider if you could benefit from a renegotiation.
Contract Management Software
It’s 2021 and technology does not stand still. The legal world is experiencing changes too. In the age of automation, there is no debate, you need contract management software. Unless you only have a handful of contracts to manage, you could benefit from a tool that can do the managing for you.
The question is not whether or not you should use contract management software, but rather how to choose the right one for you. Pay attention to the pitfalls you have and the features that could be useful to you. Find something you and your team will actually use. Contract management software will make your job much easier and leave you more time for other important matters.
If you’re still not convinced, here are some reasons why contract management software is so helpful.
Keeps everything in one place
Imagine a messy cabinet full of documents with no labels. How will you ever find anything? Contract management software is the exact opposite of that. Everything is in one place and you can find what you’re looking for in a matter of seconds. All stakeholders can have access to their contracts at any moment.
There will not be any outdated versions of contracts floating around. You won’t have to ask your colleagues to check their hard drives, cabinets, and memory sticks. Having everything in one place makes record keeping much easier.
Takes care of admin work
Treat your software as an administrator. It will take all the busy work off your shoulders. Let the contract run its course and be reminded of when it needs action. There is a smaller chance of human error and all the processes are sped up.
Reduces risk
Schedule alerts and reminders to keep track of deadlines and reduce contract risk. Contract management software can serve as an analytical tool too. Generate reports to provide insight into your contracts. Analyze trends in past contracts and avoid repeating the same mistakes.
Saves time
Time is your most valuable resource. Coincidentally, saving time is the main benefit of contract management software. Now you can spend more time on other important tasks. Not to mention, manual contract management is a tedious and time consuming process. It’s no fun, so why not outsource it to a software?
You won’t have to dig through cabinets to find old contracts; just search for them in the software using keywords. There is no need to put anything in your calendar; automatic alerts will remind you of everything. Artificial intelligence features will go through contracts for you and highlight all the important information, such as dates, bank account numbers, and names.
Sign any contract in minutes using your electronic signature. You won’t ever have to touch paper again if you won’t want to!
Contract management software might seem like a big investment in the beginning, but it will pay off. Most importantly, it will save you lots of time and allow you to allocate it to more important projects that need your attention. And you won’t have to sacrifice contract management processes!
In conclusion
Contract management has always been and will always be incredibly important. After all, a contract can determine your professional relationship with a client or vendor. You should have a dedicated team that deals with contract management and pays lots of attention to every small detail.
So, what’s new in 2021? This should come as no surprise to you, but technology continues to make our lives easier. If you can automate your contract management processes using software, why not take advantage of that? Help yourself and your team and look into contract management software. Start by identifying your needs and finding a tool that can fill them. Once you learn how to use it, it’s a walk in the park!