Fundamentals of Successful Contract Management
Whether you view everyday legal work from the perspective of the corporate legal, sales, or procurement department, you will invariably have an interest in successful contract management. This means ensuring that the right people, processes, and tools are in place to better manage the full contract lifecycle and:
- Have better visibility into your company’s obligations — and those of your suppliers
- Manage and mitigate risks
- Accurately forecast revenue, cash flow, and expenses
- Author professional, concise agreements with terms your business can stand behind
- Negotiate efficiently, and in good faith, while enabling positive working relationships
What’s more, this successful contract management helps you establish and sustain your company’s reputation as being ‘easy to do business with.’ It can help you reduce costs, and take advantage of savings opportunities like discounts for early payment. In other words, it helps you guide business growth while eliminating many of the unexpected obstacles and pitfalls along the way.
Here are five tips for successful contract management — and the added benefits of applying these to your day-to-day business practices.
1. Develop a Cohesive Off-line Contract Management Plan
It is important to keep in mind that effective contract management does not happen organically. It takes experience, planning, executive sponsorship, and defined success metrics, not to mention an organization-wide commitment to new technology.
Although technology adoption is key, there are a lot of activities that need to happen ‘away from the keyboard’ and be defined first. You need to decide on contract language templates or standards, and define contract access rights, roles, and responsibilities. When it is time to acquire a legal management system, you also need to find a vendor with a wide knowledge of international contract law and lengthy experience with technology domains.
At the end of the day, it is important to get your contract management house in order before you apply those digital transformation strategies you have read so much about!
2. Maintain a Centralized, Searchable Contract Repository
Many companies continue to store their contracts across shared drives, online document storage applications, CRM systems, and even employee laptops. This makes it challenging — and sometimes impossible — to find these documents, understand what critical information lies within them, and know what to do in the case of an audit, breach of terms, or litigation.
Beyond this discovery, a centralized repository supports the management of contracts by enabling administrators to establish retention schedules, access controls, and integrate complementary business applications and workflows. It also facilitates reporting, which is becoming more and more important, as contracts and related processes are increasingly subject to regulatory standards.
3. Simplify Whatever and Whenever Possible
While looking at some government and financial services contracts today, you might think that there are award ceremonies for the most complex contract terms and conditions. According to an IBM blog post, Fortune 500 companies now spend an average of 0.6 percent of their revenue on legal operations and hiring external legal counsel. And complex contracts drive those figures upwards, as they can lead to errors, omissions, and prolonged negotiations.
But by leveraging pre-approved templates for clauses and terms during contract creation, you can establish a foundation for clear, concise, and consistent contracts going forward. Also, if you happen to receive a complex contract from a negotiation partner, a legal management system — with a virtual contract assistant — can review the terms to ensure you do not excessive liabilities or financial risk.
4. Use Analytics to Your Advantage
In recent years, business intelligence has come a long way, with advances in big data, machine learning, and business process automation. An AI-powered contract analytics platform, with workflow-triggered notifications, can alert your team if your company — or the other party to the agreement — is in jeopardy of missing any milestones, deliverables, or renewals. This monitoring of contract compliance on both sides of the agreement is critical.
Also, extending role-based access to these reports — across legal, sales, finance, procurement, or human resources — ensures that the right people take corrective action if there are any issues to overcome. And real-time and predictive analytics helps prevent any surprises during a contract term. Although some problems are inevitable, identifying them as they happen — or better yet, before they happen — minimizes business disruption and cost.
5. Have an Exit Plan
Finally, it is best to have a sound plan for ending a relationship, amicably and constructively, even before you begin one. Defining the circumstances that would terminate the agreement — and deciding if each party needs to pay any kind of penalty for early contract resolution — is the safest approach and best practice. An early exit should be allowed if you have a supply contract with a vendor whose products do not have the agreed-upon or expected quality, or meet delivery standards. If the exit clause is defined from the outset of the contract, and purchasing professionals thoroughly evaluate all potential suppliers, there is a lesser likelihood of early termination (Yes, it is better to err on the side of caution.)
Summary of Successful Contract Management Tips
Ideally, your contract management strategy will consist of thorough planning, well-defined processes, and people with expertise. But remember that legal technology and digital transformation can complement that expertise, providing a lasting, scalable infrastructure for the growth of your company.
A unified, searchable contract repository, as mentioned above, is vital to making contracts an integral part of sell- and buy-side transactions. Contract analytics provide critical insights into the obligations of all parties throughout contract terms, and send out alerts when expectations are not being met or terms need to be renewed.
Want to learn even more about legal digital transformation and legal management solutions today? For further insights, be sure to download our latest white paper, “How to Choose a Contract Management Solution.
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