The Contract Management Playbook: Strategies and Secrets for Total Control
Introduction to Contract Management
Contract management is the process of systematically and efficiently managing contract creation, execution, and analysis to maximize operational and financial performance at an organization. Contract management involves coordinating and negotiating agreements to establish business relationships, draft contract terms that protect the company, properly execute contracts, monitor performance, and mitigate risks.
Effective contract management provides numerous benefits for companies across industries. It helps reduce financial losses from poor contracts, improve vendor relationships through structured coordination, increase operational efficiency and cost savings, minimize revenue leakage, and ensure proper compliance. Contract management also provides financial visibility into agreements and helps capture important data to inform business decisions.
The types of contracts that typically require robust management include:
Procurement contracts - Agreements with suppliers and vendors for goods, services, and materials.
Sales contracts - Contracts with customers for selling products, services, or projects.
Corporate contracts - Major contracts like mergers, acquisitions, partnerships, and joint ventures.
Lease agreements - Contracts for renting equipment, real estate, vehicles, etc.
Employment/freelancer contracts - Agreements with employees, contractors, and consultants.
Non-disclosure agreements (NDAs) - Contracts requiring confidentiality.
Effective management over the full contract lifecycle is essential for these and other types of business-critical contracts. It enables organizations to maximize the value of their agreements while minimizing risk.
The Contract Management Lifecycle
The contract management lifecycle refers to the end-to-end process of creating, managing, and closing out a contract. Having a structured approach to managing contracts through their full lifecycle is critical for reducing risk, ensuring compliance, and maximizing value.
The key stages of the contract management lifecycle include:
Drafting - This involves creating an initial draft of the contract terms and conditions. Activities include researching industry standards, leveraging templates, defining deliverables, payment terms, liabilities, dispute resolution, and more. Clearly documenting obligations of each party is essential.
Negotiation - Once the initial draft is ready, next comes negotiation with the counterparty to finalize the terms. The contract manager engages in discussions, reviews requests for changes, negotiates on commercial terms, and works to finalize a contract reflecting interests of both parties.
Execution - The formal signing of the finalized contract by authorized representatives of each party marks the execution stage. The contract manager ensures all required approvals are in place and that the e-signature process is completed. This legally binds parties to the agreed terms.
Monitoring - Now the contract performance management stage begins, requiring monitoring of deliverables timelines, service levels, payments, and other metrics. The contract manager tracks performance to ensure compliance, initiate renewals, amendments, or terminations.
Renewal/Termination - As the contract nears expiration, the contract manager reviews performance to decide whether to renew or terminate the engagement. Negotiations may be required to create new contracts. If terminating, the contract manager ensures all close-out procedures are followed.
Having a clearly defined process covering the complete contract lifecycle is essential for reducing risk through greater visibility and control. It also provides the structure for effectively managing a contract portfolio.
The Role of a Contract Manager
The contract manager plays a critical role in overseeing the creation, execution, and ongoing administration of contracts. Their core responsibilities include:
Contract Drafting - The contract manager works closely with internal stakeholders and legal counsel to develop contract templates, negotiate terms and conditions, and finalize contract language. They ensure contracts adequately protect the organization's interests.
Contract Execution - Once contracts are finalized, the contract manager facilitates the signature process and ensures all parties formally agree to the negotiated terms. They also manage the storage and distribution of signed contracts.
Performance Management - Throughout the lifetime of a contract, the contract manager monitors vendor performance, ensures compliance, and takes action in case of any breaches. This requires diligent tracking and reporting.
Relationship Management - By serving as the key point of contact, the contract manager builds relationships with vendors, clients, and internal stakeholders. They work to resolve disputes and foster collaboration.
Contract Renewal/Expiration - As contracts near their end date, the contract manager initiates the renewal process or facilitates termination/transition activities. This requires long-term planning and foresight.
To succeed in this role, contract managers need sharp negotiation skills, attention to detail, organization, analytical abilities, and legal/regulatory knowledge. Many have law degrees or procurement training. It offers attractive career prospects, with the average salary for a contract manager being $80,000 to $110,000. With some experience, salaries can reach $150,000 and higher, especially in large corporations. Overall, it is a specialized function that requires expertise but offers long-term stability and advancement potential.
Contract Management Challenges
Effective contract management comes with its fair share of challenges. As the volume and complexity of contracts increases, organizations can struggle to maintain control and ensure compliance. Some of the most common contract management challenges include:
Poor Visibility and Tracking
Without a centralized contract repository and system of record, it becomes difficult to keep track of contract details, deadlines, obligations, and renewals. Important terms may be overlooked and renewals missed without proper tracking. Scattered contract records also make it hard to report on performance.
Version Control Issues
Managing multiple versions of contracts with redlined changes can quickly become a compliance and audit nightmare. Relying on manual version control and scattered Word docs or PDFs creates room for costly mistakes.
Compliance Risks
Falling out of compliance with contract terms and obligations exposes organizations to significant financial, legal, and reputational risks. Non-standard contracts that aren't reviewed properly can contain unfavorable terms. Weak monitoring and renewals management also leads to compliance issues.
Lack of Collaboration
Collaborating across departments and stakeholders during contract negotiations and approvals is difficult without dedicated software. Reliance on email chains or file sharing leads to miscommunication and disjointed handoffs between teams.
Inefficient Processes
Manual, paper-based contract processes are inefficient, opaque, and prone to errors. They become unmanageable as contract volume grows. Tedious tasks like routing contracts for approvals and signatures waste time and resources.
By implementing purpose-built contract lifecycle management software, organizations can gain control, visibility, and risk mitigation over their contract processes. Centralizing contracts and automating workflows eliminates many of the challenges of manual contract management.
Contract Management Software Solutions
Contract management software (CLM) refers to dedicated tools and systems designed to streamline and automate contract lifecycle management processes that were traditionally handled manually. CLM solutions come packed with powerful features and capabilities such as:
Centralized document repository - Store all contracts and related documents in a secure, centralized repository for easy access by authorized users.
Configurable workflow - Model contract workflows including routing, reviews, approvals and signatures. Apply custom workflows for different contract types.
Template library - Create reusable templates for contracts and documents to standardize language and speed up drafting.
Collaboration tools - Facilitate collaboration between stakeholders involved in the contract process via comments, annotations and online discussions.
Custom fields and metadata - Capture key contract data in custom fields and track metadata like parties, dates, milestones and more.
Reporting and analytics - Gain visibility into contract performance, liabilities, renewals and more through custom reports and dashboards.
Integration capabilities - Integrate CLM software with your existing business systems like CRM, ERP and accounting software.
Audit trail - Maintain detailed audit logs of all contract-related activities for compliance and governance.
Access control - Manage user roles and permissions to ensure contract visibility on a need-to-know basis.
CLM software provides immense benefits over manual contract management processes including:
Faster contract processing - Automated routing and approvals accelerate contract turnaround.
Improved compliance - Tighter control ensures contracts follow approved templates and standards.
Enhanced visibility - Reporting provides insight into contractual risks, obligations and performance.
Increased efficiency - Workflows and templates enhance productivity of contract managers.
Reduced errors - Automation and standardization minimize manual errors and rework.
Better collaboration - All stakeholders can work together within the system.
Stronger governance - Improved audit trails and access controls strengthen governance.
Leading CLM software vendors include Conga, DocuSign, Icertis, Coupa and SAP Ariba. Many provide dedicated solutions for specific industries and contract types. Choosing the right platform requires evaluating key requirements, integrations, pricing and total cost of ownership.
Choosing the Right CLM Software
Selecting the right contract lifecycle management (CLM) software is crucial for streamlining contract processes and driving efficiency gains. When evaluating solutions, there are several key factors to consider:
Selection Criteria
Industry-specific capabilities - Look for systems with features tailored to your industry's unique contract management needs. For example, software for manufacturing firms may emphasize supplier and procurement contracts.
Integration with existing systems - The CLM software should integrate seamlessly with your other business platforms like CRM, ERP, eSignature tools etc. APIs enable easy interconnectivity.
Customizability - Look for customizable dashboards, workflows, fields, templates and clauses to match your specific requirements.
Scalability - Ensure the solution can scale as your contract volume grows over time. SaaS models are ideal for supporting business growth.
Artificial intelligence - Leverage AI-powered features like contract review, risk analysis, obligations tracking etc. to automate routine tasks.
Security - The system must provide robust security like role-based access, encryption, backup and compliance with regulations.
Evaluating Features
The feature-set should align with your current pain points and desired outcomes. Assess how well the system handles:
Contract creation, redlining and real-time collaboration
Customizable template library
Automated routing, review and approval workflows
Obligations management and alerts
Reporting and analytics for insights
Integration with eSignatures
Contract repository and version control
Deployment Options
Cloud-based SaaS - Fast setup, flexible scaling, accessible anytime via web browser, provider handles updates.
On-premises - Install on your servers, customize extensively, integrate with legacy systems. Higher ownership.
Hybrid - Blend of SaaS and on-premises for specific security or customization needs.
Carefully evaluate solutions against your must-have capabilities, budget and IT requirements before selecting the right CLM platform.
Implementing Contract Management Software
Implementing a contract management system requires careful planning and execution to ensure a smooth transition and adoption. Here are some key steps to take:
Map out implementation phases - Break down the implementation into logical phases like planning, configuration, testing, training, and go-live. Define milestones, resources, and timelines.
Clean up existing data - Review current contract records and clean up data issues to simplify migration into the new system. Standardize formats for key fields like contract dates, party names, and monetary values.
Migrate data - Work with the vendor to migrate legacy contract data into the new system. Use data mapping documents to match up fields. Validate migrated data to catch any errors.
Configure the system - Set up contract templates, workflows, fields, views, permissions, and integrations based on business needs. Turn on relevant features to support your contract process.
Test extensively - Perform user acceptance testing across different roles and contract scenarios. Verify workflows, fields, views and reporting work as expected. Fix issues prior to launch.
Train contract managers - Provide hands-on training to get users up to speed on the system. Ensure they understand key features, workflows, navigation and how to manage contracts.
Plan the rollout - Gradually roll out access across departments, starting with a pilot group. Monitor adoption and provide support channels to smooth the transition.
Migrate contracts in phases - Migrate existing contracts gradually post go-live to spread out the effort. Prioritize by start date, value, or other criteria.
Encourage usage - Drive user adoption by demonstrating value. Share success stories and guide users through the new workflows. Make adoption visible through metrics.
Refine over time - Gather feedback post-launch to identify new requirements. Continue optimizing configurations, training, and processes to improve adoption.
With meticulous planning and engagement across the organization, contract managers can ensure a successful transition to the new system. Investing in change management and user adoption is key to realizing the full benefits.
Contract Management Best Practices
Effective contract management requires implementing best practices around standardization, workflow, and automation. Here are some key best practices:
Standardize Contract Templates and Clauses
Develop standardized contract templates for common agreements to improve consistency.
Create a library of approved clauses to insert into contracts.
Ensure contract templates are regularly reviewed and updated.
Allow for customization while maintaining standards.
Make templates easy to find and access within your system.
Establish Approval Workflows and Governance
Define clear approval chains and workflows for contract reviews.
Determine appropriate stakeholders to involve at each stage.
Automate routing of contracts based on value, risk factors, or business unit.
Establish a governance framework with clear policies and procedures.
Require approvals and sign-offs at critical milestones.
Leverage Automation and AI for Contract Reviews
Use tools like optical character recognition to convert paper contracts to digital.
Automate extraction of metadata and critical clauses from contracts.
Implement risk scoring based on AI review of terms.
Configure conditional logic to route contracts to appropriate reviewers.
Enable electronic signature to eliminate manual signing of contracts.
Digitize the entire end-to-end contract workflow.
Standardizing on proven templates, defining clear approval chains, and leveraging automation can help streamline contract management and prevent errors. This leads to improved compliance, lower risk, and better business outcomes.
The Future of Contract Management
Contract management is rapidly evolving due to emerging technologies and innovations. Here are some of the key trends shaping the future of the field:
Blockchain and Smart Contracts - Blockchain has the potential to significantly impact contract management by enabling smart contracts that self-execute based on predefined terms and conditions. This can eliminate the need for intermediaries and streamline contract execution and enforcement. Though still in early stages, adoption of blockchain-based smart contracts is expected to grow.
Artificial Intelligence - AI is automating many aspects of contract management, from contract review and risk analysis to extraction of key terms and obligations. Natural language processing enables rapid scanning of contracts to pull out relevant data points. AI can take over more repetitive and rules-based contract tasks, freeing up managers for higher-value work.
Analytics and Reporting - Data analytics applied to contract management provides actionable insights through detailed reporting on contract performance, financials, compliance metrics, and more. Analytics enables fact-based and data-driven decision making on contracts. Dashboards make it easy to track KPIs.
Increased Integration - Tighter integration between contract management systems and other enterprise platforms like ERP, CRM, and eSignature solutions ensures smoother end-to-end contract workflows. APIs enable seamless data sharing across systems.
Agile Contracting - More dynamic and agile contracting models are emerging that leverage iterative development and collaboration for faster turnaround on contracts. This is gaining traction in software/IT services and projects with evolving requirements.
Customer Self-Service - Contract portals and bots enable customer self-service for tasks like accessing contract documents, submitting requests, and tracking approvals. This provides greater transparency and empowerment for customers.
Digitization and Mobility - Transition from paper-based to fully digital contract management continues, along with support for mobile access and anywhere, anytime availability. This increases convenience and productivity for contract managers.
The combination of these trends points towards more automated, efficient, and collaborative contract management processes in the future. Organizations that embrace new technologies and innovations will gain a competitive advantage.
Measuring Contract Management Success
Effective contract management requires having the right metrics and processes in place to measure performance. Some key ways to track success include:
Key Performance Indicators
You need to identify and monitor KPIs that align with your organizational goals for contract management. Common examples include:
Contract cycle time - Measures how long it takes to complete each stage of the contract lifecycle
Contract compliance rate - Tracks the percentage of contracts adhering to terms and conditions
Contract renewal rate - The percentage of contracts renewed upon expiration
Contract leakage - Any revenue lost due to non-compliance, errors, or unfavorable terms
Reporting and Analytics
Leverage contract management software reporting tools to gain visibility into KPIs and metrics. Look at performance by contract type, business unit, vendor, etc. Build dashboards to monitor key benchmarks over time.
Continuous Improvement
Use insights from contract analytics to identify areas for improvement. Review processes that are slowing down lifecycles or leading to bottlenecks. Keep optimizing contract templates and workflows based on collected data. Maintain an agile approach to enhancing contract management.
By establishing a performance measurement framework, organizations can track contract management success, identify high-risk areas, and take corrective actions for better outcomes.