What is Contract Management and How To Improve the Process

Successful contract management lies at the heart of operational efficiency. Contracts are important in running your business by helping to maintain excellent business relationships, govern transactions, outline obligations, and mitigate risks.

However, the inefficiencies of traditional contract management methods are becoming increasingly apparent. To keep pace with the demands of modern business, it's imperative that organizations transition to modern contract management solutions.

In this article, we will walk you through the essential stages of contract management, highlighting its benefits, addressing the limitations of traditional methods, and providing insights on how to adopt a modern approach to your operations.  

What is Contract Management?

At its core, contract management encompasses creating, executing, and overseeing contracts to ensure compliance and optimize performance. These contracts or agreements govern many business interactions, from procurement to sales and employment contracts to vendor relationships.

Effective contract management is not only about drafting documents, but also the entire contract lifecycle management process, from initiation to renewal or termination.

Studies reveal that up to 70% of companies experience financial leakage due to ineffective contract management practices. This statistic points out the importance of robust contract management processes and frameworks in maximizing operational and financial performance.

What are the Important Stages of Contract Management

Contract management is a multi-step process that spans several critical stages, each requiring careful attention and strategic management. By understanding these stages, organizations will be more likely to execute contracts smoothly and fulfill their obligations. 

Let's go through each stage in detail:

Contract Pre-execution Stage

The pre-execution stage marks the initial phase of contract management, where groundwork is laid for the successful negotiation and formation of contracts. This stage encompasses several key activities such as:

1. Contract Initiation: The process begins with identifying the need for a contract, whether it's to procure goods or services, establish partnerships, or formalize agreements with stakeholders. Making a contract involves defining the contract's scope, objectives, and desired outcomes.
   
   
2. Assessment Needs: Conducting a thorough needs assessment helps determine the specific requirements and expectations the contract should address. This involves analyzing existing processes, identifying potential risks, and aligning contract terms with organizational goals.
   
   
3. Contract Drafting: Once the requirements are set, the contract is drafted. This stage articulates each party's terms, conditions, rights, and responsibilities. Attention to detail is crucial to ensure clarity and accuracy in the contract language.
   
   
4. Negotiation: Negotiation is also very important in finalizing the contract terms. It involves discussions between parties to reach mutually agreeable terms, and addressing any concerns or discrepancies to ensure a fair and balanced agreement. Effective negotiation requires proper communication, compromise, and a clear understanding of each party's objectives.
   

Contract Execution Stage

The execution stage marks the formal signing and implementation of the contract. This phase involves translating the agreed-upon terms into action and setting the wheels in motion for contract performance:

1. Contract Signing: Once negotiations are completed, the contract is signed by the contract signatory of all parties involved, signaling their commitment to commit to the terms outlined. Depending on the agreed-upon method, contract signing may involve physical or electronic signatures.
   
   
2. Implementation Planning: With the contract signed, the focus shifts to implementation planning. This involves developing a roadmap for executing the tcontract terms assigning responsibilities, allocating resources, and establishing timelines for deliverables.
   
   
3. Communication and Training: Communication is essential to ensure everyone involved know their roles and responsibilities under the signed contract. Training sessions may be conducted to familiarize relevant personnel with the contract terms and procedures and ensure compliance.
   
   
4. Monitoring and Control: Throughout the execution phase, diligent monitoring and control mechanisms are implemented to track progress, identify deviations from the agreed-upon terms, and take corrective action as necessary. This means that regular performance reviews, milestone tracking, and adherence to contractual timelines are enforced in the process.
   

Contract Post-execution Stage

The post-execution stage involves ongoing management and maintenance of the contract throughout its lifecycle. This phase is crucial for maximizing the value derived from the contract and mitigating risks:

1. Evaluating Performance: Continually evaluating contract performance is essential to so each party meet their obligations effectively. This involves assessing key performance indicators (KPIs), spoting areas for improvement, and pointing any issues or concerns.
   
   
2. Renewal or Termination: Depending on the terms specified in the contract, decisions regarding contract renewal or termination may need to be made. At this stage, assessing the contract's overall value, considering changing business needs or circumstances, and negotiating renewal terms or exit strategies are necessary.
   
   
3. Contract Amendments: As business requirements evolve or unforeseen circumstances arise, contract amendments may be necessary to accommodate changes. This could involve revising contract terms, updating pricing structures, or incorporating new provisions to address emerging needs.
   
   
4. Contract Repository and Documentation: Proper documentation and maintenance of contract records are essential for compliance, audit purposes, and future reference. Contracts should be stored in a secured repository, accessible to authorized personnel, and regularly updated to reflect changes or amendments.
   
   

By understanding and effectively managing each stage of the contract lifecycle, organizations can optimize their contract management processes, minimize risks, and maximize the value derived from their contractual agreements.

The Issue with Traditional Contract Management

Traditional automated contract management systems and methods, reliant on manual processes and paper-based documentation, are fraught with inefficiencies and vulnerabilities.

1. Manual Handling: Creating, storing, and managing contracts is labor-intensive and time-consuming, leading to delays and errors.
   
   
2. Limited Visibility: Traditional methods offer limited visibility into contract data, making it challenging to track obligations, deadlines, and performance metrics accurately.
   
   
3. Increased Risk: Manual handling increases the risk of errors and non-compliance, exposing businesses to legal and financial liabilities.
   
   
4. Scalability Challenges: As businesses expand, managing a growing volume of contracts becomes increasingly complex and resource-intensive.
   

Why Should Businesses Turn to Modern Contract Management

Relying on outdated contract management practices is akin to swimming against the current in an era characterized by remote work and digital transformation. Contract automation platforms and solutions offer many advantages over their traditional counterparts.

Benefits of Modern Contract Management

1. Faster Turnovers: Streamlined processes and automation enable faster contract creation, negotiation, and approval, accelerating deal closures and revenue generation.
   
   
2. Less Errors: Automated workflows reduce the likelihood of errors that humans make with manual work, ensuring the accuracy and integrity of contract data.
   
   
3. Enforced Security: Robust security measures safeguard sensitive contract information, mitigating the risk of data breaches and unauthorized access.
   
   
4. Document Storage: Centralized repositories provide easy access to contract documents, facilitating collaboration, auditing, and compliance efforts.
   
   
5. Faster Cycle Time: Automated reminders and notifications ensure timely action on contract milestones, minimizing delays and bottlenecks.
   
   
6. Contract Risk and Compliance: Advanced analytics and reporting capabilities enable proactive risk management and compliance monitoring, reducing legal exposure and financial losses.
   

How Can Contract Management Software Improve This Process

Modern contract management software, such as Portant, revolutionizes contract lifecycle management by offering an electronic contract workflow, helping you manage your whole process. 

Here's how:

Step 1: Contract Creation

Portant's contract templates streamline the creation process of business contracts, providing pre-defined clauses and templates for various contract types. This eliminates the need to start complex contracts from scratch, saving time and ensuring consistency.

Step 2: Collaboration and Review

Portant facilitates seamless collaboration between contract managers by using internal processes and enabling users to share contract drafts with internal and external stakeholders via email. Reviewers can provide feedback directly within the platform, streamlining the review process.

Step 3: Digital Signing

Portant offers integrated e-signature functionality, allowing parties to sign contracts electronically from any device. This eliminates printing, scanning, and mailing physical documents, further expediting the signing contract process.

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Step 4: Sending Electronic Contracts

To ensure that your electronic contract is signed by all parties, Portant enables you to connect your professional email to its platform so you can easily send contracts to clients. 

For a detailed walkthrough of the whole process of how Portant helps you automate your contract management process, watch the video below:

What is a Contract Manager’s Role in Contract Management

A contract manager is a key player on all sales contracts, overseeing the entire contract negotiation lifecycle, from inception to execution. 

Their responsibilities include:

1. Creating the Contract: Drafting and negotiating contracts to ensure alignment with business objectives and legal requirements.
   
   
2. Managing the Risk: Identifying and mitigating risks associated with contractual obligations, ensuring compliance with regulatory standards.
   
   
3. Contract Administration: Overseeing contract execution, monitoring performance, and resolving disputes or discrepancies.
   
   
4. Renewal and Termination: Managing contract renewals, amendments, or terminations in accordance with contractual terms and business needs.
   

Conclusion

Effective contract management is not just a competitive advantage; it's a necessity. By putting in place modern contract management solutions like Portant, businesses can simplify their business operations, enhance compliance, and drive sustainable growth. 

Don't let outdated practices hold your business back—embrace the future of contract management today.

FAQs

Q. What is an example of contract management?

A. An example of contract management is overseeing the entire process of negotiating, drafting, signing, and implementing a lease agreement for renting an apartment.

Q. What are strategies for contract management?

A. Implementing thorough needs assessments, clear communication, and diligent monitoring of contract performance.ce provider and client.

Q. How to choose the right contract management software?

A. When selecting contract management software, consider factors such as automation features, scalability, user-friendliness, integration capabilities, and compliance features.