Introduction
Contract management is a vital function that ensures agreements between organizations or individuals are clearly understood, milestones are met, and conditions are modified as necessary. Effective contract management can significantly enhance corporate relationships and profitability. It encompasses the entire lifecycle of a contract, from preparation and negotiation to management and compliance. In this article, we will explore ways to improve the contract management process and discuss successful strategies and solutions.
Process of Contract Management
Contract management comprises all stages of the lifecycle:
- Requests: This step involves gathering and reviewing agreement-related material.
- Authoring: Contract writers draft the contract, including provisions, dates, and other important information.
- Negotiation: This involves discussing expectations and modifications before the contract is signed during drafting.
- Both parties sign the contract.
- Obligations: Both sides meet deadlines and deliver promised goods or services.
- Compliance: Oversight and enforcement of norms and rules. This stage includes reminders and late fines. Charging late fees on invoices requires all parties to understand their role in fulfilling the agreement.
- If both parties agree, the contract is renewed.
Contract management lifecycle overview. There are crucial features that improve contract management throughout.
Create a Template
While the parties are researching and discussing an agreement, having a template ready to sign is crucial. Not having the correct contract when two parties are agreeable can cost opportunities. Obtaining contract templates is helpful.
Creating signed documents that are appropriate to the situation, industry, and legal terminology to make the contract binding is difficult.
Hastily written contracts cause delays as the legal department finds flaws. A suitable contract using incorrect standard language saves time and helps reach an agreement.
If no template matches the agreement, it can be improved without changing its structure or legal validity. Revisions and enhancements should be checked with legal specialists to ensure contract legality.
After examining templates, improving them, and focusing on structure and agreements, draft the contract.
Writing the Contract
Not every contract word is written from scratch. Many contracts have boilerplate text portions that can be reused if the terms are the same.
Any template updates should be checked with legal specialists to verify that no boilerplate content contradicts or goes beyond what both parties agree on. Contract boilerplate wording includes the following.
Choice of Law means both parties agree to a specified jurisdiction for contract enforcement. This is important if the parties are in separate states or countries.
Choice of Forum determines where parties sue in legal disputes. It grants a court “personal jurisdiction” and a location to judge the issue.
Arbitration has numerous components depending on the contract. Choice of administration, number of arbitrators, trial issues, trial duration, and award conditions and format may be included in the boilerplate arbitration text.
The contract may be unenforceable under severability. It can leave elements of the contract intact or nullify the whole thing.
Integration states that the contract is based on what the parties knew at signing and supersedes past conversations.
The parties agree not to reveal certain information under confidentiality. The clause can list exceptions and penalties for disclosure.
Contract managers ensure contract compliance. This is important while establishing the contract since clarity and precise wording can prevent compliance concerns later.
Some parties may not grasp what is necessary due to contract ambiguities or can find loopholes to get around specific provisions. Looking over a contract carefully, consulting legal experts, and making it ironclad can make compliance easier.
Be proactive about contract compliance by using notifications to guarantee obligations are satisfied on time and an official method to track compliance. If both parties agree to an overlook upfront, it will be harder to argue.
Modern contract repositories replace filing cabinets. They simplify data storage, protection, and organisation. Spreadsheets may appear like a dependable tool to handle contracts, but manual processes may overlook critical milestones and deadlines.
Tools give notifications on agreed-upon dates and make information easy to find and distribute.
Contract managers also define and manage metrics. Compliance requires determining which indicators are most important to meeting contract requirements and tracking them. Any firm prioritises cost, punctuality, satisfaction, and safety, and measurements ensure performance.
Audits and contract iterations assure party alignment. Tracking performance data simplifies troubleshooting. The audit sessions aim to improve and help each party define the agreement.
Check the Contract
After discussing and drawing out the contract, carefully review it before signing. Look for these:
- Key Terms and Conditions
- Cancel and renew
- Easy language
- Deadlines and dates
Clarify and emphasise all sentences and words. Major points should be stated as major rather than secondary. The contract should specify conditions including termination and renewal methods.
Proofread and revise the contract to eliminate ambiguity. The contract should be available to all signers. Finally, verify names and information and state dates and deadlines. Small mistakes can cause big misconceptions.
Authorise the Contract
Approval and signing follow contract writing, revision, proofreading, and expert review. The final steps to acceptance:
- The right people review
- Communicating and redlining
- The audit trail
- Stakeholder visibility
Various parties receive the contract at this step. Automation saves time and improves approval rates. Due to poor manual document transfer, many deals are lost. Thus, automation tools are advised.
The parties and legal specialists should analyse the contract. They may seek clarity on contract conditions. Contract managers should track the audit trail and confirm who requested approval or clarification when. Tracking this process gives stakeholders that care about the deal visibility.
Contractor Performance
Contract performance can be measured many ways. Performance indicators can reveal what works and what doesn’t:
- KPIs for contract management
- Annual contract value
- TRV of terminated contract
- Variation in Order Value from Contract Value
- Compliance
The annualised contract value is beneficial for recurring contracts because it measures annual renewals. It compares normal contract revenue to new contracts and estimates non-renewed or terminated contract losses.
Terminated contract remaining value estimates unpaid bills and fees to avoid revenue losses. This indicator compares continuing and terminated contracts for performance.
Order Value Variance identifies communication and mistake issues that can be improved. This indicator rates under 5% as satisfactory and 10% or higher as needing improvement.
Managing Subscriptions in contract management
Working with size, details, and renewals is essential for subscription management. Successful subscription management requires:
Simplify Guide Manage
Simplifying subscriptions standardises packages, payment periods, price, billing, and new service communication. A playbook and step-by-step method based on rules and logic to standardise subscription.
Control renewal upsells, discounts, and price cuts. Create a renewal notice schedule, anticipate revenue reliably, and boost consumer interaction using subscriber renewal methods.
Contract Renewal
A contract is renewed when the parties decide whether to let it expire or renew it for a longer duration. They may renew or renegotiate the contract.
Contracts are often automatically renewed, depending on kind. This makes continuing a valuable contract easy. It is easier and faster than manual methods. Manual contract renewal allows time to evaluate the contract, but automation with reminders might do the same.
Contract renewal reminders must be sent within 30 days of expiration, whether manual or automated. This allows the parties to evaluate the contract and ask questions before the deadline.
Successful Contract Management Methods
Many moving parts make contract management complicated. Contract management improvement requires these tips:
Implementing KPIs in Contract Management
The value each party provides is measured via KPIs. Include these KPIs in the contract to maintain performance and efficiency.
Create Connections
Contracts do not substitute commercial relationships. A contract should strengthen the parties’ business relationship. A robust contract can develop trust and a long-term working relationship between unfamiliar parties.
Be proactive
The job continues after signing the contract. Regular contract management is the greatest method to discover issues before they arise. Monitoring contract-related activity can reveal difficulties and suggest improvements.
Maintain supplier relations
Regularly reviewing supplier contracts and remaining on the same page helps prevent business-critical interruptions and misunderstandings. Plan with suppliers to increase performance and meet deadlines.
Prepare for Expiration and Renewals
When writing a contract, consider expiration and non-enforcement. Contact parties early and propose automating rapid renewal.
Conclusion
Effective contract management is essential for maintaining healthy business relationships and ensuring profitability. By following best practices, utilizing the right tools, and continuously monitoring and improving processes, organizations can streamline their contract management and minimize risks. Implementing KPIs, building strong relationships, being proactive, and preparing for renewals are key strategies that contribute to successful contract management. Adopting these methods helps businesses achieve compliance, meet obligations, and foster long-term partnerships.
