For the past several years, contract management has been increasingly changing from a book-keeping task to “an enterprise core–level system addressing business risk, cost, and pursuit of revenue maximization” (Gartner). In order for businesses to take advantage of these changing trends, they must begin by asking key questions about their current contract management process and seeing how software can fit into the equation. These questions should be used to frequently analyze process over time, to determine if those processes are worth keeping, adequate as are, or need to be improved upon.
Contract Creation Process
1. Do we collaborate effectively as a team?
Collaboration is key when drafting and working on contracts. What might seem perfectly clear to one individual may actually be nebulous and obscure to the other parties involved. It is always best to get multiple sets of eyes, especially from the legal department, to review and offer input into a contract draft. Different team members bring new perspectives, and they can help you see which terms are unclear and what implications that ambiguity may convey. They can offer suggestions for improvement, and contribute clarifying statements to the contract.
One of the primary benefits of Contract Lifecycle Management (CLM) software is that it makes collaboration simple and easy. A collaborative software program allows the entire team to access a contract draft in the cloud from wherever they are, make comments on specific portions of the document, and redline the document. Every member of the team will receive alerts when comments or changes are made, so everyone can stay informed. When you wish to integrate these changes into the document, it can be done easily online.
2. Is our legal language standardized and approved?
Using approved language is crucial to quickly creating contracts. This can be achieved quickly though use of a database for contractual terms that can be used throughout the company. This ensures that the terms used in a contract from the sales team will be the same ones used in a contract created in the legal or any other department. These standard terms come from someone well versed in legal jargon and proceedings, which means that terms will be up–to–date and clear. There will be less room for loose interpretations when the language used in your contract matches the language commonly used throughout the industry.
3. Is our library of legal terms easily accessible?
After going to the effort of creating a term library, it is crucial that it be both secure and accessible. Keeping it online enables the entire team to access and use approved language when drafting a contract. It also offers the further benefit of making sure that when the approved language is updated, it instantly disseminates to all users of the library. Every member of the team will receive alerts when comments or changes are made, so everyone can stay informed. When you wish to integrate these changes into the document, it can be done easily online.
4. What types of contracts do we typically create?
For smaller companies, this may be a question that can be answered in just a few seconds, but for larger companies, this may be a question that takes some digging. It is important to know what types of contracts you’re primarily dealing with because different types of agreements carry differing amounts of risk.
Using contract management software provides a top-down view of all contracts, at all their various stages, a company has at any given moment. It also makes clarity and precision in contract drafting easier to achieve, and gives organizations the agility they need for drafting any type of contract in one single location.
5. How much time does it take, on average, to draft a contract?
Contract drafting is one of the most crucial parts of the contract management lifecycle because it provides the foundation upon which the rest of the contract is built. It can be time consuming, but does not always have to be. Software can substantially reduce the time it takes to draft a contract through online collaboration, editing, e-Signature, and approval, which can be done substantially quicker than doing by hand.
Contract Request Process
6. How are contract requests submitted?
Asking this will enable businesses to leverage a more streamlined, centralized, and speedy process through online submission rather than continuing to use manual processes.
7. How are contract requests stored?
Storing all records related to contract management is crucial for avoiding liability and proving intent in a court of law should the need arise. Good contract management software should provide unlimited storage for all customers, and the best typically will not charge based on customer increases in storage needs. Keeping records stored permanently also helps maintain ties to vendors, customers, and colleagues even after a contract has been executed and helps make those relationships sustainable in the long-term.
8. Do all contract requests come through the same channel, or through multiple?
Keeping things organized through a centralized channel will help businesses avoid situations where they have contract liability that they are not aware of. CLM software is designed to streamline internal contract review and approval process, which plays a hug role in helping avoid these situations. By setting up a single, centralized workflow process for contracts allows team members to simply click to request approval and no contract will ever get lost or overlooked because it was put into effect outside the normal process.
9. Do we have centralized or decentralized contract operations?
Despite the importance that contracts and their proper management represent to a company, organizations on average do not manage them well. According to a study conducted by Huron, only 25% of respondents in their survey reported that their contracts are stored in a central repository, and 10% of those polled had no idea where their contracts were stored at all. This may be a contributing reason for why 57% of organizations polled report concerns about their contract management procedures.
10. Do requestors comply with our terms?
Avoid contract non-compliance by monitoring the performance of a contract once it has been put into effect. Clear audit trails, purchases, and other information can be gathered via CLM software and stored in an easily accessed repository. Avoid issues of non-compliance, which could lead to costly litigation, and have proper evidence to support your position in court should that need arise.
Contract Review and Execution
11. What is our approval procedure?
Here, companies should outline the process they use to see that contracts will be approved. Include the first steps that lead up to an approval, such as a review of all bids and proposals as well as a service and cost analysis. Then include the names, roles, and order in which decision makers will review and approve the contracts. Creating an approval workflow will ensure that each contract is reviewed and approved in the appropriate manner. Look to contract lifecycle management systems such that offer workflow capabilities to further optimize this step.
12. How do we route contracts to approvers?
Routing of contracts to approvers for review is CLM software uses a central storage repository for both contracts and contract related data. The information stored here is easily searchable, making it available in seconds to those with proper access. Such access can be granted throughout the company, meaning that gaining proper approval, drafting, negotiating, and monitoring contracts can be done by anyone at any time. This reduces the amount of time spent recording new information, searching for information, sharing information on paper, and gaining approvals on new contracts.
13. How do we sign final contracts (e.g. digital signatures, sign and scan, etc.)?
Over the past fifteen years, Electronic Signatures have risen to become a crucially important mechanism for business, public institutions, and individuals. e-Signatures are used to execute all types of agreements, including vendor transactions, sales contracts, HR agreements, and more. e-Signature software is designed to meet legal standards while drastically saving time and resources.
Look for software that provides unlimited e-Signatures (often times free of charge) or at least readily integrates with another e-Signature platform.
14. How do we validate contracts for legal and corporate compliance?
Once the negotiations have been completed, and both parties are in agreement, it’s time to get approval for the contract. And that process will differ, depending on your organization’s procedures. If you’re a freelance professional with no manager or auditor to answer to, you’ll need to reread the contract to ensure it matches what you agreed to verbally. But if you run a company that requires manager approval or has audit procedures, you will need to ensure that all the requirements for approval are met before finalizing the deal. For example, if your company issues procurement policies, you will need to ensure they’ve been met before you seek approval for the contract.
Term Monitoring and Obligation Management
15. How do we monitor payment and delivery deadlines?
Contract management software can, and should, keep track of financial terms, keeping them attached in the contract summary sheet.
16. Do we have a system of notifications in place?
Notifications are one of the most obvious ways that contract management software can benefit company processes. With automated alerts, users never need worry about missing a deadline again. Users can configure deadline alerts for specific events in the contract lifecycle, such as advanced notice of termination, financial terms, contract renewal dates, and even configure custom clauses for tracking. Look for a system that will let you receive alerts either via email or text or both.
17. How many evergreen contracts do we have?
Watch out for evergreen clauses in contracts. These types of contracts have automatic renewal clauses which require the purchaser to notify the seller within a certain time period if they don’t wish to extend the contract—otherwise the contract automatically extends for another term.
If a contract does contain an evergreen clause, check to ensure that the automatic renewal will work for your company. When the renewal won’t work for your company, you may want to negotiate to have the clause removed from the contract. Another option is to set an alert in your contract management system to remind you to send a termination notice at the appropriate time. If you are still uncomfortable with the clause, look for another service provider that doesn’t require automatic renewals.
Additional questions to ask when managing contracts:
18. What percentage of these contracts renew without renegotiations?
19. What analysis do we run on the terms of the contract?
20. How do we monitor compliance? Do we have a visible audit trail?
21. How do we extend payment? Do we ever duplicate or fail to pay?
22. How many active contracts are we managing?
23. How do we monitor those active contracts?
24. Where do we store our transaction data?
25. How long would it take us to respond to a request for an audit that requires us to produce contracts?
As you answer these questions, think about the efficacy of your current contract management plan. If you’re like more than 57% of businesses across the country, then you may be feeling some concern about your management practices. Consider automating your contract management plan.
Automating your contract management process provides you and your customers with a central storage repository for data, transactions, and contracts, making it easier to respond to audits, renewals, edits, approvals, etc. All other information which you may require is also located in this central storage location.
Collaborative efforts are simple with track changes, comments, and online editing software. You can streamline not only the drafting stage, but also your approvals, e-Negotiations, and contract implementation. Monitor compliance, deadlines, payments, deliveries, and run advanced analytics to determine how efficient and effective your contract management is.
Concord is a cloud-based contract management platform that’s changing the way the world is creating, negotiating, signing and managing contracts. The platform is being used today by more than 40,000 companies in 130 countries, and tens of thousands of users who are now managing all of their contracts on Concord. Additional information can be found at http://www.concordnow.com/.