If you’re reading this it’s probably because you’re wondering what contract management is, how it works and what effective contract management can do for you. (If you’ve landed on this page after taking a wrong hyperlink and were actually looking for something else entirely like cat videos, this page won’t prove much use for you. Go back to Go, do not collect $200.)
In a nutshell, contract management is the process of managing everything pertaining to contracts – that is, contract creation, execution, and analysis. It includes everything from tracking and monitoring contract delivery, any associated costs, managing risks and relationships, tackling and problems arising and doing contractual reviews.
Good contract management is an essential part of any company’s legal wheelhouse as it maximises the operational and financial performance of an organization as well as reduces the company’s exposure to risk.
Why is in-house contract management software important?
These days every company that’s a key player in the market is constantly under pressure to maximise returns and up their company performance while at the same time cut costs. Contract management is one of the more niggly, time-consuming aspects of running the business which can benefit from having an effective and automated contract management system.
Contract lifecycle management software is also key to mitigating risk and properly controlling the contract management process. A poorly managed system can expose the company to some serious legal and financial risks.
The risks of manual contract management
Where busy in-house lawyers are saddled with the administrative task of tracking and double-checking the contract-related minutiae and the only members of the team with visibility of the contracts, there are some key risks for the company.
Manual contracts open up the risk of clerical errors. These could lead the company to legal and financial risks associated with contractual non-compliance, jeopardised customer relationships and missed revenue opportunities.
Manual contract management inevitably leads to a build-up of work in the legal department, meaning that any quick tweaks, revisions or queries that employees may have require some Herculean patience on their part before they get the necessary answers or feedback. Bottlenecks can trigger extended sales cycles, and the company potentially missing out on revenue opportunities.
The benefits of in-house contract management software
Contract management software guarantees your company’s contracts will be more secure, handled faster and more collaboratively and at large, global scale without compromising on budget or delivery.
Having a contract template at the ready, which can be easily modified with just a few clicks, is always going to be much more speedy than having to hand-type a contract from scratch or manually modifying a template.
A digital system also speeds up drafting and executing bulk loads of contracts at scale (be it hundreds or thousands). The collaboration, negotiation and the signature of such contracts are a breeze in comparison as modification can be made and the contracts can be signed instantaneously.
Walking around the office with a paper contract for signing is a thing of the past.
Lastly, whenever a contract needs to be referred to by any of the team members, searching through digitally stored contracts takes a fraction of the time that wading through paperwork and rows of cabinets does.
Instead of the prehistoric method of contract amendment where the smallest clerical error like a date or address change requires lawyers to tweak the Word doc, reprint it and send it over again in the post, digital contract management software allows for changes to be made immediately to the contract. It’s also incredibly easy to share that contract through a link to any of the stakeholders who need to review or sign the contract.
A contract protected through passcodes and some hefty cyber security encryptions will always be much more secure than a contract locked up physically in the filing cabinet of someone’s office. The digital contract is both secure in the sense of security, but unlike a physical contract is also safe from any unforeseen physical events like earthquakes, fires or floods which could leave parties in the awkward position of not fully knowing what their rights, obligations and remedies are towards each other.
Whether you need 10 contracts or 1000, contract management software can easily increase the volume of contracts created without requiring extra budget.
Finally, a company can retain as many contracts as needed, being limited only by their cloud storage rather than physical office or warehouse space.
As all the contracts are digital, it also means that international contracts can quickly and easily be shared, collaborated on and reviewed across the globe.
Who can use contract lifecycle management software?
The key users of contract management software are the in-house legal team, the human resources department, the sales team, the procurement division and finance team. Where all team members can easily access contracts for review or referral, contract management software helps the company’s various teams more effectively and efficiently close employment contracts, sign vendor agreements, oversee billing and keep track of contract renewals.
The stages of contract management
A typical commercial contract can include various key stages such as request, creation, collaboration, negotiation, execution, tracking, revision, and renewal of the contract. An effective contract management system can aid in improving outcomes at many of the key stages of the contract workflow.
The contract management process begins by actors identifying which contracts and other relevant documents are required to support the contract’s purpose. Where contracts are stored in a well-organised software this process is sped up.
Many lawyers still store their contracts in Word documents on their computers, copying and pasting from a template or a similar contract to draft a new contract. This method opens up the risk of clerical errors, the lawyer potentially missing or mistyping a date, address or other matter. Where a contract management system is digitised, a non-legally trained administrator can easily create draft versions of commonly used contracts, such as NDAs.
A contract often needs many in-house players to collaborate before it is ready to present to the contracting party. Senior lawyers may oversee junior lawyers drafting the contract, specialists from certain departments (such as procurement, compliance and sales) may need to give input and may need to do so remotely from another company office.
When stakeholders can see track changes, document versions, tasks, approvals, and comments against contracts in a centralized system, transparency and collaboration become much easier.
Once drafted, a contract is ready to be negotiated with the other contracting party. Clearly tracking changes in the contract and being able to identify discrepancies between versions may reduce time spent negotiating.
When all parties are satisfied with the contract, the parties can speed up the signing of the contract by circumventing posting or physically delivering contracts and using electronic signatures instead.
Integrations with commonly used tools such as DocuSign and HelloSign make digital execution a breeze for all parties and signed versions are automatically sent to stakeholders.
Now that the contract is afoot, project managers and other key stakeholders are required to ensure that all deliverables are being met and all obligations and expectations are being managed. Quick referrals to the original contract may be useful at this stage. Contract audits are highly important in ensuring contractual compliance with all the terms set out in the contract.
Where there isn’t a coherent contract management system in place, finding any original documents related to the contract’s initial drafting to check contractual intent or support the variation of terms is another taxing task which gets piled onto the lawyer’s already crowded desk.
Renewal & expiry
Where contracts are managed manually, there is a risk that a company misses a renewal opportunity and the corresponding revenue. Automating contract management means that all opportunities for renewal are clearly flagged and tracked.
You’ll never miss an expiry or renewal date again with an effective contract management system.
The introduction of automation to contract management has changed the way we oversee, execute, track and renew contracts. Where a contract management system isn’t equipped with contract management software, it opens a company up to a wide variety of financial and legal risks and inefficiencies. A good contract management software ensures accuracy, streamlined collaboration on a global scale, efficiency, security and scalability for all contracts and perhaps even potential revenue opportunities.
Ready to learn more about managing contracts and matters together?
To learn more about why contracts and matters are better together in the same legal workspace, click here. And to find out more about LawVu’s Contracts software and Workspace platform, click here. Or, you can learn more about the fundamentals of connecting matters and contracts together, including use cases and tips and tricks on how to do it inside your legal workspace as part of the Legal Tech Fundamentals Certification. It’s free and can be completed in your own time!