What is it?
Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk
Contract Management Systems will help you manage these 4 aspects:
1. Purpose: purchase or sales contract? inbound or outbound? Commercial or non-commercial?
2. Characteristics: jurisdictions, applicable law, legal nature of the parties, specific clauses, etc.
3. Lifecycle: creation, review, approval, execution, archiving.
4. Process: who creates the contract? Who reviews the contract? Who needs to be involved in the approval process? How is execution managed?
Depending on the maturity of the legal function as well as the type of transaction, of course, these steps can be fully automated. In the case of (perceived) low risk contracts such as Confidentiality agreements for example, in some organization, these are not handled by the Legal Department anymore but by Business users who populate a few fields around the purpose of the Confidentiality agreement, nature of the counterparty, Scope (products/solutions) which generates a Confidentiality agreement ready to be executed by both parties. Even the lifecycle of more complex contracts can be dramatically accelerated with the use of templates, effective collaboration and well defined processes.
Why is it important?
Contract Management helps standardize processes and procedures which increases consistency and eliminates risks associated with inconsistent contract generation—this yields operational efficiencies. Contract management can identify and eliminate evergreen contracts and improve compliance with terms. A contract management system helps to reduce legal fees and eliminate unplanned renewals of unwanted services. Additionally, spend visibility is another high-value benefit: enterprises that link their sourcing and contracting processes are more likely retain a higher percentage of identified savings.
What to look for in Contract Management Solutions?
The Contract Management field is a complex one, with solutions ranging from “Enterprise wide” (such as SAP) to very niche ones, specifically designed to be used by Legal departments.
When selecting a Contract Management Solution, it is crucial to determine:
• Primary use of the system: contract repository only or full Contract Lifecyle Management?
• Primary users of the system: legal or Business users?
• The type of contracts that the system will handle: simple contracts (template based) or more complex ones?
Contract Management 2.0 systems have come a long way from their predecessors and are now immensely more user friendly (typically requiring no training), templates can be created a modified by end users, workflows are simple or flexible.