You likely realize that there must be a better way to manage the contracts your legal department generates or is responsible for vetting. Or, maybe you have a contract management system in place, but it’s no longer working for you.
As you start thinking about searching for help, you may wonder what the “best practices” are for managing your contracts and selecting a contract management system for your organization.
While the tradition is normally to manage contracts manually through folder and file cabinet storage, the practice is riddled with inefficiencies that can only detract from an organization’s overall efficiency. Integrating with an automated contract management service will help free up countless [working] hours and automate countless processes associated with managing a contract, thus creating more value for a company.
This guide is intended to educate you about what contract management is, what are the best practices in managing your company’s contracts and selecting a solution that will automate the process.
Before you embark on a search for a solution to automate contract management, it’s essential that you understand what contract management is, the various terms associated with the contract management process, how your current management system works, and the pain points and gaps in that process.
When two companies wish to do business with each other, a contract specifies the activities entered into by both organizations and the terms through which they will each fulfill their parts of the agreement.
The discipline of contract management includes terms about which you may be unfamiliar or that have meaning with which you may be familiar but not as they apply to the subject of contract management. To help you navigate these terms, please find below brief definitions for your understanding.
Auditing and reporting. Assessing regularly, whether your vendors are doing the work for which your company contracted with them to do.
Contract Amendments. A contract amendment is a modification to the terms of a contract.
Contract execution. An executed contract is a legal document that has been signed off by the people necessary for it to become active.
Contract Lifecycle Management. “Contract Life Cycle Management (CLM) simply means effectively managing contracts or agreements and relationships between entities by properly planning all the contract management stages resulting in reducing, eliminating or mitigating financial, legal and procurement risks.”
e-Signature. Electronic signature (e-signature) is a technology that allows a person to electronically affix a signature or it’s equivalent to an electronic document.
Metadata. Information about the contract. For example, contract execution date, parties to the agreement, type of contract, contract obligations, etc.
Obligation Management. To actively manage the terms of a contract over its lifetime.
Renewal. One or both parties take a written action, per the renewal terms of the contract, to extend the contract for another term.
Repository. A central location where data (contracts) are stored and managed.
Revisions. A contract revision contains all the updates made by a single user that occur between updates by other users.
SLAs. Service level agreements (SLAs) are service standards to which both parties have agreed. Examples of SLAs are the volume of work completed within a required time frame, the quality of the work; i.e., acceptable error ratios, and response times.
Term. The period for which a contract is is in effect or active.
Version control. “Version control involves a process of naming and distinguishing between a series of draft documents which lead to a final (or approved) version, which in turn may be subject to further amendments.”
Contract management systems, of which there are many, continue to evolve and are projected to be the legal tech system in which legal departments will invest most in 2019. How do you know if you’re ready to automate your contract management?
A good “tell” is that you’re researching the market and interested in learning more about what they offer. Another way is to take our quiz. Your responses to the brief quiz below will provide you guidance as to whether you should formalize your contract management process.
If you answer yes to any of the questions below, it may be time to take control of your company’s contract management process.
♦ Do you know where your company’s contracts are?
♦ Do you know who has access to your company’s contracts?
♦ Does your department track contract versions and amendments?
♦ Do you know when your contracts will renew or terminate?
♦ Do you know if your company is complying with the terms of the contracts to which it is a party?
♦ Does the contract approval process take too much time?
♦ Does finding the contract or contract clause you are looking for taking too much time?
Now that you’ve confirmed your department needs a system to help you manage your contracts let’s talk about who should be responsible for managing them.
Contracts are core to any business’s procurement activities. Both the procurement and the legal departments play an active role in the negotiation, creation, and review of contracts.
Procurement ensures the company makes a good “deal” financially and the legal department ensures the company’s protection from liability.
The legal department is responsible for analyzing the benefits and risks of contract language before executing a binding agreement with another party and for the company’s administration of and compliance with the agreements into which the company enters.
The legal department is responsible
for ensuring that the company is storing its contracts and documents securely and controlling who has access to them.
Such control is necessary to minimize the company’s exposure to cyberattacks and e-discovery efforts.
Regardless of whether the procurement or legal department manages the company’s contracts, it makes sense for both to play a role in formalizing the contract management process and the associated software selection process.
A system that manages a paper process requires three essential features: standardization, automation, and transparency. Below are our suggested best practices for managing your company’s contracts:
1. Standardize contract creation, review, approval, and close-out processes
2. Use workflow and process automation
3. Link contracts to internal contract policies and procedures
4. Create an online repository of frequently used contracts and contract clauses
5. Create an online repository for executed contracts and contract metadata
6. Monitor contracted and contractor compliance/performance
7. Transparent contract monitoring audit trail
8. Conduct risk monitoring and control
9. Manage contract change control process
10. Use automated notifications and alerts to warn of critical dates and deadlines
Failure to manage your company’s existing contracts presents risks to your company. Many small companies sign a contract, put it in a file and rarely think about it until a problem arises or it expires.
Common risks of not managing your active contracts include:
1. Delays in contract approval, potentially impacting vendor/supplier relationship
2. Losing track of contracts
3. Missing contract deadlines.
4. Non-compliance with contract terms.
5. Failing to maintain up-to-date contract terms (amendments)
6. Multiple versions of contracts in various places in your physical and electronic files.
7. Failing to identify workflow issues in the contract lifecycle
8. Inadvertently allowing unrestricted access to your company’s contracts.
Please click on the button to evaluate your needs for A Primer Contract Management Software
According to the Association of Corporate Counsel (ACC), “Contract Management Systems manage the complete lifecycle of contract processes from creation through managing performance.
Either the business unit or the legal department may sponsor contract management initiatives, but regardless of the sponsor, the legal department is a key player.”
More than anything, contract management systems seek to reduce the amount of time and money your team spends sending contracts back and forth.
Over the years we have worked with corporate legal departments of all sizes. Based on our industry experience and knowledge, below is what we think are the most important factors when searching for a contract management system.
♦ Ease of access
♦ Ability to restrict access
♦ Solution simplicity
♦ Paperless system
♦ Ability to create and store contract templates
♦ Ability to share documents with other parties (s) during contract creation, revision and amendment processes
♦ Standardize and streamline contract requests, reviews and approvals process
♦ Central location (repository) to store contracts, associated e-mail, other correspondence and notes
♦ A central place to store contract metadata
♦ Robust and dynamic global search functionality
♦ Automated workflows for routing and approval
♦ Obligation management or compliance monitoring
♦ Critical dates monitoring and alerts
♦ Performance monitoring (SLAs)
One of the first questions it’s important to ask when considering the purchase of any technology is, “What value do you want this technology to deliver to your organization?” Of course, you want all the features and promises above.
Most CMS software/solutions will provide these functionalities. The differentiating value lies in how the product and services are delivered. For example,
♦ Will the system integrate with other solutions you currently have or in which you may be investing in the future, such as Microsoft Office 365 ( Excel, Outlook, SharePoint, Word)
♦ In what type of implementation process will your team be participating?
o What is involved, who is responsible and how long will it take?
♦ What type of training, if any, will be necessary and who will provide it?
o What is the average length of the learning curve?
o Will the vendor train everyone or just the internal designated trainer?
♦ Online or On-premises-based solution?
o Online provides 24/7 access from anywhere, on any device
o Online creates opportunities for collaboration with other parties to the contract
o Online storage is more secure than physical files or on-premises software
♦ Transparent and affordable pricing model and affordable
We hope the guide has answered some of your questions and raised others that we would be happy to answer. Contract management software may be the most productive purchase your department makes this year. Below is a summary of what we believe are the most important benefits of a contract management system.
♦ Automated ability to track and manage contracts, agreements, renewals, and deadlines
♦ Secure contract creation and editing
♦ Simplified contract document search and report access
♦ Improved contract management workflows for approvals routing and compliance controls
♦ Complete contract visibility and control (e.g., bottlenecks, renewals, price increase dates, penalty avoidance)
♦ Full contract data utility and easy system extraction and analysis
♦ Flexible and secure SaaS, cloud or on-premise deployment options
♦ Accessible anytime, anywhere and from any device
Legal Track is the maker of software for Corporate Legal Departments. For more information please visit our website at www.legaltracksoftware.com