Why Contract Management Matters?
Effective contract management is essential to every business. As businesses continue to focus on maximizing efficiency and scalability while working with partners and employees who can be located anywhere in the world, business leaders are increasingly seeking reliable contract lifecycle management (CLM) solutions.
Good contract management tools can minimize the work of drafting and maintaining commercial agreements while helping businesses to maximize the value they get from their deals.
When business leaders know what’s in their contracts, they are in a better position to enforce their contractual rights and comply with their obligations. If a business fails to exercise its rights, that’s money left on the table. Losing track of commitments and later getting blindsided by them, meanwhile, can be immensely costly.
Despite the risks, many businesses continue to rely on manual processes and disconnected, inefficient tools to draft, store, and review their contracts. There’s a better way.
Here’s an overview of what constitutes the contract management lifecycle, followed by helpful advice on how business leaders can choose the best tools to manage it.
Stages of the Contract Management Process
The contract lifecycle consists of these integral steps:
Two or more parties express interest in entering a business relationship. This is where the need for a contract emerges. Even a verbal agreement can potentially constitute a contract, but it is best for the parties to delineate all of their rights and obligations up front in writing in order to reduce the potential for future conflict if the deal doesn’t go as hoped.
Negotiation & Generation
These two steps are intertwined, as parties negotiating a contract will often draft the contract in an iterative manner as they send the working document back and forth over the course of multiple rounds of edits.
The parties discuss their requirements in order to reach an agreement that is mutually beneficial. In the case of a contract between a vendor and a buyer, the vendor typically presents a template or standard contract that they regularly use for similar deals.
After reviewing the first draft of the contract, the buyer raises any concerns they have about its terms, and generally pushes for more favorable terms if they have the leverage to do so.
Depending on an organization’s internal procedures, a simple agreement that only requires the parties to fill in a template might not require the involvement of legal counsel. For example, people buying consumer goods and services, such as a phone or even a car, tend to negotiate only business terms such as the price, while accepting the legal terms as they are.
However, If a deal is sufficiently novel or complex that it requires a new contract, then each side will generally have its lawyers represent it in the negotiations. Lawyers on both sides of the table work together to draft new language for the contract that accommodates the buyer’s concerns or special needs without compromising the seller.
Approval & Execution
Once each party agrees that the contract is satisfactory, authorized representatives sign the agreement, the contract goes into effect, and the parties are bound by its terms. Each party needs to ensure its own compliance with the terms of the agreement, from the vendor’s provision of goods and services on schedule, to the buyer’s timely payments, to any obligations related to ongoing communication between the parties.
If any party fails to hold up its end of the deal, contracts typically contain termination triggers and damage clauses that can end the agreement and provide legal recourse for the other party, mitigating any losses it might have endured as a result of the first party’s breach of contract.
Renewal or Termination
Contracts are often in place for only a specified time. As a contract with a limited term nears the end of that term, each party needs to review not only the agreement, but also the business relationship, and determine whether the deal continues to meet its needs.
If both parties want to continue the relationship and they agree on terms for a renewed contract, then they can revise the terms of the agreement as necessary and execute a new contract for a new term. Otherwise, the contract will terminate.
If the contract is instead designed to remain in place indefinitely, it might still have a clause that requires occasional renewal, or the parties might eventually determine that they need to amend particular provisions.
As a result, a business needs to have processes in place to periodically review those of its contracts that do not have finite terms, in addition to reviewing contracts as they come up for renewal.
Implementing Contract Lifecycle Management Technology
A good contract management platform is essential for today’s businesses. Deal makers work across borders to drive commerce, often working with an array of vendors scattered across the globe.
A centralized contract repository is vital to staying organized while managing hundreds or even thousands of contracts. On top of that, tools that streamline the contract creation process can potentially save legal and procurement teams hundreds of hours every year that they would otherwise spend doing repetitive work instead of focusing on strategy and adding value.
But with numerous contract automation software platforms available, how do business leaders choose the tools that are best for their needs? And what comes after selecting a solution? There’s more to digital transformation than simply choosing a vendor. Change management is a big part of the puzzle, too.
CLM and Contract Management Solutions
Here are nine crucial factors to consider when considering CLM solutions and integrating a chosen platform into the workplace:
- Does it meet the needs of all relevant stakeholders?
A good CLM solution facilitates collaboration between functions and businesses. Has each team involved in negotiating, planning, or reviewing the business’s contracts had a chance to provide input regarding their processes and what sorts of CLM tools they need?
Have end users had the chance to weigh in on how they currently work, which aspects of their current workflows need improvement, and which they’d prefer to keep in place?
In addition to addressing these concerns, the platform must be able to operate at the same scale as the business, and it should be user-friendly. Cloud-based infrastructure helps with scalability, while intuitive functions such as drag-and-drop tools ease new users into new ways of getting work done.
- Are user roles clearly defined?
A CLM platform should make it easy to assign different types of user roles in order to ensure that every employee has access to the tools and documents that they need, and only those they need. However, leaders first need to determine who within the organization needs what type of access to the platform, and who is responsible for different processes and approvals.
For example, maybe a business’s sales teams need to be able to initiate contracts and select forms from a set of templates, while the business requires a special approval process involving the legal team’s sign off for custom provisions. Segmentation of user roles and access rights can facilitate custom approval workflows and other specialized processes.
- Does it integrate with the business’s other existing and planned tools and processes?
Does the CLM platform force teams to work in a particular way, or is it flexible enough to work the way they work? A solution should not dictate the team’s workflows; rather, it should adapt to them. In addition, basic incompatibility between platforms can be a roadblock to implementation, or require inconvenient, time-sapping workarounds.
- Does it use true artificial intelligence?
AI can drastically reduce time constraints and mitigate the potential for human error. Machine learning algorithms can parse, tag, and sort contracts for quick retrieval and review. Review processes that used to take weeks can now take seconds. In addition, AI is more consistent than humans when it comes to making decisions, such as how to label documents.
- Can it efficiently create templates based on favored language?
A CLM platform with natural language processing and machine learning capabilities can learn from what’s in a business’s existing contracts and create new contract language based on what the team has already determined is best for the business. Manually drafting every clause in every new contract from scratch is unnecessary and excessively time-consuming.
However, this point raises a second question. Prior to implementation, has the legal team actually established favored language? While artificial intelligence can vastly speed up workflows, providing legal advice remains the domain of human lawyers. Have the team’s lawyers identified the favored provisions that they’ll use to create templates within the platform?
- Can it quickly identify and update non-conforming language?
One benefit of a centralized contract database is that it greatly improves contract administration allowing teams to quickly find relevant agreements and compare the language they contain. A platform with the power of NLP can identify contracts containing clauses that do not conform to the business’s standard. Updating those clauses within the platform should also be as simple and painless as possible.
- Who will own it?
Some businesses might have multiple groups that need to use a CLM platform regularly, such as in-house legal counsel and procurement teams. When that’s the case, leaders from each team need to agree on who is responsible for managing the platform, including who will pay for it.
- Is the implementation plan aligned with the organization’s technology roadmap?
Even if a chosen CLM solution is compatible with (or improves upon) the tools that users already have in place, the timing of the implementation still needs to line up with the business’s broader technology strategy. A poorly timed or communicated switch to a new system can derail or delay its implementation, compromising the value of the time and capital the business has invested in it.
- Is the team ready to measure the implementation’s success?
Have business leaders identified the key performance indicators that the implementation needs to impact, and the benchmarks to target? It’s impossible to objectively gauge the success of a new technology platform’s rollout without first identifying the specific results that leadership aims to accomplish with the investment, and the tangible metrics that will demonstrate whether it worked.
Revolutionary Contract Management Software
Evisort provides powerful, AI-backed tools to automate the contract review and management process leaving legal teams free to focus on contract negotiation and other tasks. The platform seamlessly integrates with a range of other office software tools to streamline collaboration and communication.
Evisort can pull contracts from Salesforce, cloud storage, and even email inboxes, read their contents and group them according to their compliance with the business’s preferred language, and generate a report to send to the team responsible for managing those contracts.
From creating templates to collecting signatures, Evisort simplifies contract drafting and execution. Contract tracking and custom reporting tools help to take the hassle and worry out of contract management. Companies that use Evisort report reduced costs, greater efficiency, mitigated risks, and increased profits.
Evisort drastically improves contracting process by automating time consuming processes such as finding key contract terms in seconds not hours. Never miss a contract renewal date again.
Enjoy the benefits of a contract management system powered by artificial intelligence. Ready to learn more about how Evisort can help you modernize your contract lifecycle management processes? Schedule a demo!