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What is contract management?

Contract management is a process that clearly outlines how an organisation drafts, approves, executes and stores their contracts.

Contracts are the glue that binds the business world together – they define what happens, when it gets done, and how much it will cost. Almost every department uses contracts, whether it be to partner with new suppliers, sign on new clients or recruit new employees. With so many contracts floating around a business, it’s important that there is an effective system for managing contracts and clear accountability for each stage of the contract lifecycle, including the outcomes and follow up for each one.

What is the contract lifecycle?

The contract lifecycle describes the various stages a contract will go through before and after the agreement it covers is ratified. The contract lifecycle stages are:

Briefing

The business’ stakeholders responsible for the agreement brief Legal on the nature and facts of the agreement they wish the business to enter into.

Drafting

Once Legal has all the information required to understand the agreement completely, they can begin drafting the contract.

Negotiation

Once the contract has been drafted, the business can send this to their counterparty and negotiations can commence. During this stage the parties will come to an agreement on the details, terms and outcomes of the agreement.

Approval

In many businesses, contracts will need to be approved by one or more senior team members, such as the CFO, before they are executed. This stage is essential to ensure the business will have the capacity and resources to meet their obligations outlined in the contract.

Execution

After all parties have come to a final agreement on the terms and details of a contract, it is then ready to be executed. This means stakeholders will take an action to signify approval of the terms and conditions that are being spelled out in the document. Typically, this takes the form of a signature. Once all relevant stakeholders have signed the contract, it is considered ratified and executed.

Storage

Once a contract has been signed, it is critical that it is securely stored away. This is to ensure that it can be referred back to if the business needs to review terms agreed to, or begin negotiating a renewal ahead of its expiry.

Renewal

Some contracts will have an expiry date which indicates when the agreement will cease. If the business wishes to extend this agreement, they will need to arrange another contract to be executed. Generally, businesses will also take this opportunity to negotiate some of the terms, such as a cheaper price, or additional services, as part of this new contract. Typically renewals take less time to be executed than first contracts as the business already has a relationship with their counterparty which they are building on.

What is a contract management system?

A contract management system is a structure used by an organisation to manage a contract throughout its lifecycle. It is essential that organisations have a secure, documented and well-communicated method of managing their contracts to protect themselves from the risks associated with lost or mismanaged contracts.

An organisation’s contract management system can range depending on the volume of contracts and the risks they contain once they are signed.

What happens to a contract after it is signed?

Unfortunately in many cases, after a contract is signed it will be stored in an inadequate contract management system such as a filing cabinet or digital storage system, and then left to be forgotten.

Contracts tend to fall in between functional lines of accountability: although Lawyers write and manage the contracts, it is the business that manages the projects the contracts oversee. When neither takes responsibility for a contract, the business is exposed to risk.

These risks might take the form of the business missing key deadlines for their obligations and lead to a costly penalty for the business. Alternatively, a contract might be up for renewal negotiations and the business might not know what the terms they initially agreed to were because they aren’t able to find a copy of the original signed contract as the contract owner left the business months ago. Worse still, a contract could expire and no one could realise, leaving the business exposed to risk, or without the service support that they rely on to get work done.

Ultimately, a contract sitting in a filing cabinet without oversight is a ticking time bomb.

Is there a better way to manage contracts?

Increasingly businesses are opting to optimise their contract management system by switching to purpose-built contract management software.

What is contract management software?

Contract management software is a technology designed to make it easier for businesses to create, organise, execute, manage, store, and report on their contracts. The software helps in-house Lawyers collate all the required information from the business, manage the drafting and negotiation process, and then automate the required approvals and signatories.

The more intuitive contract management software options also incorporate features such as reminders which allow the contract creator to set up notifications ahead of key dates, e.g. expiries and renewals, and provide sophisticated analytics and reporting, helping to identify bottlenecks and opportunities for process improvement.

Using contract management software formalises the contract management process. This way the entire business has transparency over how to create and store a contract and is clear on who is accountable for the contract.

Cloud-based contract management software solutions like Plexus Gateway enable Lawyers and business users to track the progress and priority of new contracts, and easily find legacy contracts from anywhere in the world, on any device.

When should you invest in contract management software?

On average Legal functions spend 65% of their time on contracts, and 68% of functions forecast contract volumes will continue to increase.

Leading General Counsel are already setting their functions up for success by partnering with contract lifecycle management software providers. This move has enabled them to scale the support their function can provide to the business, and ultimately empowers them and their teams to do more with less.

When considering whether your current contract management process is working for you, there are two areas of consideration.

1) Think about where your contracts are now. If you needed to find the contract that’s going to expire next, could you do that easily? Or would you need to sift through a filing cabinet or database filled with every contract your business has ever created?

Despite only holding tremendous value once they’ve been signed and executed, contracts generally only get attention while they are being created.

Contract management software is designed for the intuitive and secure storage of your contracts. These systems allow you to filter and search through your contracts so you can isolate the one you need when you need it. Legal leaders can filter through which contracts their team has worked on and easily read the progress status of each.

With Plexus Gateway, you can even set reminders of contract expiry dates upcoming, giving yourself plenty of time to organise renegotiations for renewals.

2) Think about your contract creation journey. Is every contract unique? Or are you often creating a document almost identical to one created very recently? And how many people are involved in the process?

While not every business will have its own set of lawyers to create their contracts, SLAs and PMAs the moment they need them, the advantage of digital systems is that standardised, and frequently used documents can be templated and automated.

With automated templates, anyone in your business can begin the contract creation journey and feel confident that it is going to be compliant with internal requirements and not miss out on any key details.

A great example of this is the international solar power company Sonnedix. They found that they were creating NDA after NDA, and the documents rarely varied. To reclaim time spent by multiple teams to brief, write and execute the contract, they implemented the Plexus Gateway contract management system that incorporates their custom NDA template. Now any time they need a new NDA, the team only needs to fill in a few details, (e.g., the counterparty, dates covered, etc.) and they can send the simple and compliant contract to the counterparty for execution in 12 minutes rather than multiple days as it was previously.

Why Legal departments love using contract management software

While many business departments use contracts in their day-to-day activities, no department’s activities revolve around them as much as the legal department.

Leading legal departments have used contract management software to change how their business views Legal; successfully making the transition from being considered cost-centre to a source of competitive advantage.

These legal leaders go one step further with their legal contract management systems. These leaders use insights generated from contract management software to better manage risk, capture more revenue and more clearly communicate the value their legal department provides to the business.

When a Legal contract management system is effectively implemented in a business, Legal departments are able to spend more of their time providing higher-value legal support, rather than searching through computer folders or massive filing cabinets filled with every contract the business has ever created to find one in particular.

An effective contract management system ensures that there is only one source of truth, eliminating the confusion often found when multiple drafts of a contract are created during negotiations.

Legal contract management also drives productivity by giving everyone in the business the ability to sign, approve and store contracts straight from their devices. This ability prevents key business initiatives from being delayed due to team members working remotely.

Want to accelerate your contract lifecycle?

Plexus Gateway’s contract management software gives you everything you need to accelerate business productivity in one modular platform. Get contracts signed faster, streamline document workflows, collaborate in real-time and integrate with the apps you already rely on.

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