Taking Contract Management to the Next Level

In the good old days, all you needed to do business with someone was a good reputation and a firm handshake. When two parties agreed on a deal, both were expected to honour their word.

Unfortunately, those days are long gone. If both parties aren't bound by an airtight contract, all you can expect down the roads are broken promises, broken deals—and ultimately, lawsuits.

Which is why contracts are one of the most important foundations of modern business.

In this article, we will look at a couple of questions you can use to self-diagnose your current and future business prospects and see whether your business could benefit from a dedicated contract management system.

The importance of contract management

In business, a signed contract is as good as money. This is because they stipulate the obligations and expectations of both parties, as well as the penalties for breaking the agreement. They also lock in the price for all goods and services that are to be rendered.

When you have a written contract, both parties know what's expected of them. They know what to do and when. It also makes it a lot simpler to resolve any conflicts if anyone's expectations aren't met.

Which means it is as important to keep a record of your contracts and what they contain, as it's important to keep your money safe.  

Most businesses need to manage their contracts carefully. Contracts are depositories of sensitive and valuable commercial information. That is why every business needs some type of contract management tool.

Now in the good old days, that would mean getting a sturdy and secure filing cabinet. Later, companies adopted spreadsheets to tabulate the details of the different contracts, which was stored in a secure location on a shared drive.

For small businesses, that may be all they need. Their needs are simple enough that they might not need dedicated contract management tools.

But once your business takes off, the filling cabinet and spreadsheet becomes unruly to manage effectively. There are so many contracts to manage, that the particulars of each agreement become fuzzy, mistakes are made, obligations go unmet, and business opportunities are lost.

There comes a point where you must realise that you need to upgrade to software specialising in effective contract management.

When it’s time to upgrade to a dedicated contract manager

How do you know it's time to make the switch? How do you know if your business has reached the stage where the filing cabinet and spreadsheet isn't enough?

There are three contract-related problems that businesses start to face that doesn't have a proper contract management system:

1. It’s difficult to track contract and vendor data

When the relationship with a vendor is formalised into a contract, that contract contains a wealth of information—pieces of data that are all important in the regulation of the relationship.

These data-points are easy to track if you're only dealing with a single vendor or two. But once you have a plethora of vendors, providing a range of goods and services to your company, tracking all of this information becomes extremely difficult.

Which is important, because if you have many vendors, it becomes more important than ever to stay on top of the different contractual obligations that you negotiated with the different parties.

It's crucial to be able to track the intricacies of each contract. There are certain data-points that are universal to all those contracts:

• What are the start and end dates of the contract?
• When is it time for the contracts to be renewed?
• What goods or services are the vendor obligated to deliver, and at what date?
• What are the trackable data points with which you can measure a vendor's performance?
• What happens if the vendor should fail to keep to their agreement?
• What are the special conditions in the contract?

As an organisation, you need to be able to track all of these data-points for each contract. This data then needs to be aggregated across contracts. Also, each vendor's performance needs to be tracked against their contract, so there must be a contractual history for each vendor that' audit-able.

When you have to juggle several contracts at once, it becomes almost impossible to manage this oversight to a high degree of accuracy and efficiency.

What you need is a system that makes all of this data available to you in an easily accessible format—a system that keeps a comprehensive record and that consistency gives accurate results.

If your contracts are still buried in a filing cabinet or a spreadsheet on a hard-drive somewhere, you risk data fragmentation—which is the bane of contract management efficiency.

In light of this problem, it might be useful to measure your business against the following criteria:

• Are you uncertain of how many live contracts you currently have in your business?
• Is it an arduous process to ascertain the value of these contracts?
• Is information about these contracts scattered across different locations in your business, for example hard drives, shared drives, spreadsheets, emails, and filing cabinets?
• Is it difficult to view all your contract data-points in a single location?
• Do you have the need to store your contracts in multiple, conflicting formats—hard copies, PDFs, scans, and Word documents?
• Is it difficult to get concrete information about the way individual contracts influence other contracts that you have to deal with in your business?
• Do members of your staff—including expensive legal personnel—have to spend hours digging up important information about this contract or that one?
• Do you have to contact third parties to get vital contract information, because it's so difficult to find on your side?
• Are you worried about suddenly being required to go through a contractual or compliance audit?
• Do you have several contracts signed with the same party—contracts that often overlap or contradict each other?
• Do you lack a single, standardised system for dealing with contracts in your organisation?

If you can answer yes to any one or more of these questions, you should probably consider upgrading to a dedicated contract management tool.

2. Manual contract management becomes cumbersome

As your business grows, there comes a point when manual processes start to become a drag on your daily activities. What once worked perfectly, now causes delays and bottlenecks that puts the brakes on progress.

This is because you need different systems and processes for a small scale and large scale organisation. What used to work when you were starting out, becomes cumbersome and unmanageable as your business scales. It will also drive up operational costs.

This principle is also true when it comes to managing contracts. Here are a couple more questions to ask of your organisation to see if you need to change your contract management system:

• Are you able to execute contracts with consistency, or do some contracts take a whole lot longer to execute than others?
• Do you have to rely on a single person to keep all of your contract information in their heads? Or does only a handful of people know where to access mission critical contract information on a spreadsheet? Are you happy with stating your whole future as a company on a single point of failure?
• Is it possible for certain people, especially within your company, to get around established contract processes if they deem their need urgent enough?
• Does your legal team constantly have to deal with these types of requests and updates on requests?

3. Scattershot renewal management

There comes a time when every contract needs to be renewed. These moments are crucial for the long-term health of your vendor relationships.

When these renewal points are stewarded effectively, they provide checkpoints where both parties can reassess the benefit they glean from the relationship.

It is also a place to reassess whether the objectives of the contract were truly met—and if it's necessary to adjust your future arrangements to remedy the situation.

If this renewal phase is mismanaged, you risk damaging the vendor relationship or your future prospects as a company. Possible negative outcomes include supply problems, unnecessary expenditure, or even legal problems.

To assess the current state of affairs of your company with regards to contract renewal, consider the following questions:

• Do you know when your current slate of contracts are up for renewal?
• Are you aware of any of your contracts auto-renewing? Do you know the stipulations of the renewed contract—including any penalties or cost increases?
• Do you know how well your vendors are performing with regards to their contractual obligations? So if their contract is up for renewal, do you know how their contract has to be updated? Or do you have to assess their performance in a short period of time—meaning that key information would probably be missing, and your legal team would have to rely on guesswork?
• Do you have ready access to the renewal dates for all your contracts? What about notice periods and review periods?
• Does your business work with the different vendors who all have to supply similar goods or services?
  

The benefits of a dedicated contract management system

How you answer the questions in the previous sections should give you a good indication whether your current contract management system is sufficient to handle your current contractual workload.

There are several benefits to upgrading to a dedicated contract management tool. Chief among them is the benefit of automation. Not only will it decrease the burden on your legal staff to manually sort out all your contracts, you also build a solid basis for future expansion.

The core function of contract management software is an electronic contract depository. The system is able to keep an up-to-date, accurate record of all your vendor contracts. The system will also keep track of any changes to these records.

This solves one of the major problems of manual contract management, which is data fragmentation.

The result is that it becomes a simple matter to upload new contracts into the system. Since the system keeps comprehensive records of all your contract data, you are able to pull key data points from your contract data at a click of a button.

The system will also be able to analyse and process this data into actionable reports, or display it on dynamic, aggregate dashboards.

Because all the contracts are managed from a centralised platform, you will be able to implement strict access protocols, to ensure confidentiality and the integrity of all data in the system.

This also facilitates collaboration, because the appropriate stakeholders can be given access to the contractual data they need to do their job. This access can be granted individually, or to dedicated teams.

Which means they take ownership of the contracts for which they are responsible—instead of simply putting in requests for the legal or procurement teams to do all the legwork.

This also means that all relevant personnel can read and comment on contractual negotiations. If there are any problems with the contract, you are more likely to spot the issue and correct it in time.

With a dedicated contract management tool, it becomes possible to access all contract records from a single Contract Management Dashboard. Which means you are able to read records and search through all your contracts from a single interface.  

Conclusion

It might seem like a big step adopting technology to do the same work that you're already managing to do in your current operations. But when you look closely, the cracks in your current setup will start to appear. For example, if you're still using a manually driven process, your contract team is probably tasked with chasing the right information from the relevant stakeholders.

When you shift to an automated contract management system, all your contract data is hosted in a unified repository. This allows you to assign ownership of specific contracts to specific team members. Which means that work is distributed in an intelligent fashion from the get go. Staff members are also easily able to access their assigned contracts from a limited dashboard.

When a key staff member leaves the company, their contracts can easily be reassigned to other members of your team. Which means that no contract or vendor relationship will ever fall through the cracks—or is dependent on a single individual to make them work. This ensures  management continuity.

Key contractual data points can be shared in actionable reports that can be shared with the relevant stakeholders and decision-makers. The system can also send alerts before a contract is up for renewal, so that it can have sufficient time for consideration and assessment. Which means there will always be ample time to make informed, wise decisions with regard to future contract renewals.

In short, the system allows for proactive contract renewal. This is one of the most important pillars of successful contract management. This means that the relevant teams will have enough time to evaluate the economic viability of each contract. If a contract is no longer profitable, it can either be terminated or renegotiated.

A proactive approach to contract renewals will also preclude the possibility of nasty surprises hiding in a contract stashed in a file cabinet somewhere. The whole process opens up new communication channels with vendors, which will result in significantly improved vendor relationships.

When your contract management is handled by a dedicated software, your contract team will be able to:

• Retrieve specific contract information without much effort to check a specific clause or stipulation.
• Create a report on a specific data point across all your contracts—for example the high-value contracts, or the contracts that are up for renewal in the next three months
• Establish a timeline for a specific vendor in terms of contractual obligations, what was delivered, and what was communicated.

When you have an automated contract management system, every contractual task is sped up remarkably. Which means you will be able to sign up new vendors or renew their existing contacts in a much shorter time frame. The end result is that your contract team will be able to function at a higher level of efficiency and will lead to a much more efficient business operations as a whole.