Contract management is essential for commercial and professional relationships, as it ensures legal security, reduces risks, and promotes efficient control of contract terms and conditions.
This article explains what contract management is, its importance, and the key stages of this process.
What is contract management?
Contract management is the process of managing contract stages, from initial requests to contract implementation and renewal. It includes standardization and tracking of all contract stages, organization of documents that prove compliance, and risk minimization.
Therefore, a document, such as a software development contract, should be well written, clearly explaining the conditions and requirements of the agreement. After all, a contract provides legal support to the parties involved, avoiding flaws that may cause legal risks.
What are the objectives of contract management?
Writing and implementing contracts involve different departments and activities of a company. Therefore, contract management should coordinate multi-department actions and be planned, organized, and implemented according to every purpose.
The main objectives of contract management are:
- Speed up requests and simplify the company’s procedures, whether between departments or with external customers and suppliers;
- Document all information contained in the contract;
- Coordinate deadlines of document submission for signature, as well as document expiration and renewal;
- Facilitate and encourage communication between everyone involved in the contract;
- Formalize an error-free document, through review, version control, and management of implementation stages;
- Ensure strict compliance with clauses and obligations;
- Improve team productivity through centralized management of information;
- Ensure the company’s compliance with regulatory and sector standards.
Why effective contract management is so important
More than a bureaucratic activity of monitoring deadlines and activities, contract management ensures legal security and organizes a company’s contracts with customers, suppliers, service providers, and other parties.
It is also responsible for tracking contract stages, organizing amendments, writing standardized and coherent documents, defining clauses that guarantee fulfillment of obligations, determining clear billing methods, and establishing reasonable penalties in case of non-compliance with the agreement.
Also, effective management avoids unnecessary expenses, standardizes negotiations, and reduces litigation, structuring a strong organizational culture across the company’s departments.
Contract management stages
In order to implement efficient contract management, you should learn about all stages of this process, which are described below:
Receiving an order is the first step of contract management. That’s when a party places requests it and the legal department starts to collect information to write the document.
Writing and review
In contract writing, the document is generated with its respective clauses, terms and conditions. It is then reviewed, with analysis of grammar and words, observing good contractual practices and compliance with the law, ensuring clear and easy-to-understand language.
Then the negotiation begins. That’s when the parties involved receive a copy of the draft contract to review the clauses and indicate any changes.
After reviewing the draft contract and reaching a consensus, the parties approve the document, confirming that they are aware of everything contained in the contract, such as prices, deadlines, schedules, responsibilities, among other conditions.
The contract is then signed by the parties, in person or through an electronic or digital signature, which are legally valid and guarantee the document and identity security.
With acceptance by the parties, the contract is formalized and must be filed in an organized manner so that it can be easily found for reference and revised or amended as required.
Enforcement and tracking
Contract enforcement or implementation involves tracking of deadlines so that contractual conditions are observed, payments are made, and guarantees are provided. For this reason, the contract is inspected for compliance with all contractual obligations.
This stage refers to managing deadlines and renewals, in addition to relationships with customers and suppliers to avoid penalties for missed deadlines and other non-compliances.
Finally, when the contract is not renewed or amended and all obligations have been fulfilled, the contract is terminated; that is, it’s no longer in force.
What does a contract manager do?
A contract manager ensures all management purposes are fulfilled, monitoring compliance with each stage requirements and analyzing results and indicators, whether through spreadsheets or software, such as Milvus.
The assignments of a contract manager include the following:
- Document all actions and events related to a contract;
- Identify bottlenecks and occurrences that could cause losses and find solutions for those issues;
- Create procedures for the entire contract management process;
- Select a tool to create, sign, and track contracts;
- Create and submit reports with results and tracking actions;
- Propose improvements and changes whenever necessary;
- Delegate assignments and activities to other team members.
For this reason, contract managers should be organized at work, respecting deadlines so that all activities are performed smoothly and efficiently.
See below the main reasons to implement contract management, with the creation of a department or team with specific procedures, tools, technologies, etc.:
- Ensure a higher level of organization of the entire contract lifecycle;
- Centralize information so that it can be quickly accessed;
- Reduce costs and save time along the contract process;
- Facilitate communication and department performance;
- Improve information privacy and increase the company’s compliance.
How to ensure efficient contract management
The contract management process has different stages, as seen above, with each stage focused on different activities and information. Therefore, for efficient management, you should consider some valuable tips, as described below:
Use a single communication channel
Use a single channel for all requests; for example, email, internal app or specific software.
This way, you can document all actions that have been performed, allowing the parties to track every stage of the contract.
Set deadlines and create procedures
Analyze the complexity of every contract and determine preliminary deadlines for each contract stage.
Assign one person for a different task
Assign someone different to handle every contract management stage. This way, each team member can focus on specific procedures, deadlines, and activities.
Invest in storage and organization
Contract documentation and filing, including its amendments and related documents, is a crucial step in contract management.
Therefore, it’s important to define how information is documented and stored.
Regardless of the filing system, it should be a safe option.
Choose a comprehensive contract management software solution
A contract has a complex lifecycle. Therefore, a contract management system, such as Milvus, will help you ensure that everything runs smoothly between the parties.
Contract management plays an important role in any business, regardless of its size or segment. After all, well-managed contracts establish solid relationships for good operations, minimize risks, and maximize opportunities.
If you want to learn more about the best practices of contract management to increase business efficiency, compliance, and success rate, try the Feature available in Milvus, the most comprehensive omnichannel solution.
Contact our consultants now for a free trial.