Outsourcing contract management empowers in-house teams and executives to focus on strategic tasks by leveraging expertise, cost-effectiveness, and streamlined processes. With organizations managing thousands of contracts, effective lifecycle management is critical. Challenges like stakeholder alignment and resource drain necessitate robust practices such as centralized repositories and automation.
Contracts are the lifeblood of most organizations. They govern relationships with customers, suppliers, vendors, investors, employees, and more. That’s why contract lifecycle management is so important, especially considering that “a typical Fortune 1000 company manages between 20,000 and 40,000 active contracts at any given time, at least 10% of which are misplaced, difficult to find … or otherwise unmanaged or forgotten.”
Understanding contract lifecycle management and its implications for your business can help you make informed decisions, save unnecessary costs, and enhance contract efficiency.
Contract lifecycle management is the entire process of managing a contract from inception to conclusion. This process is typically divided into four stages
1. Initiation and Planning: Identifying the need for a contract, setting goals and expectations, and outlining the terms and conditions of the contract.
2. Creation and Negotiation: Drafting, reviewing, and negotiating the contract terms to ensure they align with the interests of all parties.
3. Contract Approval: Acquiring the necessary approvals (and signatures!) and endorsements from all parties, including legal review and stakeholder approval.
4. Contract Execution: Implementing the agreed-upon terms, covering aspects like delivering goods or services and meeting contractual obligations.
Importantly, the goal of contract lifecycle management is to streamline the above process, improve efficiency, minimize risk, and maximize the potential of negotiated contracts.
It’s a specialized and often resource-intensive process that’s not necessarily feasible for all businesses. Let’s look at some challenges and how best to address them by implementing best practices and considering a holistic solution like outsourcing your contract lifecycle management.
Implementing an effective contract lifecycle management system can be fraught with challenges. Recognizing and addressing these by implementing best practices can significantly enhance your organization’s efficiency and compliance.
When thinking about best practices for contract lifecycle management, it’s worth identifying and addressing the bottlenecks in your current contract management workflow. In some businesses, contracts may become an administrative burden for the person having to manage them, while in others, missed renewals can become costly.
Moreover, if you don’t get timely notifications or updates about the status of each contract, such as when the other party has signed it, it can often lead to delays, potentially causing embarrassment for the company.
That’s why contract management best practices are more than just ticking a box or streamlining operations. It’s ensuring proactive management through features like centralized contract storage, automated notifications and communication, electronic signatures, and insights into contract renewals and expirations.
Here are 6 contract lifecycle management best practices you should follow:
Implement a centralized contract lifecycle management repository, preferably in the cloud or installed on-premise, to store contracts in one central location. It will help you maintain control, ensure legal compliance, and avoid data loss. With this approach you can control who has access to the contracts; you can capture contract data such as dates, duration, and value; and get contract portfolio visibility with customized dashboards. This also makes resolving queries about contracts a breeze.
Successful companies prioritize speed, adaptability, and a customer-centric approach. To achieve these objectives, it is necessary to integrate them into every aspect of business operations. If not, processes will encounter obstacles, delays, or inefficiencies. This is best achieved by combining automation with human expertise e.g. automating contract signatures and sending out daily or weekly reports but leaving the actual contract review, negotiation and drafting to human experts.
When negotiating a contract, versions and amendments are usually redlined in Word or marked up on PDF with additional requests shared via email. What’s important during this process, and especially during negotiations, is to make sure that all parties have access, and are working on, the most recent version of the contract. Working with outdated versions can complicate tracking changes and create potential conflicts. Additionally, it can impede the negotiation process and introduce the risk of errors or misunderstandings in the final agreement. Maintaining a simple but effective process around ensuring documentation is always up to date and current is therefore important for smooth and efficient contract negotiations..
Electronic signatures have emerged as valid ways of signing contracts online and as mentioned above, is one of the key areas where automtion is very helpful. They provide a seamless signing experience and real-time notification when contracts are signed and, overall, just make the contract signing process quicker and easier.
Contracts can present unforeseen risks themselves. This is because they specify numerous obligations that the parties involved must comply with. Contracts that are neglected in the filing cabinet can become potential liabilities for companies and their customers. For instance, they might fail to fulfill the terms or meet the deadlines stipulated in the contract.
Good contract management as part of contract lifecycle management actively follows up on all contracts. This involves checking, for instance, when a contract or a contractual clause expires or needs to be renewed, and when certain steps need to be taken as a result. Regular evaluation of contracts will help you identify opportunities for process optimization, thereby improving organizational performance.
Of course, one of the most holistic solutions to the challenges of contract lifecycle management is to outsource your contracts management and administration function to experts. It will help you improve efficiency, enhance compliance, and reduce risks. Let’s look at this in more detail.
Mastering contract lifecycle management is important for any organization looking to optimize its operations, mitigate risks, and ensure compliance. As highlighted in this article, effective contract lifecycle management involves a comprehensive approach that covers all the contract stages, from creation to completion to archiving.
It also requires implementing best practices to address challenges such as stakeholder alignment, in-house management issues, user adoption, inefficiencies, and compliance concerns. These best practices include, among others, creating a centralized contract repository, leveraging automation for routine admin, and considering outsourcing solutions.
Outsourcing contract management to Sterlington offers a comprehensive solution. It gives you access to experienced legal professionals who specialize in contract management and the convenience of automation to onboard new contracts fast and being kept in the loop every step of the way with automated reports. This approach is not only cost-effective and simplifies contract management but also allows in-house teams to focus on more valuable tasks.
Author: Kate Quince
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