You deal with many contracts and feel overwhelmed?
You do not have a proper system in place allowing you to track your contract inventory so you can make strategic decisions and mitigate risk?
You are now searching the web hoping to find some resources or information that can help you with the contract challenges you are facing?
We have great news for you!
You are at the right place and we have just the right article for you going over the seven contract management steps for you to succeed.
To learn about the seven steps to succeed, keep reading…
In this article, we will go over the following seven steps for a successful contract management:
Step 1: Establishing your contractual needs
Step 2: Drafting your contract
Step 3: Negotiating your contract
Step 4: Getting approvals from stakeholders
Step 6: Contract lifecyle and execution
Step 7: Renewals and terminations
Step 1: Establishing your contractual needs
Contract management is a crucial area in any business operation and a proper contract management process will help your company enter into clear business relationships and be successful.
You can read about the fundamentals of contract management to learn more about the topic.
Before signing a contract with a vendor, supplier or a client, the first step is to understand your contractual needs.
Speak to internal stakeholders
As a contract manager, you must therefore ensure you understand your company’s business needs, risks that you want to mitigate and the protections that you care to have.
To establish your contractual needs, you should speak to the different internal stakeholders in your company to get a laundry list of their requirements, the risks they consider that could affect their business operations, the best practices and experience that they can share with you and what they expect from the client or contracting party.
Define your company’s expectations
Having a clear view of what obligations your company can accept and properly defining what your client must do so you can successfully execute your obligations will help you put together a good contractual framework allowing all parties to know what is required and expected of them.
At the end of the day, what you sign in your contract is the obligation that your company will need to respect and so you must remain on top of your contracting process.
Establishing your contractual needs and getting the help of different company stakeholders to help you define your needs will allow you to start your contracting cycle in the right way.
Step 2: Drafting your contract
In the second stage of a successful contract management process, you will draft the contract that suits your needs.
Thus, once you’ve gathered your requirements and understood your company’s offering, the risks you want to mitigate, the protections you need and what’s expected from the other contracting party, you are now in a position to draft your contract.
Take this step seriously
The contract is a crucial business artifact essentially defining the legal regime and parameters applicable to your organization and so this process must not be taken lightly or considered to be a mundane administrative process.
Depending on the industry you operate in and how heavily your company is regulated, your contract drafting may be more or less extensive.
For instance, financial institutions, banks, airlines and defense companies are subjected to more laws and regulations than some other industries.
As a result, a contract manager in these industries will take good care in ensuring that any legally mandated obligation expected of their company is well defined in the contract so that their clients, suppliers, partners or vendors comply with such regulations when dealing with them.
Have your contract templates
In most organisations, to facilitate this process, different contract templates will need to be put together and used.
For instance, you will have a contract template for license deals, one for professional services, one for partnerships and other contracts for other purposes.
The advantage of having contract templates is that the terms and conditions of these contracts are already approved by your business and reflect the needs and wants of your organisation.
For smaller companies dealing with limited types of products, services and offerings, the contract templates may be someone easier to manage provided that the company’s offerings do not change very often.
Make sure the latest template is used
For larger organizations with different lines of product, employing thousands of people selling the products globally, having a proper contract management system to manage your templates will help them streamline the contracts and provide the latest version validated by the business to the sales force.
Larger organizations will have some form of contract management software where they will house their contract templates and keep the templates up-to-date.
If your company leverages your own company contract templates, you can be in a much better position to mitigate risk and avoid introducing unwanted obligations in your contract.
Step 3: Negotiating your contract
In the third stage of contract management, you will be taking care of the negotiations with the other contracting parties.
This can be both a fun and challenging experience.
It can be fun because contract negotiations will require the exercise of many skills and abilities.
Leverage your skills and abilities
You will need to leverage your interpersonal skills, your knowledge of contract laws, creative and legal writing skills and most importantly, making use of the art of negotiations.
When dealing with the other contracting parties, you want to ensure you establish an element of trust.
It is best that you do some research on the other contracting parties or their representatives so that you know how to position your company, products and offerings.
Find creative solutions
Negotiating with individuals in different countries will also require you to be creative and find solutions to potential impasses.
For example, the North American mentality in contracting is very different than the European mentality as are differences in the legal regimes but also cultural differences that could impact your negotiations.
Manage contract versions
What’s important here is that you manage your contract versioning tightly.
What we mean by that is that you will probably have several rounds of redlines with your client and for each round you may need to involve different stakeholders in your organization to propose a workable solution and perhaps even go through several iterations of a proposal.
A successful contract management process will allow you to control both the versions created through your internal negotiations but also ensure that the right contract version goes back out to the other party with the right set of redlines and proposals.
Having a solid contract management software for version control will can simplify your life as opposed to handling this manually that could potentially lead to costly errors.
Step 4: Getting approvals from stakeholders
One area of the contracting cycle that can benefit from streamlining and efficiency is the approval process.
Whether you are working in a multi-national organization, a start-up or an medium sized organization, if you are involved in the contract phases, you may see that the approval process may not be as easy and streamlined as you wish it would be.
Approval process can be chaotic
The contract approval process can be more chaotic for a growing organization than a mature and stable one but nonetheless there are efficiencies that could be found if you took some time to analyse the process a bit further.
Consider when your contracting party makes a proposal in your contract where you have no clear guideline from your organization to accept or reject such a proposal.
Engage with the right stakeholders
What you will normally do is submit the proposal to internal stakeholders in your company to assess whether or not you can accept those terms or if you should do a counter-proposal in order to meet the other party half way.
This may take some time as you will need to analyze and decide which business unit can be affected by the client’s proposal and who should be engaged internally to get an approval.
When the contract approval process is not well defined, the approval process can get tricky as the contract manager may engage the wrong person for an approval or a person without sufficient authority gives an approval.
Implement an approval process
What can be useful to implement is a clear approval process that will clearly call out the process to follow, name the individuals with authority to approval, outline the jurisdiction of each stakeholder and establish the threshold of what they can each approve.
If you have a contract management software streamlining your approval workflow, then you can ensure that the approval process is triggered in a standardized manner and properly tracked.
Step 5: Signing your contract
The next phase in your contract management process is the actual signing of your contract.
All your efforts in drafting a contract, redlining, negotiating with the other party and getting the right approvals is now paying off.
Memorialize your agreement
You have reached the stage where you will now move to signature and memorialize the contractual relationship between your company and your contracting party.
The signing of the contract will mark the beginning of your contractual rights and obligations.
Different companies handle the signing process in different ways.
Electronic signature platforms (e-signature)
More and more organizations are adopting an electronic signature platform helping them expatiate the signature process by submitting the contract to the signing authority electronically and receiving their signatures electronically.
In some jurisdictions however e-signatures are not yet recognized and so the traditional signature approach will continue to apply such as original signature in ink.
Adopting an electronic signature platform can be useful if you are primarily operating in North American countries.
When considering a contract management platform, it would be useful to think about the integration between your contract management platform and the electronic signature platforms so that you can prepare, negotiate and sign your contracts using one single platform.
Once your contract is signed, your contract will then need to move into an execution and management phase.
Step 6: Contract lifecyle and execution
Once you enter into a contractual relationship with a customer, a vendor or partner, you will then need to ensure you respect the terms of your contractual obligations.
Managing your contract lifecycle is therefore an important process.
Client on-boarding
Typically, upon execution of the contract, the sales team will hand over the account to the designated account manager and he or she will on-board the client.
During the on-boarding phase, your organization and your contracting partner will define the rules of engagement and provide details on how to achieve success together.
Contractual events and revisions
During the life of the contract however, you may be faced with many contractual revisions and amendments needed to suit the specific needs of your client or to protect your organization further.
This revision and amendment process must be performed in accordance with the main contractual framework that you have signed with your client.
As a result, each amendment or revision will need to be linked to the parent agreement and the said amendment or revision will be a child agreement.
Keeping track with contractual modifications
Keeping track of these revisions and amendments is crucial.
Imagine having a client for over ten or fifteen years and where you had signed the framework agreement way back when and over the years you had dozens of amendments, revisions, addendum and other contract modifications.
Today, you must be able to quickly identify what are your contractual rights and obligations applicable “now” in your relationship with this client.
With all the amendments and revisions, it’s possible that you’ve repealed some clauses, reworded others and even added new ones, increasing the chances that things are lost along the way.
You must keep track of all of that.
Contract lifecycle management software
The best way to handle that is through a contract lifecycle management system where you can keep track of all these revisions and amendments.
If you make strategic business decisions on the basis of a contractual clause that was repealed or amended many years ago, you will quickly find out that you have made one very costly mistake.
To avoid such “avoidable” errors, there are various lifecycle management platforms that work great and you can leverage for your business.
It would be worth your time looking into them.
Step 7: Renewals and terminations
Finally, you have reached the final phase of your contractual relationship, the renewal or termination.
If you are reaching a renewal stage, this means that you have gone through your entire contract lifecycle and things have gone relatively well.
Contract renewal
Thus, your client is looking to renew your contractual terms.
This can be done relatively easily as in some cases the renewal terms will be nearly identical to the terms and conditions of the contract you have already signed save and except an adjustment for pricing or some economic elements of the contract.
In some cases, if the contract stipulates that upon expiration of the term, the contract will be terminated, then a notice should be sent to your client several months in advance so that you can kick-start the the negotiation process for the renewal.
Keep calendar of events
This is where it is important for you to keep a calendar of different events that must take place at different times during the life of your contract.
For example, if you must give a renewal notice or termination notice to your contracting partner ninety days prior to the expiration of the term, you want to keep a calendar where you will get a reminder two months prior to your required deadline notifying you of your obligation to send this notice.
If you have a complex contract that will require different notices to be issued at different times or upon the occurrence of certain events or milestones, it is therefore inevitable for you to have a solid calendaring system so that you ensure you remain in compliance of your contractual obligations or you do not lose out on any rights due to a failure to give a certain notice.
Contract lifecycle management tools
For your calendaring needs, you can also relay to great software tools designed for this purpose.
You can find a contract lifecycle management software tool that can potentially offer this calendar and event management feature as part of its standard feature set so that you can rely on one single software tool to help you get organized with your contract.
Conclusion
As you can see, contract management is a vast topic that covers different stages in the evolution of a contract.
Contract management starts from understanding your business and translating your business needs into a contract in legal terms that will help protect your organization and ensure you are successful.
Then you must make sure that your sales force and front-end teams use the right contractual template incorporating the latest revisions and updates to the contract so that you are fully protected.
Once you enter into a contractual negotiation with a client, you must cater to the needs of your client as you protect the interests of your organization therefore achieving a win-win result for both.
You can expedite the signature process by leveraging online electronic signature tools and integrating that into your contract management workflow.
Then you must manage your contract in the course of the execution of your obligations requiring vigilance by your contract manager and proper monitoring of the contracts so that you know at any point in time what obligations you truly have towards your client and what must be included in an addendum, amendment or a revision to the contract.
Finally, you must ensure that your contract is properly managed upon termination so that you can move to the obligations that you may have post-termination, such as data retention and archiving for example.
Contract management is fascinating and requires a lot of organization, but if done right, you can reap the benefits of having a streamlined approach to your contracting process and a much greater level of satisfaction by the stakeholders involved in the contracting process.
Ensuring that your contracting process is clear, streamlined and repeatable will be what you must constantly strive to achieve.
You can achieve a lot of success by automating your contract management process to ensure you minimize human errors and you introduce a standard and repeatable process that will apply the same way every time.
Saving time and accelerating the speed at which you start and finish your contracting cycle will be highly beneficial for your business.
We invite you to do your research online and locate the software tools and products that can work for you so that you can be more successful in the contract management area of your business.
We hope that this article was useful to you and invite you to read our related articles on contract management.
