Estimated reading time: 5 minutes
• Contract management or contract management process cycle is the process of handling and carrying out obligations set out in agreements with third parties.
• As a procurement manager, contract management is at the heart of everything you do. At any point, you will be drafting new contracts, scrutinizing proposals, overseeing approvals, following up on vendor performance, renewing expiring contracts and so much more.
• The scope and complexity of contract management vary with industry and company size. Still, it’s important to have standardized tools and procedures in your company. You can customize the following 7 steps to help streamline contract management in your organization.
Planning
The planning stage involves thinking through your contract management process in advance. For instance, how many contracts are you, as a manager, expected to oversee simultaneously? If your company is regularly creating and renewing contracts with multiple suppliers, preparing templates can help standardize the process while saving valuable time. In addition, planning also involves establishing key terms and standard agreements that the company will reuse in its contracts with vendors. The planning stage also involves the assignment of responsibilities for all contract management work.
Your company should list problems it has faced in contract management in the past or those it thinks may spring up in the future. If staffing problems have arisen, then the company should bring in on board the right talent. A lack of visibility into contracts could be eased using proper software that allows for data collection and analysis.
Authoring of Contract Documents
Once the preparatory work is done, the company can then move on to drafting current contracts. The preparation of a contract is often a collaborative effort among people from different departments. The use of contract management software with a module for drafting contracts eases the process. It allows the use of pre-made templates while also enabling people to collaborate on the same document. Besides easing the sharing process, such software also has version management capabilities, allowing the team to go back to previous versions of the contract and track changes.
Approvals
Each contract needs to go through an internal approvals process to ensure that it is in line with internal procurement regulations or that it doesn’t contravene any statutory laws. Again, the use of software to automate the approval workflow saves a lot of time. Contracts get routed to the right person, who receives an alert immediately. The reliance of software to manage approvals creates an audit trail, which minimizes the risk of maverick spending.
Today, some companies are deploying AI-based risk management tools to scan documents and provide a risk score. This makes the process of contract approval more objective while highlighting risky clauses in bulky contracts.
Reviews and Renegotiation
It is likely that internal parties may not agree on certain clauses in the contract, thus delaying approvals. It’s important during planning to allow some time for negotiations. In other cases, the other party to the contract may also have concerns. The process of redlining before finding an agreement may take days or weeks. Again, managing the process digitally allows both parties to track changes and finally settle on an agreeable version of the contract. Protecting your company’s interests even before the signing of the contract is a part of contract management.
The Signing of the Contract
The signing of the contract is a formality because of all the prior work done. E-signature tools allow parties in different parts of the globe to enter into enforceable contracts. They have contributed greatly to the acceleration of the pace of business today.
Obligation Management and Performance
Once the contract comes into force, your business has to have the technical expertise to check whether the vendor is performing as required. If they’ve been tasked to custom-produce an item, you have to perform quality checks. You might also want to check for adherence to ESG regulations so that they do not put your own brand at risk. This is a common concern when working with offshore companies. There needs to be a methodology to guide the collection of performance data.
There may arise situations that result in a need to adjust contract terms. A rapid change in input prices or the emergence of a new technology or production method may necessitate renegotiations. In other cases, it may be that the vendor is not performing as the contract stipulates.
Audits and Renewals
Effective contract management process cycle requires that your company sets up alerts for contracts about expiring. This will help you start the contract renewal conversation early enough with the vendors. Renewal or selection of a new vendor heavily depends on assessing the current vendors’ performance. Starting the renewal conversation too late might lead to a missed business opportunity. If you are the vendor, you should be able to prepare your own performance report that could play a role in helping earn a contract renewal or extension.
The Use of Automation Tools in Contract Management
The use of automation tools dramatically improves the efficiency of contract management functions. It massively improves visibility into contracts which can help reduce your costs. With reminders, you are also less likely to miss deadlines or fail to meet obligations to third parties. Notifications regarding upcoming deadlines are also a great way to begin conversations that help smooth out revenue throughout the year.
If your company is seeking a contract management process cycle solution, check out ProcurePort’s e-procurement solutions. We have customizable tools to help streamline your procurement and contract management process. Reach out to us today for a free consultation.
