Contract management or contract administration is one of the key duties procurement and sourcing teams must attend to. An orderly contract management process can grow business and increase revenue. To get the best value from each supplier contractor, it is imperative to know and understand exactly what is contract management.
Contract Management Defined
What is contract management anyway? Contracts are the backbone upon which an enterprise’s relationship, terms, and conditions with suppliers, partners, and employees are laid out. A contract administration system exists to promote profitable relations.
Every business is looking to keep costs low so operations can be carried out as efficiently as possible. Without effective contract management, it can be difficult to manage expectations across the board.
Why Contract Administration Is Important
There are numerous advantages to be enjoyed with a successful contract administration. Here are just five.
1. Advocates more transparent records management
Contract administration simplifies records management, reduces clerical error, and mitigates the number of lost documents as all contracts are centrally located in the cloud.
2. Standardized contract management across the company
Well-structured contract management software (CMS) provides a template upon which standardized processes can be duplicated across the organization.
3. Promotes better visibility for all parties
Detailed contract administration processes enable greater visibility to be had during contract-related actions. It is easier to manage documents from various vendors.
4. Improves collaboration within teams
Cross-departmental collaboration between sourcing and procurement teams also increases.
5. Encourages productivity within sourcing and procurement teams
Procurement team productivity improves when administrative tasks are simplified with contract management software.
The Contract Management Life Cycle
To avoid contract management issues, contract management is often subdivided into several systematic steps. This is often referred to as contract life cycle management (CLM). This life cycle is designed to eliminate and mitigate legal and financial procurement risks.
Step 1 – Contract Request
When sourcing teams are content with the information received from vendors, they can initiate the contracting process and contract creation begins. This is the first stage in the contract management life cycle.
Step 2 – Contract Negotiation
The draft contract is then reviewed by both parties and clauses revised, terms and conditions spelled out. Procurement software providers like ProcurePort present contract management software that can easily be tailored for a smoother contract management process.
Step 3 – Legal Review
Prior to signing the contract, the supplier and the procurement teams have their respective legal teams review the contract data to make sure that all is in order and all necessary contractual obligations are included. When both legal departments are happy with the contract terms, the next step is signing the document.
Step 4 – Contract Signing
With attorneys having reviewed the contracts, the finalized contract agreements are issued to both procurement teams and vendors for signing. This can typically be done in-person or via electronic signature.
Step 5 – Contract Storage
When the contract has been signed, it must be stored in a repository that’s easy to access. ProcurePort’s contract management software provides vendors and sourcing agents with a centralized portal for indexing contracts. This CMS is streamlined with features that make document retrieval at a later stage easy and hassle-free.
Step 6 – Records Management
There has been an increase in the number of cyberattacks faced by businesses over the years. Ransomware incidents can leave businesses crippled. Hence the need for reliable contract storage complete with backup options.
Step 7 – Stress-free Retrieval
With scores of contracts to review, manage, and re-negotiate throughout the year, it is important for teams to be able to retrieve contracts on an ad hoc basis. This saves time and increases productivity.
Step 8 – Contract Reporting
Contracts are often used when drafting reports. Useful data can be extracted from these documents. In a world where data analytics is getting bigger by the day, in-house teams need to be able to easily access contracts for reporting purposes.
Step 9 – Contract Renewal
The last step of contract management involves routine revision, renewal, and amendments that may happen periodically. Contracts have expiration dates and need to be renegotiated if businesses are to continue working together or canceled accordingly if better vendors are secured.
Get Started with Contract Management Software for Your Business
Sourcing teams now have access to an array of software to help them mitigate organizational spending, improve efficiency and management. ProcurePort proudly provides a suite of e-sourcing solutions that make life easier from RFX templates, contract management software to reverse auction systems. Contact us to discuss customized procurement solutions and contract management solutions for your business processes.