Estimated reading time: 5 minutes
• Contracts are legally binding documents. As such, the process that governs their creation, execution, and reviewal – i.e. contract management is an integral function of any organization.
• An efficient contract management process can mitigate contract administration costs by 40%, facilitate contract renewals with better terms and conditions, and improve relations with your vendors.
However, in order to help you improve your existing contract management operation, a thorough understanding of the process of contract management is needed. So, without wasting too much time, let’s get to it.
What is the Process of Contract Management?
The contract management process (CMP) denotes an activity governing the affairs of contracts and agreements that buyers enter into with vendors and other third parties.
Contract management encompasses all the procedures and operations involving the authoring, reviewing, signing, executing, and renewing of contracts.
These contracts include procurement contracts, arrangements dictating legal issues, non-disclosures, leasing, licensing, and employment agreements.
Here’s a quick illustration highlighting the stages making up the contract management process:
The 8 Stages Comprising the Contract Management Process
Now, let’s examine each of these in greater depth.
Stage 1 – Contract Request
The contract request stage sets the ball rolling for the entire contract management process. During this initial period, stakeholders on both sides express their aspirations for the contract. They lay down the conditions they wish to see fulfilled in the contracts.
For a buyer, this is the best time to secure discounted favorable terms. Whatever is agreed upon at this stage is what sets the tone for the rest of the process. So, it’s worth taking this first step right.
Stage 2 – Contract Authoring
Once issues have been hammered out during the contract requesting stage, we proceed into the contract authoring stage.
This contract authoring phase involves drafting the first contract. Representatives from both sides lay down in black and white the terms and conditions that will govern the contract including key elements such as delivery dates, contract timelines, expiry penalties, and various clauses.
It’s important to ensure that the services or goods being contracted are clearly defined, leaving no room for an argument if any misunderstandings should occur down the road.
Stage 3 – Contract Negotiation
The next stage is contract negotiation. Discussions are carried out at this stage and clauses in the drafted contract are contested and thrashed out until the interested parties have an agreement that they are both satisfied with.
Stage 4 – Contract Approval
Prior to contracts being signed, they will undergo a round of reviews by both parties. Several people may be involved in the back and forth including legal teams. The review process is governed by a strict timeline to ensure a quick turnaround.
With concerns noted down and the contract amended, a final contract review is undertaken. Alongside this concluding perusal, parameters are established to guarantee contract compliance, fulfillment of milestones, important obligations, and due dates.
Stage 5 – Contract Signature
When the green light has been given by both parties, the contract may be signed. Typically a senior executive from each side bears this responsibility. Once the contract has been signed it becomes a legally binding document enforceable in a court of law should one side default on their part.
Thanks to contract management solutions, even the signing of contracts can be digitalized. This means whether the person with signing authority is working remotely or in the office, contracts can be signed in a stress-free manner.
Stage 6 – Contract Obligation
With the contract now in full effect, each side takes charge of its responsibility in order to fulfill and honor it. With contract management software it’s easier to track milestones, delivery/due dates/view payment times, and various other deliverables.
With so many contracts to oversee, contract managers benefit greatly by having a digitized contract management solution that can help cut down on time spent on administrative tasks. Such a system is also beneficial for the following stage too.
Stage 7 – Contract Compliance
Many contracts are bound by timelines and feature penalties as punishment for failing to meet due dates. This can result in costly late fees and sometimes even legal fees.
In order to ensure total contract compliance, teams must realize their need for a reliable and robust contract management solution such as that provided by procurement software specialists ProcurePort.
Stage 8 – Contract Renewal
The culminating stage in the contract management process regards contract renewals. This is a stage that can of course be overlooked if the contract was a one-time affair.
However, should a buyer be interested in developing a long-term mutually beneficial relationship with a vendor or third party, then this step is paramount.
Contract renewal allows both parties to renegotiate their terms and conditions and discuss further price discounts in exchange for doing business on a long-term basis.
Get Started with the Right Contract Management Software
If you’re looking for ways to streamline and improve your contract management process, adopting contract management software should be high on your list.
Why is this? Research shows that contract management solutions can result in a 70% improvement in contract lifecycle times, 55% contract compliance improvement, and 56% contract renewal annually.
ProcurePort provides some of the leading contract management software on the market. We’re trusted by enterprises and organizations such as UNOPS, HUD.GOV, and conEdison.