Was ist Vertragsmanagement?
Managing contracts effectively and efficiently is central to the very existence of the legal department. And those contracts (and the relationships they secure) are central to the existence of the company the legal department serves, of course.
When it’s done poorly, contract management can cause your company to miss deals because it can’t move quickly enough, lag behind competitors, and struggle to onboard much-needed vendors.
Effective contract management, on the other hand, can cut through red tape, protect revenue, respond quickly to opportunities, and drive the legal department forward at the modern speed of business – which is to say, faster every day.
So just what ist Contract Management?
Simply put, contract management is the management of contracts from vendors, partners, clients and any other partnerships throughout their lifecycle.
Done well, contract management can drive efficiency, value and cost savings from Legal. Done deficiently, it can leave your company exposed to risk, lagging behind your industry peers, and wasting hours of valuable and expensive attorney time.
Just some of the benefits you can realize when you have an effective method for contract management in place?
Your company can:
- Undergo acquisitions and mergers more rapidly
- Onboard new vendors and technology more efficiently
- Drive significant cost savings and value from Legal
"Effective contract management can ultimately create a powerful business relationship and pave the road to greater profitability over the long-term, but only when managed correctly,” Business News Daily writes.
Today, the contract management process faces many challenges:
- Done poorly, it’s a lengthy and bogged-down process
- Lack of standardized processes and templates
- Lack of clarity into who to consult and who has the authority to sign off
- Lack of reporting capabilities and insights for improving contract management
- Inefficient, manual processes leave companies open to risk
“Contracts affect business profitability in a very large way due to the emphasis on revenue and expenses. When a contract is phrased poorly, one organization might lose countless thousands of dollars over a simple technicality they lacked the resources to identify,” Business News Daily says.
That’s why it’s so important to manage contracts well, throughout their lifecycles.
How Contract Management technology helps
Contract management ensures that your requests get to the right person, and go through the right channels, every time.
How can the right technology help solve today’s challenges surrounding contracts?
- By cutting the time it takes to execute contracts
- By standardizing processes and automatically enforces compliance
- By providing a central hub for all things contract-related
- By assigning tasks, sending automated email reminders of milestones and renewal dates, and tracking contract completion
- By creating dynamic, repeatable templates and maintains version control
- By delivering a consistent process for outsourcing to outside counsel
Having the right professionals in place to manage contracts often isn’t enough. These employees need the right processes and software in place to satisfy the increasing needs of compliance and analytics.
A contract management solution should empower Legal to clearly define and assign approvers for contracts up front and follow the contract management lifecycle to automatically enforce best practices. After all, when Legal can drive faster contract execution, the business can drive faster success.
What does effective Contract Management look like?
Effective contract management starts with the contract management lifecycle…
Broadly speaking, this lifecycle includes three phases:
Let’s break those down a bit more.
Phase One: Creation
The creation phase involves four steps needed to establish the initial contract, including:
- Policies and procedures
Policies and Procedures
The first step in this phase of the contract management lifecycle is about establishing the policies, procedures, and processes that ought to be in place prior to working on contracts. After all, without them, contract management too often becomes a chaotic mess.
“When you don’t have a roadmap in place that covers what you’re going to do…it becomes very difficult to herd the cats if you will, and the inconsistency creates a larger business problem,” Brian McGovern – former Legal Chief Data Officer, now Mitratech Executive Director – says.
Here are just a few questions companies should make sure they’re able to answer before moving any further into the contract management lifecycle:
- Who should work on which contracts?
- What stakeholders outside of the legal department need to be involved?
- Are there different processes for different values of contracts?
- Who should be responsible for ensuring that risk associated with different contracts is recognized and mitigated?
Ultimately, legal teams need to map out the entire contract management and approvals process before attempting to manage contracts with technology.
Let’s look at one example of how this played out in the real world.
Mapping a more efficient process
One consumer products company faced several challenges prior to moving to a contract management solution. They realized without a set of contract standards and basic guidelines, their contracts were inconsistent, and nobody knew where to start with the process of managing contracts. This not only created confusion, it left their company exposed to risk.
How did they resolve this issue?
The company implemented a clearly defined contract policy with corresponding procedures, and developed a process map. This enabled them to continuously improve their process efficiency and train key stakeholders in the rechts way to manage contracts.
The result? With the help of a solid process map, clear procedures and the right technology, their team transformed their contract management process from manual and messy to automated and efficient. Their team now clearly understood the best practices and commercial principles behind their contract management. They were now ready for the next step in the contract management lifecycle – handling requests for contracts.
Without the right system in place, requests for contracts could easily be sent to the wrong person, get overlooked, or lack required information. A contract management system rooted in best practices should automatically ensure that contract requests route to the right individuals, contain the right information for processing each request, and that external requests can be handled securely.
Here’s an example to illustrate the point.
The problem? Legal, security and IT inside a software platform provider needed a better way to manage contracts associated with new software requests and have visibility (and the right people) for every step of the process. The company needed a way for other departments to securely and efficiently submit the contract requests simultaneously in order to increase efficiency and streamline risk.
Automating these requests via workflow automation and opening them within the contract management system allowed the company to close the gap and reduce the manual errors in this process that could leave our company exposed to risk. This combination created the perfect environment for the Legal department to not only manage risk, but to drive innovation, efficiency and digital transformation of various other processes, as well.
If you deal with contracts on a regular basis using manual processes (think email and spreadsheets), chances are you spend a lot of time trying to follow up on where a contract stands in the lifecycle process.
You probably spend the bulk of it:
- Emailing the approvers to make sure they review and sign off on each iteration of the contract draft, or the final contract
- Emailing, calling, or having meetings to track down and understand missing information required for contracts and approvals
- Responding to inquiries from requestors about where their contract stands
- Manually tracking responses, approvals, notes, and so on via disparate spreadsheets
This is just the start; you’re likely conducting a dozen (at least!) other manual tasks you have to repeat each time a new contract comes in the door. These issues are magnified for global companies, where process participants around the world need real-time visibility into a contract’s status, and can’t be waiting on emails.
Not only are these manual tasks time-consuming and inefficient, but trying to track everything manually can leave your company exposed to risk.
“If we didn’t catch certain things in time, there’s no telling what the ramifications could be,” Chandler Bingham, Paralegal at Mitratech, says.
Imagine the risks involved if your company missed the fact that a contract didn’t include certain security protocols, failed to follow certain regulatory standards, or that the value of the contract to a vendor exceeded the department’s budget for that contract. The business consequences of such oversight could prove ruinous, or at least costly.
Ultimately, contract management should help close this vulnerability to risk by automating manual processes, notifications and tracking, and reducing the potential for human error along the way.
The last step in the creation phase of contract management is to author the actual contract.
When this step is done inefficiently, without the use of clearly defined templates and standardized clauses, it’s easy to overlook possible risks and not have the right clauses you need in a contract.
Providing pre-approved templates and clauses gives everyone a common starting point for contracts, increasing efficiency while decreasing the amount of variance in the final contracts. The reduction in variance makes it far easier to apply the policies that the company wants to follow both around contract language that is critical to the company, as well as future decisions around exceptions and renewals. The benefits of consistency make standardization a key step in the overall contracts management process.
The most efficient and effective way to ensure the right person authors the right contract? To map out and standardize the process, based on pre-set parameters such as contact type, geographic region, contract value and exposure.
Phase Two: Execution
The execution phase is just like it sounds – doing whatever each party needs to do to fully execute a contract. There are three steps in this phase:
The first step of the execution phase is the negotiation that’s involved in contracts. Whatever the scenario, this phase is critical. It provides a chance for each party to ensure agreements are drafted that are favorable to their respective interests and aligned with their goals.
Handled manually, critical information can easily slip through the cracks during negotiation. Maintaining version control that creates an audit trail of contract changes due to negotiation is the key. Requestors can forget or not realize they need to include certain details for review by Legal. Legal, swamped by other requests, could easily overlook an email containing pertinent information. Even worse, an important change could be left out of a final contract if different versions are floating around the department.
Oversights like these slow down the approval process, or result in important information being missing from the final contract. It can also increase the manual labor needed to track down necessary information.
The best way to manage the negotiation phase of a contract? Here are a few tips:
- Store data and contract information in a single, secure system.
- Restrict access only to the users and approvers who need to see it. That way, negotiations can be handled securely and efficiently.
- Use standardized templates that require preset information from requestors,
- Automatically route approvals based on the terms of the negotiation and value of a contract (or any other preset requirements).
- Leverage automated notifications that alert anyone negotiating contracts about any requested changes or addendums.
While setting up a process this thorough manually would be a huge headache, a good contract management and workflow automation solutions should automate this process so it’s both error-free and quick in actual execution.
Without automation and notifications, this next step can become extremely confused. Uncertainty around who should approve die contract, and die stakeholders need to review it, creates an unwelcome level of risk. And waiting for certain people to review a contract can literally add months to the process.
Many companies have different approvers, based on the value of a contract. For example, a contract worth under $25,000 could go to one person, while a contract worth over $75,000 could route to another approver, or two, or three. If not more.
Sure, you can send these manually via email. Or you could implement a solution that automates contract approval routing based on their value. The system recognizes the dollar value of a contract, as well as other parameters you set up, and routes it accordingly. Moreover, it should automate the notification and reminder process, so approvers are prompted to take action in a timely manner and not create delays or bottlenecks.
A contract management solution should empower you to clearly define and assign approvers for different contracts up front. It should also allow for parallel approvals, if permissible, removing the holdups involved in a linear approval process. This creates a standardized and streamlined workflow for getting contracts done much more quickly allowing for quicker revenue recognition and predictable results.
In theory, execution is pretty basic. You’ve done all the work, now it’s time to get that document signed and make it official.
This is also the step where integrating with an e-signature solution can speed up the process significantly. Signatories should be able to securely access contracts and sign them no matter where they are (even from mobile devices), making the process as efficient and compliant as possible.
If you want to keep this part of the lifecycle streamlined and headache-free, automation and an effective contract management software solution is key. You shouldn’t have to constantly send email reminders to parties who have yet to sign; as we’ve mentioned,reminders should all be automated. That way, Legal can focus on more meaningful work, and leave these manual tasks behind.
Phase Three: Administration
Administration simply means the maintenance of a contract from the time of execution to the time the contract ultimately expires. This phase is concerned with staying abreast of the terms of contracts, monitoring renewal terms and dates, and ensuring that whoever needs access to them has the pertinent information.
The three elements of this phase include:
- Auditing and Reporting
- Monitoring and Renewals
The key here? Making the contract accessible to anyone who needs to see it and understand its terms.
This is where housing contracts in a centralized repository is essential. Everyone should know where to go to retrieve and review a contract, because there’s a single common online “file room.” Where all departments or individuals impacted by a contract can quickly and easily access it and get a grasp of the terms, conditions and key dates involved.
Getting the contracts in one place can be a substantial effort. Frequently in growing organizations contracts reside in multiple systems and departments outside of Legal, but the benefits of tracking and linking them to a single source of information is well worth the project as the agility of the company is increased.
Since every person doesn’t need to see every contract, the legal department should be able to set permissions, thereby restricting access to certain contracts only to authorized individuals.
Auditing and Reporting
Next comes the auditing and reporting step, important for driving business decisions and value from legal activities and operations.
In the case of one skincare enterprise, they created a set of reports to help gain an overall understanding of their contracts, and of their performance in handling them.
What kind of reports did they find most helpful?
- Contract lifecycle progress reports
- Monthly new effective contract reports
- Quarterly reports to sponsors of active contracts
- Annual contractual obligation report
- Quarterly material contract reports
Running these reports manually means hours, if not days, spent in spreadsheets, working with business or data analysts, calling in specialists, and so forth. A more advanced contract management tool would be able to create and automate these reports in digital dashboards, offering you nearly real-time visibility. That way, you can drive actionable insights that help you extract increased value from your contract management process.
What opportunities did real-time reporting, via online dashboards, open up for this consumer products company? Their Legal department was empowered to continually improve their performance, fine-tune efficiencies, save money on previously time-intensive and costly processes, and better meet their obligations to the rest of the company.
Monitoring and Renewals
Finally, we reach the monitoring and renewals step of the contract management lifecycle. It can prove to be both a finish line and a beginning of a deeper exploration of contract management. With an automated system in place, companies can easily understand (through notifications) when they need to review and renew (or possibly cancel) an existing contract. That’s when the lifecycle we’ve outlined may kick off all over again.
Possibly the best part of automating this step? Companies minimize the risk associated with missing key contract milestones and renewals. Meaning they stay on top of their contractual situation, and avoid wasting money by not cancelling unwanted or unneeded contracts before they auto-renew.
The two paths of Contract Management
In today’s corporate legal landscape, there are two basic options in dealing with contract management lifecycle. The first is a “traditional” but, time-consuming, manual-labor involved approach that’s quite frankly ineffective, especially in light of how the business world has accelerated over the past decade. It’s an option that entails reams of paperwork, machine-gunning emails, expending sizable chunks of time on outmoded manual workflows, and lagging behind more agile competitors.
The other approach? The more streamlined and profitable solution to contract management involves moving into the future by adopting a modern technology solution capable of automating and enhancing the entire process. That saves time, accelerates revenue recognition, reduces errors, and spares you the not-inconsiderable frustration of trying to do everything manually.
Such a system should be able to integrate seamlessly with your matter management and e-billing solutions so you have complete visibility into all things legal and can grow your legal operations to meet growing demand. This kind of governance and control empowers you to scale up your legal operations at the same time you scale up your business, and to extract maximum efficiency and ROI from a function that’s at the very core of your corporate success.