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Contracts are considered a legally binding link between a company and the customer, seller, business partner and employee. Especially today, the efficient administration of contracts is becoming increasingly important: Inefficient contract management not only leads to frustration and dissatisfaction within a company, but also to significant losses of time and lost income.
What is contract management?
Contract management comprises the complete process of creating, revising, implementing and managing contracts within a company. A well-thought-out system for managing the contract life cycle plays an essential role in a company's operations today.
Effective contract management covers many different tasks within the contract life cycle and tries to make them as fluid and resource-efficient as possible. This not only creates seamless processes within the individual phases of contract drafting, but also significant risk reductions.
A modern contract management system Nowadays, it is not only characterized by the filing and management of contract documents. With the help of artificial intelligence, existing contracts and their historical trajectories can be analyzed and evaluated. This provides valuable information based on the effectiveness of individual contract conditions in order to finally adapt and improve them.
The tasks of contract management
1. Preparation of draft contracts
The preparation of draft contracts is one of the first and most important main tasks of contract management, as they serve as a basis for negotiations between the contracting parties. A well-structured draft contract defines the terms and conditions that are to be discussed and negotiated and helps to protect the interests of both parties. In addition, a solid draft helps to avoid potential misunderstandings and legal disputes by setting out clear rules and obligations.
The first draft of a contract document includes all relevant and necessary legal components, such as the details of both parties to the contract and the required subject matter of the contract. This is based on the key parameters that each contracting party requires from the contract negotiation.
Writing a contract document can often be a very time-consuming and repetitive task. Nowadays, automated systems facilitate this process by incorporating common components as a template for later draft contracts be saved and used.
This allows the manual process of drafting contracts to be automated without errors and in a legally secure manner through the use of ready-made clauses. The result is seamless contract drafting and thus significant time savings over the entire design process.
2. Review of drafts and conduct of contract negotiations
In the next steps of drafting the contract, the draft will now be approved, checked and revised internally. At the same time, the draft contract will also be forwarded externally to the mutual contracting party and adjusted accordingly after negotiations.
With effective contract management, this process should run as smoothly as possible. In practice, however, this proves to be one of the biggest bottlenecks. Draft contracts are usually forwarded both internally and externally by e-mail. Because until two parties have agreed on the necessary rewording and contract adjustments, dozens of Word attachments often have to be packaged in emails and sent back and forth, which not only quickly becomes tedious for both sides, but also costs an unnecessary amount of time and resources.
CLM can use software to avoid difficult e-mail traffic. This replaces the tiring Email Ping Pong with direct collaborations on the same contract document, which is provided centrally and securely in the cloud.
3. Monitoring of contract deadlines
Another task of contract administration is to provide a structured overview of all contract documents and their included deadlines and dates. This part of the process is particularly crucial, as an unmanageable overview can quickly result in important deadlines being missed by mistake or being recognized too late.
To avoid these risks, the usual use of Excel lists be dispensed with. Instead, you could use tools such as an online calendar, which records entered deadlines and appointments separately and sends out appropriate notifications when deadlines are pending.
However, the integration of external software also entails additional disadvantages. Due to the limited functions of a calendar, registered deadlines cannot be filtered and structured. This also means that there is no necessary overview when the deadlines for a specific contract have to be looked up in particular.
The best option is still a contract management system that already integrates automatic notifications about deadlines and appointments. This means that users do not also have to switch back and forth between two applications to obtain the necessary information.
4. Archiving contract documents
Many companies still rely on the manual archiving and organization of contract documents. The process usually consists of constant e-mail traffic, confusing bundles of files and scanned documents scattered across different storage locations.
This repetitive process not only costs a great deal of time, but also leaves considerable scope for structural errors and security gaps.
Inefficient contract archiving can also lead to significant complications and difficulties in the long term. Once you have a large number of archived documents, you often quickly lose track of active contractual relationships, outstanding claims and liabilities, and contracts that are still incomplete. In addition, there is no option to efficiently retrieve digitized contracts and to track their contract versions.
Effective contract management should keep an eye on all these possible problems with foresight and avoid them even arising in the first place with the help of a structured system. Here too, using CLM software can significantly facilitate the entire contract cycle. Most contract management systems should be able to handle contract documents to archive in a structured way, and make them available to authorized persons in a transparent and accessible manner.
5. Evaluation and Reporting
Contract management does not end with the conclusion of a contract. A comprehensive contract management process also includes continuous Analysis and evaluation of contracts over a longer period of time in order to gain usable insights, to make work processes more efficient, and to identify potential risks at an early stage.
First, the purpose of evaluating contracts is to ensure that all parties fully understand the terms of the contract and that the contract is legally binding and enforceable. This also includes verifying whether the contract meets the applicable legal requirements and whether it is fair and balanced.
Secondly, evaluating contracts makes it possible to identify potential risks and opportunities associated with the contract. This can help identify and correct weaknesses in the contract to avoid unexpected problems. In addition, evaluating contracts can help improve business relationships by promoting clear and transparent communication between parties.
Third, reporting on contracts can help to monitor the performance of the parties under the contract and ensure that all obligations are met. This also includes monitoring contract deadlines and conditions as well as managing contract changes and extensions.
Nowadays, this can also be done using a contract platform supported by artificial intelligence (AI). Here, the entire contract portfolio is analyzed according to definable parameters and evaluated over a defined period of time. This provides important insights into the development of contract effectiveness, which serve as a direct basis for advice and suggestions for improvement.
