As per a recent article by PwC India – Contractual commitments translate into millions of dollars that rely on manual methods for contract management. Such an option is no longer viable in current age, as they expose any entity to legal and financial risks.
With so much riding on these crucial agreements, any gap in the contract management process can be a costly one. Mismanaged documents reduce efficiencies and increase risks which can impact businesses bottom line. Price Waterhouse Coopers has further suggested that companies could realize savings that equate to 2% of total annual costs by eliminating inaccuracies and non-compliance through contract automation.
However, organizations need first to streamline their internal practices and discover challenges that can assist them evaluate the requirements of a Contract Management system. Here are four common problems that can arise during the contract management process, along with some suggestions on how to fix them.
Problem 1: Stakeholders are not engaged throughout the Life-cycle of a Contract (Pre & Post Execution)
Effective contract management requires collaboration between all the stakeholders, including people who will be using said contracts, business approver’s and the legal team. Done right, this collaboration results in contracts that effectively represent the organisations needs but that also leverage the deep contract-related expertise that lies within the contract management team.
Two key challenges that often stand in the way of this effective collaboration are communication and visibility. Most of the communication & document sharing is done via emails without proper visibility and tracking into the draft versions. When you consider that only one-quarter of organisations have a centralised automated contract management solution, it’s easy to see why these problems occur. Without consolidated storage – either online or offline – tracking comments, revisions, and changes can be difficult and time-consuming.
Additionally, not employing a centralised & secure contract repository leads to the problem of contracts not being always accessible to everyone who needs them.
These challenges can be addressed with a centralised contract management software that not only tracks and stores the email communication on contracts but also sets up notifications around key dates such as deliveries and renewals, and enabling access to contracts for relevant stakeholders. The right contract management solution will also provide access to important information your team may need throughout the contract life-cycle, from pre-contracting through execution.
Problem 2: People are not using the right or updated Contracts
Legal teams ensure that standard contract templates are continuously updated over time. Laws and jurisdictions may change, and unfavorable terms may be dropped or amended. This processes means that your organization likely drafts numerous versions of the same types of agreement over the years. If employees are entering into agreements using outdated versions of contracts, then not only is your business not benefitting from the work that has gone into creating better-performing agreements, but they are also introducing risks.
While it would be inefficient, and even unnecessary, to communicate each and every change in standard contracts to employees, it’s essential to ensure that the right versions are being utilized. One way to manage this challenge is to set up an online contract template repository which is easily accessible. In that repository, your team will be able to find clearly-marked versions of the most up-to-date versions of standard contract types. Another method is to ensure that your Contract management system provides a “Contract Request” portal that not only provides standard templates to users. Contract Management systems also provide provisions to add Key Contract term details that are auto inserted into the Word templates that not only ensures the speeding up the contract creation and ratification process, but also facilitates a Contract Approval process, based on Contract terms thus gathering all draft reviews and approvals, before the Contract actually is received by the Legal team.
Problem 3: Business Users are not aware of the Contract Status
As soon as a Contract request is made, business users constantly pursue Legal teams for closure of their contracts. While there are lots of reasons agreements get delayed, it is difficult to provide clear visibility to business teams on their contract status via emails & offline communication. Delays are also often attributed to the process of updating the contract draft, step-by-step with all changes & recommendations made by different collaborators during the drafting & review process.
Even when the drafts are finalized, signature delays occur because of manual work involved – signature, printing, retrieval etc. meaning that the document can languish on someone’s desk unsigned.
When the ratification process stalls, it can delay the anticipated deliveries and benefits of the said agreement. Wait too long, and the contract may never get signed at all. That’s why it’s critical to streamline and simplify the signature drafting & signature process.
A right contract management system can help provide real-time status updates on Contracts to the business teams that allows them to pursue the right channel for getting their request completed on time. Additionally, a Contract Management system should be smart enough to combine all the changes made by various stakeholders at different approval stages, thereby reducing the efforts for Legal teams. Escalations matrices can also be included to alert reviewers on the Contracts that are sitting on their desk for too long. Digital signature integrations can also be made to eliminate ink signing on large agreements.
Problem 4: SLA’s & Contractual Obligation management
As mentioned above, a key challenge inherent to corporate contracts is multiple stakeholders. Deal teams, management teams, and contract managers are all involved in the entire contract management portfolio. Some are engaged before an agreement is signed, some are brought in after. But all too often there is no clear path to transitioning from pre-contracting drafting and negotiation to post-award execution and monitoring.
Having a handover plan is crucial to ensuring that contracts fulfill their intended functions. While non-standard agreements may require several in-person meetings between parties to determine what the required SLA’s and Obligations are and who would update on them, the process may be more standard for frequently-used contract types.
A Contract Management system should not only facilitate the Contract drafting and approval process but should also provide visibility into the contract deliverable’s and Vendor Risk profiling based on Contractual compliance’s, for better negotiations during renewals and profiling high risk vendors.