Contract Management Best Practices: Contract Templates

This is the second blog post in a series highlighting contract management best practices. Part one can be read here.

There are obviously distinct phases of the contracting process and each individual phase will inevitably impact the other aspects in some way. The final phase, actually managing contracts once they are executed, constitutes a related yet separate and ongoing facet of the entire contracting process.

There are various steps that companies can take to ensure a seamless handover from the deal negotiation team to the contract management team and simplify the contract management process itself. Perhaps one of the easiest ways to achieve this is by utilizing contract templates, wherever feasible. This is particularly useful for companies engaged in consistent, high volume contracting with similar vendors or clients. In many cases, CLM software will help simplify and speed this stage up considerably.

For example, companies that contract with different suppliers for the provision of related goods or services or companies that contract with clients to license the use of a particular type of technology will benefit immensely by creating contract templates. Here are three ways that using contract templates facilitates the management of executed contracts:

1. Standardize

It is often said that consistency is the key to success. Many successful companies have a consistent vision, message, and culture. Of course, it is also important for companies to have consistent expectations and processes. With respect to contracting, this is about determining what it is a company wants and expects from its contracts and contracting partners, figuring out how best to reduce that to a mutually acceptable written agreement, and consistently managing those contracts to ensure both sides satisfactorily fulfill their obligations.

Once a company has engaged in the contracting process several times, likely with different parties but addressing similar types of contracts, it is easy to standardize the requisite contractual language. Standard contract clauses can be incorporated into a formatted contract template, which can be used and tailored to each arrangement, as appropriate.

Templates are not meant to pigeonhole a company. Rather, they serve as a starting point that often expedites the entire process. And, perhaps more importantly, templates help to simplify contract management itself because contract managers will quickly learn the standard terms contained with a company’s executed contracts, as they will be repeatedly exposed to them. This, in turn, will enable them to better manage the entire contract portfolio.

2. Anticipate

By repeatedly using company-approved standard contracts, contract managers will have a strong sense of what to expect, allowing them to anticipate what they will need to do to effectively manage each contract. Contract management can become unnecessarily complicated if contract managers constantly have to start from the beginning.

For example, if every supply contract allows for a different delivery schedule or timeframe for a progress check, it can be tricky trying to keep a handle on the different moving pieces. However, by incorporating a set schedule or timeframe within a contract template, such as a routine review every ninety-days, contract managers will know before they even read the contract when an important action item will be required.

Obviously, there may be some variation between contracts, but there are many instances in which using standard terms is both possible and advantageous. Using templates with such terms will improve contract management and performance because contract managers and other pertinent personnel will be able to anticipate important milestones and prepare accordingly.

3. Plan

For many businesses, contract management requires the creation and execution of a strategic plan. Failure to understand individual contractual requirements, as well as the contract portfolio as a whole, will often result in a haphazard contract management process. This usually manifests itself as a reactive management style, and it is bound to lead to issues that could have been avoided with a proactive approach.

This undesirable outcome is more likely to occur if a bunch of different contracts are unexpectedly thrown at contract managers. Contracts must be negotiated and drafted with a realistic view of the subsequent contract management process, and keeping in mind the role of the contract manager.

Streamlining the drafting process by using templates establishes expectations in advance and thus allows for sufficient planning ahead of time, which ultimately improves contract management.

Creating and using contract templates may not work in every single contracting situation, but they are often an invaluable resource for companies that frequently enter into similar types of contracts and assist with managing those contracts once they are executed.