Considering that the majority of revenues for most businesses are tied to contracts with vendors and suppliers, improved contract management might be one of the simplest ways companies can grow revenues. From paper documents that can’t be readily found and referenced resulting in poor compliance to missed deadlines, contract management in the enterprise is typically rife with problems that can erode value.
But contract management is more than a list of tasks – it’s a lifecycle that runs from the earliest stages of planning through execution to after a contract concludes. Before you can begin to improve and optimize contract-related processes, you must first have a thorough understanding of what the full contract lifecycle entails and what critical tasks and actions are associated with each pillar. Only then can you develop and implement contract management processes that will improve compliance, reduce contractual risk and minimize wasted time and resources.
Here are the five pillars of the contract lifecycle.
Pillar 1: Planning and preparation
The planning and preparation phase of contract management refers to the establishment of systems and procedures that will guide your organization’s overall approach to contract management. Effective planning and preparation allows you to take an organized approach to contract management: it ensures that everyone involved in contract management understands their roles and responsibilities; that appropriate procedures have been established to address both standard and exceptional contracts and contract-related scenarios; and that you have the technology and resources in place to support best practices.
Here are the key tasks associated with planning and preparation:
Identify contract management related stakeholders and define key roles and responsibilities
Set up standard workflow for contract-related business practices
Determine standard KPIs to evaluate contract performance
Develop an “early warning system” to determine which contracts or scenarios fall outside of standard procedures and determine an escalation plan for these exceptions
Once you have identified the party with which you seek to enter a contract, you must then come to an agreement that addresses the scope of the work, goods or services that are included, the obligations of each party in delivering contracted goods or services, contract milestones, terms such as incentives and/or penalties and contract termination. Once mutually-agreeable terms have been reached, you must then ensure that the resulting contract appropriately and accurately captures the negotiated terms and conditions. Only once these items have been satisfactorily negotiated and you have confirmed that the contract accurately reflects the results of negotiation, should a contract be signed.
Here are the key tasks associated with contract negotiation:
Determine whether the contract is standard or non-standard
For non-standard agreements, review performance of previous similar agreements to develop a contract that can best meet requirements and deliver expected results
For standard agreements, identify the appropriate contract template
Identify relevant regulatory and other compliance requirements
Identify potential contractual risks and ensure they are reasonably mitigated
Conduct competitive and market research as required
Check contract for errors and consistency
Obtain approval of all stakeholders
Conduct a corporate legal review
Use e-signatures to maintain contract velocity
Pillar 3: Contract period
The contract period refers to the timeframe specified within your contract. During this period, the chief objective is ensuring that all terms, conditions, deliverables, milestones, and objectives outlined within the contract are observed.
Here are the key tasks associated with the contract period:
Store agreement according to your organization’s established contract management procedures and ensure relevant stakeholders are able to access the document as needed
Identify all deliverable dates and other milestones and set automated reminders to ensure these are observed
Apply change control procedures to identify and address modifications that may arise during the contract period
Implement a regular contract monitoring schedule using established KPIs to spot and address problems as early as possible
Pillar 4: Pre-renewal
There are several natural conclusions to a contract. In some cases, agreements may exist on a limited, one-off basis, meaning that once the contracted goods or services have been delivered and the contract completed, there is no need for termination or renewal. But many goods and services are ongoing, meaning that as a contract nears the specified termination conditions, you must decide whether to renew or terminate. The pre-renewal phase refers to the analysis of contract performance that will help inform your decision whether to renew a contract as is, renegotiate its terms, or discontinue your agreement.
Here are the key tasks associated with the pre-renewal period:
Identify termination, renewal or auto-renewal date as well as the amount of time that is required to assess contract performance
Measure contract performance using established KPIs
Re-evaluate market and competitive factors
Review any changes or problems that occurred during the contract period
Ensure that new agreement will continue to meet your needs; renegotiate if required
Pillar 5: Post-contract period
The post-contract period refers to the activities related to concluding and closing out an agreement.
Here are the key tasks associated with the post-contract period:
Ensure termination conditions have been fulfilled as specified within the contract
Ensure all deliverables have been received/delivered; if not, create a report of exclusions
Ensure final invoices have been delivered and paid
Generate final reports as required
Conduct a contract post-mortem to improve the contracting process and value for future agreements
The Buyer's Guide to Contract Management Software
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