Effective Contract Management

Managing a contract with a supplier or customer becomes easier in practice when you actively manage contracts. Effective contract lifecycle management (CLM) strengthens relationships with suppliers and paves the way for better long-term profitability. Contracts are not just weighty behemoths prepared by lawyers. Instead, they encompass a range of activities, from placing a simple purchase order to giving oral instructions or following customary practices.

 

At its core, the contract process consists of three phases:

  1. Pre-award phase: This phase includes all the preparatory work before awarding a contract, such as considering the purpose of establishing the contract and assessing whether a prospective counterparty can fulfill the agreement’s terms.
  2. Award phase: This phase encompasses all the paperwork required to finalize the agreement.
  3. Post-award phase: This phase involves actively managing and maintaining the contract.

Throughout these phases, five key aspects play a crucial role:

  1. Creation
  2. Collaboration
  3. Signing
  4. Tracking
  5. Renewal

Now, let’s delve into each aspect and explore recommended considerations:

  1. Creation
  • Authoring: Writing a contract by hand consumes time and carries the potential for human errors. However, by leveraging document automation, you can streamline and standardize the process. Modern CLM systems allow for minimizing data entry, resulting in time and cost savings by reducing paper handling, document storage, distribution, and more.
  • Determining the correct structure and format: It is crucial to consider the most appropriate structure, format, and content for the contract. Good contract planning not only formalizes relations between parties within a robust legal framework but also offers an opportunity to define all aspects of the desired outcomes and working relationship.
  • Considering key performance indicators (KPIs): Establishing a few performance indicators that best represent performance and converting them into contractual obligations can reveal the level of commitment a partner has toward service delivery.
  • Choosing the contract duration: When deciding between a short-term or long-term contract, market conditions, the availability of alternative suppliers, ease of switching, leverage, and desired relationship dynamics should be taken into account.
  • Planning for contract termination: While it may seem premature, considering exit strategies is essential during the contract creation process. Even in good relationships, circumstances may change, and parties should know how to exit if necessary.
  1. Collaboration
  • Negotiating the contract: Contract negotiation involves active discussions between interested parties to agree on legally contracted terms. These terms cover legal, operational, and financial elements such as payment amounts and schedules, project outlines, deliverables, and personnel. By utilizing document automation, you can produce a draft contract and collaborate closely with legal personnel and key stakeholders to streamline the negotiation process.
  1. Signing
  • Obtaining contract approval: Obtaining management approval can sometimes cause delays. To mitigate this, CLM managers can create tailored approval workflows that include parallel and serial approvals, ensuring prompt decision-making.
  • Executing the contract: Electronic signatures have become the standard and expedite the contract execution process.
  1. Tracking
  • Managing obligations: Regular supplier reviews maintain focus on the relationship and help keep the supplier’s full attention. These reviews go beyond casual catch-ups and include performance evaluations, compliance assessments, and action planning to address necessary changes or improvements.
  • Handling revisions and amendments: Throughout the contract lifecycle, it may become evident that revisions or additions are required. Having a system in place to handle these amendments is crucial.
  • Auditing and reporting: Contracts should not be forgotten after drafting and filing. Regular contract audits and monitoring are important to ensure compliance, identify possible issues, and manage counterparty performance and risk. Any issues that arise should be addressed and managed through resolution with the supplier, including implementing corrective measures or, if necessary, exiting the contract.
  1. Renewal
  • Avoiding last-minute expiration: To have optimal leverage and options when renegotiating a contract, establish a system to flag contract expirations well in advance, ensuring sufficient time to take appropriate steps.
  • Automating the renewal process: Manual CLM methods can lead to missed renewal opportunities and lost revenue. By automating the process, your business can efficiently identify renewal opportunities and create new contracts.

Mattersmith is a team of experienced commercial contract lawyers equipped with technology, ready to assist you with negotiation and contract management. Their bespoke technology “Contractsmith” streamlines the drafting, review, and management of commercial contracts, saving you time and money. Contact Mattersmith today to discuss how we can help you: Contact us

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