ECM Briefs

For years, companies viewed contract management as cost-based activities that had to be controlled at a high level. But issues like legal discovery, changes in the regulatory climate, corporate and auditing scandals, and mandates and standards enforcement have made executives rethink the whole process, giving credence to the notion that contracts are both an asset—and a potential liability.

To help you recognize the importance of effective contract lifecycle management (CLM), we’ve compiled five components we think are pretty vital when thinking about your internal strategy:

1. Automated Contract Creation: For a truly flexible system that cuts costs at every stage of the contract lifecycle, a contract management system needs to allow trusted end users to create contracts and legal documentation within pre-planned and pre-approved parameters. This allows resource constrained groups, such as legal and procurement, to focus on the creation of approved contract templates and best practices.

2. Secure Contract Negotiation: Contract negotiations between external parties often occur through email, creating countless problems for contract negotiators. For example, sending an email to five recipients will generate five separate copies of the contract. If the five recipients make comments or amendments to the contract, it could result in multiple versions of the document in circulation. This not only creates significant work (and headaches!) for the contract manager, it can also lead to a loss of control over what may be sensitive commercial information.

A proper CLM strategy needs to include secure collaboration workspaces for contract negotiations to take place with external parties.These workspaces allow the contract manager to place a single copy of the contract into a virtual repository for access and review by any trusted third-party. New versions and changes to the content of the contract can be tracked and managed within the negotiation workspace, while threaded discussions relating to the contract, along with tasks and meeting schedules, can also be managed. Once the contract has reached a consensus, workflow technologies move it through its final internal approval.

3. Electronic Contract Repository: Your CLM strategy should include the implementation of a central electronic repository to store contracts and agreements. Paper filing cabinets or shared folders on a company network are not efficient methods for storing sensitive information like contracts. This repository will help you comply with corporate governance legislation, and ensure that authorized staff can instantly retrieve the latest version of any contract.

4. Automatic Upload to Back-End Systems: Many organizations manually key contract data into back-end systems, a time-consuming, error prone process. Your CLM strategy should include data transfer technologies that can automatically extract key contract data and upload it to relevant back-end systems as required without any manual intervention.

5. Proactive Reports & Alert Management: While documented processes around the creation, review, and archiving of contracts are required to meet compliance requirements, the true commercial power of a contract management system is in its reporting ability. Reports are used to alert and provide actionable management information to staff members who require that information. The terms of a contract can affect many parts of the business. Specialists, such as sales managers or the procurement team, will want to keep track of the finer details relating to their principal transactions. Other business functions like finance, legal, operations, customer services, etc., may only need to view subsets of the contract data to either ensure that suppliers are complying with pre-negotiated terms, or that customer commitments are being met so that the business is maximizing revenue while minimizing risk.