Contracts Management Best Practices for Business Flexibility
Given the unprecedented number of mergers, acquisitions, and employment changes that have occurred throughout the end of 2020 and the start of 2021, a record number of contracts, legal documents, and partnerships have been created and signed by each party. With this influx of paperwork for companies across all industries, managing your contracts to ensure that they are secure, effective, and beneficial to all parties and employers is imperative for the success and development of your company.
Contracts Management, or CM, allows companies to alleviate the pressure and time-consuming process that comes from managing and creating many contracts. To effectively save time and remain efficient, many firms are looking either internally or externally to utilize contracts management. In the contracts management process, firms manage contract creation, execution, and analysis with employees, contractors, and other businesses or clients. In this article we will discuss the ins and outs of contracts management, the best practices and strategies for contracts management for your organization, and why you need an effective contracts management process.
What is Contracts Management?
As we discussed earlier, contracts management is the process in which a firm either brings in or looks externally to alleviate its contracts-related processes and needs. More specifically, CM also encompasses other aspects of the contracts process, including establishing the business case and confirmation of the need for the firm, a review of the relationships detailed in the contract, the performance of each contract, and what needs to be addressed and adapted. Different CM tools and partners specialize in different aspects of CM for your employees, contractors, suppliers, or clients and work to save you time and money through their distinct software, process, or best practices. For most firms, CM starts with many different stages and phases but mainly consist of the following:
Upstream stage of the contracts process: This is the part of the process where the CM firm is actively gathering the necessary information, insight, and context surrounding the contract. This can include identifying the parties involved, reviewing the goals and relationships of both parties and the business, evaluating the current contract if there is one, and establishing a schedule of communication, contract creation, or recreation.
Downstream stage of the contract process: This is the part of the process where the CM firm is creating and finalizing the contract as well as presenting and initiating the contract. Additionally, during this stage, the respective parties will begin to realize the business benefits, efficiencies, and maximized operation and financial performance that come from implementing CM.
Creation Phase: The CM firm begins the phase by identifying and learning the context of the situation, reading the supporting documents, and identifying the needs and benefits of the parties involved. Additionally, firms that utilize automated software or mobile applications will begin to input and refine the data in order to efficiently produce the contract(s).
Collaboration Phase: After the creation phase is over and there is a draft of the contract in hand, the parties involved (this could be employees, contractors, clients, or partners) should review the contract and settle any changes, disputes, or discrepancies before the final contract is signed. This phase is vital in the communication process and allows for the expected benefits, goals, and time saved to become realized.
Signing Phase: This is the phase when the contract is approved by all parties as well as the CM firm and where the contract becomes signed by all parties. During this phase CM firms generally implement parallel and serial approvals to expedite the approval stage as well as utilize electronic signature support to cut down on turnaround times.
Tracking Phase: This is the phase where the best practices and strategies are a must in order for the contract to remain up to standards and allow all parties to maintain the realized benefits. Most CM firms will constantly evaluate and track the contract during this early stage as well as audit the contract in order to ensure it is working as it should and that all requirements are followed by the parties involved. It is during this stage where if a CM firm feels a contract is not performing at the benchmark or there are skeptics at a performance review, revisions and controlled disputes for the contract will occur.
Renewal Phase: The last phase is where the CM firm pays attention to when the contract is about to expire and either renews the contract to prevent a potential loss of revenue or repeats the previous phases creating a new contract better suited to the needs and goals for the parties involved.
Contracts Management Best Practices & Strategies
When it comes to the long and tedious contracts management stages and processes, there are many challenges that arise. These challenges often include slow turnaround times for contracts and documents, slow communication for all of the parties involved (resulting in failed comprehension and understanding of the purpose and goals), and a lack of engagement among the parties and the CM firm. To combat these challenges and satisfy both parties with their service, CM firms typically follow a set of best practices and strategies to help expedite and optimize the contract creation workflow. In order to ensure a smooth end-to-end process for your contact creation the CIPS contract management cycle helps ensure optimal scoping, planning, managing, and reviewing.
As a result of this contract management cycle, CM firms can provide additional value from each contract and consistently understand the key roles and responsibilities surrounding each of the parties. As for the other practices, many consist of balancing roles and responsibilities among parties, mitigating risks and exposure, and anticipating and solving disagreements and disputes. Furthermore, establishing good communication amongst parties through compliance reviews, reviewing and benchmarking contract success, and tracking contract approval is a must for maintaining solid communication and engagement.
In recent years, the go-to strategy utilized by most CM firms is creating a rigid, formal, and automated contract process that utilizes mobile and software applications to cut down on long turnaround times and create consist secure contracts. Each of these best practices and strategies has allowed CM firms to satisfy all parties where there are no disputes or surprises associated with the new contract(s) and if there are disagreements, the firm has put into place a detailed outline detailing the debate and revision process. In addition, the contract produced by the CM firm will be responsive and adaptable for the constant changes in each industry resulting in a thorough understanding of the terms, services, and obligations of the parties involved. As a result of these best practices and strategies, this will culminate in each of the parties realizing its operation and financial optimization, the time saved, and the better contract structure put in place.
Why you and your firm need an Effective Contracts Management Process
In 2020 and 2021, we have seen the constant adapting, shifting, and increasingly more competitive contracts management process across many industries. But more specifically, the technology and healthcare industries have undergone several changes with a global pandemic and constantly changing software. With this change, the need for reduced costs, lower time and effort, and fully optimized operational and financial performance that comes with an effective CM process is a necessity for your firm to survive, develop, and allocate more money towards struggling departments.
Even if your industry is not constantly adapting and adding new employees and partnerships, many industries, such as the Healthcare and Information Technology industries are projected to grow rapidly at 15 and 12 percent respectively. With this level of growth, an effective CM process will help ease the increasing contract volumes and subsequent complexities that are associated with these many new contracts. Lastly, many firms in the business space have begun a hybrid work structure, many oil and natural gas businesses have faced new regulatory requirements, and many schools have had to deal with new rules and regulations surrounding safety and standardized testing resulting in the need for an updated contract for many employees and their employer. Ultimately, an effective contract process will help assist your firms’ contracts to remain updated and up to date with your industry standard.
Overall, CM has provided firms with numerous benefits that has allowed firms across all industries to reach an optimized operation and financial performance, save time, reduce the pressure to decrease costs, and solve the increasingly difficult compliance and structure required by contracts in today’s workforce. If you’re ready to bring your contracts management processes to the next level contact us to learn more.