In a recent article for the IACCM Contracting Excellence Magazine, Rebecca Thorkildsen, Director of Legal Solutions at Pangea3 points out how more and more contract departments are seeking full contract lifecycle management solutions.
In this article we take a closer look at the reasons why full contract lifecycle management solutions are necessary and what criteria is necessary for evaluation of these tools.
The Cost of Compliance
The main reason for taking a full contract lifecycle approach is to manage compliance and risk more effectively. Thorkildsen points out that “increasing regulation and ever-present litigation risk means that lawyers are more often revisiting contracts after execution”. Contracts cannot be locked away after execution, only to be brought out again at renewal times.
For example, take the compliance costs for Section 404 of Sarbanes-Oxley. According to a study by Lord & Benoit, the average cost incurred by companies in the study to comply with Section 404(a) Management Assessment was $53,724. The range of compliance costs started at $15,000 and went all the way up to $162,000. This wide cost range proves that there is a lot of room for improvement in optimizing processes.
Inappropriate IT Tools
After reviewing the internal processes of 148 companies with revenues under $100 million, another study from Lord & Benoit found that 30% of those companies had material IT weaknesses that represented a threat to compliance for Sarbanes-Oxley Section 404. Those 45 companies had ineffective application controls and critical change controls, which prevented the companies from identifying risks.
When you combine the high cost of compliance and the use of improper software, it becomes clear that enterprises of all sizes must take preemptive action. The solution is to select reliable contract management system that focuses on every process from the contract lifecycle.
Selecting a Contract Management System
The main criterion is that the contract management system must be flexible enough to adapt to every phase of your contracts lifecycle. More specifically, it needs to address each one of these contract management processes:
- New Contract Requests – Establish a standardized process of initiating a contractual relationship so that any employee, whether in Seattle or New York, follows the correct set of guidelines.
- Capture Data – Securely input data from anywhere and store in a central repository, making it accessible to other team members no matter their physical location.
- Contract Authoring and Creation – Enforce accountability through assigned login credentials so that every action has an author and a timestamp.
- Collaboration and Negotiations – Leverage secure check-in/check-out features that enable more accurate negotiating and authoring.
- Reviews and Approvals – Assign tasks to internal and external stakeholders from a central dashboard that provides an overview of the entire contract lifecycle.
- E-signatures – Expedite contract execution with e-signature capabilities.
- Post-Execution Tracking and Management – Use comprehensive data collection and management tools for capturing and evaluating custom data,such as fee schedules, contacts, and stakeholders information.
- Contract Reporting and Analysis – Provide more visibility into contract processes by tracking turnaround time for a contract requests, analyzing most used contract clauses, and maintaining necessary audit trails.
- Renewals & Other Milestones – Automating processes through pre-scheduled email alerts to team members.
Takeaway
Current studies show companies are spending considerable amounts to meet compliance regulations, yet they still lack appropriate IT tools to get the job done. A contract management system is an efficient way to jumpstart compliance processes by leveraging a full contract lifecycle approach.