5 Contract Management Challenges in 2022
Many obstacles in contract management can prevent your organization from achieving operational efficiency and may even expose you to risk. While some of those obstacles may be minor, others can eat away at your profits and decrease the chances for sustainable operation.
Key Takeaways
- Maintaining unwritten contracts is a major challenge
- Many organizations face the challenge of defining and tracking contract costs
- Dealing with outdated boilerplate language is also an issue
- Unnecessarily long legal review vexes many organizations
- Executing contracts via postal mail or email is also a major challenge
Five Critical Contract Management Challenges in 2022
What are the major contract management challenges facing organizations in 2022? Here are the top five.
1. Maintaining Contracts That Aren’t in Writing
As a contract manager, there’s nothing more frustrating than something you can’t control. While verbal contracts can theoretically hold up just fine in court, the reality is that verbal contracts are open to interpretation from each party.
That said, many organizations have certain “agreements among” parties that predate more formal written agreements. Things get even more complicated when those verbal agreements depend entirely on the relationship between two people. If that relationship goes sour, what happens to the agreement?
The solution to this issue is to enter every contract into your contract management system, so there are no doubts about the terms and conditions. For pre-system verbal agreements, this may mean renegotiating and formalizing new written contracts.
SOURCE: https://lawgood.io/contractsnapshot/blog/contractsinwriting
2. Defining and Tracking Contract Costs
Keeping track of contract costs is a major challenge, especially with government contracts. This issue affects companies both large and small, as witnessed by Boeing losing $1.1 billion on its contract for two new Air Force One planes because it underestimated actual costs.
Unfortunately, many government contractors have been slow to adopt digital contract management systems even though they provide excellent visibility and tracking of costs. Relying on manual systems for record-keeping and cost-accounting is often ineffective because they don’t allow the client or contractor to have a real snapshot of a project’s budget. The proper solution to this situation is to employ an automated contract lifecycle management (CLM) system that tracks all aspects of the contract lifecycle.
3. Dealing with Outdated Boilerplate Language
One of the benefits of using boilerplate language in contracts is that it speeds up contract execution. However, you should regularly review boilerplate language to ensure that it continues to meet evolving internal and external compliance requirements. A rule of thumb is to review standard contract language every 6 to 12 months.
This is made easier with a robust enterprise contract management system that enables you to choose from multiple contract templates. Unlike paper-based contract management systems that are limited to a single template with boilerplate language, a digital system allows your team to employ many different templates for different types of contracts. For example, you may create different templates for:
- Cost-plus contracts
- Fixed-price contract
- HR contracts
- Nondisclosure agreements
Even better, this type of system allows managers to assign permissions so that only those who need a particular template can access it. This prevents any doubt regarding which template to use in a given situation.
The best CLM solutions supplement their contract templates with a library of preapproved clauses and terms. This way, you can easily modify a given template and ensure you comply with your organization’s standardized language. This ultimately reduces the time necessary to review and redline each contract since all terms and clauses already meet your organization’s standards.
4. Unnecessarily Extending Legal Review
Few things can slow down a business transaction as much as legal review. Because of this, some individuals seek to circumvent legal review in the contracting process, which leads to multiple issues.
A simple way to prevent clients from becoming frustrated with legal reviews is to highlight only the necessary legal terms that need review. For example, a 20-page contract may not need a full review by a legal counsel when only five or six key paragraphs need a legal opinion. By assuring business partners that legal review will take the right amount of time, you ensure that they welcome it instead of shunning it.
5. Executing Contracts Via Snail Mail
Contract execution can be a major pain point in any contract lifecycle. Printing and mailing a contract for the other party to review and send back with revisions is inefficient.
One alternative is to email contracts for the other party to print, redline, and either mail back or scan and email back. Unfortunately, this approach isn’t much more efficient than the snail mail option. Contracts still sit on desks and wait for the right individuals’ attention.
A much better approach is to leverage the e-signature capabilities of automated contract management systems. This enables all parties to execute contracts much faster and ensures that contracts always go to the correct individuals.
E-signatures are completely legal and much more efficient than waiting for physical signatures. The Electronic Signatures in Global and National Commerce (E-Sign) Act, in effect for more than twenty years now, clearly states that a contract “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” E-signatures are a valid way to accelerate contract execution, they’re easy to track and verify, and they’re highly secure. They can also reduce contract processing costs, which is why e-signatures are an essential component of most CLM solutions.
SOURCE: https://financesonline.com/cloud-file-document-management-statistics/
Takeaway
The five major challenges in contract management today are maintaining verbal contracts, figuring out and keeping track of costs, dealing with boilerplate language, unnecessarily extending legal review, and executing contracts via regular postal mail. Schedule a demo of our contract management software to learn how it can help your organization overcome all of these challenges and more.
Let Contract Logix Solve Your Contract Management Challenges
Every year brings new challenges to the field of contract management. When you want to minimize the challenges and maximize the efficiency of your contract workflow, turn to the experts at Contract Logix. Our cloud-based CLM Platform automates the entire contract process, from initiation and creation to execution and archiving. Our CLM software helps you manage all your contracts, keep track of all deliverables, and ensure that your contracts comply with your company’s standards and industry regulations.
Contact Contract Logix today to learn more about solving your contract management challenges with CLM software.
Read another recent article from our team, 5 Contract Automation Tools to Help You Seal the Deal.