Different Types of Contracting Strategies and Why Are They Important
There are three different types of contracting strategies available for storage and retrieval, workflow efficiency, and risk mitigation. Developing these contracting strategies for managing contracts is essential to the success of any organization.
Without different types of contracting strategies, your contracts can quickly spiral out of control and put your organization at undue risk. With the right strategies in place, you can streamline the entire contract lifecycle, reduce contracting errors, and increase the percentage of successfully executed and fulfilled contracts.
Let’s take a look at the strategies you can and should employ in your contract management process.
- There are three different types of contracting strategies: storage and retrieval strategies, workflow efficiency strategies, and risk mitigation strategies.
- Storage and retrieval strategies include going all-digital, centralizing contracts in a searchable and cloud-based repository, and leveraging contract data for obligation management and reporting.
- Workflow efficiency strategies include establishing clear responsibilities, automating contract requests, reviews, and approvals, and leveraging real-time collaboration and e-signature tools to remove friction in negotiations.
- Risk mitigation strategies include controlling access, standardizing legal language and contract types using clause and template libraries, and creating a compliance framework.
Understanding the Different Types of Contracting Strategies
There are three primary types of contracting strategies include:
- Storage and retrieval strategies for digitizing and storing your contracts and related documents
- Workflow efficiency strategies for automating your contract workflow
- Risk mitigation strategies for reducing contract risk
Together, these strategies will streamline the entire contract lifecycle and result in numerous and significant benefits to your organization, including improved efficiency, fewer errors, lower costs (up to 60% lower), and increased execution and fulfillment rates.
Storage and Retrieval Strategies
Storage and retrieval strategies help you centralize all your contracts in one place, eliminating lost, misplaced, or siloed contracts across your organization. These strategies also help key staff find and extract individual contracts and key information across a range of contracts.
The first strategy to embrace is the all-digital document strategy. This means creating all new contracts and supporting documents digitally and digitizing all existing contracts and documents.
There are several advantages to going all digital, chief of which is that all the valuable information contained in your contracts and supporting documents is more easily accessible. Once all your contracts are in digital format, your contract data can now be harnessed. You also save on paper, printing, and administrative costs – and physical space.
Centralize Contracts in a Digital, Searchable, and Cloud-based Repository
Once you’ve adopted the all-digital strategy, you need a place to store all your digital documents. This requires centralizing all agreements and supporting documents in a digital repository. That makes it easier to locate documents when you need them and reduces data management and maintenance costs. Solutions that leverage optical character recognition technology let you easily search your repository for information about your contracts such as which ones have an indemnification clause or contain specific language.
It’s key that your data repository includes not just contracts but also all supporting documents. Key information often resides not in the contract itself in the documents used to create the contract; it’s important to retain those documents and make that information easily retrievable.
Leverage Contract Data for Post-Award Obligation Management and Reporting
Once your contracts are digitized and centralized in a searchable repository, you can how harness all that valuable contract data to work for you. You can set up automated alerts for tracking of key obligations such as key dates, milestones and other commitments. This will ensure you never miss another contract deliverable such as the termination window for a renewal or eligibility for a deeper discount due to meeting a volume threshold.
You can also now report on that data and display it in a meaningful way using graphical dashboards. Data-driven contract management software solutions like Contract Logix make it easy to create real-time reports that you can save and share with others. You can easily get a snapshot of where contracts are in your process, the value of agreements, what’s coming up for renewal, contracts by vendor or type, and more.
Workflow Efficiency Strategies
Creating a more efficient contract workflow speeds up the entire contract process, reduces errors, and saves your firm money. By automating all aspects of the contract lifecycle, a more efficient workflow also frees up staff from mundane chores so they can contribute more productively to your business.
Establish Clear Responsibilities
Each department and individual involved with creating, reviewing, and approving contracts must know their precise duties and responsibilities. Employees need to know in advance what they can and can’t do – and what they need to do. This will help avoid workflow conflicts and speed up the process. An important step in this process includes establishing a RACI Model where you clearly document who is responsible, accountable, consulted, and informed in each step of your contracting process.
Automate Contract Requests, Reviews, and Approvals
To get the contract process started more quickly and on the right track, it’s important to leverage a CLM solution that enables you to automate key stages in your contracting process. This includes leveraging online contract request forms with required information that can then be automatically routed to the right people for review and approval. That same information can also be used to create contracts that are negotiation-ready. Automated workflows for these key contracting stages frees up time, drives efficiency, and improves compliance with business rules and regulatory requirements.
Leverage Real-time Collaboration and E-signature Tools
Now that you have a contract ready for negotiation, it’s critical to take advantage of real-time contract collaboration tools where you automatically track all comments, participants, and edits. Internal and external parties can be invited to collaborate and you will have a complete audit trail of all participants and changes. It’s a very easy and accurate way to manage version control as well. You can completely eliminate the inefficient and risky practice of emailing legal agreements back and forth. Then, once everyone is in agreement with the changes, you can leverage e-signatures to execute the contract from anywhere on any device.
Risk Mitigation Strategies
Risk mitigation is all about making the entire contract process safer and more profitable. Risk mitigation strategies help you overcome potential challenges at all stages of the contract lifecycle so that you can better achieve your business goals without incurring undue risk in the process.
Control Access with Permissions and Authentication
When all your contracts are digitally stored in a single repository, it’s easy to control access to the entire repository and individual contracts. Not every person in your organization needs access to every contract. To reduce the risk of inappropriate disclosure or data theft, use role-based and feature-based permissions to allow access only to authorized individuals or departments. You can then track every individual who has accessed a given contract, enabling more precise auditing. You can also set up the appropriate authentication for users in accordance with your IT requirements in terms of password policy, etc.
Standardize Legal Language and Contract Types
Your organization is put at risk every time an employee creates a rogue contract with zero regard to your company’s standards, legal and otherwise. To ensure that all contracts conform to your established criteria, you need to standardize the language and clauses in your contracts as well as the contract templates. The best strategy for doing this is to work with a library of preapproved clauses, conditions and templates. This way there should be no question as to whether a given contract is acceptable. You can also set up conditional rules to use certain legal language and formats in certain conditions.
Create a Compliance Framework
Complying with governmental and industry regulations is essential; non-compliance can be costly. Every contract you execute should conform to your established compliance framework, which is made easier when you’re working with standardized contract templates, clauses, and language. In addition, key employees should be aware of all applicable regulations and be made responsible for ensuring compliance.
(The following video explains more about compliance.)
SOURCE: Professor Messer via YouTube
Let Contract Logix Help Establish Your Different Types of Contracting Strategies
When you want to establish a set of contracting strategies for your organization, turn to the contract management experts at Contract Logix. Our CLM software automates the entire contract lifecycle and adheres to all the contracting strategies your organization needs. We’ll help you establish a digital contract repository, create a more efficient contract workflow, and mitigate your contract risk.
Contact Contract Logix today to learn more about different types of contracting strategies.