Challenges of Managing Contract Status Throughout the Lifecycle
Effective contract lifecycle management is a critical part of operating any business, especially those in highly regulated, risk-conscious industries like healthcare, pharmaceuticals, and energy. Meeting compliance requirements and accomplishing other obligations within a particular agreement in a timely manner are top priorities. Contract lifecycle management (CLM) software has become a necessary and highly effective tool for meeting these objectives.
Prior to the existence of contract management software, managing contract status throughout an agreement’s life required excessive amounts of time and labor to make sure all the boxes were checked. However, the digital transformation of CLM processes using contract management software has given General Counsels, Contract Administrators, and Legal Operations professionals the tools needed to handle many contracts with agility, accuracy, and control.
This article explains some of the common issues in managing contract status and how contract management software can help your contract teams address those issues more easily.
- Legal teams must monitor all pre- and post-award stages of a contract to mitigate risk of noncompliance and nonperformance.
- Emails, spreadsheets, and other manual systems of contract management can lead to time delays, increase administrative costs, security issues, human error, and cause gaps in executing deals.
- Contract management software improves the experiences of legal teams through a centralized system that generates better contact collaboration and drafting methods, increases information security, automates workflows and alerts, and delivers advanced analytics.
Pre-Award and Post-Award Challenges with Managing Contract Status
A contract’s lifecycle can be thought of in two distinct parts. The first part is the pre-award phase that includes the contract’s request, drafting, review, negotiation, approval, and ultimately signing or execution. The second part of a contract’s lifecycle is post-award. During this stage, parties focus on obligation management such as compliance with the terms of the agreement and handle events such as compliance audits, renewals, terminations, and amendments.
Throughout the pre- and post-award phases of a contract, teams must manage several priorities to meet the time constraints and the other objectives of a deal.
Inefficiencies in the Drafting, Negotiation, and Approval of Contracts
Effective pre-award contract management requires an efficient process to draft, negotiate, and approve contracts, including the execution of the agreement with third-parties.
The drafting process can be a problem in manual systems. Starting a contract from scratch is usually a nonstarter for legal teams. However, many contract teams struggle with knowing where to begin because of difficulty finding the latest approved language and templates to assemble an agreement which can lead to “Frankenstein” contracts that might increase risks because of oversight issues. Collaboration is a must during the negotiation and drafting of a contract. Each party to a deal likely has numerous people involved whose inputs are necessary for reaching an agreement that the signatories will approve. Finally, obtaining approvals and signatures from internal and third parties can be difficult and slow through email and other communication channels and the need to send back and forth contracts as attachments.
Other challenges in the pre-award phase include:
- Managing checklists of ancillary contracts, legal documents, and due diligence items
- Maintaining deadlines for sending redlines or other key deliverables prior to closing
Headaches in Compliance After Signing an Agreement
The management problems do not end after executing a contract. Continuing to meet obligations, analyze its progress, handle amendments, addendums, renewals, and terminations, and take other actions requires additional oversight from legal teams. Often, in-house legal teams and General Counsels rely on spreadsheets and other calendaring to manage these items and mitigate risks. Unfortunately, these systems don’t always communicate well with one another. Departments must rely on members of the contract team to make sure items don’t slip through the cracks – which creates risk for human error.
For example, perhaps a supplier agreement has an auto renewal with a 30-day termination window. In addition, the legal team wants to be notified of the renewal 90-days before it happens so that they can notify the appropriate internal departments to review the contract and determine whether or not it should be reviewed, and if so, what amendments need to be made. Or, perhaps there is a customer contract that specifies a status report the first week of every quarter. In both of these examples, keeping track of what’s required, when it’s required, and who should be involved is fraught with risk using manual CLM methods such as spreadsheets and email calendars.
How Contract Management Software Improves Contract Monitoring
Contract management software significantly improves upon the manual systems that General Counsels and their legal teams have relied on for the past several decades. Contract management software products provide opportunities to automate, accelerate, and streamline virtually every aspect associated with managing contract statues throughout the lifecycle
A Central Interface for All Parts of the Contract Process
Using a contract management software to securely store and manage contracts allows stakeholders to share and access more information about a contract’s status. Legal teams can save time and energy by not having to share static documents and other project information through email or other systems. Additionally, teams can see what items are outstanding on a project and whose responsibility they are. This improves accountability and prevents unwanted delays.
Some key examples of how contract management software helps with managing contract status during the pre-award phase include:
- Use of standardized request and intake forms to get the process started accurately
- Clause and template libraries to quickly assemble negotiation-ready agreements
- Real-time collaboration tools facilitate faster internal reviews and third-party negotiations
- Simple and accurate version control and document history tracking
- Automated workflows to route contracts for approvals and other steps in the process
- When documents are signature-ready, electronic signatures allow for simplified closing.
Benefit from Advanced KPIs, Alerts, and Other Data Reporting
Through reports, stage and status tracking, automated alerts, and other analytics, contract management software helps with managing contract status by providing complete a visibility into where it is in the process and what upcoming requirements need to be addressed. You’ll learn if goals are being met – and if they aren’t, you’ll be able to identify the source of the problem. You can also find key data on contracts using search and reporting capabilities without having to scan the entire contents of a particular agreement, such as:
- Contract value (e.g., purchase price and other dollar amounts)
- Expiration and renewal dates
- Term lengths
- Party names (i.e., locate all contracts with a particular vendor)
In the healthcare industry, for example, the ability to quickly generate data to show compliance with regulatory frameworks is also essential. Contract management software allows legal teams to pull reports that demonstrate compliance in their contracts with regulations like, HIPAA, HITECH, and Medicare Billing, to name a few.
Putting it All Together with Contract Logix
Contract Logix has been helping legal, IT, procurement, finance, and sales departments with simplifying and improving their contract procedures since 2006. The company understands that contract volume and risk is unavoidable in highly regulated industries like healthcare. For contract teams, having the right systems and tools to support your personnel is necessary for effectively managing contract status through both the pre- and post-award phases.
Each organization will have its unique contract management needs based on its size, industry, and other factors. Contract Logix appreciates every opportunity to learn more about how its products can bring the greatest value to a contract team. Schedule a meeting to discuss your current procedures and the challenges you’re facing, in addition to seeing a demonstration of our contract management software.
Schedule a demo with Contract Logix today to see how your organization can benefit from digitally transforming your contract management.