When contract lifecycle management is overlooked in business operations, it leads to unnecessary financial losses and can reduce operational efficiencies. For Sales, Legal, and Finance teams, adhering to contract management best practices is essential.
From contract drafting and storage to speedy approval times, here are 10 key contract management standards and best practices that should be applied to any CLM process.
1. Standardized and Streamlined Contract Drafting
Standardizing a contract development process will lead to a streamlined contract drafting experience. Ensure that all contracts follow a standard format and include as much pre-approved contractual language as you can.
Creating a playbook of legal terms and legal language in order to "recycle" what works is a helpful idea. A standard format with consistent language reduces the time it takes to review the entire contract, focusing instead on the unique aspects of the contract with a vendor or counter-party.
2. Contract Search
A CLM solution that contains a contract search feature allows creators, users, and signing parties the ability to search for a specific term or keyword within the document. This can save precious time when looking to make updates, confirm certain clauses, or check on contract specifications. And when that search function is as easy to use as any consumer-grade search engine, your users will thank you.
3. Document Storage Security
An effective contract management process includes securing all sensitive storage documents while still keeping them accessible. This can be done through verification checks of user identity and by locking unauthorized users out from confidential files. A centralized document storage system with varying levels of access makes it possible for the right people to access the right information.
4. Track and Streamline Contract Approval Time
Streamlining and tracking contract approval should be a prioritized aspect of every CLM solution. The contract approval process can seemingly take forever with all of the revisions and reviews planned for each contract. The time lost during this crucial phase is amplified when time is spent locating the individuals or parties who need to sign off on each document. There is also the chance of contracts slipping through the cracks when using email or other less efficient channels to communicate.
With a contract management system guiding the process, businesses don’t get stuck waiting on approvals or miss renewal deadlines. An automated system sends out notifications of key deliverables and upcoming dates to the appropriate contract parties to avoid missed deadlines or unexpected delays.
5. Scale Contract Review Process with AI
Bring your contract management to life with artificial intelligence. From contract and clause classification to similar documents classification, you can identify similar contracts and clauses with ease to re-use pre-approved language in new contracts.
Using pattern recognition algorithms, AI can also help teams identify areas for improvement in their CLM process. Based on previous contract drafting, an AI-based CLM solution can predict when a clause may be named incorrectly. Here are some other benefits to AI-powered contract management:
- Eliminate errors by automating the contract review process
- Process third-party contracts faster while reducing the risk of error and improving contract quality
- Consistency in negotiations, often resulting in the best possible terms for the contract developer
- Simplifies the contract compliance process
- Draft better contracts faster by identifying the relationships between similar contracts
- Make better decisions by identifying the relationships between common entities hidden in contract data
6. Automate Contract Communications
Having to send emails back and forth to get contracts reviewed or approved wastes time and resources. With a cloud-based system and storage of your contracts, multiple individuals can access a document in real-time to makes changes or collaborate on inclusions or omissions. Automated reminders can also keep parties on a timeline for reviewing the documents and mitigates accidental bypassing of important approvers.
7. Set Contract Management KPIs
An effective CLM solution allows the goals of an organization to be more transparent by measuring key performance indicators (KPIs). Clear expectations give department heads something to aim for when developing their contract processes. KPIs allow teams to recognize when teams aren’t meeting these goals or expectations.
With KPIs, it is also easier to see how your contracts are performing. You should always keep track of the pricing for your most popular documents, as well as keep aware of any changes in production or sourcing that tech or the global market may bring. You are able to negotiate for a more competitive contract when you have the data behind your position.
8. Execute Regular Compliance Reviews
What is contract compliance? It is a practice to guarantee that all signing parties follow through with their legal obligations. This contract management strategy focuses on following the regulations of an agreement and completing the obligations within the contract.
It is crucial to continuously review contract documents for compliance. For every contract, ensure the terms and conditions are compliant. Also guarantee that both parties are in compliance with any federal, state, industry, or other external regulations on a contract-by-contract basis. Failure to comply can result in serious penalties and steep fines.
In a white paper by Dr. Sara Cullen, she recounts a government department that discovered a five-year contract was only 40% compliant four years into the agreement. Work obligations of around $200,000 per year had not been executed and KPIs were not being provided or reported on as promised. Upon further investigation, the reason for this non-compliance was the client not following up on missing work or missing reports.
“The provider was grossly non-compliant with the contract but the client was grossly negligent in its governance responsibilities.” — Dr. Sara Cullen
After the government department executed their compliance audit, they decided to build out a seven-person contract management team to prevent these issues in the future. Imagine the cost savings and reputation protection that could have been captured with a more proactive approach to contract compliance.
9. Legal Protection
Contracts are legal documents, and when written with clearly spelled expectations for both parties, legal recourse is a way to ensure each party is living up to its obligations. Reaching out to the contract manager for the offending party might be helpful in warding off litigation, but consulting an attorney can help you remove yourself from the contract and receive compensation for any losses the offending party may have caused.
10. Resolve Disputes Promptly
For feedback to be effective it needs to be acted upon quickly. It should also directly address the issue or problem that has arisen. You will save time and money by taking care of problems when they are first noticed rather than waiting until a more opportune time to address them comes.
Stay On Top of Your Contracts
The contract experts at Malbek provide a CLM solution that meets contract management best practices and standards while doing so much more. Contact us or request a demo today to learn more about our contract management solutions.