What is Contract Management in Procurement – Process, Features, Benefits
The Hackett Group’s study1 anticipated an 8.0% rise in the procurement workload for 2024. This increase creates potential room for manual errors and emphasizes the importance of stronger collaboration between related departments. To maintain efficiency, procurement processes need adequate legal support and effective contract management.
Procurement contract management is essential for smooth information flow, proper approvals, rapid contract preparation and signing, and quality post-signature follow-up.
In this article, we explore the types of procurement contracts, outline the procurement process, and highlight how contract lifecycle management solutions provide value at each stage, along with their most useful features.
Types of Procurement Agreements
Different types of contracts are used to define the terms and conditions between buyers and suppliers. Each type of contract serves a specific purpose and offers unique benefits, depending on the nature of the procurement process and the objectives of the organizations involved.
For effective sourcing contract management in procurement, it is important to understand the differences between these contracts. Let’s take a look at the most common types of procurement contracts.

Fixed Price Contracts
Fixed price contracts, also known as lump sum contracts, are agreements where the price is predetermined and remains constant throughout the contract duration. In this type of contract, the supplier agrees to provide goods or services at a fixed price, regardless of the actual costs incurred.
Fixed price contracts are beneficial for buyers as they provide predictable pricing and simplify budgeting. However, suppliers bear the risk of cost overruns and must carefully estimate their expenses to ensure profitability. These contracts are suitable for well-defined projects with clear specifications and minimal scope changes.
Cost Reimbursement Contracts
Cost reimbursement contracts, also referred to as cost-plus contracts, are agreements where the buyer agrees to reimburse the supplier for all allowable costs incurred during the project, plus a predetermined profit margin or fee. This type of contract is commonly used in situations where project costs are uncertain or difficult to estimate accurately.
Cost reimbursement contracts provide flexibility for the supplier but expose the buyer to potential cost overruns. Proper monitoring and oversight are essential to ensure that costs remain reasonable and align with the project’s objectives. These contracts are often used in research and development projects or complex procurement initiatives.
Time and Materials Contracts
Time and materials (T&M) contracts are agreements where the buyer pays the supplier based on the actual time spent and materials used on a project. The supplier charges an hourly rate for labor and separately invoices for materials and other direct costs.
T&M contracts offer flexibility for projects with evolving requirements or uncertain scope. They allow for adjustments as the project progresses, enabling buyers to make changes without renegotiating the entire contract. However, T&M contracts require diligent tracking and monitoring to ensure that costs remain within budget and align with the project’s objectives.
Blanket Purchase Agreements
Blanket purchase agreements (BPAs) are long-term purchasing contracts that establish the terms and conditions for recurring purchases of goods or services from a supplier. BPAs streamline the procurement process by eliminating the need for individual purchase orders for each transaction. Instead, buyers can place orders against the BPA as needed, often at pre-negotiated prices or discounts. BPAs are beneficial for frequently purchased items or services, as they reduce administrative costs, improve efficiency, and ensure consistent pricing. They also foster long-term relationships between buyers and suppliers, promoting collaboration and strategic partnerships in the procurement management process.
The Complex Procurement Process and CLM Benefits
The procurement process can be complex and multi-faceted, involving numerous steps and stakeholders. From identifying needs to managing contracts post-execution, each stage presents unique challenges and opportunities for improvement.
Contract Lifecycle Management (CLM) solutions offer significant benefits throughout the procurement process, streamlining activities, reducing risks, and enhancing overall efficiency. Let’s examine the key stages of a complex procurement process and explore how CLM can optimize each step.
Needs Identification and Requisition
The procurement process begins with identifying the organization’s needs for goods or services. Stakeholders from various departments collaborate to define requirements, specifications, and quantities. This stage involves careful consideration of business objectives, budget constraints, and market conditions. Once the needs are clearly defined, a formal requisition is created, outlining the details of the required goods or services, including specifications, quantities, and expected delivery timelines.
Supplier contract management solutions can streamline this initial stage by providing a centralized platform for capturing and managing requisitions. With user-friendly interfaces and customizable forms, a CLM simplifies the requisition creation process, ensuring that all necessary information is captured accurately and completely.
Automated workflows and approval processes eliminate manual handoffs and reduce cycle times. CLM ensures that requisitions are routed to the appropriate individuals for review and authorization, based on predefined business rules and approval hierarchies. This approach minimizes delays, improves transparency, and enables faster decision-making.
Vendor Selection and Negotiation
Once the requisition is approved, the focus shifts to vendor selection and negotiation. The procurement team conducts thorough market research to identify potential suppliers capable of fulfilling the organization’s requirements. They evaluate vendors based on various criteria, including quality, pricing, delivery capabilities, and reputation.
CLM tools play a crucial role in this phase by providing a centralized repository of vendor information, including past performance, pricing history, and contract terms. This comprehensive vendor database enables procurement professionals to make informed decisions and select the most suitable suppliers.
These procurement contract management solutions facilitate collaboration and communication among stakeholders involved in the vendor selection process. Procurement contract managers can easily share vendor information, evaluation criteria, and scoring matrices with cross-functional teams, ensuring alignment and consensus.
Real-time updates and version control capabilities streamline the negotiation process and enable stakeholders to provide feedback, suggest changes and efficiently reach mutually beneficial agreements. With CLM, companies can use data-driven insights to negotiate favorable terms, secure competitive pricing, and build long-term partnerships with reliable suppliers.
Contract Drafting and Approval
After selecting the preferred vendor, the contract drafting and approval phase begins. This stage involves creating a comprehensive contract that outlines the terms, conditions, and obligations of both parties. Traditionally, contract drafting has been a time-consuming and error-prone process, often involving manual work and multiple iterations.
CLM solutions revolutionize contract drafting by offering pre-approved contract templates and clause libraries. These features ensure consistency, reduce errors, and accelerate the drafting process. Legal teams can create standardized templates that incorporate best practices, legal requirements, and organizational policies. Clause libraries provide a repository of pre-approved clauses that can be easily inserted into contracts, minimizing the need for extensive legal review and redlining.
CLM automation enables electronic routing of contracts for review and approval, eliminating manual handoffs and reducing cycle times. Stakeholders can securely access contracts, make comments and suggest changes within the CLM platform. Version control and redlining capabilities simplify collaboration and negotiation by allowing stakeholders to track changes, compare versions, and reach consensus.
By integrating electronic signatures, CLMs ease up the contract execution process, ensure legal enforceability, and reduce paper-based processes.
Contract Execution and Management
Once the contract is executed, contract managers need to ensure compliance, mitigate risks, and optimize performance. CLM solutions provide a centralized repository for storing and managing executed contracts, making them easily accessible to authorized users across the organization. This centralized approach eliminates silos, improves visibility, and enables better decision-making.
With automated alerts and notifications, CLM helps procurement teams stay on top of key milestones, renewals, and obligations. Managers can set up reminders for upcoming expiration dates, auto-renewal triggers, and performance reviews. This proactive approach ensures that contracts are actively managed throughout their lifecycle, minimizing the risk of missed opportunities or non-compliance.
CLM solutions provide performance-tracking capabilities that enable managers to monitor supplier performance against contractual obligations. Key Performance Indicators (KPIs) can be defined and tracked within the CLM platform, providing real-time insight into supplier performance, delivery timelines, and quality metrics. This visibility enables procurement teams to identify areas for improvement, proactively address potential issues, and ensure value realization.
CLM also facilitates risk management by providing insight into contract risks such as expiration dates, non-compliance, and potential disputes. Risk assessment tools and AI-powered analytics help identify high-risk contracts, allowing procurement teams to prioritize their efforts and mitigate potential impacts.
By proactively managing contracts post-execution, companies can strengthen their supplier relationships, drive continuous improvement, and optimize the entire procurement process.
Must-Have CLM Features for Procurement Teams
To meet the unique challenges and requirements of procurement contract management, a CLM solution offers a robust set of features. When evaluating CLM options, procurement teams should focus on the key features that will streamline their processes, improve visibility, and drive better results.

Centralized Contract Repository
A centralized contract repository is a critical component of effective procurement and contract management. CLM solutions should provide a secure, cloud-based platform that serves as a single source of truth for all contracts and related documents. This centralized approach ensures that procurement professionals can easily access, search, and retrieve contracts whenever needed, regardless of their location.
With a well-organized contract repository, teams can quickly find relevant information, track key dates and milestones, and maintain version control. Advanced search capabilities, such as keyword search and metadata filtering, enable users to locate specific contracts or clauses efficiently. A centralized repository also facilitates collaboration among stakeholders, allowing for seamless sharing and review of contracts.
Automated Workflows and Approvals
CLM solutions offer automated workflows and approval processes to streamline the contract lifecycle. Configurable workflows enable organizations to define their unique approval hierarchies, routing rules, and notification triggers, ensuring that contracts move smoothly from one stage to the next.
Automated workflows eliminate the need for manual handoffs and reduce the risk of delays or errors. Stakeholders can easily review, comment, and approve contracts electronically, with real-time visibility into the process. Automated reminders and notifications keep everyone informed of pending tasks and deadlines, ensuring timely action. These features not only speed up the contracting process but also improve accountability and compliance.
Contract Analytics and Reporting
CLM solutions provide analytics tools that allow procurement teams to gain deep insights into their contract data. These insights can help identify trends, patterns, and potential risks, enabling proactive management and strategic planning.
Advanced reporting features enable users to generate customizable reports on various aspects of the contract lifecycle, such as contract status, expiration dates, supplier performance, and financial obligations. Interactive dashboards provide real-time visibility into key metrics, allowing procurement leaders to monitor progress, identify bottlenecks, and make data-driven decisions.
Predictive analytics and AI-powered capabilities take contract management to the next level, helping procurement teams forecast potential issues, optimize contract terms, and identify opportunities for cost savings. These insights empower organizations to negotiate better deals, mitigate risks, and drive continuous improvement in their sourcing and contract management processes.
Integration with Procurement Systems
Procurement contract management should not exist in isolation – it is part of a broader ecosystem of procurement processes and systems. Therefore, CLM solutions should seamlessly integrate with existing procurement systems, such as e-procurement platforms, ERP systems, and supplier management tools.
Integration enables the smooth flow of data between systems, eliminating the need for manual data entry and reducing the risk of errors. Procurement teams can access contract information directly from their primary work environments, enhancing productivity and ensuring consistent information across all systems.
Integration allows for the automation of key procurement processes, such as purchase requisitions, purchase orders, and invoice reconciliation. When a contract is executed, relevant data can automatically flow into the procurement system, triggering downstream processes and ensuring compliance with contractual terms.
Seamless integration between CLM and procurement systems provides a holistic view of the procurement lifecycle, enabling better decision-making, improved supplier relationships, and enhanced operational efficiency.
Implementing CLM for Procurement Success
Implementing a CLM solution within the procurement function requires careful planning and execution to ensure success. Procurement teams must consider various factors, including current processes, organizational goals, and change management strategies. Let’s explore the key steps in implementing CLM for procurement success.
Assessing Current Processes and Pain Points
Before implementing a CLM solution, it is essential to evaluate existing contract management practices and identify areas for improvement. This assessment should include:
- Mapping the current procurement contract management process from start to finish
- Identifying bottlenecks, inefficiencies, and manual tasks that consume significant time and resources
- Analyzing contract data to uncover trends, risks, and opportunities for optimization
- Gathering feedback from stakeholders to understand their challenges and requirements
- Defining clear objectives and success metrics for the CLM implementation
Choosing the Right CLM Solution
Selecting the right CLM solution is crucial for achieving procurement success. When evaluating CLM options, consider the following:
- Alignment with organizational goals and procurement strategies
- Comprehensive feature set that addresses specific procurement needs, such as contract creation, approval workflows, and analytics
- Ease of use and intuitive user interface to ensure high adoption rates
- Scalability and flexibility to accommodate future growth and evolving requirements
- Integration capabilities with existing procurement systems and other relevant tools
- Vendor reputation, customer support, and implementation services
Change Management and User Adoption
Effective change management and user adoption strategies are critical for the successful implementation of a CLM solution. To ensure smooth adoption, consider the following:
- Develop a comprehensive change management plan that includes communication, training, and support
- Involve key stakeholders from procurement, legal, and other relevant departments in the implementation process
- Provide targeted training sessions to help users understand the benefits and functionalities of the CLM system
- Establish clear roles, responsibilities, and workflows within the CLM solution
- Encourage ongoing feedback and continuous improvement to address user concerns and optimize the system
Conclusion
CLM solutions offer a range of features and benefits that empower procurement teams to streamline processes, mitigate risks, and drive better outcomes.
From a centralized contract repository and automated workflows to advanced analytics and seamless integration, CLM solutions provide the tools and insights needed to optimize procurement contract management. By leveraging these capabilities, procurement teams can improve efficiency, ensure compliance, and make data-driven decisions that align with organizational goals.
Implementing a CLM solution requires careful planning and execution, including assessing current processes, selecting the right solution, and managing change effectively. With the right approach and a focus on user adoption, you can successfully implement CLM and unlock the full potential of their contract management processes.
If you’re searching for a comprehensive and user-friendly CLM solution to optimize your procurement processes, improve collaboration, and achieve business success, book a demo with our team and check out the Malbek AI-powered platform.
1: https://www.thehackettgroup.com/insights/2024-procurement-key-issues-2401/