Contract Management Strategies: A Complete Guide

Contracts are often an important cornerstone in the working process of an organisation. Contracts are agreements that specify certain legally enforceable rights and obligations that pertain to two or more mutually agreeing parties and need to be managed well for an organisation to thrive. To do that, a company adopts a Strategy known as a Contract Management Strategy to help them implement and oversee all the stages of a contract. 

According to Forrester, the contract management software market is expected to be worth £9.5 billion by 2025. The growing contract management market has made it important for aspiring professionals to know about contract management strategies. This blog will elaborate on a Contract Management Strategy and why you need it, 10 effective contract management Strategies, and a few dos and don’ts on how to improve them.  

Table of Contents 

1) What is a Contract Management Strategy? 

2) Who needs a Contract Management Strategy?

3) Why do you need a Contract Management Strategy? 

4) How to prepare a robust Contract Management Strategy

5) Ten effective Contract Management Strategies 

6) How do you improve your Contract Management Strategy? 

7) Conclusion 

What is a Contract Management Strategy? 

Before we elaborate on why you need a Contract Management Strategy, we will first define what it is. A Contract Management Strategy can be defined as a business tool used to implement and oversee all the stages of a contract to help increase efficiency and decrease risk. Using a centralised platform to manage the whole process and analyse data can help improve the contract workflow. A contract management lifecycle focuses on three key aspects - creation, negotiation and approval – and several points of execution. The general stages of a contract management strategy are discussed as follows: 

1) Creation: In this stage, one starts with a detailed request and then draws up a contract that meets all the necessary specifications. One can use automated contract management systems to streamline this time-consuming range.  

2) Collaboration: Every contract can be termed as a collaborative effort that requires negotiation. In this stage, the relevant parties conduct a review of the contract to ensure consistency and make the necessary changes.  

3) Signing: Next, one finalises the contract by following the approval procedures or creating one’s own workflow to meet the specific requirements. After this is done, the contract can be executed by getting all the necessary signatures. 

4) Tracking: Once the contract has been executed, one must ensure the contract is maintaining its value and key stakeholders are playing a role in managing deliverables. One must audit the numbers and build reports to help improve business processes. 

5) Renewal: Renewal is a crucial phase in any contract management lifecycle. One can achieve less liability and smoother workflows using automated notifications and reminders for contract renewals and expiration dates.  

 

Who needs a Contract Management Strategy?

Any professional employed with either small startups or even multinational corporations, handling even a few monthly contracts, needs an effective Contract Management strategy. This approach is vital for efficiently managing anything from a few supplier contracts for small businesses to complex, multi-jurisdictional agreements for larger organisations.

It is important to note that it's not just businesses that benefit from this; non-profits, government entities, educational institutions, and healthcare organisations also gain significantly from implementing a strong Contract Management strategy.

Such an approach helps ensure the efficient handling of contracts, ranging from basic supplier agreements for startups to complex, international deals for big corporations and is equally crucial for non-profits, governments, and educational institutions.

Why do you need a Contract Management Strategy? 

Having an effective Contract Management Strategy in place has many benefits. Maintaining control over all the contracts in one’s workflow is important in this increasingly digitised world. One must learn to protect the contract workflow from data breaches and cyberattacks. 

Documentation security is another important component of contract management requirements. Using a multi-level password access system helps reduce the potential for hacking and other cyberattacks.  

A centralised repository that stores all the contracts and related documents that are easily accessible by authorised people is an integral component of a business’ Contract Management Strategy. It eradicates confusion caused by outdated information, which reduces liabilities. 

Contract management software helps automate mundane tasks so that one can complete tasks of higher priority tasks that require expertise. One can use reminders to track the contract as well as stay on top of any pending tasks. 

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How to prepare a robust Contract Management Strategy?

Before proceeding to set up your own Contract Management Strategy, you need to attain a strong understanding of how a contracting process works, as well as identifying the problems that need solutions. Here are the key steps to help you prepare a robust Contract Management Strategy:

1) Evaluation of your organisation’s Contract Management requirements

You can start your evaluation with the identification of the unique needs and challenges that your organisation faces in Contract Management. This includes reviewing your existing and past contracts to understand their volume, complexity, and overall importance.

Furthermore, it is advisable to pay attention to common issues and inefficiencies that arise throughout the different stages of your contract lifecycle, and the resources needed for enhancement. Moreover, it’s better to align this analysis with your organisation's broader goals, determining how effective Contract Management can support these objectives and contribute to strategic success. Such a thorough assessment can highlight the areas that require improvement, pinpoint potential risks, and guide you in customising your Contract Management approach.

2) Identification of important stakeholders to establish open communication channels

This step involves pinpointing the key players whose duties are crucial for the effectiveness of Contract Management. These essential figures may be internal, including upper management, legal and procurement departments, finance teams, and project coordinators, or external, such as clients, suppliers, collaborators, regulatory agencies, or inspectors.

Further, it's essential to assign specific responsibilities to each employee efficiently for various aspects of Contract Management, such as starting contracts, negotiating terms, granting approvals, ensuring compliance, renewing contracts, and ending them.

This step is vital for establishing transparent communication channels and responsibility within the Contract Management framework. By recognising those stakeholders vital to the efficacy of your Contract Management approach, you can strategically engage them to secure their support and agreement.

3) Development of standardised processes for consistent workflows

The intention behind standardising your workflow is to establish a consistent and structured processes. Such a practice helps you better handle your contracts through their lifecycle.

Moreover, this measure ensures the reduction of errors, duplication of efforts and promotion of best practices with various contracts and contract types. For achieving this, you can create your template for your each contract, which comprises of all the legal protocols and provisions for fallback. Following which you can establish a clearly defined approval workflow that includes the mechanisms to help every participant deliver on time.

4) Establishing an easy-access central repository for contract documents

Organisations must save a major portion of their contracts in a centralised repository. Such a practice ensures the consolidation of their contract documents and makes it convenient for them to implement their Contract Management Strategies successfully.

Moreover, when the contract documents are centralised, silos break down, resulting in the improvement of cross-functional alignment. It then becomes considerably easier to explore data in-depth and optimise business processes. Your repository needs to possess the following features:

a) Accessibility

b) Organisation and structure

c) Access control and stringent security

d) Scalability

5) Implementation of automation to quicken processes

Automation happens to be the core step in implementing a robust and modern Contract Management Strategy. If organisations decide to continue the usage of manual processes, they can encounter difficulties while managing contracts at scale, regardless of their strategy. Thus, they can leverage automation with the availability of digital tools in the market. Here are some of the most popular categories where automation tools can help in efficient Contract Management:

a) Notification applications – designed to send reminders

b) Document processors – made to enable remote collaboration for redlining and contract drafting

c) Contract Lifecycle Management (CLM) - used to streamline and automate different tasks involved in the contract lifecycle

6) Identification and mitigation of risks to avoid unnecessary costs

The processes of identification and risk mitigation involve taking proactive measures to recognise and address the risks typically encountered by an organisation during a contract's lifecycle. Now, such risks can differ based on the contract's specifications, the involved parties, and industry-specific factors. Some common risks to consider are as follows:

a) Non-compliance

b) Scope expansion beyond the initial agreement

c) Violations of regulations

d) Incorrect billing (either too much or too little)

e) Theft of intellectual property

Once these risks are identified, you can evaluate their potential impact and how likely they are to occur. Then, you can create strategies to reduce these risks.

Such strategies might include incorporating protective measures in the contract, such as non-disclosure agreements, clauses for termination, protection of intellectual property, indemnification, and limited liability, setting performance benchmarks, and introducing systems for ongoing monitoring.

7) Provision of access for learners to training resources

Ensure the correct implementation of your Contract Management Strategy by ensuring that your team members are involved in the contracting procedures throughout.

They must also be equipped with the necessary knowledge and skillsets to perform their tasks in an optimum fashion. Such resources would involve programs or events conducted by industry associations, online programs, internal workshops, webinars and so on.

8) Ensuring continuous assessment and consequent improvement

The Contract Management process can evolve with more complexities over time, together with the evolution of businesses. This basically means that regardless of the strength of your Contract Management Strategy, you must assess and optimise it consistently and adapt to changing businesses. Thus, comply with the following steps to ensure continuous improvement:

a) Schedule reviews of your Contract Management Strategy on a regular basis to evaluate its efficacy.

b) Actively gather feedback from your relevant stakeholders from the legal, financial and procurement units.

c) Ensure the timely modifications of templates, processes and guidelines to address your strategy’s shortcomings.

d) Stay up to date with the latest changes in law and regulation which may influence your contracts.

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10 effective contract management strategies

 

While one Contract Management Strategy can't be a fit for all, the following are top 10 strategies to help you manage contracts efficiently:  

Conduct a background check 

One of the many effective contract management Strategies is to conduct a background check. One should not agree to anything or sign anything without reading into the other party and its legal background. Though everyone deserves the benefit of the doubt, it is necessary to establish that the party is legally able to go into a contractual relationship. If there are pre-existing commitments, one should take the time to review those relationships and obligations in order to determine the impact and consequences that a new agreement would have. 

Establish points of contact 

All parties should be clear about the people who have the authority to make final decisions right when embarking on the initial drafting process. While it may not be mandatory that a senior manager or member of the board of directors attends every single meeting, the people with authority on their behalf must be clearly identified.  

The channel for review must also be established to avoid potential misunderstanding and accelerate reviews. One must also take the time to point out when certain questions must be answered by the approving officer for the contracts to be completed. This helps representatives be aware and gather the necessary answers.  

Establish the Contract Lifecycle  

One must leverage their contract management system to customise their contract lifecycle to the exact specific needs of the contractual relationship. It is always a good practice, to begin with outlining the scope statement and then establishing the necessary documents. From there, one can organise the necessary processes, deliverables and periods of review. At this point in time, it is also important to determine the key pieces of information that one’s organisation needs from the other party to develop a complete and accurate contract.   

Agree on the review process 

Clients often ask for accelerated schedules, so it must be ensured that adequate time is budgeted for drafting, review, discussion, revision and then completion of deliverables. One must also take time during the first meeting to mutually agree on the length of periods of review and ensure parties are held liable for timely revision. It should be clearly indicated that any additional review time will affect the subsequent processes and deadlines. One must also ensure that all such agreements are set in writing.    

Outline the consequences of delay 

If a contract falls apart or suffers significant delays, an organisation may have to incur additional expenses or use additional man hours. This puts projections, budgets as well as other business opportunities in jeopardy. In particular, one’s scope statement should consist of specific clauses that provide details on change requests. For instance, what may be defined as a change request, applicable cost ranges, the processing of change requests, and how changes would affect the existing timeline. One must also include details about what would be considered a new project request in their scope statement.   

Step back, document and evaluate 

Once the documentation is completed and every party is ready to sign, it is common to move on to the next project immediately. Whenever possible, one must make sure not to skip the post-execution documentation and evaluation stages of a contract. You can schedule an internal meeting with your team members to identify pain points, analyse their causes and evaluate the measures that were used. Going through this process may help save a considerable amount of time when one is caught in similar situations in the future.   

Implement Artificial Intelligence 

Keeping track of all the contracts in an organisation can be challenging as many companies lack a proper database or an efficient method to find and extract the relevant contract information. This means that companies often waste plenty of time on their contract management system, and hence adopting artificial intelligence to help in contract management is recommended. Studies have shown that companies that have invested in machine learning-based contract management have seen a boost in their productivity, as AI software can quickly sort through a large number of contracts – thereby making your platform smarter.  

Incorporate data privacy 

One must ensure that their organisation is meeting consistent standards and actively avoiding risks that can lead to data breaches. As a business grows, the number and type of contracts that it is involved in will grow as well. Having lacklustre agreement policies may often lead to trouble in the long run, and hence practising proper data privacy goes a long way in avoiding these problems while providing active benefits for the organisation. 

Implement smart contracts 

The advent of digital transformation has also helped in the rise of what is known as a smart contract. Smart contracts are self-executing contracts that are known to digitally facilitate, verify or enforce a contract’s negotiation and performance. These transactions that are digitally documented and executed save time and are more credible than traditional contracts. 

Apply Remote Online Notariastion 

Another contract strategy that has grown in popularity is Remote Online Notarisation, which is the use of audio-visual technology to perform a notarial act where the principal is not in the same location as the notary public. By using RON, companies can save time and allow for everything to be easily tracked within an online system.  

How do you improve your contract management strategy? 

Improving one’s Contract Management Strategy begins by looking at the contract management lifecycle and identifying ways to improve efficiency. Data-driven contract lifecycle management (CLM) platforms can help an organisation transform its contracting process.    

Managing a contract is difficult to get right, and it requires a solid strategy and workflow. Utilising contract management software can help one develop an effective strategy that ensures everyone is informed throughout the contract lifecycle process. One can improve the way that their organisation manages contracts by following a set of dos and don’ts. 

The Dos: 

The following is a set of guidelines that you should follow to improve your contract strategy. 

1) Set up a centralised place for contract management workflows. 

2) Include your staff when planning a contract management strategy. 

3) Maintain the formulated plan once it has been implemented. 

4) Make sure you analyse your data. 

The Don’ts:

Just as there is a list of things you should do to improve your contract strategy, there are also some things you should not do while trying to improve your contract strategy.  

1) Pay for a one-size-fits-all system. 

2) Ignore built-in reminders such as key dates, milestones and deadlines. 

Conclusion 

All in all, a Contract Management Strategy is extremely important for an organisation to ensure effective and efficient management of their contracts. An organisation must keep improving its contract management strategies to ensure that they do not fall behind their competitors. Getting familiar with some of the suggested contract strategies in this blog can help one establish a modern contract management platform for their business. 

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