Author: carl.murray

Commercial contracts are needed for any business to partner with vendors, bring on new customers, or hire new employees. But what goes into a commercial contract? This blog explores some of the most common clauses found in commercial contracts, as well tips for effectively managing these agreements throughout the contracting process.

What is a Commercial Contract?

In the simplest terms, a commercial contract is a legally binding agreement between two or more parties. Most of the time, commercial contracts come in the form of written documents, but they can also be verbal agreements in certain situations. Commercial contracts explain, in detail, what all parties are obligated to do in order for the contract to remain valid, and what the repercussions are should any party fail to comply with the agreed upon terms and conditions.

6 Key Clauses Found in Commercial Contracts

Contracts are used in virtually every industry, and many of the contract clauses that are used are applicable across sectors. In fact, there are certain contract clauses that are likely to make an appearance in just about any contract that is drafted. Commercial contracts, in particular, tend to contain a standard set of terms and conditions. 

Here are six key clauses found in commercial contracts:

Confidentiality

When two or more firms enter into a contract, there will no doubt be a significant exchange of information in order for both sides to perform their contractually stipulated obligations. In light of the need to furnish certain information about each side’s financial and business practices, it is imperative for the contract to contain a strongly worded confidentiality clause. This clause should preclude both sides from divulging any and all information that is shared during the course of the transaction. Of course, this is particularly important when there is valuable intellectual property at stake.

Force Majeure

The phrase force majeure literally translates as a “greater force.” This clause should always be included in commercial contracts, as it can protect parties from circumstances that arise that are beyond anyone’s control. For example, in the event of a natural catastrophe, such as an earthquake or hurricane, a shipment schedule may be unavoidably disrupted. In general, the definition of force majeure is rather broad, with many contracts including wording about things like terrorist attacks and even acts of God. This clause is important to include to ensure that any failure to perform due to such an unforeseeable disruption is not considered a breach of contract.

Termination Triggers

In business, things often do not occur as planned, and thus parties must be able to cut and run as necessary. For contracts, this usually involves the inclusion of a termination clause. This section of the contract must clearly lay out the circumstances under which one or both parties may terminate the contract, irrespective of the time left under the agreement. For example, if one of the parties is acquired by another entity, the other party to the contract may reserve the right to terminate the agreement.

Jurisdiction

These days, cross-border transactions are fairly routine, both in the domestic and international sense. When the parties to a contract are located in more than one state, or perhaps more than one country, it may not be clear which state’s laws govern the arrangement. Therefore, commercial contracts should always specify the state that will have jurisdiction over the agreement, so that it is perfectly clear which laws are applicable.

Dispute Resolution

Even the most well-drafted contracts are susceptible to conflict. As a result, it is of the utmost importance to clarify the parties’ plans for dispute resolution in the event that an issue arises. In many contracts, it is now common practice for firms to include an arbitration clause, requiring the parties to submit to arbitration prior to or in lieu of seeking a remedy via litigation. This is generally a faster, cheaper way to solve contract-related problems, although some contracts still allow for traditional legal recourse.

Damages

In light of the frequency of contract breaches and in an effort to deter them, it is also standard practice for commercial contracts to contain clauses related to damages. In general, liquidated damages clauses will be included, which is usually a predetermined amount that will be owed if one side fails to perform. Of course, a court may award other types of damages beyond that amount depending on the nature and impact of the breach.

Effectively Managing Commercial Contracts

Commercial contracts lay the foundation for how your business operates, so it’s important that you develop a structured plan to manage your agreements throughout the contract lifecycle. There are various stages that make up the contract management process, ranging from planning and contract implementation through contract closeout.

Here’s a brief overview of the seven stages of contract management so you can determine what steps you need to take to succeed in each part of the process:

1. Planning

As the name suggests, this is the time to plan out your process for managing each agreement, determine roles and responsibilities, and assign resources to ensure the contract is monitored closely and obligations are met.  

2. Implementation

The implementation stage is the process of putting your plan into action, and ensuring you have all the right tools in place to manage agreements, including contract lifecycle management software.

3. Pre-contract

During the pre-contract stage, new agreements are carefully drafted, reviewed, and signed. Be sure each contract includes all of the required terms and conditions (including the clauses covered above), so all parties feel confident that the agreement clearly states what is expected of them.

4. Handover

Since the individuals who drafted and negotiated the contract aren’t necessarily the ones who will monitor the active agreement, this is the time to make sure that the contract manager is up to speed and understands all milestones, obligations, and other contract details.

5. Contract

The contract stage is the period of time when the agreement is active and the parties involved are working to deliver services according to the agreed upon terms.

6. Pre-renewal

Before decisions are made about the future of a contract – whether it should be terminated, negotiated, or renewed – the agreement should be evaluated to determine the impact it has on the business. The pre-renewal stage is when this evaluation happens, so stakeholders have the information needed to decide next steps.

7. Post-contract

The post-contract stage, or contract closeout, is the time to wrap up all items related to the agreement and conduct a post-mortem, so you can improve the way future commercial contracts are managed.

Final Thoughts 

Regardless of the size of your business or the industry it operates in, it’s imperative that your commercial contracts are carefully drafted and reviewed thoroughly, both before signing and on a regular basis. For help getting started building out your process for managing commercial agreements, download The Master Checklist for Contract Review & Management.

Lifecycle. Process. Whatever you call it, effective contract management doesn’t only involve developing agreements and getting them signed – it’s a series of actions that guide you from the earliest stages of developing holistic processes for handling each and every company agreement, through to the steps to seeing contracts through to their conclusion.

Having a clear understanding of what happens at each stage is an important way to ensure your contract management processes meet all of the requirements and objectives to deliver optimal results.

What is Contract Management?

Contract management describes the contract process from the moment contracts are created to their eventual termination. The goal is to maintain control over the planning, implementation, and termination. This also includes any and all steps that are taken to ensure proper reporting and obligation fulfillment.

Contract management also involves any legal actions undertaken to address breaches of contract. For instance, those who are responsible for managing the contract process may provide non-compliant parties with a course of action to become compliant, or they can simply choose to terminate the agreement and find another party to work with.

Contract Management vs. Contract Lifecycle Management

Contract management is frequently confused with its cousin – Contract Lifecycle Management (CLM). It doesn’t help when some introduce the term “contract management lifecycle” while referring to the former. This only adds to the confusion.

While both contract management and CLM are similar and share the same “big picture” goal (i.e. managing contracts), there is a critical difference between them.

Contract lifecycle management divides contract operations into clear, defined stages whose actions are optimized to ensure maximum efficiency. Legal agreements are ferried through the entire contract lifecycle in accordance with designated workflows and conditions. This is frequently achieved by leveraging legal technology that adjusts actions to accomplish each stage of the contract lifecycle.

Contract management, by comparison, is a blanket term that can be applied to all activities associated with contracting. The term can even apply to situations when a contract is never fully executed and is abandoned in the early stages of its life.

In simpler terms, CLM is simply one approach to contract management. It combines people, processes, and technology in a way that allows organizations to get the most out of their contracts. Similar to how a square is a rectangle but a rectangle is not a square, CLM is a type of contract management while contract management is much more than just CLM.  

Stages of Contract Management

One of the purposes of breaking contract management into distinct stages is to make it easier to analyze contract workflows and processes. Since the entire process is separated into recognizable steps, this allows managers and teams to identify broad trends and locate areas of improvement.

Here are the seven essential stages of contract management.

1. Planning stage

Before you can implement a process, it’s important to develop a system that will best suit your company’s needs and resources. To keep things streamlined and organized, it’s also important to develop contract management processes that can be implemented company-wide.

Your contract management strategy is a flexible roadmap consisting of processes that account for all types of company agreements, from standard employment contracts to the paperwork from highly specific and complex deals. The first step to developing your strategy is to determine your needs, including answering the following:

• What types of contracts do you have to manage and in what volume?
• Are there standard agreements you use again and again? What needs to be included in these?
• Who is responsible for each stage of contract management and what do they need to perform their job?
• Who has the final say on the contract approval process?
• What common problems have occurred in the past, or what issues might arise during the management of a typical contract?
• What resources are required to implement your contract strategy?
• What contract data are you tracking? Where is it stored? How is it reported?

Understanding the remaining stages of contract management will help to inform your processes. If you’re currently unable to answer the questions listed above, you may need to adjust your contracting processes. Check out our change management checklist to learn how.

2. Implementation stage

Once you have outlined your contract management workflow, you will need to implement your plan before you can start using it. This includes deploying contract lifecycle management software to help you to execute contract-related tasks, as well as migrating your contracts to a centralized repository.

A crucial part of your implementation plan is onboarding – making sure everyone involved understands your vision and objectives for contract management and is comfortable with the CLM software they will be using.

3. Pre-contract stage

Now that you have your contract management foundation set up, you can begin to implement it for new contracts. That means developing new contracts or implementing boilerplate agreements for more standard situations. The key challenge of this stage of contract management is developing a specific document that will deliver what you need and reduce your risks.

For standard situations, this stage may be as simple as finding the right contract type, entering the relevant information, and perhaps making a few tweaks. More unusual or complex contracting scenarios may require the development of a whole new document. Developing a contract from scratch can be made easier by looking at other agreements that might be applicable and adapting those terms. Leverage ChatGPT or another GPT-3 technology to speed up specific steps of drafting and contract creation. Don’t forget to carry over any important requirements such as compliance obligations or branding standards. Once you have agreed on the terms and developed your contract, e-signatures can keep things moving.

4. Handover stage

It’s common – especially in larger companies – that the individuals involved in executing a contract are not the same as those who negotiated it. Thus, in order to ensure the contract is fulfilled as expected, it’s important to ensure a smooth handover. Rather than assuming stakeholders have everything they need, it’s useful to spend some time walking through all of the contract details and confirming roles, responsibilities and milestones.

5. Contract stage

The contract stage is when all of the goals of your contracts come to life, assuming you manage them properly. And the previous contract management steps you’ve completed so far are setting you up to do just that.

But the contract stage doesn’t manage itself – it’s here where you must play close attention to all of the terms laid out within your agreement and perform regular monitoring to make sure everything is happening as it should. It’s useful to have a plan for doing so, with a clear sense of key milestones and performance metrics that will let you confirm everything is on track – or provide an early warning system if any problems arise.  

6. Pre-renewal stage

Nothing lives forever – not even your contracts. But there are several ways your agreements may come to an end: one-off agreements may wind down to a natural conclusion, you may renew an agreement, or choose to terminate it. Often there are specific terms – and even possibly penalties or default actions, should you fail to do anything – that can affect the outcome, which is why it’s important to start thinking about the end of your contract in a proactive and timely manner. Now is the time to evaluate how your contract performed and decide whether you want to renew and/or make any changes. Make sure all stakeholders are aware of termination and renewal dates and that you have enough time to consider all the information before you get locked into any decisions.

7. Post-contract stage

Once a contract ends, there is still some housekeeping to do to ensure that everything is wrapped up properly. This includes ensuring termination conditions have been met, issuing or paying final invoices, and archiving your contract. It’s also useful to perform a contract post-mortem, which can provide valuable information and learnings that can improve the results of future contracts.

Challenges of Contract Management

When manually managing contracts, many companies rely on Microsoft Word to draft contracts, Microsoft Excel to analyze data, and Microsoft Outlook to share documents and information. Even if they don’t use Microsoft, they turn to another major provider like Google or Apple.

On the one hand, relying on familiar software removes the need to train people on how to use specialized software as most employees probably grew up using Microsoft, Google, or Apple (or, most likely, all three). This appeals to companies since new employees can start doing meaningful work from Day 1.

On the other hand, generalized software lacks the power and capabilities of specialized software. And most document actions have to be carried out manually, which creates opportunities for errors and typos.

Real-life examples

Successful contract management isn’t easily achieved. In fact, it can be brought down by a simple spreadsheet cell.

According to Forbes, 88% of all spreadsheets contain “significant” errors, and even the best spreadsheets have an error in 1% or more of their cells. To top it off? Most were made by a human.

For massive, multi-billion dollar corporations, errors in spreadsheets could cost them millions in lost revenue. That’s the best case. In the worst case, mistakes could expose companies to a legal fall that ruins countless careers, if not send the company into bankruptcy (and regulatory lawsuits).

Consider that JPMorgan Chase once lost over $6 billion during its “London Whale” fiasco, which they reported was in part due to spreadsheet errors that appeared from poor copy-pasting of information. 

Barclays had a similar issue when they were forced to spend millions on worthless contracts during the Lehman Brothers bankruptcy proceedings in 2008. Instead of deleting contracts they did not intend to buy, they simply “hid” the contracts in their Excel spreadsheet. Then, when the spreadsheet was exported to PDF and submitted to the court, the hidden rows were included, causing Barclays to be legally committed to buying contracts they didn’t want.

Even non-banking institutions can fall victim to manual spreadsheet errors. The London 2012 Summer Olympics organizing committee is one such case.

The committee planned to sell 10,000 tickets to a synchronized swimming event, but a single missed keystroke by an employee caused 20,000 tickets to be sold instead of 10,000. After greatly overselling tickets, the committee had to take action to make amends.

The lesson from these real-life examples is that not only can errors in management lead to massive losses, but many of the smaller errors can be challenging to spot. For example, if you submit a purchase order to buy pencils at $.10 each only to miss the decimal point, you could find yourself on the hook for paying $10 per pencil.

Common contract management issues

Manual contract management can be with peril. As mentioned in the examples above, bad contract management will create massive headaches, as well as financial and reputational losses that can be difficult to recover from.

This defeats the purpose of good contract management, which is to control costs, manage funds, reduce risk, and ensure high-quality performance.

Still, if your organization does suffer from below-average contract management, it’s not the end of the world. Poor processes can be overhauled into workflows that do the job. 

But before you can reform your processes, you first need to identify the issues that plague them. Here is a short list of some of the more common contract management problems:

• Lack of visibility – Contracts contain a lot of information. It’s common to lose track of data only to find out that something is missing (or accidentally added) after the fact.
• Missed contract renewals and obligations – If reminders aren’t scheduled, it’s easy to inadvertently miss a deadline for reporting, renewing, or terminating. You may find yourself locked into a contract you don’t like.
• Inflating costs – 2023 is already a difficult year as inflation, rising interest rates, and the threat of recession make cost predictions impossible. Yet the more time you spend manually working on contracts and reporting, the more money you spend.
• Data gaps – Sometimes information isn’t entered into a spreadsheet or system when it should be. This creates gaps in information that need to be addressed, yet they’ll only be addressed after they were needed. 
• Manually-entered data – As JPMorgan and the London 2012 committee both proved, it’s easy for data entry to create mistakes. Whether it’s bad copy-pasting or missed keystrokes, no matter the error, it will still be legally enforceable if it was entered into a contract.

These are just a few of the potential snags and bottlenecks that can affect contract management. To identify what problems hinder your own processes, you’ll need to conduct a thorough analysis of your workflows.

How to Simplify Contract Management

One of the most straightforward options for streamlining contract management is to adopt a specialized contract management software that boosts contracting efficiency while reducing unnecessary bureaucracy, expenses, and red tape.

In addition to contract management software, here are some actionable tactics that will speed up and facilitate your contract management workflows:

• Put in the work to standardize templates, language, and rules
• Create a model of the contract management process that outlines the steps of the process
• Develop a contract playbook that provides clear explanations for standard contracts
• Determine which metrics your team will use to assess contract management efficiency
• Adopt an automated contract management solution
• Designate and organize a dedicated contract repository that can serve as a single source of truth for all contracts, templates, data, and reporting

This is just the tip of the iceberg of what you can do. There are many more steps you can take to accelerate your contracting.

If you’d like to see this in action, take a look at our 5 tips for managing sales contracts.

Wrapping Up

Contract management contains a lot of moving parts and elements. Although it can be challenging at first to map out a clear contract management process, especially if there’s little to no documentation that indicates current practices, the benefits far outweigh the investment.

There are several routes to easing the friction of implementing contract management, such as the introduction of specialized legal technology, digitalization of storage, and document automation.

To find out how ContractWorks can empower your contract management processes, contact our team for a demo. They’ll show you how our platform can help you take – and stay – in control of your contracts (without the big price tag).

What is Contract Lifecycle Management (CLM)?

Contract Lifecycle Management (CLM) is the process of tracking and managing every aspect of a contract for its performance, compliance, and other success factors through every stage of the document’s lifecycle — from execution to renewal or expiration. The management process itself begins when a contract is proposed or requested and continues throughout the delivery of the promised good or service and into contract renewal. Having a strong CLM process in place helps organizations maintain a disciplined approach to managing agreements, which can help mitigate risk and increase the likelihood that important contracts perform as intended.

Businesses create or adopt CLM systems to help streamline and add structure around various aspects of the contract lifecycle, most commonly in the form of contract management software. Some CLM solutions are meant to solve every part of the contract lifecycle, while other solutions offer a way to impact specific pieces of the process quickly and affordably. ContractWorks, for example, is designed to give teams a simple, straightforward way to sign, store, monitor, and report on corporate agreements. There is no such thing as a one-size-fits-all CLM solution — every business has different challenges, requirements, and budgets, so it’s best to find the type of software that aligns with your unique situation.

Why is Contract Lifecycle Management Important?

CLM helps organizations minimize contract risks, ensure compliance with regulations, audit contracts for performance, and stay organized from beginning to end. Effective contract lifecycle management translates to cost and time savings for any organization. 

What Are the Stages in the Contract Lifecycle Management Process?

The contract lifecycle management process is broken down into seven key stages, including Planning, Implementation, Pre-contract, Handover, Contract, Pre-renewal, and Post-contract.

1. Planning stage – This is where you develop your CLM strategy based on your company’s needs and resources.
2. Implementation stage – During the Implementation stage, you build out your contract management process to deliver against your strategy, and ensure everyone involved in the process understands the objectives and is comfortable with any tools they’ll be using along the way.
3. Pre-contract stage – This is where you’ll draft, negotiate, and sign your contracts.
4. Handover stage – Once the contract is signed, you’ll want to make sure that all stakeholders have what they need to manage the signed agreement, and that all-important details like roles and responsibilities, obligations, and contract milestones are accounted for.
5. Contract stage – This is one of the most important stages in the contract management process, where those managing the agreement track important milestones and obligations, monitor performance, and ensure that the contract delivers the intended results.  
6. Pre-renewal stage – This is the time to evaluate the overall performance of the agreement and decide whether to terminate, renegotiate, or renew the contract. 
7. Post-contract stage – Now that the contract has ended, the Post-contract stage is the time to ensure all conditions have been met and tie up any final loose ends before conducting a contract post-mortem to help you improve in the future.

Within these seven stages, there are numerous contract management tasks and processes that make up the full contract lifecycle. Below is a more comprehensive breakdown of the CLM process, from request to re-negotiation.

Request, Authoring, Negotiation, and Approval 

The first step in the contract lifecycle is the request for a contract. At this point, a draft of the contracted agreement is written. However, it is important to understand that most contracts aren’t agreed upon and signed as-is; there may be substantial changes that need to be made before all involved parties can reach an agreement.

The negotiation process then begins when the contract is first drafted and available for all involved parties to review. Oftentimes, the negotiation stage is one of the longest and most challenging of the entire lifecycle. Depending on the number of parties involved, it can take quite a bit of back-and-forth before a final agreement can be reached.

Still, during this stage, different parties and internal departments will review and ultimately approve the contract. In cases where contract management software is used, the signing process can be streamlined, as these programs often include useful features that allow users to route official versions of the contract to partners and other authorized individuals as needed during the contract signature process.

Storage and Organization

Another important aspect of contract lifecycle management is the storage and organization of contracts. In fact, you could go so far as to say that the success or failure of CLM hinges on organization. This step of the process involves making sure that contracts are properly filed, organized, and able to be found easily when needed.

Even though a contract has been signed, there is a possibility that it will be edited down the road. And it will most definitely need to be referenced at some point. For this reason, an increasing number of organizations have begun moving away from physical storage of contracts and instead utilizing cloud contract repositories for all of contracts and other important documents.

There are many reasons as to why this makes sense for businesses of all sizes. Cloud storage (with the right security features) allows permitted users to easily access a library of contracts. When uploaded, these contracts can be tagged with relevant information so that they can be found using a simple search feature. Ultimately, digital contract repository makes it easier to organize, store, and retrieve contracts as needed.

Tracking and Reporting

Another important step in contract lifecycle management is tracking and reporting. This is where a great deal of risk falls, which is why organizations and agencies need to focus on refining this stage and ensuring compliance so that nothing slips through the cracks. This will provide you with detailed oversight of your user’s actions and an easy way to track down mistakes or missing documents to make corrections.

Successful CLM involves carefully monitoring contracts for milestone dates, compliance, and any other important parameters. This is where having contract management software in place can be useful. The CLM software can help improve contract compliance, making sure that you never leave out critical items.

A contract management program can make note of potential issues and risk levels and bring them to your attention. Tagging clause usage and taking collaborative notes is a great way to catch problems early on before they cost your company a lot of time, resources, and money to resolve.

Performance and Re-negotiation

Contracts can under-perform or become obsolete, which is why it’s important to analyze the performance of a contract over time. Running customized reports on contracts based on specific criteria is an important part of any CLM process. For example, being able to generate contract reports based on commission rates, business territory, or even renewal term lengths can help give you and your organization valuable insight as to how your contracts are performing. From there, your team can make well informed decisions.

An efficient contract lifecycle management process builds in time for your due diligence, management, and legal teams to regularly review contacts for compliance and performance. Contracts that are under-performing can be terminated or re-negotiated into a more favorable agreement for your business.

Benefits of Contract Lifecycle Management Software

Contract lifecycle management software makes it easier to manage the various processes involved in the contract lifecycle. Just about every aspect of the CLM process can be accomplished manually, but incorporating purpose-built software can save you valuable time, reduce risks, and give you greater insight into the details of your contract portfolio.

Here are a few reasons why organizations turn to contract lifecycle management software to manage their contracts more effectively:

• Faster, easier contract signing – Many CLM software solutions either include built-in electronic signature capabilities or can integrate with standalone e-sign tools, so you don’t have to deal with the hassle of wet signatures and avoidable delays once all parties are ready to move forward with an agreement.
• Contract organization, access, and visibility – CLM software allows you to store and organize all of your contracts in one central, online location, so you always know where to find your most important documents. Advanced search functionality makes it easy to find any contract or key term instantly, eliminating the need to scour through inboxes and shared drives to find what you’re looking for. 
• Automated contract tracking and reporting – CLM software takes the manual work out of keeping up with contract deadlines. By taking advantage of alerts and notification features, you can configure your CLM solution to send you email reminders in advance of key contract dates — like end dates or termination notice windows. And with custom reporting tools, you can easily set up, schedule, and share reports based on the data tagged in your contracts, so you can see things like which contracts expire in the next 90 days or which contracts contain force majeure clauses.

A Note on Security

Contracts often contain sensitive information, which is why security concerns should be at the forefront when it comes to deciding how and where you’ll store and organize your contracts. At the very least, your contract data needs to be encrypted both in transit and at rest. This way, even if an unauthorized user were to gain access to one of your contracts, the information would be unreadable.

Two-factor authentication is another important security feature to look for when choosing a CLM sortware for your organization. This requires not only a username and password to log in, but an additional security measure; typically, this involves having to enter a one-time login code sent to your mobile device. Other potential safety features to look for may include:

• Printing disable options
• Audit logs (for tracking who has accessed or edited documents)
• Permissions management for restricting access
• Privacy blind

Security is a top concern, from the first draft of a document until long after it’s signed. Without the proper safety features in your contract management software, a breach of security can cause significant legal trouble for your organization.

Industries and Internal Teams Involved in CLM

CLM is central to any field that relies on contracts. Improved contract management can help companies across a number of industries, including manufacturing, telecommunications, technology, healthcare, and financial fields.

Within any agency or organization, numerous departments may be involved in CLM efforts:

• Sales and sourcing departments – these drive the need for external contracts and are involved in negotiation, approval, and performance measurement.
• Legal departments – these are often in charge of maintaining contracts in compliance-heavy industries (such as healthcare). This department is involved in negotiation, approval, compliance, and regular audits. Oftentimes, legal teams will also work with due diligence teams to verify all contracts are acceptable to the management team before moving forward.
• Human resources departments – these employees usually leverage contract lifecycle management internally. They may also be involved in internal negotiation and use performance measures and special clauses in contracts to understand the state of the business in relation to its employees.
• Management teams – these tend to oversee each of the relevant teams in lifecycle management to ensure that all are working towards the same goals and following organizational protocol.

Simply put, CLM is essential for all modern organizations. Improving the contract lifecycle management process will allow you to stay better organized and up-to-speed on your company’s contract performance. Furthermore, effective contract management workflow will improve your governance and accountability, helping your company to avoid missteps that could affect its future.

For help building out your contract lifecycle management process, download The Master Checklist for Contract Review and Management — a free resource from ContractWorks.

The terms contract management and contract administration are often confused for one another or used interchangeably, but they actually represent different phases of the overall contracting management workflow. To state it as simply as possible, contract administration is the work done before a contract is signed into effect and contract management covers everything done after signing to ensure that deliverables and deadlines are adhered to as outlined in the agreement.

Below is a more in-depth overview of the differences between contract administration and contract management and helpful tips for excelling in both phases of the contracting process.

What is Contract Administration?

The professionals responsible for a company’s contract administration focus their work on the planning and execution of contracts. The planning process often includes sourcing potential contracting partners, for example via sending out requests for proposal. In addition, contract administrators help with ironing out the details of the contract arrangement, working with prospective partners to negotiate on contract matters such as price, delivery schedules, and performance expectations.

Although the word administration makes it seem as though this facet of the contracting cycle is essentially administrative in nature, it requires a great deal of strategy and business savvy. Entering into legally sound, mutually advantageous contracts is critical to the financial success of many businesses, so it is imperative to find the right partners and put into place fair agreements.

Best Practices for Preparing a Contract Administration Plan

Creating and following a strong contract administration plan puts your team in a good position to successfully manage each new contract throughout the lifecycle of the agreement. This formal document should describe in explicit detail what is expected of both parties during the term of the agreement in order to limit possible breaches of contract or other issues that lead to either side not fulfilling their contractual obligations.

Consider the following five best practices when preparing a contract administration plan.

1. Define the scope and deliverables

The first step to ensuring a successful contracting process is to clearly lay out expectations, including the scope and deliverables. Scope creep is a common issue that can derail any contract, so including in writing exactly what the contract does and does not cover will help keep the contract on track.

2. Include a detailed timeline

It may sound like a given, but contract administration plans should include a detailed timeline accounting for every important milestone throughout the life of the contract, including project start and end dates, deadlines for deliverables, and progress updates.

3. Sort out finances

To avoid contract disputes and maintain positive relationships between both parties, everyone involved in the contract administration process should know the financial terms of the agreement, including the value of the contract, payment intervals, and the process to address the need for any additional expenses (depending on the type of contract).

4. Plan the work

To ensure transparency and accountability, the plan should include details about how the contract deliverables will be executed, including the people who will be working on each part of the agreement (including both internal and third-party personnel, if applicable). Having a plan for measuring success throughout the life of the contract will keep both parties aligned and allow for course correction if needed.

5. Anticipate the risks

Every contract comes with risk, but putting plans in place to account for those risks can prevent the contract from failing. Outline the most likely risks for each agreement and the steps that should be taken in the event those events actually happen. Building in some flexibility for timelines and budgets will allow for minor, unexpected delays or problems to be taken in stride and prevent the contract (and potentially the relationship) from suffering significantly.

What is Contract Management?

Contract management occurs after a contract has been executed and taken effect. Thus, this entails working to ensure that the terms and conditions contained within the contract are adhered to and that all of a party’s contractual obligations are met satisfactorily. 

During the contract management phase, it is always possible that circumstances will change, necessitating modifications to the contract agreement. Of course, the contract management team tends to work closely with the other party to the agreement, so they are in a good position to know whether the relationship is working or if it is necessary to pursue opportunities elsewhere. As a result, it makes sense for the contract administrators and managers to remain in close communication, in the event that they are in fact separate teams within a company.

Stages of Contract Management

Knowing what to expect at each of the seven essential stages of the contract management process will increase your ability to meet contract requirements and deliver optimal results. 

1. Planning stage

During the planning stage, you should outline the specifics of your team’s most pressing contract management pain points, needs, and goals, then determine what kind of approach or system would best enable you to address those areas. You’ll also want to consider the resources you have available to allocate to the contract management process. 

2. Implementation stage

After you know what your contract management process should look like, you can begin to implement the tools and systems needed to support those efforts. If you only have a handful of contracts to manage, you can likely track your deadlines, deliverables, and other obligations with manual solutions like shared drives, calendars, and spreadsheets. If you have more complex contract management needs, consider implementing dedicated contract management software to help you keep track of your agreements and important deadlines.

This is also the time when everyone involved with your contract management process should be onboarded and trained on your contract lifecycle management solution so they’re completely comfortable using the software.

3. Pre-contract stage

During the pre-contract stage, you should work closely with the contract administration to start understanding the important details of the new agreement. This will help you prepare for the contract management process and incorporate any specific guidelines that will help you manage the contract and deliverables effectively.

4. Handover stage

If the individuals who negotiated an agreement are not the same people who will be executing and delivering against the terms of the contract, it’s imperative to have a thorough handover process, often involving dedicated meetings to ensure alignment and common understanding of roles, responsibilities, and key deliverables.

5. Contract stage

The contract stage is when the work defined in the agreement is executed and deliverables are completed, hopefully according to the agreed upon timeline and budget. This is also one of the areas where contract management software can help you stay on track and give you the foundation needed to measure performance along the way. Features like automated alerts and notifications and custom reports will let you know of any upcoming deadlines related to deliverables, termination windows, and any other dates you determine are worth tracking.

6. Pre-renewal stage

Typically, as a contract winds down, you must determine if you want to renew, renegotiate, or terminate it completely. More often than not, there are strict timelines that determine when these actions can occur without penalty, so it’s in your best interest to start thinking about these scenarios well before the contract’s end date. 

7. Post-contract stage

Once a contract has ended and the dust has settled, there are a couple of post-contract tasks to complete. Before archiving your contract, review the contract terms in detail to confirm that all conditions have been met and invoices have been settled. 

Finally, conducting a post-mortem will give you an opportunity to uncover valuable information about the contract and your contract management process – including both successes and shortcomings – that can help you improve your future agreements. 

Contract Management Best Practices

There are many different ways to approach contract management, and a plethora of solutions and methods for accomplishing your contracting goals. Here are seven contract management best practices that apply to just about every situation, regardless of the size and complexity of your contract portfolio.

1. Keep all of your contracts in one place

To manage your contracts effectively, you have to know where they are. By keeping all of your organization’s contracts in one location, you’ll know exactly where to go to find an agreement or track down dates, terms, and other specific contract details.

2. Set and measure contract management KPIs

Setting and measuring contract management KPIs is the best way to determine how your contracts are performing and gives you a way to share that information with internal stakeholders. These KPIs also enable you to identify any ineffective parts of your contract management process and develop strategies to improve by reducing risks, eliminating unnecessary costs, or finding missed opportunities in your agreements.

3. Balance storage security and access

Legal departments and contract managers must find the right balance between contract security and access. Those who use contract management software have a secure online repository to house all of their sensitive contracts, and can easily assign varying levels of access so only specific users and groups can view certain files and folders. This allows legal teams to share some of the contract management responsibilities without losing control of your repository.

4. Track contract approval time

The quicker you can move a contract through the approval process, the less time it takes to start seeing the value from that agreement. But, in order to optimize that process for greater efficiency, you first must have a system in place for monitoring it. Tracking contract approval time will help you understand your contract cycle and determine whether improvements are needed.

5. Automate contract communications

Today’s contract management technology allows legal teams to automate many aspects of the contracting process, especially around communications. For example, cloud-based repositories allow users to schedule and send specific individuals automated contract alerts and notifications, removing the need for manual reminders and unnecessary emails. And with the modern solutions available, many businesses have eliminated the process of physically sending documents back and forth for wet signatures, instead turning to electronic signature options for immediate action.

6. Conduct regular compliance reviews

One benefit of having a structured contract management process is the ability to improve your organization’s compliance with industry regulations. By regularly monitoring federal, state, and other legal regulations and ensuring your contracts adhere to those laws, you can protect your business from avoidable penalties and fines. Make it a point to regularly check for updates to the regulations that pertain to your company, and review active contracts to determine if action is needed to remain compliant.

7. Anticipate evolving business needs

Most businesses and their needs evolve over time, so it’s important to anticipate those changes and adjust your contracts accordingly. If your business is growing quickly and you know your needs will be changing in short order, rather than simply renewing contracts for existing services, consider reviewing them closely to determine if it makes more sense to adjust or renegotiate based on your evolving needs. 

Top 3 Steps to Take Now to Improve Contract Management

If your contract management process is in need of improvement, or if you don’t have a formal process in place at all, these three steps can put you on the fast track to contract management success.

1. Conduct an audit of all things contract related

Before you can start taking steps to solve your biggest contract management problems, you have to understand what those problems are. Conduct a contract management audit that includes all of the stakeholders, resources, and processes across your organization that impact how your contracts are handled from negotiation and creation to execution and management.

2. Develop a formal contract management framework

Using the findings from your audit, you can now put into place a structured approach to managing your contract portfolio. This framework should address every element of the contract management process and clearly define what should be happening at each stage. The plan should also include things like roles and departments responsible for various contract-related tasks and processes, how contract management performance is measured, and any tools and systems that should be used during the contract management process.

3. Use technology to make it easier

Implementing dedicated contract management software can vastly improve your ability to manage your contract portfolio and all of your organization’s contract-related deadlines and deliverables. Once your portfolio reaches a certain size or level of complexity, it becomes next to impossible to effectively track and act on every aspect of your contract management process using only manual tools and systems. With the right contract management software, your organization can regain control of your contract portfolio.

Benefits of Contract Management Software

Every business has a unique set of contract management problems and priorities. Determining what type of software your business should implement ultimately comes down to finding the solution that fits your budget, solves for your biggest contract management pain points, and provides a system you and your team will actually use. 

No matter what type of solution you choose, here are some of the most significant benefits of contract management software:

1. Single source of truth

Contract management software provides one central location to store all of your organization’s contracts, meaning every user knows exactly where to go to find the contract information they need. Using contract management software prevents the issue of having multiple copies or versions of a contract floating around, which can cause confusion and lead to individuals working off of an outdated version of an agreement. 

2. Greater contract visibility and insight

Businesses without contract management software often have to deal with misplaced contracts that are scattered across various desks, shared drives, and filing cabinets. Contract management software gives users the ability to search for any contract, clause, or keyword across your entire contract portfolio, and find exactly what you’re looking for in seconds. 

3. Reduced risk

Contract management software helps you reduce contract risk in a number of ways, including:

• Making it easier to track contract dates and deadlines – By scheduling alerts for key contract dates and deadlines, you can be sure you’ll never get caught off guard when an automatic renewal deadline is approaching or a major contract deliverable is due. 
• Providing stakeholders with critical contract insight – Contract management software enables you to run reports based on any metadata of interest, providing increased contract visibility and insight for department heads, leadership teams, and others. Now, the legal team isn’t the only group keeping an eye on contract adherence and performance.
• Learning from – and not repeating – previous mistakes – Contract reporting also gives your team an easy way to analyze your portfolio to identify trends in past agreements. By isolating underperforming contracts, you can work to understand what those agreements have in common and look for ways to modify how future contracts are structured.

4. Time savings

One of the most important benefits of contract management software is that it saves you time, which then allows you to focus on higher-value activities. Manual contract management is tedious and time-consuming, but the majority of contract management software features are designed specifically with your time in mind.

• An online, searchable repository means you don’t have to spend time digging through cabinets to find a contract or re-reading a 75-page agreement to find a specific clause or term
• Automated alerts eliminate the need to manually track important dates for hundreds or thousands of contracts
• Artificial intelligence features automatically identify and tag key pieces of information in your contracts, potentially saving you and your team from spending hundreds of hours manually entering these details
• Electronic signature features allow you to get contracts signed in minutes. With electronic contract signing you don’t have to look for and wait for a needed signee, which helps reduce the time needed to execute new agreements
• Permission-based user roles give administrators the option of assigning varying levels of access to different groups and users, enabling your colleagues to find answers to their contract-related questions without requiring your time and attention

Implementing dedicated contract management solution streamlines the contracting and helps establishes collaborative contracts management process, enabling key members of the legal department to spend less time on tedious contract management tasks and more time on strategic, high-value initiatives.

Contract administration and contract management represent two different stages of the contracting process, covering the periods before and after a contract is signed and put into effect. To ensure all of your organization’s agreements are created, executed, organized, monitored, and optimized according to company standards, it’s important to have strong contract administration and contract management processes and systems in place.