What is contract management: 9 stages and 7 best practices

Contract Management happens in every organisation, whatever sector it belongs to. Doing it properly is fundamental to a company’s success; in fact, many have chosen to adopt Contract Management Software to speed up the whole process — but let’s take it step by step.

What is Contract Management?

Contract Management (also known as “contract administration”) is the set of tasks related to an organisation’s contract portfolio.

The concept covers the entire life cycle of contracts: not just drafting them, signing them and remembering when they expire, but many other tasks such as identifying and mitigating risk, resolving disputes and so on.

When it is done manually, this work is usually handled with tools such as Outlook, Excel or shared folders which, while adequate for a small volume of contracts, end up causing problems at higher volumes.

With laws on contracts becoming ever stricter, contract management can be very labour-intensive, and mistakes with serious consequences can be made, as the statistics have shown:

23% of corporate contracts are renewed unintentionally

Thanks to new technology, tools such as contract management software reduce the risk of errors, make bottlenecks easy to identify and can automate a large part of the work. If the process is already clear and you are looking for a tool, in contract management software we compare the 10 features to demand; and if you would rather see it working, the R2 Docuo contract manager does it with AI and signature included.

The 9 stages of Contract Management

When carrying out this process, it is essential to know all the phases that make it up, since skipping any of them can lead to delays and mistakes. Let’s go through them:

1. Request

The person who identifies the need for the contract (usually referred to as “the contract sponsor”) asks the legal team or the other party to create the agreement document. This can be sped up by using online request forms. Forms of this kind ensure that users give the legal team all the data it needs to create the contract, providing a single point of entry.

2. Planning

The parties to the contract and the stakeholders establish its general terms, including deadlines, obligations, the type of contract and so on. This stage is fundamental, as it will guide everything that follows

3. Drafting

All the terms and conditions that have been agreed have to be put in writing. It is important to be very clear about what is written and to leave no room for doubtful interpretation, which is why this task usually falls to the legal team. The norm is to have a library of templates for the usual models, or software that lets you automate document creation with intelligent contract templates.

4. Negotiation

Once you have the first draft, it is time to negotiate. Both parties can request changes. It is essential that the negotiation workflow is quick, so as not to disadvantage the parties involved.

5. Approval and signature

When the parties reach an agreement, it is time to sign. Depending on the type of contract and its characteristics, it may be necessary to use an electronic signature or a handwritten one. Once signed, the contract is considered in force or “in the portfolio”.

6. Rights and obligations

While the contract is in force, all parties acknowledge their contractual responsibilities and, as time passes, start to carry them out. It is essential to meet your obligations in full and to claim your rights from the other party if they are not meeting theirs. Many rights and obligations are optional, others are mandatory. Each party has to keep track of its own.

7. Changes, revisions and addenda

Even while the signed contract is in force, changes often need to be made in line with needs that come to light along the way.

8. Termination

When a contract comes to an end, it is important to analyse whether each party’s obligations have been met and whether there will be a renewal. It is sometimes advisable to send formal notice of termination.

9. Renewals

The parties can decide whether to renew, amend or terminate the contract. In some cases it may contain provisions allowing it to be ended before the agreed date.

 

Best practices

As you have seen, the life cycle of a contract is made up of numerous stages, and each of them presents different challenges that tend to be common to most organisations. Here are some useful tips you can bring into your Contract Management routine:

1. Establish a standardised process

Create a clear, structured process for managing corporate contracts. This covers the creation, negotiation, approval, execution and monitoring of contracts. A standardised process guarantees consistency and efficiency at every stage of the contract life cycle. Each organisation may have a slightly different process; it is the legal team’s job to design and maintain this workflow.

2. Use contract templates

Develop standard contract templates for different types of commercial agreement. These templates should include clear terms and conditions, as well as clauses that protect your organisation. Using predefined templates reduces the time needed to draft contracts from scratch and minimises errors.

3. Carry out thorough reviews and negotiations

Before signing a contract, it is important to review all the terms and conditions carefully. Identify possible risks and ambiguous or unfavourable clauses, and negotiate changes or additions to protect your organisation’s interests. This may involve bringing in legal experts or outside advisers if necessary.

4. Keep management centralised

Centralise contract management in a single system or platform (also known as a “source of truth”). This allows easy, fast access to every contract, as well as efficient tracking of deadlines, renewals and contractual obligations. It also makes it easier to generate reports and analyse contract-related data.

5. Set up alerts and reminders

Configure automatic alerts and reminders for important contract milestones, such as expiry dates, renewals or reviews. This helps avoid missing important deadlines and ensures the necessary action is taken in time, such as renewing contracts or negotiating updated terms.

6. Document and file properly

Make sure you document and file every contract properly. That means storing electronic and physical copies of the contracts (where applicable), as well as any related communication or correspondence. An effective filing system makes it easier to retrieve information when needed and ensures contractual obligations are met.

7. Monitor and follow up continuously

Contract management does not end once the agreement is signed. It is important to follow up and monitor continuously to make sure all parties are meeting the agreed terms and conditions. That means setting metrics and KPIs to assess the contract’s performance and resolving any problems or disputes that may arise over its lifetime.

 

These best practices will help establish solid corporate contract management in your organisation, which will improve operational efficiency, reduce risk and maximise the value obtained from commercial agreements.