Improving efficiency of contract management processes is a top priority for many legal departments. Inefficient contracting, from drafting, negotiation to signature, not only slows down deals and expose the company to risk, but can also increase costs.
According to an IACCM study, businesses spend an average of $6900 on a low risk contracts $21300 on mid-complexity contracts, while high complexity contracts run into hundreds of thousands of dollars. Interestingly, the most efficient businesses (the top quartile companies) spend just $3800 for simple contracts, $14000 for mid-complexity contracts and $49000 for high risk/ unique contracts. When compared to the amounts spent by average corporations on contracts, the most efficient businesses spend almost 45% less on simple contracts and 34% less on mid-complex contracts and even lesser on high risk contracts– a clear return of any investment to drive efficiency.
How to improve contract management efficiency
Businesses deal with many types of contracts requiring different processes with different people, in accordance to unique business rules. As legal departments are under immense pressure to do more with less, they must come up with innovative ways to improve efficiency in all these different processes across the business.
It is also upon the legal team to ensure all other colleagues involved in the contract lifecycle are working in the most efficient way possible.
Here are some quick tips for improving contract management efficiency at each phase of the contract management lifecycle by taking a collaborative approach:
A typical scenario is that a colleague needs to draft a fixed price contract. He might ‘copy & paste’ a similar template used in the past (which was not originally intended for the new transaction), without consulting the legal team, fearing he won’t get the deal through on time. While doing so, he might accidentally omit (or forget to add) a relevant key term that protects the company.
The key is to retain control over all contract drafting across the business while empowering the business to self-serve. By providing colleagues access to pre-approved contract templates and term/clause libraries, they can create standard contracts on their own, saving you time. You can also build in rules for mandatory Legal review if the contract deviates from the template. This way, you still have 100% control, but you are empowering your colleagues to self-serve, saving you time and money!
Contract collaboration & negotiation
A quick way to improve efficiency during collaboration and negotiation is to use central system for collecting comments, making revisions and signatures. Sending contracts back and forth in email with third parties is extremely inefficient, not to mention unsafe due to security threats. Comments and revisions are difficult and time-consuming to track, which can result in approving an inconsistent contract.
Employing a collaborative tool on a secure cloud allows you to track changes in real time. This way, the contract is shared safely, and you can keep track of the edits made by everyone. Moreover, with collaborative tools you can set standard workflows and request electronic signatures to ensure no delays in contract approval.
Contract execution, performance & monitoring
If your contracts are scattered in filing systems, stored on different computers or servers, or managed on various spreadsheets, this means that not only your contractual benefits and/or obligations are “out of sight, out of mind”, but no one will have a clear idea of who is responsible for what. Your colleagues will always be asking you to confirm details, like parties, deadlines, terms – and you will need to spend time searching for this data at every request. Moreover, and most critically, you will not have an accurate, up-to-date overview of your contract portfolio or your risk exposure, limiting your ability to identify opportunities or mitigate risk proactively.
A central repository to store all your contracts and data can be a game changer. With controlled access, colleagues can check contract information – like terms or deadlines – on their own, so that they are aware of their duties and responsibilities. This way, those who are involved, have complete oversight over critical contract information and the business doesn’t fail to perform a contract obligation. What’s more, you will have access to KPI reporting that will help you stay in control of risk and performance.
Contract closure or renewal
When contracts are decentralised, it is easy to miss a deadline to renew a contract or renegotiate specific terms. For an instance, failure to renegotiate contract terms when there is new regulation can lead to renewing contracts on outdated regulations. One the other hand, a missed deadline can lead to a contract continuing to bind the business to perform benefits and obligations unnecessarily (for instance, to make payments for unwanted services). If the unintended continuation of the contract leads to unmet contract terms, this can create disputes, which puts the company at risk of reputational damage, financial loss and/or cost the company future business.
Using a centralised system for managing contracts can make reporting on renewal terms and deadlines easy for Legal, but also for other departments who manage their own contracts. You can set alerts and notifications to remind the relevant people of upcoming deadlines, check standard obligations or start renewal negotiations on time.
To conclude, regadless of the size or budgets, legal departments can improve contract management and drive efficiency at every stage of the contract lifecycle through effective collaboration.