Contracts are the bread and butter of the legal function of many organisations. These documents define the legal relationship between you and your vendors, clients and other stakeholders. Managing contracts effectively and efficiently is therefore an essential prerequisite for maintaining the equilibrium in your organisation’s commercial relationships, particularly at the high volume of contract use in multinational companies.

This article will explain the concept of contract lifecycle and workflow management to ensure that you are both legally protected and allocating your resources effectively.

What is Contract Management?

Contract management is the administration of contracts between a company and its stakeholders. This includes:

  • developing contracts from pre-approved templates;
  • creating tools and resources to equip people with the knowledge they need to enter into contracts (e.g. checklists and legal playbooks);
  • checking compliance with your organisation’s policies and procedures;
  • capturing background information relating to the context of the contract (e.g. correspondence during negotiations);
  • monitoring the performance of pre- and post-contractual obligations; and
  • managing renewal or extension processes.

Contract management is closely related to matter management, which is all about managing and recording data about legal matters. This includes the type of work involved and the lawyers assigned to the project.

The key difference is about the unit of work. Contract management focuses on individual documents or a discrete set of related contracts. In contrast, matter management relates to transactions, files or cases. These include many different types of contracts, as well as other documents such as emails and invoices.

Contract Management Workflows and Lifecycle Management

In the world of contract management, there are two crucial concepts: 

  • contract management workflows; and 
  • contract lifecycle management.

What is Contract Lifecycle Management?

Contract lifecycle management concerns the journey that a contract takes through your organisation, focusing on the different people and teams responsible for:

  • triggering the initiation of the contract;
  • comments and negotiation;
  • execution;
  • noting key dates and performance criteria; and
  • storing the contract in your file management system for future reference.

While contract management looks at the administration of individual contracts, contract lifecycle management takes a holistic view of the contracting cycle. It refers to the process of preparing, reviewing, negotiating and executing contracts. It also extends to managing authors of contracts and compliance with contractual terms. 

What are Contract Management Workflows?

Contract management workflows are about the tasks and activities that occur during the contract lifecycle. Workflows exist both at the individual level (the workflow of a specific contract), and the aggregate level (the workflow for an entire category of contracts). 

For example, the workflow for an individual contract may guide the execution of a service agreement between your organisation and the ABC. In contrast, an aggregate level workflow establishes a pathway for all service agreements that your organisation enters into.

Contract Lifecycle Management

Contract Management Workflow

What needs to be done.


For example: execution of the contract.

How tasks will be done.


For example: reminding the organisation’s authorised signatory to sign and return the contract on time.

Adopting the Right Tools and Systems for Your Contract Workflow

Workflow tools help make it easier to pass the contract from one phase to another, alert stakeholders when they need to take action and make it clear who needs to do what to get the contract signed.

Workflow tools include:

  • automatically assigning new requests for legal help from the business to specific lawyers in your team (depending on the type of request and the expertise of your team members);
  • dashboards and other live reporting which provide real-time updates on the status of different contracts (e.g. how many contracts are in the ‘drafting’ stage, how many are with a third party, and how many are awaiting signature); and
  • automated reminders when tasks, such as legal sign-off, are due (instead of chasing up stakeholders via email).

By applying specific tools that relate to the objective of different phases of the contract lifecycle, it is possible to promote good contract management practices. 

Contract Lifecycle Examples

Phase of the Contract Lifecycle

Contract Management Workflow Tool

Preparation

Document automation: Instead of manually drafting and populating placeholders in contracts, team members can enter details into dynamic web forms (or questionnaires) which can generate contracts in a few minutes.

Negotiation

Clause libraries: Pre-approved wording for clauses – covering both preferred and fallback positions – can streamline negotiations. Some contract management systems can also notify legal teams if a position in a clause library is modified.

Approval

Delegation of authority platform: By answering a series of questions about the contract, this type of platform can help business team members navigate complex delegation of authority protocols. It can also direct them to the right person to approve entry into a particular contract.

Execution

Electronic execution: This enables multiple parties to sign the same contract quickly. It can also include automated reminders to sign, rather than having to issue multiple hard copies and chase outstanding signatures.

Ongoing compliance

Automated reminders: Reminds the organisation of payment and other milestones relating to performance, such as delivery dates for goods.

Benefits of Good Contract Lifecycle Management and Effective Workflows

Creating and maintaining good contract lifecycle management and contract management workflows has several benefits. These include:

  • reducing the likelihood of legal errors;
  • promoting adherence to corporate governance protocols;
  • minimising risk; and
  • improves visibility.

Reducing the Likelihood of Legal Errors

By using standard templates and relying on pre-approved contractual positions (and pre-approved language in clause libraries), you can minimise deviation from your organisation’s preferred and fallback contractual positions.

Compare this with the state-of-play in organisations without proper contract management practices. Here, the accuracy of their legal documents depends on the individual author. This increases the risk of legal errors if they are:

  • authoring a contract that falls outside of their area of experience; or 
  • referencing an outdated resource or superseded precedent.

On the other hand, having a precedent or template which has been settled by a subject matter expert regularly checked for accuracy in line with regulatory changes will minimise the likelihood of legal errors. This means that you can have more confidence in the legal work that your organisation produces.

In some ways, contract management is a part of knowledge management, which is about capturing and facilitating the transfer of knowledge within your organisation. If you have easy access to contract templates and a searchable repository of precedents, then you are putting valuable knowledge within easy reach of your lawyers and wider team. This allows you to save time and money by leveraging existing knowledge and avoiding the need to re-create work.

Promoting Adherence to Corporate Governance Protocols

Contract management helps minimise errors in the process of entering into a contract, by making sure you are getting sign-off from the right people. This is particularly important from a corporate governance perspective. 

Indeed, contract management helps you introduce a process for document execution, to make sure that authorised signatories and business stakeholders are operating within any delegated authorities they may have. It also helps you to monitor compliance with these execution protocols. This is important because it ensures that people who are approving and entering into contracts have the right authority to do so. Good contract management, therefore, bolsters good corporate governance practices.

Minimising Risk

Effective contracting processes are an important part of managing legal and commercial risks within your organisation. Contract management can help administer the following terms of a contract, as well as establishing processes to escalate these issues to the legal team if they fall outside of the organisation’s preferred legal and commercial position:

  • indemnities and liabilities;
  • insurance requirements;
  • termination risks (i.e. the cost to your business if a contract is terminated); and
  • payment terms, which carry risks for cash flow. 

All of these clauses can have a material impact on the obligations of your organisation. Therefore, a robust process for administering and overseeing these types of clauses can go a long way to mitigating unnecessary risks.

Quickly assessing and prioritising requests for new contracts is also a valuable strategy for good contract management. You can set up triage processes where high value/high risk contracts go straight to the relevant subject matter expert, whether that expert is in-house or an external legal provider. Then you can push low value/low risk contracts quickly through to signature. This can be achieved through self-service tools or the use of contract automation software. 

One of the first steps in building an effective triage system is to carefully and clearly determine what contracts fall into the ‘high value/high risk’ bucket and which ones fall into the ‘low value/low risk’ category. In undertaking this exercise, it is important to not only consider types of contracts but types of clauses

For example, a zero-dollar contract that would typically be ‘low risk’ may have a ‘high risk’ clause, such as an unusually expansive indemnity clause that departs from the organisation’s approved position for that category of contract.

Improving Visibility

If your team relies on spreadsheets or similar tools to keep track of contracts, you have probably found it challenging to stay on top of key tasks. It is very easy for key information to be out of date, overlooked or entered incorrectly. This makes it difficult to stay on top of renewal dates and contract values. Similarly, if your team relies on various methods of saving and storing files, you most likely know that this can isolate knowledge.

When delivered through a technology system, contact management can:

  • improve transparency through a centralised point of storage; and
  • ensure better version control.

If you have clearly defined protocols for how to handle contracts in your organisation, as well as good change management practices that promote use and understanding of these protocols, then you will be in a stronger position to collect valuable data. This data can show you:

  • volumes (e.g. most popular contracts within your organisation by type, business unit or jurisdiction);
  • hot spots (e.g. the most heavily negotiated parts of your contracts); and
  • bottlenecks or blockers (e.g. where your contracts typically get held up or experience the delays through the contract lifecycle).

This visibility can unlock opportunities to streamline the operation of your legal department. If you know where your team currently allocates its resources, you can identify ways to optimise legal spend.

For example, knowing which contracts you use the most can help you to justify purchasing document automation software to save the time it takes to manually prepare these documents. If these are standard contracts, then there is the added benefit of shifting this routine work away from your lawyers, so that they can focus on more meaningful and legally complex tasks.

The Role of External Providers

The work that makes up the lifecycle of a contract is likely carried out by a number of different parties. This work can be done in-house or by third parties, such as law firms or alternative legal service providers. 

It can be helpful here to break down your contract workflow into constituent parts and consider whether your in-house team or an external provider is best suited to deliver each specific task. Here, it is helpful to look at the unique value proposition of each player in your contract workflows so that you can make sure you are leveraging their strengths to your advantage. 

For example, technology providers have distinct capabilities that are typically not offered by law firms. This means you should involve technology providers in tasks that lawyers cannot help with, such as creating integrations between different pieces of software in your organisation. On the flip side, large international firms can offer advantages in terms of coverage (particularly if your organisation has a global presence) and resourcing (as they have large teams of lawyers to assist on more significant transactions). So, if coverage and resourcing is particularly important for you, then a larger firm will have more to offer.

Value Proposition of External Providers

Player

Unique Value Proposition

Law firms

Offer subject matter expertise on complex areas of law. This is particularly valuable for issues where your organisation does not have a pre-approved position on a novel or niche issue.

Alternative legal service providers

Bundle legal, process and technological capabilities to contribute to streams of work where there is a high opportunity to drive efficiencies and lower costs (e.g. due to the volume of the work).

Technology providers

These providers offer single function or multi-function systems. Single function systems deliver a task that sits within a broader contract workflow. For example, DocuSign assists with the electronic execution of documents. 

Multi-function solutions cover the entire gamut of a workflow – from initiation through to storing final signed versions. For example, Apptus uses machine learning and artificial intelligence to streamline contract management tasks.

Key Takeaways

If your organisation uses multiple contracts to deal with vendors and clients, you need to establish strong contract lifecycle and workflow management systems. This involves processes to optimise the administration of contracts and increase the efficiency of each step of the contract’s drafting, execution and storage.

Strong management systems will help you minimise legal errors, navigate corporate governance protocols, minimise risk and best leverage your resources. If you would like assistance introducing effective contract management processes, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

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Amritha Thiyagarajan
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