Contracts are the formal, finalized agreements between businesses, necessary for legal protection between parties. They are used to dictate the respective roles between a company and its vendors, partners, customers, and employees. Managing contracts, then, involves the process of overseeing the creation, signature, storage, execution, and review of contracts. This process poses a growing challenge as a company matures through the business cycle from start-up to enterprise.
What are the 6 stages of contract management?
The contract life-cycle can be broken down into these integral steps:
1. Initiation – A company proposes to enter into a business relationship with a vendor, partner, customer, or employee. This is where the need for a contract emerges.
2. Negotiation – The company and interested parties meet to decide how to arrange an agreement mutually beneficial.
3. Generation – The contract is drawn up, based on the agreed-upon terms. This step may involve filling in a simple template, or a complete contract may have to be authored anew. If a contract has to be written from scratch, this process typically involves members of a legal team.
4. Approval – Each party reviews the contract and signs their legal consent to be bound by its terms.
5. Execution – The contract goes into effect. Compliance needs to be assured by both parties here. If there is a problem on either side, various termination triggers, damage clauses, and other liable effects might take hold.
6. Renewal or termination – The contract comes up for review after a specified time. If the contract is designed to be ongoing, it might be renewed, amended, or renegotiated. If it’s designed to be a one-time execution, the contract terminates successfully.
Each of the above steps in the contract management process can take various levels of involvement. For employee hiring, leasing, an NDA, or any other standardized form, many of these steps will be a formality or handled with a quick sit-down.
One could see contracts as the “software” of business. They lay out a plan for two parties to cooperate in the hopes of accomplishing something mutually beneficial. The engine is created with language, specifying in a precise way the expected roles and actions of the two parties. Like software processes, contracts execute over time and are defined by this metric, whether they cycle endlessly or terminate.
What is The Function of Contract Management?
At each of the steps outlined above, there are management processes to facilitate the contract’s life-cycle. Contracts have to be signed, stored, reviewed, and made visible to all concerned parties. But this is easier said than done: Contracts, by necessity, have to be written in a precise legal language in order to be binding by the law. Since not everyone is a lawyer, not everyone can digest a 30-page independent contractor agreement to fish out the exclusion clause that gets them off the hook for liability. The solution we all commonly used was manual review and data entry, where the basic terms of the agreement are summarized as much as possible.
Contract review can come up at every stage of the contract lifecycle. In negotiation, it can be useful to review existing templates for the kind of agreement you’re trying to arrange presently, to cite precedent. In the execution phase, several departments like legal, project management, accounting, or procurement might need information in the contract. And of course, review and renewal, termination, or re-negotiation will involve the document too.
What happens if there’s a mistake? Risk, exposure to liability, and sometimes just missed opportunities for profit, among many scenarios. There are almost as many kinds of pitfalls in contract management failures as there are contracts.
How Evisort Can Revolutionize The Contract Management Process
Converting to a software process for managing contracts virtually eliminates time bottlenecks and human errors from the process. Modern automation of the contract process uses artificial intelligence to scan in, parse, tag, and store contracts electronically, which can then be easily retrieved and reviewed. In short, it structures the data in contracts to make them exponentially more searchable. A process that used to take weeks can now take seconds. Machine automation eliminates human errors from the review process. As a result, a company with a more agile contract management system is able to make faster, better-informed business decisions.
Evisort’s software service can not only automate the process of contract management but also integrate with other office software to facilitate the quick transmission and sharing of contract data. Imagine being able to email a contract straight from DocuSign into the system, and have the system generate a report of parameters to send to the project management team responsible for fulfilling it. It’s the closest thing to an automated legal team, as far as contractual obligations are concerned.
Companies that use Evisort for contract managing report reduced costs, more efficient operation, mitigated risks, and increased profits. Forward-thinking companies are increasingly reaching for automation of the contract management process in order to compete more effectively and expand their bottom line.