By Morenikeji Ishola
Week in, week out, the working demography finds themselves going through different stages of contract management that can include document initiation, collaboration, negotiation, approval, execution, and appending signatures, etc and they often don’t realize they are taking part in a contract management cycle.
Contract management encompasses the end-to-end process of overseeing the creation, execution, and analysis of contracts within an organization. Its primary objective is to optimize operational and financial performance while minimizing financial risk. As businesses face mounting pressure to reduce costs and enhance company performance, the demand for an efficient and automated contract management system becomes imperative to alleviate the time-consuming nature of this critical business function.
When analyzing contract workflows, it is crucial to break down the lifecycle into distinct steps. By identifying broad trends, we can separate the entire process into definitive stages, starting from contract generation and progressing through a series of activities until completion. Once we have distinguished these steps, we can study them individually, seeking opportunities for improvement.
In this article, we’ll go through the five stages of the contract management process and look at the most recent data on how contracts are managed today and how technology can streamline contracts in the future.
1. Contract Generation: The first step is creating the initial draft to initiate a contract’s lifecycle. Although most organizations don’t start from scratch, the process can still be time-consuming. While most people leverage contract lifecycle management tools, such as dedicated software, many still rely on standalone tools like Microsoft Word and Google Docs. This indicates a partial adoption of next-generation devices. Consequently, using multiple tools for agreement creation prolongs the process and increases the likelihood of errors.
2. Contract Negotiation: Once the contract is generated, the parties involved embark on an iterative negotiation process, exchanging proposals and counterproposals until arriving at mutually acceptable terms. This stage consumes significant time due to the obligatory execution of standard procedures such as signature collection, error identification, and legal approval. These critical checkpoints pose substantial challenges, often resulting in the creation of three or more document versions before finalization.
3. Contract Routing: Contracting professionals utilize various tools for sharing contracts both internally and externally. While email and cloud storage systems are the most popular routing tools, a significant number of workers in the contracting field still rely on outdated methods such as postal mail and fax. However, all these contract-sharing methods share a common flaw: they remove the contract and the users from the CLM system. Consequently, relying on multiple solutions for contract routing introduces several new issues, including reduced visibility, lost documents, and the potential for accidental sharing with the wrong party.
4. Contract Approval/Signature: Contracting professionals have embraced modern tools to finalize contracts and collect signatures. While many utilize e-signature software or CLM tools, some still rely on outdated methods such as email attachments or hard copies. However, these manual processes encounter significant challenges when dealing with large-scale operations. With approximately 5 individuals involved in the contract approval process for a quarter of the teams, the resulting delays and inefficiencies can accumulate rapidly. A significant hindrance to smooth workflows is the requirement for various departmental approvals (legal, pricing, procurement) and the delays in signature collection, affecting around 30-40% of organizations. The more decentralized these approvals are from a central CLM platform, the higher the likelihood of delays and errors.
5. Storage: Cloud storage has become a popular choice for managing contracts. Professionals predominantly use cloud storage, either exclusively or alongside on-premises servers. However, despite this trend, a few organizations continue to rely on paper file cabinets for storing agreements. Nevertheless, the challenge of locating stored contracts persists, impacting daily or weekly management workflows. When the need arises to access a contract, finding the correct file takes an average of 45 minutes, and locating specific terms within the document takes nearly 90 minutes.
Improve the contract management process with modern tools.
Overall, the average organization requires 30.8 hours of staff time to generate, negotiate, and locate a contract. At the scale of 500 contracts in a year, that works out to roughly 7 full-time employees’ worth of Labor. It’s easy to see how improvement at any stage would result in significant efficiency gains when the contract process is repeated that frequently.
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