This article is written by Amarnath Simha, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “What Fields Should a Contract Management Software Detect to Ensure Your Risks are Uniform?”.
The International Association for Contract & Commercial Management describes contract management as a discipline supporting business through preparation, negotiation, implementation and oversight of contracts. It is said to be converting technical capabilities, commercial policies and practices into specific terms and conditions that are offered to all the people associated with the business. It is about maximizing profits and minimizing the loss in any contracts (https://www.iaccm.com/about/contract-management/). It is increasingly being seen as high-value management information that supports strategic decision making. It can be said an aspect of management. Some make a differentiation between contract administration and contract management. The contract administration is said to be covering work done before the contract is executed and the contract management is said to be covering work done after the management. Contract management is generally taken to be covering all the stages of the contract lifecycle.
Contract Managers are said to be persons having technical, operational and commercial skills in managing a contract.
Contract Life Cycle
A contract is said to have several stages in its life cycle. It is sometimes divided into pre-contract phase, execution phase and post-award phase (often referred to as contract compliance/governance). The stages are referred to as :
Request> Drafting> Negotiation> Approval> Execution> Obligations> Compliance> Amendment/Renewal
The Request: The party initiating the transaction requests for a contract i.e., usually someone from within the organisation.
The Drafting: The necessary agreement with regard to that particular transaction will have to be given to the person making the request
Negotiation: In a business entity having multiple levels of people/offices negotiating or involved in the decision-making process, multiple changes/comments will be made before the drafts are approved. Even after such drafts are sent to other parties, it would lead to many rounds of negotiation between the contracting parties with each contracting party having multiple levels of people/offices contributing their thoughts on the draft.
Approval: After the negotiations are over, the contracts will have to formally brought into life after attaining the finality on commercial as well as legal terms.
Compliance: There may be compliances required under the law because of the execution and implementation of the contracts and the obligations thereunder. Sometimes audit of the contract may have to be conducted internally to see whether all the works have been done in accordance with the contracts.
Amendments/Renewals: The contracts may sometimes be amended. Many times, the contract may be renewed in writing with mutual consent.
The proper execution and oversight of all the lifecycles of a contract is difficult for a businessman who is more interested in business expansion. The contract management includes the proper execution and oversight of all the lifecycles of a contract. The need for a separate contract management system arises in big business entities involving many contracts or contracts with minute obligations, that if any obligations, timelines, renewals etc., are missed, it would lead to disputes and huge liabilities. Contract managers require to be fully updated with all the life cycles of the contract and need to have continuous interactions between all the departments of the business entity for the smooth functioning of the contracts and consequently business. It is estimated that around 9% of the revenue is lost because of lack of proper contract management.
The contract management requires proper storage of the contract documents. It should enable timely retrieval for the required purposes. The contract management will have to look at timelines and intimate the necessary departments of the pending obligations or receivables. It should look for timely requests for renewals. It should see whether the notices sent are proper as per the requirements of the contracts. It should see that the dispute resolution clauses of the contract are properly and timely invoked. Hence, in one sense it can be said that contract management is a key management tool for the proper and efficient conduct of the business.
Contract Management Software
As in any other field, the software has also entered the field of contract management and is of extremely important nature. The contract management software is the process wherein the contract management is basically done through software and thereby ably supplementing the contract managers, if not fully replacing them. It has reduced the time taken in contract management while also minimising the errors therein. It frees up the time for lawyers as they do not have to do routine drafting but can concentrate on transactions and negotiations which really require their time and efforts. It integrates the principles of quote to cash in the business entity.
In the life cycle of the contract, the role of the contract management software is sought to be looked into.
Request: When a request is disorganised and informal, it becomes difficult to manage over time as to its origin. If the previous templates are not properly maintained, the outdated contracts may be given as the draft. With the contract management software, the request is properly recorded on the software and the legal department can respond more quickly from the repository, with everything being recorded.
Drafting: Once the templates are set, the contract details can be filled in the blanks and the draft becomes ready in minutes.
Negotiation: During the negotiation phase, the most updated terms are required. Any track changes from the other contracting party or from anybody inside any department of the business entity must be properly saved and attributed for all future reference. The contract management software makes this clear and efficient than the track changes mechanism in the Microsoft word.
Approval: With the approvals being done electronically, the time required becomes shorter and the process smoother.
Execution: The signature on the documents can be through electronic signature and automatic recording of the execution of the document. The storage of the document is automated in a central repository and can be easily retrieved.
Obligations: Once the contract management software is integrated into the ERP or CRM of the business entity in both front and back ends, all obligations under the contract or changes thereunder are delivered to the sales, customers relations team and operations teams for action.
Compliance: The contract management software will update the requirement of any governmental compliances that the contract requires and will initiate the actions if permitted.
Amendments/Renewal: The contract management software will intimate the customers and all the relevant departments of the business entity about the changes in the contract in case of changes in law. All amendments to the contracts by the contracting parties are also timely intimated to the relevant department. All renewal deadlines are properly intimated to the relevant department for necessary actions.
Hence, contract management software basically covers the entire gamut of contract management itself.
Fields which the Contract Management Software must Detect
The basic need for the contract management software is for the timely intimation about the deadlines for fulfilling obligations under the contract so that no obligation under the contract goes undetected and unfulfilled. This would lead to huge savings and avoidance of losses.
The other thing which the contact management software must detect are the proper channels in the contract management. It should have authentication levels for each user of the software so that all the actions are properly attributed. The business entity cannot be held to be responsible if some persons act outside their authority and place orders. The contract management software will avoid those problems.
The contract management software will do away with inconsistent legal language and make the language standardised. The optimal drafts are identified for each transaction quickly and because of the existing repository of templates and the search options, the risks of inconsistent legal language are reduced. This will save time and efforts.
The non-fulfilment of the obligations on time by the other contracting party including non-supply of goods/services or payment for the goods/services received by the other contracting party.
Artificial Intelligence is being used increasingly in the contract management software with the AI itself being able to generate contracts for the required situations within minutes or less than that. It has slowly disrupted the legal industry because of its gradual adoption. The contract management by contract managers on traditional methods like Excel used to have inadvertent errors. But the contract management software has automated the contract management work and is only going to expand to all activities with the integration of AI into the software.
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