7 Fundamental Contract Processes For Effective Agreement Management
A contract process involves various stages, subprocesses, and activities. Each organization that deals with agreements define their contract processes components differently, but certain steps are needed to ensure a smooth contracting process. By investing time into understanding each phase, you are also investing time into your business and the success of its contracts.
The importance of understanding each of contract processes
Effective contract management is much more than writing and signing company agreements; it’s a system of interconnected steps that guide you from the initial stages of developing comprehensive processes for handling every business agreement to the final steps of closing the deal.
Functions of the contract management processes
Knowing what occurs at every stage is necessary to ensure that your contract management process meets all of your goals and your agreements deliver optimal results.
Let’s take an in-depth look at what goes into each stage of contract management:
0. Сontract preparation process
Your contract management strategy is a customizable blueprint made up of processes that account for all kinds of business agreements, from typical employee contracts to the papers associated with very complex deals. Assessing your priorities is the first step in establishing your plan.
This includes addressing the following questions:
- What kinds and how many contracts do you have to handle?
- Do you have any standard agreements that you use on a regular basis? What should be addressed in these documents?
- Who is in charge of each contract management stage, and what tools do they need to get the job done?
- What are some of the most prevalent challenges that arose in the past?
- What issues could occur throughout the management of a standard contract?
- What resources will you need to put your contract strategy into action?
Preparing contracts by understanding their management lifecycle and elements will make it easier to develop the rest of your contract process flow.
1. Contract generation process
During the contract creation process, it’s a good idea to use a pre-made template to ensure that all necessary clauses and terms are included. It’s also critical to pay attention to appropriate phrasing during the contract authoring process. Any ambiguity in a contract, even a comma, leaves it open to interpretation. You must also take state and national regulations into account. This is especially true if the two parties are far away from each other.
2. Сontract risk management process
Companies that can incorporate risk management into contract negotiations will be more efficient. This is because they will be able to notice any risks related to the legal transaction and limit or eliminate them entirely.
Effective contract risk management strategies include:
- Having a strong understanding of the typical risks connected with the contracts they frequently sign.
- Maintaining a record of the common risks you have faced throughout previous contracting engagements.
- Having a rough idea of the financial outcomes of the risks you’ve taken in the past.
- Making a list of prospective risk-reduction strategies to utilize for future agreements.
3. Contract development process & negotiations
Negotiation usually always follows the first draft of a contract, no matter how much research, planning, and preparation goes into it.
Transparency and trust should be the foundations of any contract negotiation. Preparing for the debate by anticipating and researching the other side’s needs saves time during the contract formation process and negotiation. Furthermore, it establishes a solid foundation for a healthy partnership.
4. Contract amendment process
Contracts rarely remain the same, even after signing. The agreement lifecycle is packed with revisions and adjustments. Unfortunately, keeping track of changes and their consequences for each party can be difficult.
Using a dependable system such as contract management software allows you to automatically track revisions and amendments during your contract change process. This ensures that both parties stay on top of any changes in the agreement.
The steps to take when amending a contract include:
- Review clauses relating to amendments in document
- Discuss the change you would like to make with the counterparty. (If an attorney represents them, you should contact their attorney about contract amendments rather than the counterparty.)
- The amendment should be drafted in the same manner as the original agreement. You should also specify what section you want to adjust and the specific terms.
- Incorporate the approved amendment into the original contract by citing what section it’s replacing. Then, make sure that the other party knows that the amendments are part of the legally binding contract.
- Have all parties finalize the adjustment by signing and dating the document.
5. Contract abstraction process
Contract abstraction presents the contract’s core characteristics elements in simplified terms. This allows us to efficiently review and comprehend the agreement, reducing the chance of overlooking crucial components.
You can simplify your contracts using a table template with the exact attributes needed to provide you with a comprehensive look into the contract. As a result, quick accessibility and understanding.
You will want to ensure the following elements are included in your agreement summary:
- Agreement title
- Purpose of the agreement
- Name of each party involved
- Effective date
- Expiration date
- Initial term
- Term type (fixed or option to renew)
- Whether there’s a right to terminate
- Termination notice period
- Payment terms
- Governing laws
6. Contract approval process
If your company requires management approval or has audit procedures, you must meet all authorization requirements before closing a deal. For example, before a contract may be approved, a corporation must comply with procurement policies. With a contract management platform, the company can simply put up an approval workflow. Whoever has to approve the contract then receives a notification and has real-time access to view, modify, and comment on it.
7. Contract finalization process
When finalizing your agreement, you must get the signatures of your company’s and your client’s official representatives. Be sure to include the date of signing in your final agreement to ensure that it is legally enforceable. If you need to make some last adjustments to your contract, do it by hand and include both parties’ initials. After the agreement is finalized, you and your client should have original signed copies of the same contract.
The advantages of automating your contract processes
Each of the stages of contract management plays a vital role in the success of your agreements. This means that you must ensure that they are done as efficiently as possible with little to no errors. Implementing an automated contract management platform allows you to avoid inefficient practices and mistakes in contract management.
A smart contracting system will enable you to create legal documents easily and follow them through every stage, all on a single platform. When you implement CMS, you not only optimize your contracting phases, but you also save your business valuable time and money.