“Artificial intelligence, deep learning, and blockchain”: We hear these terms bandied about in technology news enough to know they’re a big deal currently. The reason that this buzz about new machine intelligence is so persistent is that it’s being deployed to solve actual real-world problems at all levels of business. Companies now have to use machine intelligence software or risk falling behind.
This extends to the domain of managing business contracts themselves. Reports show that contract management methods will dominate the market in the early half of the 2020s. Companies seeking to cut their operational costs and maximize their efficiency turn to high-tech solutions for their contract oversight.
So what is contract management? Managing contracts involves the oversight of their creation, execution, and analysis, with the goal of making the company run as efficiently as possible within its obligations and constraints. A good contract management strategy can minimize risk exposure for a company and take advantage of contractual technicalities to the benefit of the bottom line.
Mistakes in this department can cost a company potentially millions of dollars either in missed opportunities or being exposed to liabilities. In some extreme cases, a company can lose $5 million over a missed comma, as it happened to a dairy company in Portland, Maine.
The main parts of contract management
Contract management can be broken down into the following sub-functions:
- Research – prior art in a proposed contractual template
- Authoring – Drawing up a new contract
- Negotiating – Coming to an agreement between two parties
- Review – Applicable at any time of the process, as needed
- Enactment – Making sure all parties fulfill their obligations
- Amending – Contracts may have to undergo revisions as situations change
There are several other functions appended to the contract management process as well. For instance, an opportunity for a new contract might draw the need for a review of a company’s existing obligations to make sure there is no conflict. If a contract is breached by another party, the contract will need to be submitted to the legal team for pursuit of damages. Managers and other staff members will have to be briefed on the contractual obligations of the company to ensure that they clearly understand how it applies to their job function.
Crucial missions of contract management
Managing contracts serves an important purpose, after all. The contract management process must always keep these goals as its highest priority:
- Paying attention to detail – It takes a special kind of person to wade through hundreds of pages of legalese and come out fetching the important stress points.
- Surveying overall compliance – At any point, a company with a substantial contract portfolio is juggling dozens of individual obligations. Being able to see the “big picture” is clutch here.
- Managing risks – The biggest pitfall of ineffectual contract management is when a company accidentally fails to abide by its terms.
- Policing compliance – Calling out the other party when it fails to live up to its obligation is equally important. This is one of the biggest gaps in missed opportunity for companies.
Because contract management increasingly relies on technology, contract management teams have to become more tech-savvy. It isn’t always enough to hand over the technology aspects to the IT department. Rather, a good contract manager should be half lawyer and half software engineer.
Contract management within the company
A contract management department doesn’t do much good working in a vacuum. At any given time, they should be empowered to meet with other company staff members to brief and advise them on the provisions of contracts, or to take in feedback from the rest of the company on what changes need to be made to adjust contractual obligations.
Facilitating these communication channels is half the reason why contract management software is so important. Breaking down contracts into key terms and clauses, storing them in the cloud for easy retrieval and review, being able to access contract data points in easy-to-understand formats, and being able to create automated alerts to catch stress points before they become issues are all functions of communicating contractual facts with the rest of the company. All of this is enabled by good contract management software.