Managing contracts and maintaining contract process efficiency can be challenging—especially without an understanding of contract lifecycle management and the proper functionality to succeed. In fact, 25 percent of contract management professionals we asked don't have a dedicated contract management system. It's crucial to enter into a contract with a clear-cut strategy and the best contract management tools for the job. So, what are the four components of contract management? Let's find out!
What Are the Four Components of Contract Management?
The four components of contract management include:
- Contract Creation & Negotiation
- Execution & Implementation
- Compliance & Monitoring
- Evaluation & Relationship Management
Let's explore each of these components further and see how you and your organization can benefit from a dedicated CLM software solution in each step.
1. Contract Creation and Negotiation
Contract creation and negotiation involve defining contract terms and conditions and having all parties agree to a mutually understood contract's specific roles and responsibilities. Contract creation necessitates drafting an agreement with clauses, key dates, and other parameters. Negotiation, meanwhile, involves back-and-forth discussion and redlining until a deal on final contract terms is made.
Contract management software can significantly streamline contract creation and negotiation while improving accuracy. Mergeable templates, clauses, and key metadata fields speed up contract drafting while maintaining maximized clarity. Auto-redlining for the inclusion of preferred clauses automates drafting and negotiation. Clause ownership, alerts, a collaboration portal, and version control provide enhanced negotiation task awareness and accountability across departments and stakeholders.
2. Execution & Implementation
Contract execution is the process of reviewing contracts and finalizing the legally binding agreements and their associated contractual obligations via signatures from all parties. Contract implementation, meanwhile, is the fulfillment of those obligations and terms while managing any issues or disputes that arise promptly and seamlessly.
Effective contract management software can help with key contract execution and implementation tasks. Approval workflows with email alerts, in-system notifications, task escalation, and full audit trails keep resources engaged and accountable to get contracts approved quickly. Electronic signatures can cut send-to-sign time by up to 20 percent and include configurable routing and storage, standard or rules-based processes, and can integrate with third-party signing solutions. Configurable workflow automation alerts key resources of status updates, process steps, assignments, information, requirements, deadlines, and more associated with each stage of the contract management process for seamless contract implementation.
3. Compliance & Monitoring
Contract compliance involves ensuring that all parties of a contract adhere strictly to not only the terms outlined in a contract but also any relevant laws or regulations. Contract monitoring involves keeping all parties on the same page regarding contract compliance, contract performance, and progress during contract administration.
Contract management software offers a whole host of tools for compliance and monitoring. A centralized contract repository with access control makes it easy to enhance data security and quickly access specific contracts. Approved templates and clauses, alerts for contract renewals and expirations, and configurable reports make compliance a breeze. Full audit trails make it easy to demonstrate compliance throughout the contract lifecycle. Risk management, mitigation, and projection tools minimize risk exposure and keep resources attentive to risk and compliance violations. Reporting and analytics tools such as ad-hoc reports, custom-designed reports, and dashboards help with monitoring the progress and performance of contracts.
4. Evaluation & Relationship Management
Contract evaluation necessitates a holistic approach to a contract's efficacy during the pre-contract, contract, and post-contract phases. Key considerations for contract evaluation include compliance, risk management, financial performance, and counterparty/vendor/supplier performance. Contract relationship management is meant to build and maintain strong and collaborative relationships with counterparties with proper communication, collaboration, conflict resolution, and continuous performance improvement.
A secure contract repository within contract management software makes it easy to access and search for broad or specific contract details - thus streamlining the evaluation process and informing decision-making. CLM software also allows organizations to track and analyze contract performance against contract KPIs - providing effective insights into contracts and relationships. Real-time access to contract data facilitates data-driven decisions about renewals, renegotiations, terminations, and more. Better contractual relationships come from a centralized collaboration portal, clearer contract language that reduces the chances of disputes, and contract performance tools that show dedication and commitment to meeting contractual obligations and delivering value.
Now that you know the four components of contract management and tools that can help with the job, it's time to see the solution with the abovementioned features and many others in action. So, book a free demo of CobbleStone Contract Insight® today!
*Legal Disclaimer: This article is not legal advice. The content of this article is for general informational and educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorney for legal advice regarding any particular legal matter.
