Your contracts are valuable: don't miss out on good contract management
Contract management, or contract lifecycle management, is an activity still neglected by companies...
... but not for long, as its strategic value is becoming increasingly apparent.
Indeed, the practice of contract management promises numerous benefits: saving time and money, protecting against financial and legal risks, etc.
But what exactly is good contract document management? What actions does it entail? And what is the role of the contract manager?
Read on to find out how you can add value to your business through your contracts.
What is contract management?
Contract management definition
Contract management is the activity :
- aimed at streamlining the entire contract life cycle (from drafting to closing) ;
- while ensuring that risks and opportunities are properly managed.
It therefore involves several operations, including :
- administrative management of the contract and all related documents,
- negotiations and general relations between the various parties,
- ensuring performance and proper execution of the contract,
- managing discrepancies and claims, and preventing disputes.
The aim is therefore to optimize the contractual cycle as a whole, rather than a single aspect such as administration or dispute management.
💡 The professional in charge of these missions is the contract manager. He or she may operate on a single contract at a time (generally of significant size and complexity), or on a portfolio of contracts.
The emergence and challenges of contract management
Contract management emerged in the context of large-scale, high-stakes projects, such as those in the construction sector.
Contract management has subsequently developed, particularly since the 2000s, under the impetus of the risk management boom, which was driven by the strengthening of professional regulations and legal frameworks.
Today, more and more contract management vacancies are appearing in France, even outside the context of large-scale projects. The profession is increasingly winning over smaller organizations, aware of the value of more strategic contract management.
Why contract management? The benefits
Contract management offers a number of advantages for companies:
- Perfect visibility of all contracts. For example, according to a Deloitte study, 52% of companies are unaware of the expiry dates of their various contracts, which can lead to unwanted renewals or even disputes.
- Controlling financial and legal risks. This is particularly important in a context of increasing regulatory inflation. This is why certain sectors, such as banking, are increasingly integrating contract management into their activities.
- Improved relations between the various parties. Good contract management makes everyone's expectations perfectly clear. At the same time, the risk of errors that could damage business relationships is reduced.
- Greater awareness of opportunities. Clear, sound contract management makes it easier to identify potential cost savings and sales cycle improvements.
- Increased margins. In particular, contract management helps to avoid potential losses (late penalties, litigation, etc.).
IACCM studies reveal that companies lose an average of 9.2% of their revenues each year due to poor contract management.
Source : leeway. Blog
In short, the value of contract management lies in safeguarding the company's interests (particularly its financial interests) as far as possible when drawing up contracts.
How are contracts managed? The contract management process
The contract management process is based on the various stages in the contract life cycle.
Stage 1: Contract creation
The contract creation phase extends from the expression of need to the delivery of the company's proposal to the customer.
It involves :
- considering all the requirements and obligations of the various stakeholders (What levels of service? What payment terms? What lead times? etc.);
- recording them;
- identify potential risks and legal issues.
Step 2: Contract negotiation
A great deal of negotiation can take place, particularly in the case of large contracts.
These involve not only the price, but also various other components, such as :
- general terms and conditions
- special conditions
- service levels
- confidentiality agreements,
- intellectual property, etc.
The objective? To ensure that the clauses negotiated are as advantageous as possible for the company, while remaining acceptable to the customer.
Step 3: Contract approval and signature
Approval becomes effective when the contract is signed by all parties concerned. It conditions the launch of the project according to the terms approved by both the company and the customer.
The contractual document is stored according to the archiving system set up by the organization (dematerialized system, for example).
Stage 4: Project follow-up
This stage, which takes the longest, consists of monitoring the project's progress, to ensure that it is in line with the terms of the contract, right up to its expiry, termination or renewal.
This is when deliverables are produced. The contract manager ensures that they meet contractual requirements, particularly in terms of :
- deadlines
- quality
- compliance with industry regulations and any changes thereto.
At the same time, the customer must make the first payments if agreed in the contract.
Step 5: Closing the contract and contractual relations
The purpose of this step is to complete all tasks relating to the contract in question, such as the management and verification of final invoices.
On the other hand, if the contract is renewed, the life cycle of the contract begins again. In this case, certain phases, such as negotiation, are quicker (because they are based on what has already been established). They just require a few adjustments.
Stage 6: Audits and analyses
Ideally, the contract manager carries out analyses at the end of each contract's life cycle, to identify any areas for improvement.
This is also an opportunity to gather customer feedback.
What is a contract manager?
Contract managers are becoming increasingly sought-after due to the growth in contract management activities.
As a cross-functional profile, the contract manager is at the heart of project management, while taking on more commercial, legal and relational functions (customer and supplier relations). So much so, in fact, that they are often attached to different departments within the same company.
Understanding the contract manager's field of action, as well as his or her skills, means understanding all the issues involved in contract management.
The contract manager's missions
Here are the main tasks performed by a contract manager:
- Analysis of the project environment, so as to understand the ins and outs of the future contract.
- Drafting and negotiating the contract, taking into account the customer's needs and the functional, environmental and technical characteristics of the project to be carried out.
- Regulatory and contractual management. This includes knowledge of all the regulations in force in the company's sector of activity, so as to :
- draw up contracts in due form;
- effectively settle any commercial disputes.
- Identification of risks (legal, financial, commercial or operational), their level of criticality, and proposal of solutions to protect against them, in line with agreed clauses and legal obligations.
- Advising project teams, in particular on administrative and purchasing processes.
- Liaising, particularly in the event of disputes or during the negotiation phase.
- Detecting opportunities to ensure the best possible profitability.
- Budgetary, economic and financial management.
- Legal watch.
Contract management training
There are a number of different paths to the contract management profession. In particular, there is a specialized training course leading to certification, offered by E2CM (European School of Contract Management).
It should be noted, however, that because the profession is so recent, many contract managers are lawyers who have chosen to change direction with the years and experience gained.
Contract management software
As we've already mentioned, contract management positions are still largely the preserve of large companies.
That's why we're seeing the emergence of contract management software, known as CLM (Contract Lifecycle Management).
Their objectives?
- To streamline and automate as far as possible all tasks relating to the contract life cycle;
- to save companies as much time as possible ;
- while limiting the risk of errors and loss of money.
To illustrate our point, let's take the example of recurring contracts, with no particular features or complexity. Thanks to a dedicated tool, it's now possible to draw up these contracts using templates, thus boosting productivity.
Which contract management software should you choose?
🛠️ The contract management module in the DiliTrust Governance suite enables you to :
- centralize all your contracts and leases for greater visibility within a single, secure platform;
- structure and automate contract lifecycle management processes as far as possible;
- never miss a deadline, thanks to a system of alerts;
- ensure traceability of actions (creation, update, consultation, modification, etc.) to facilitate audits.
With DiliTrust Governance, companies have more bandwidth to devote to high value-added contract management activities, such as negotiation.
From now on, contract management will hold no secrets for you.
As you will have realized, a contract is more than just a piece of paper; it involves many issues. Properly managed, it can guarantee a better margin. On the other hand, it can lead to time-consuming disputes, with damaging consequences for your company's reputation. So many reasons not to take contract management lightly...
Article translated from French