A half a dozen best practices to ensure Effective Contract Management
A few years ago a leading global bank, which operated over 7,000 offices in 80 countries, was dealing with a major contract management challenge. One of its divisions had over 30,000 financial contracts consisting of over 100 types of files. At the time, that division had no process or software in place to track the provisions, rights, or obligations in that collection. On short notice, because of regulatory changes, it needed to capture critical financial and risk triggers from these contracts.
Enter Cenza. As soon as the project came in, the Cenza solutions team setup a customized system and workflow to manage these documents from multiple counterparties in multiple jurisdictions. Using data abstraction techniques, we extracted key rights and obligations from the entire document set. We setup a set of rules for reviewing and abstracting the documents so the banks could manage key financial and compliance risks better.
Based on that project and numerous subsequent contract review and contract management projects for US and European organizations, we have identified one-half dozen best practices for effective end to end contract management.
1. The power of templates: Companies and other organizations should have a template for each type of contract they originate. Templates should offer options for different provisions. Templates alone, however, are not enough – see the next step…
2. What is your playbook? A playbook works hand-in-hand with templates. It is the set of rules for how business people can use the templates, explaining acceptable modifications and edits. It answers how much leeway each particular stakeholder has to agree to any variations and what is negotiable and what is not. A playbook may also address how to negotiate contracts that suppliers or customers originate.
3. The negotiation process: The negotiation process is time-consuming and, for complex contracts, can be difficult to manage the mechanics. It is crucial to have a process in place to manage the negotiation in a methodical fashion and track key points agreed on. A raft of recent legal tech start-ups offers tools to help manage the negotiation process. Many of those tools use artificial intelligence (AI). Even with the best tools, a human team may be required to support negotiating high volumes of contracts.
4. Review & Execution: After the negotiation, parties must execute the contract and store the final version in an authoritative data source for easy and unambiguous access later. Many organizations use contract lifecycle management software (CLM) for this.
5. Extracting and managing key rights and obligations: Many large firms today adopt CLM software system not just to store executed contracts, but also to manage rights and obligations. To enable this, a process to extract and sometimes abstract key provisions is necessary. Machine learning tools now accelerate that extraction process but human intervention remains necessary for QC and exception processing.
6. Involve multiple stakeholders: One of the more common challenges in contract management is the issue of multiple stakeholders. Over the years, we have observed that our clients most successful in managing contracts involve and gain buy-in from relevant stakeholders across their organizations. It is also crucial to have a document owner – one person who owns “decision rights” - who can make the final call on any key aspects of a contract. Involving all relevant stakeholders also increases the likelihood of CLM software adoption.
Do you have a robust contract management and review process? Having trouble meeting your contractual obligations? Reach out to us and our experts can help solve key document management and related challenges in the entire contract management lifecycle.