Decoding Contract Management Frameworks
It’s difficult to imagine any organisation that uses contracts and is truly successful at managing them, without using a framework or approach. Contract management frameworks are designed to help organisations plan and navigate their activities and processes to take contracts through their full lifecycle.
But what do we mean by a contract management framework? Well, a framework can be thought of as an organisation’s "contract roadmap" – a set of detailed directions showing organisational activities and processes to successfully navigate the following contract lifecycle phases: A contract management framework enables you to manage contracts in a systematic way. It also ensures and demonstrates compliance with obligations that are central to those contracts.
Contract management frameworks are not the same thing as contract management. Some organisations use contract management systems and others have contract managers. However, for a contract management initiative to be effective and comprehensive , it should be underpinned by a contract management framework.
Organisations implementing framework-based contract management systems have already acknowledged the value of this link. However, most organisations leave the work of designing framework-based tools, processes or systems to the teams responsible for contract management. They don’t look to get other stakeholders involved or ask them to contribute insight, experience and requirements. Very few organisations ask "how ‘good’ contract management looks across the whole lifecycle" before committing to an approach.
Before implementing framework ideas and principles, organisations should answer the following question: When answering it, how you manage contracts now and have done in the past, will be informative. This can be used to inform an implementation or improvement project. But, doing so should not be done at the expense of ensuring the future solution will be fit-for-purpose. Nor should it come before mapping your ideal approach.
Essentials of a Contract Management Framework
There is no single model for a contract management framework, but there are a number of key components that will bring success. These components include – (i) policies, (ii) processes, (iii) tools and (iv) personnel.
Policies are the set of guidelines which apply to contract management. Some policies might be general, such as those which apply to all contracts in an organization, such as guidance on termination. However, some policies can be specific. For example, an employer may have a specific policy in relation to non-disclosure agreements where they have put in place an Employee Non-Disclosure Agreement. The relationship between policies and process is often not acknowledged and all policies need to set out the relevant processes to be followed. If possible, processes should be included within the policies. Information about who should do what, when and how, should also be addressed in the policies.
The policies and processes should be supported by tools. Contract management tools include registers, templates, checklists and playing book. These tools will help to support the consistency of outcome and efficient management of contracts. Some organizations may be able to make use of contract management software that will assist with organization and compliance.
Contracts and their administration involve people. People are the key asset of a contract management framework. This is the case, even if the framework has been built around contractual technology. Good contracting skills are essential. People also need a clear understanding of their roles and responsibilities. These roles and responsibilities start at the development stage. Every person involved in the contract process should have a clear understanding of their own role and responsibilities, as well as everyone else’s. This will contribute to the early identification of issues.
Advantages of an Effective Contract Management Framework
The benefits of implementing a robust contract management framework are myriad. Many organizations, however, overlook the value, or simply fail to understand the long-term benefits a tailored approach can offer.
First and foremost, a comprehensive contract management approach reduces risk. Organizations tend to put more of their resources into conducting legal due diligence when they are about to sign an agreement than they do into ongoing contract management. A robust contract management solution offers a way to conduct due diligence on a continual basis and offers a means of ensuring that both parties understand their obligations.
A well-designed contract management approach vests responsibility for risk allocation across the organization. Properly allocating risk is a collaborative effort, one requiring input and buy-in from stakeholders in all levels of the organization. Leveraging that collaborative understanding, a robust framework brings accountable owners to bear on various contract obligations, minimizing (or even avoiding) compliance failures.
On that note, another major benefit of a thorough contract management framework is increased compliance and accountability. The assigned owner – whether an individual or a department – is responsible for managing his or her department’s compliance. In so doing, the contract manager facilitates communication between departments or divisions, which helps align interests and priorities. By instantiating lines of communication, contract managers also help breach silos and integrate activities across all departments.
Moreover, comprehensive contract management aids legal teams by helping them to proactively address issues before they become problems. Too often, even when an organization has strong contract management practices in place, the legal team becomes stuck in a reactive state, waiting until legal issues come to them rather than assessing risks and limitations before issues arise.
Contract management provides a way to manage compliance and obligations in a proactive manner. This is particularly important in cross-jurisdictional practices. Because laws change over time and jurisdictionally, maintaining compliance requires anticipating changes in those laws and accounting for them in contracts as the negotiations unfold.
Finally, contract management frameworks are cost- and time-effective. Organizations that have adopted a strategic contract management approach have found that the cost of a new contract is less than 0.5% of the overall value of the contract. In many such organizations, this reduced cost is the result of efficiency improvements enabled by contract management tools.
How to Create a Contract Management Framework
A well-structured contract management framework is logical and straightforward. What makes it most efficient and effective to an organization is that it is comprehensive to all areas of its contracting, no matter what the category. It is not too prescriptive but seeks to guide people in how to approach matters. Additionally, it is scalable. It can be applied to transactions that are low to high to complex and non-complex. The specific sub-processes may be different, but the fundamental principles remain the same. Finally, the framework can be used regardless of the department involved. In other words: it is not limited by a procurement or legal perspective.
Unfortunately, most contract management frameworks that are reviewed do not meet this definition, so dedicated research goes into developing a solid framework. As a guide, the steps that an organization needs to take in order to implement such a framework will be outlined here. Implementation of the framework is a staged process with four phases: assessment, design, implementation and review.
Evaluation is the first step in building a contract management framework. The key focus in this stage is to investigate and gather data from an organization to develop an overview of the current state. It focuses on gathering relevant and reliable data to determine exactly how to develop a contract management framework for the organization. This involves four steps:
The second stage of implementing a contract management framework is the design stage. This stage involves building on the information obtained from the evaluation phase and understanding how to apply this to the organization. It therefore involves addressing two key elements: compliance requirements and governance requirements. Governance requirements are about identifying the appropriate tools to achieve a level of cohesion between the stakeholders involved and to identify other tools that could be adopted to ensure balance between competing interests.
The third phase in building a contract management framework is about implementing it, which involves:
The purpose of the review phase is to ensure that the framework is effective. This will involve the development of appropriate KPIs to monitor performance across all of the categories and the overall efficiency and effectiveness of the framework and reviewing the framework against those KPIs. It is essential that an organization not only review the framework but also implement a mechanism that ensures a culture of continuous improvement is embedded within the organization so that the framework is continually improved as part of normal business activities.
Tech Solutions for Contract Management Frameworks
The application of technology tools to a contract management framework can greatly enhance the efficiency, consistency, transparency and ease of a framework. There are a number of different technological tools which can support a framework, at all stages of the contract lifecycle. The tools can be used to track the centralisation of a contract management framework, support a framework through its design and implementation phase, and assist with the ongoing management of contracts. The range and diversity of these technological tools have the potential to create greater levels of consistency, autonomy and control, offering significant advantages to both contract managers and organisations as a whole.
Technological tools typically fall into three categories:
Software solutions – These are primarily geared towards ensuring the standardisation of the framework itself, to help with the drafting of contracts, or both. Typically, these tools will offer support on such issues as:
Software solutions are generally based on cloud computing platforms and offer the potential for interoperability between multiple technologies and staff members.
Comprehensive contract and project lifecycle software platforms can be particularly effective because they provide an integrated framework with all the necessary components for contract management, offering an improved degree of automation and integration with other business applications. A contract management software package is used not just for the tracking of the document, but as a means of supporting procurement , contract lifecycle management (for any kind of contract) and supplier relationship management.
Integrated contract management solutions may also include:
Contract lifecycle management (CLM) tools – These may be standalone contract management software programmes, or function as modules of a larger contract management software suite. CLM tools can be implemented to cover all aspects of the contract lifecycle, from contract initiation to execution and through to its expiry/termination. The most powerful CLM tools enable organisations to:
Contract management software of this kind is often used in combination with other contract management technologies such as an electronic signature program and contract negotiation software.
Procurement management software – These are similar to CLM tools, but tend to focus more on the early stages of the contract lifecycle, particularly on the negotiation stages of procurement.
Collaboration and project management software – This particular type of software is fundamentally focused on internal collaboration and team-based contract management, rather than the management of contracts as such. It allows contract managers to share drafts, templates and other information among themselves.
An important consideration when it comes to technological tools is the protection and management of sensitive contract information. A good contract management framework should include data storage and security policies to address issues such as:
Despite the range of software options on the market, there is currently no one single solution that feasibly handles all organisational needs. However, technological tools can and do offer important benefits by streamlining the contract workflow and minimising risk.
Common Pitfalls in Contract Management Frameworks
As we navigate through the ever-evolving landscape of business and commerce, mastering the art of contract management is more important than ever. However, while the advantages are clear-cut, implementing a robust contract management framework does not come without its challenges. Below, we delve into some of the most common issues organizations face and propose practical solutions for each.
One of the most significant hurdles organizations face is the absence of a centralized and comprehensive contract repository. With contracts stored in disparate systems or formats, it becomes nearly impossible to gain a holistic view of all critical agreements and their associated risks. This added complexity can lead to missed deadlines and expires without renewals, potentially resulting in financial losses and damaged relationships.
A centralized repository, preferably cloud-based, allows for immediate access to contracts for relevant stakeholders. Not only does this foster a culture of transparency, but it also mitigates risks by ensuring that contracts are easy to locate, review, and manage. The repository should also incorporate search functionality, which would ease the process of finding documents by keyword or by using filters.
Another notable challenge is ensuring compliance with organizational standards as well as legal and regulatory requirements. Non-compliance can result in severe consequences including financial penalties, instance and litigation, and a tarnished reputation.
To overcome this, consider conducting regular audits and reviews of contracts to ensure they align with both internal standards and external regulations. Additionally, automated alerts for critical dates and renewal terms ensure that all stakeholders remain informed which can eliminate instances of non-compliance.
Inadequate communication is yet another challenge to seamless contract management. There may be times when terms need to be discussed with different departments such as legal or procurement, leading to fragmented communication trails.
To ameliorate the issue, implement a collaboration platform that centralizes communications around the contract. Such platforms allow for commenting and tagging, which helps track discussions and decisions in real-time. They also allow for more streamlined second and third party reviews of pertinent contracts, expediting the negotiation process.
Manual contract creation processes can be tedious and error-prone. Further, without a systematic way to approve and track changes, it can be difficult to track which version of a contract is currently in circulation. This may lead to ambiguities or inadvertent alterations that could prove costly or even illegal.
One way to improve this situation is by implementing contract lifecycle management software. These tools automatically generate contracts based on pre-determined templates and clauses to best suit the requirements of the particular contract at hand. They also facilitate fast tracking of agreements through the approval process, reducing the chances of errors in the review process.
Implementing a contract management framework can be challenging, but the benefits far outweigh the complications. By embracing technology and fostering a culture of collaboration and transparency, organizations can master the art of contract management and ensure long-term growth and stability.
Real-World Examples of Successful Contract Management Frameworks
Several companies and institutions have successfully implemented a contract management framework to the benefit of their organizations. In the UK, the Crown Commercial Service (CCS) has developed and is implementing a category management framework to drive down costs and improve efficiencies for public sector contracting authorities across the UK. The CCS framework will consolidate the disparate list of frameworks through which public sector authorities can procure services, consolidate contracts, streamline legal processes and drive efficiencies through consistency and increased purchasing power.
The Olympic Delivery Authority (ODA) was formed in 2005 to deliver the venues and infrastructure for the London 2012 Olympic Games and Paralympic Games. During pre-games the ODA faced the challenge of delivering the Olympic Park and Overground station on-time, within budget and in an economically and environmentally sustainable way. After reviewing its contract management system, the ODA implemented a contract management framework to build relationships with suppliers to ensure that the ODA’s objectives were met.
When the ODA realized that their existing contract management system could not be tailored sufficiently to the requirements of certain key suppliers, they created a supplier partnership for suppliers with contracts over £50m. The ODA’s contract managers worked with suppliers to identify and share best practice across all contracts and introduced Ten Principles of Managing Contracts that were adopted at every level of the organization. Suppliers were involved in the development of policy and training in relation to contract management and were encouraged to adopt the principles and processes of the ODA supplied by the ODA.
The ODA was rated as the second top performing department in a Major Projects Review Group assessment in May 2009. This success was attributed to the change in the project management style, which shifted from a conventional and top-down approach to a devolved and interactive system that encouraged buy-in from suppliers.
Emerging Trends in Contract Management Frameworks
As we look into the future, the traditional contract procurement model will be supplemented by more open and collaborative models. Agile methodologies will further drive lean contract management, both on the vendor and client side. Digital innovations will play a pivotal role as these new processes and outsourcing methods require streamlined contract management frameworks and active rules management to ensure supplier provisioning is in line with preapproved business operations. On the other hand, contracts may become even more of a commodity than they already are; many contracts may begin to fall under standardised frameworks combining clauses and industry standards , aligned with e-signature capability so clients can sign off with minimum friction.
Internationalisation and growth of global corporations will also impact the way contracts are executed. In many regions, international, cross-border procurement is effectively executed through an interactive digital platform that allows for all the documentation to be exchanged (and signed) digitally, while the parties are not necessarily in the same place or even the same country. Contracts that can be signed digitally generally have an increased level of acceptance, especially with regards to cross-border disputes.