Relationships are behind much of human activity. The stronger the bond, the smoother the process will be. The business world is no different, relying on well-oiled collaborations to drive the mutual growth of the business partners. And the foundation for such a partnership is the contract they each sign.
Hence, a contract needs to be developed and managed with the utmost attention. But that may interfere with business operations, which is why it’s prudent for an outsourced contract management solutions company to handle everything related to it.
Such a company will have the expertise and resources required to manage the entire contract lifecycle, from creation and contribution to the utilization of contractual data. They are adept at understanding every tenet of the contract at an intrinsic level, paving the way for an ambiguity-free business partnership of the concerned parties under their contractual oversight.
The Need For Contract Management – In Numbers
Every industry, from legal to manufacturing, can benefit by hiring contract management companies to take over that aspect of their business. The advantages gained are numerous, and the consequences of not doing it are perilous, as indicated by these statistics:
- Poor contract management costs businesses 9% of their revenue annually, according to a World Commerce and Contracting finding.
- Businesses stand to lose up to 40% of a contract’s value due to poor contract governance, finds a KPMG survey of outsourcing suppliers.
- A lawyer can lose up to 25-40% of their time doing tasks unrelated to their portfolio while managing contracts, draining $2.7 million a year in productivity, according to a Gartner study.
- More than 50% of a contract’s negotiated savings are missed out on over its lifetime finds The Faculty.
As is evident from these findings, having professional contract management services with you is the best way to tackle contractual ambiguities and constrict the losses that arise as a result of those inconsistencies.
The Processes Involved In Contract Management
Contracts need to be exhaustive and meticulous in their content to avoid misunderstandings at any stage of their life between the signing parties. Therefore, the contract lifecycle also needs to be just as exhaustive and meticulous at every step of the way.
Contract management solutions providers are well aware of the rigorous demands of the contract lifecycle and take all the necessary precautions at every stage to ensure that the final contract is one that all parties can sign onto and follow through without hesitation.
They approach the contract lifecycle with the following constituent steps:
1. Identification Of Business Objectives
Every business is driven by and towards the objectives it has laid out for itself. All of its operations will be tailored to reach those objectives in the quickest time possible with maximum efficiency. And every business expects the same to happen with every contract they sign.
It is, therefore, imperative that the business objectives of the members signing the contract are well understood by each other and mutually compatible. Any mismatch could derail the partnership at a crucial moment, resulting in losses of finance and reputation.
Contract management services can prevent that from occurring by parsing through the business objectives of all the parties and identifying the common ground on which to build the contract. Such a consensual starting point fortifies the future functioning of the parties according to contractual terms.
2. Risk Reduction
Risks are an imminent part of conducting any business and minimizing them can take a lot out of the business’s resources. Neglecting that mitigation process will cost even more. Working with a business partner of any kind has the possibility of compounding the risks that both parties face, especially if they are of different industries or with varied business practices. Such incompatibility can amplify damages caused by unmitigated minor risks.
You need the risk mitigation experience of contract management companies to identify and possibly eliminate every risk that could come with improper contract creation and follow-up. They will evaluate the performance of the contract through talk and possibly simulations wherever applicable and come up with solutions they can place within the contract to the risks that show up during this stage.
Once the business objectives have been aligned and the risks are taken into account, contract management agencies will commence drafting the contract. They will gather all the necessary information needed for the process, from administrative to legal, and decide on the best strategy for implementation in the contract.
A contract is likely to go through many such drafts before it is finalized. Each iteration will go through scrutiny by all parties involved and their feedback will be considered for the proceeding version.
This stage is the crux of the contractual process where the concerned parties come together to discuss its various aspects like price, terms, and conditions, etc. It occurs after the contract management services provider has created the first draft. The duration of the negotiation stage depends on the type of partnership, personalities of the negotiators, mutual business objectives, respective schedules, offers made by each party, etc.
It is also the stage that will reveal the trust the businesses place in each other and how transparent they will be towards one another. It provides a glimpse into how well they will work together going forward based on all that they’ve agreed to in the contract.
5. Finalization and Execution
After the stakeholders have approved of every particular that will be in the contract, it will be finalized by the content management solutions provider. They will set an impeccable protocol that prevents the approval process from interfering with the finalization one.
The execution process commences right after the final version of the contract has been prepared to prevent delays.
6. Auditing and Follow Up
A contract will only remain a piece of paper if the obligated parties don’t honor it. It falls on the contract management services provider to ensure that all stakeholders are sticking to their obligations as they’ve signed onto in the contract. It involves things like supplies, payments, information exchange, timelines, etc.
Frequent contract audits at intervals set at the initial stages need to be performed to circumvent any contract execution-related inconsistencies and risk factors.
7. Renewal and Termination
It’s always great news that the contract works to the benefit of all of its signees. It’s in everyone’s best interest to continue that contract for the foreseeable future. Such situations call for the contract management solutions company to renew/extend the contract for a duration decided upon by its stakeholders. They may alter the terms in the contract or continue on an as-is basis depending on their requirements.
On the other hand, circumstances could also force an early end to the contract. The contract management company would then have to terminate the contract according to the wishes of the involved parties. Any dues/compensation owed to anyone must be taken care of before the termination is made official.
Thus, it is evident that entities that offer contract management services approach the lifecycle rigorously, doing due diligence to every one of the stages involved and every stakeholder too.
Why You Must Outsource Contract Management Services
As can be realized from the above-mentioned contract lifecycle, the entire process is a very lengthy and arduous one, requiring vast resources from all stakeholder businesses to succeed. The drain on resources will interfere with the allocation of the same to their other operations, affecting the overall performance.
If drafting, negotiation, and execution weren’t enough, there’s also the problem of auditing and follow-up that need to be performed. Such situations are best left to a third-party service provider.
When you outsource contract management services to a good third-party service provider, you’ll gain the numerous benefits they have to offer. And these benefits will apply to all parties involved, bettering returns and improving growth in the long run.
Here’s what you can expect from the outsourcing:
Aberdeen’s research points out that companies lose about 20-30 days in the creation, negotiation, and finalization of a contract. If that wasn’t enough, 65% of corporate legal representatives mention that losing time to administrative tasks is their greatest pain point during contract development.
Contract management solutions providers remove such pain points with their complete set of skilled personnel and equipment required for the job. With them at the helm of affairs, stakeholder entities can save on the time that otherwise they’d have wasted on the contract process and use that instead on more pressing business matters.
With time-saving comes cost savings as well. By concentrating on more important operational processes during the contract lifecycle, businesses can continue or even improve on their performance, and thus revenue. There is no need to throw away money on redundant staff and other contract developmental requirements.
Contract management companies can further cut costs by leveling out the costs over multiple clients. Such economies of scale save their clients a significant share of costs that otherwise would have applied had they gone about it themselves.
3. Employee Satisfaction and Productivity Improvement
Job guarantee and satisfaction are two of the most important factors in keeping employees motivated and performing at their peak. A firmly binding contract that presents a robust future for the company and allows them to pursue new job-related activities, as a result, will go a long way in reducing attrition rates while pushing up productivity.
Such a contract is best made possible if you outsource contract management services to a specialized agency. Such efficiency is good for the employees’ health as well since they won’t be burdened with unnecessary stress.
The changing nature of business relationships in today’s dynamic world call for solid ground to build successful partnerships upon. A well-made contract is that foundation. With such stakes, an outsource contract management services provider is the best option as they are professionally adept at rendering all associated services at reduced costs and other benefits.