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Fundamentals of Contract Management: What You Need to Know

Fundamentals of Contract Management: What You Need to Know

akirolabsWebTeam
27 Jan 2025
Fundamentals of Contract Management: What You Need to Know

Contract management might sound complicated, but it’s key to keeping any business running smoothly. Whether it’s supplier agreements, employee contracts, or client deals, managing contracts correctly helps protect your business while making it more efficient.

Did you know that poorly managed contracts can cost businesses up to 9% of their annual revenue? The Harvard Business Review highlighted this insight, which shows how important it is to get contract management right. These losses often occur because of missed deadlines, compliance issues, or underperforming suppliers—problems that can be avoided with a good system.

By improving how you handle contracts, you can avoid these risks and save money, negotiate better deals, and build stronger relationships with your partners. Let’s look at contract management, why it matters, and how you can manage it effectively.

What Is Contract Management?

Contract management manages contracts throughout their lifecycle, from creation to execution and eventual renewal or termination. It ensures all parties fulfill the agreement’s terms while mitigating risks and maximizing value.

Contract management’s key focus is maintaining transparency, compliance, and efficiency throughout the contract lifecycle. This involves drafting contracts, tracking deadlines, monitoring compliance, and ensuring that agreed-upon deliverables are met.

Proper contract management is essential for organizations of all sizes. It minimizes errors, reduces disputes, and enhances overall operational performance. With the right tools and processes, businesses can transform contract management from a tedious task into a strategic advantage.

Understanding the core concept of contract management sets the stage for recognizing its impact. Let’s see why it’s such a critical function for businesses.

Importance Of Contract Management

Importance Of Contract Management

Contract management plays a pivotal role in any business’s success and sustainability. It’s not just about organizing paperwork; it’s about ensuring compliance, improving efficiency, and reducing risks. Effective contract management offers many benefits that can significantly impact business performance.

End-to-End Automation for All Contract Types

  • Streamlines the entire contract lifecycle: creation, execution, and post-signature management.
  • Enables quick and self-service generation of agreements like NDAs using pre-approved templates.
  • Automates workflows, including populating clauses, securing e-signatures, and storing contracts.
  • Triggers automated reminders for renewals or performance obligations.

Improved Risk and Compliance Management

  • Identifies potential risks in agreements before they escalate into legal issues.
  • Uses AI to flag risky clauses and present them in a user-friendly dashboard.
  • Provides a proactive approach to safeguarding business interests.

Business Rules and Workflow Automation

  • Simplifies contract reviews and approval cycles, saving time and effort.
  • Tracks deadlines and sends alerts to avoid costly oversights.
  • Ensures contracts remain compliant with automated renewal tracking.

Standardized Clause and Template Management

  • Allows the creation of standardized contract templates for consistent and compliant agreements.
  • Ensures all contracts align with company policies and playbooks.

Centralized Collaboration Portal

  • Serves as a single source of truth for agreement status, approvals, and updates.
  • Eliminates the need to search email chains for the latest contracts or invoices.
  • Enables secure communication and real-time updates with third parties.
  • Encourages transparency and accountability by flagging delays and outstanding tasks.

In short, effective contract management is a strategic asset that drives business success. To fully appreciate the benefits of contract management, it’s essential to understand all the steps involved in the process. 

Contract Management Process Stages

Contract Management Process Stages

The contract management process consists of several critical stages, each vital in ensuring that agreements are effectively managed and executed. Let’s break down these stages –

1. Creation: Defining the Framework for Collaboration

The creation stage is the cornerstone of the contract management process. It involves drafting a comprehensive contract that clearly outlines all parties’ scope, deliverables, responsibilities, and expectations.

Key elements of this stage include:

  • Scope Definition: Specifying what is and isn’t included in the agreement.
  • Deliverables and Milestones: Breaking down the project into measurable outcomes tied to specific deadlines.
  • Pricing Structures: Detailing payment terms, schedules, and penalties for non-compliance.
  • Risk Mitigation: Incorporating clauses such as indemnity, force majeure, and confidentiality to protect all parties.

Advanced tools like contract lifecycle management (CLM) software or automated drafting systems can streamline this stage and ensure accuracy and efficiency.

2. Negotiation: Aligning Stakeholder Interests

Once a draft is prepared, negotiation becomes the focal point to align the interests of all parties while addressing any conflicting terms. This stage requires clear communication, technical acumen, and strategic decision-making.

Key aspects to consider:

  • Term Adjustments: Revise liability caps, warranties, and penalties to satisfy all stakeholders.
  • Data-Driven Negotiation: Using historical performance data and market benchmarks to justify proposed terms.
  • Legal and Regulatory Compliance: Ensuring the contract aligns with local and international laws, including tax regulations and labor laws.

Seasoned contract managers often involve legal counsel, procurement teams, and risk management experts to finalize fair yet advantageous terms.

3. Approval: Gaining Authorization and Validity

After negotiation, contracts need formal approval to ensure compliance with organizational policies and legal standards. This stage emphasizes due diligence, stakeholder alignment, and legal binding.

Key components:

  • Approval Workflows: Automating multi-level approvals to expedite the process while ensuring accountability.
  • E-Signature Integration: Leveraging secure digital signature platforms like DocuSign or Adobe Sign to enhance efficiency.
  • Regulatory Adherence: Ensuring that approvals meet jurisdiction-specific legal requirements, such as GDPR for data privacy.

Organizations with streamlined approval processes can significantly reduce turnaround time while mitigating risks of misalignment.

4. Execution: Ensuring Contractual Performance and Compliance

The execution stage focuses on operationalizing the contract and monitoring compliance throughout its lifecycle. Effective execution ensures that contractual obligations are fulfilled, minimizing the risk of disputes or penalties.

Steps involved:

  • Implementation Plans: Developing a roadmap for operational teams to follow, ensuring clarity on roles and deliverables.
  • Performance Monitoring: Track progress by utilizing key performance indicators (KPIs) and service-level agreements (SLAs).
  • Compliance Audits: Regularly audit contract adherence to proactively identify potential risks or breaches.
  • Stakeholder Communication: Maintaining open lines of communication to address issues promptly and adapt to evolving circumstances.

Tools like contract dashboards or integrated enterprise resource planning (ERP) systems can provide real-time insights into performance metrics.

5. Renewal and Termination: Optimizing End-of-Life Outcomes

As contracts approach their expiration dates, organizations must evaluate their future value. This stage involves strategic renewal, renegotiation, or termination decisions to align with business goals.

Key actions include:

  • Renewal Analysis: Review performance data and market trends to decide whether renewing the contract benefits.
  • Renegotiation: Adjusting terms to reflect changing needs, pricing structures, or market conditions.
  • Termination Planning: Ensuring a seamless transition by preparing exit strategies, including knowledge transfer and asset recovery.

These structured steps ensure that contracts work for you and drive organizational success. While understanding the stages is vital, recognizing and overcoming common challenges in contract management is equally important. 

Contract Management Vs. Contract Lifecycle Management

Aspect

Contract Management

Contract Lifecycle Management (CLM)

Definition

Managing contracts throughout their execution, ensuring compliance, and maintaining records.

A more comprehensive approach covers the entire lifecycle of a contract, from creation to renewal or termination.



Scope

Focused primarily on contract execution, monitoring, and compliance.

Covers all stages: creation, negotiation, approval, execution, performance monitoring, and renewal/termination.

Technology Use

Often manual or involves essential tools like spreadsheets or document storage systems.

Utilizes advanced technologies such as AI-powered CLM software, automation, and analytics.

Goal

Ensures contracts are executed and monitored for compliance with obligations.

Aims to optimize the entire contract lifecycle, driving efficiency, reducing risks, and improving decision-making.

Proactive vs Reactive

Primarily reactive, focusing on immediate contract issues or post-signature activities.

Proactively address potential risks and inefficiencies across the entire lifecycle of the contract.

Automation

Limited automation, mostly manual tasks.

Extensive automation in drafting, approvals, performance tracking, and renewal alerts.

Integration

Often siloed, with limited integration into other business systems.

Fully integrated with enterprise systems like ERP, CRM, and procurement platforms for seamless workflows.

Reporting and Insights

Minimal reporting, with basic data on contract status or compliance.

Advanced reporting with real-time insights, KPIs, and analytics to improve contract performance.

Now that we know the differences between them, let’s examine practices for contract management. 

Best Practices of Contract Management

Effective contract management requires a combination of structured processes, organizational collaboration, and the right technology. Whether using spreadsheets or dedicated Contract Lifecycle Management (CLM) software, success depends on well-defined practices that are followed consistently across the organization. 

Below are the best practices to ensure superior contract management:

1. Restore Visibility with a Central Contract Repository

A central repository is a single source of truth where all contracts are stored and managed. It eliminates the risks of scattered contracts and enables better oversight of an organization’s agreements.

Why It Matters

  • Provides better visibility into contract performance and obligations.
  • Helps track key dates, such as renewals and deliverables.
  • Enables a strategic approach to managing vendor and partner relationships.

How to Implement It

  • Use CLM software to create a digital repository for all contracts.
  • Tag and categorize contracts for easy searching and retrieval.
  • Ensure access controls are in place to protect sensitive agreements.

2. Take Back Control by Engaging the Entire Organization

Contract management becomes most effective when it involves all departments rather than being concentrated solely within the Legal team. Collaborative processes ensure smoother workflows and shared accountability.

Why It Matters

  • Reduces bottlenecks and improves efficiency.
  • Ensures no single team is overburdened with contract management tasks.
  • Promotes better decision-making by involving all relevant stakeholders.

How to Implement It

  • Automate repetitive tasks to ease the workload on Legal and other teams.
  • Create workflows that provide visibility into a contract’s progress.
  • Define clear roles and responsibilities for every stage of the contract lifecycle.
  • Send automated notifications to stakeholders to keep them accountable.

3. Build an Auditable History of Contract Actions

An auditable history records all actions taken on a contract, complete with timestamps, names, and details. This history ensures compliance and enables better oversight.

Why It Matters

  • Helps prove compliance during audits or legal disputes.
  • Ensures business continuity when contract ownership changes.
  • Allows for periodic checks to verify that processes are working as intended.

How to Implement It

  • Use CLM software to capture and log all contract actions automatically.
  • Schedule regular spot checks to review contract metadata and compliance certifications.
  • Maintain a clear record of each contract’s changes, approvals, and updates.

4. Assign Ownership of Renewals to Drive Accountability

Assigning ownership ensures that someone is always responsible for monitoring and managing renewals, preventing contracts from lapsing or auto-renewing without review.

Why It Matters

  • Avoids “auto-renewal traps” that lock businesses into unfavorable terms.
  • Ensures contracts are aligned with current business needs.
  • Drives accountability for contract performance and value assessment.

How to Implement It

  • Assign a designated owner for each contract’s renewal process.
  • Use automated reminders and workflows to track key renewal dates.
  • Establish a pre-renewal review process to assess contract performance and value.

5. Integrate CLM Software with Your Existing Tech Stack

Integrating contract management tools with existing systems, such as CRM, ERP, or project management platforms, ensures seamless workflows and better team adoption.

Why It Matters

  • Reduces manual effort by connecting contracts with other business processes.
  • Improves visibility across departments, enabling faster decision-making.
  • Increases adoption rates by working alongside tools teams are already familiar with.

How to Implement It

  • Choose a CLM solution that offers native integrations with tools like Salesforce, NetSuite, or Zapier.
  • Ensure the CLM system supports two-way sync to maintain real-time updates.
  • Test integrations thoroughly to ensure smooth functionality.

6. Prioritize Data Security for Compliance

Data security ensures that sensitive information within contracts is protected from unauthorized access, breaches, and accidental loss.

Why It Matters

  • Prevents data breaches and protects confidential business information.
  • Ensures compliance with data privacy regulations such as GDPR or HIPAA.
  • Builds trust among internal teams and external partners.

How to Implement It

  • Choose a CLM solution with ISO 27001 and ISO 9001 certifications.
  • Use role-based access controls and two-factor authentication for user security.
  • Store data in secure, compliant hosting environments.

7. Choose the Right Contract Lifecycle Management Software

The right CLM software supports efficient contract management by automating tasks, improving visibility, and integrating with other tools.

Why It Matters

  • Streamlines the entire contract lifecycle from creation to renewal.
  • Reduces administrative workloads for overburdened teams.
  • Enhances collaboration by providing real-time updates and insights.

How to Implement It

  • Assess your business’s needs, such as contract volume, complexity, and team size.
  • Opt for software with robust automation features and integration capabilities.
  • Prioritize user-friendly tools that encourage adoption across departments.

8. Act Now to Improve Contract Management

Delaying improvements to contract management leads to missed opportunities, inefficiencies, and increased risks. Proactive action ensures businesses unlock the full value of their agreements.

Why It Matters

  • Poor contract management can cost businesses up to 9% of revenue, according to IACCM.
  • Proactive management allows businesses to maximize benefits from their contracts.
  • Addressing legacy contracts now prevents larger challenges in the future.

How to Implement It

  • Start by consolidating legacy contracts into a centralized repository.
  • Gradually introduce automation and workflows to streamline processes.
  • Track and measure performance regularly to identify and address gaps.

Now that we know the best contract management practices, let us see how akirolabs can help with the process. 

How Can akirolabs Help With Contract Management?

Managing contracts effectively is crucial for optimizing procurement and maintaining strong supplier relationships. With akirolabs, you can turn contract management into a strategic advantage. Here’s how we and our platform empower you to manage contracts with precision and ease:

  • Centralize your contract data: Keep all essential contract details, such as supplier names, contract IDs, start and expiration dates, and payment terms, in one intuitive platform.
  • Stay ahead of renewals: Use proactive expiration monitoring to prioritize high-value contracts and plan renewals or renegotiations well in advance.
  • Gain actionable insights: Access data-driven visuals and guidance to identify risks, strengthen supplier relationships, and align contracts with your broader procurement strategies.
  • Streamline strategic alignment: Embed contract oversight into your overall procurement framework to ensure contracts support your category and organizational goals.
  • Improve compliance tracking: Monitor adherence to agreed terms and conditions while ensuring alignment with financial and performance objectives.
  • Simplify decision-making: Use real-time insights and automated recommendations to make smarter decisions around contract negotiation and management.

With akirolabs, you can shift from reactive contract tracking to strategic contract management, unlocking measurable value for your organization while maintaining transparency and control.

Conclusion

Contract management isn’t just about paperwork—it’s a strategic asset that can enhance efficiency, minimize risks, and drive long-term value for your business. From drafting to execution and renewal, every stage of the process plays a critical role in ensuring smooth operations and building stronger partnerships.

However, managing contracts effectively requires the right tools and strategies. That’s where akirolabs comes in. With a robust, user-friendly platform, akirolabs streamlines the entire contract management process, offering enhanced visibility, compliance, and efficiency.

Ready to take your contract management to the next level? Schedule a free demo with akirolabs today.

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