The traditional mindset regarding contract management is changing. In the past, contract management tools consisted of a spreadsheet that listed each contract, an expiration date and a few key pieces of information. This let managers know what contracts were currently active and when they were scheduled to expire, but little else. Is this important information? Of course it is, but it is very limiting. If one is rigorous, it can allow managers to take appropriate actions like renewals and renegotiations prior to deadlines, but only if dates are not missed.
In a similar manner, contracts have traditionally been executed, filed and generally not looked at again until it was time for renewal. This is passive contract management, also known as no contract management. This practice remains widespread today. It cannot remain so. Things have changed on a number of fronts. Contracts have become more complex, they contain increasing numbers of buy-side and sell-side obligations and the number of contracts that must be managed as portfolios has increased dramatically. This puts huge pressure on contract managers. Traditional management leaves companies exposed to risks and potential liability that they cannot afford.
What do you do if you have 500 contracts and each contract has 20 obligations? This equates to 10,000 deliverable dates that must be tracked. What if you have 5,000 contracts? How do you track them?
If you are required to use a vendor’s contract, how do you track changes in such things as liability, indemnity, governing law, insurance provisions and an assortment of other language concessions that you must agree to. With 50 such agreements executed over a span of 12 months, how you begin to understand where you have exposure and what the level of exposure is?
Perhaps you made a concession in contract language, necessary to close a huge contract 3 years ago, and you discover that the language may have inadvertently made its way into many of your agreements since then. If you have executed hundreds of agreements, how do you identify which contracts have such language to even begin to understand your exposure. Does your inability to accuratey understand potential liability create heightened SOX exposure? Probably.
The simple answer to these questions is… if you are using spreadsheets and traditional contract management to manage contracts, you do so at your peril. There are simply too many items and variables to track. Reviewing your documents manually to achieve this is also time consuming, costly and highly error prone.
Today’s contract management tools, manifested in the form of Contract Life-Cycle Management (CLM) solutions allow companies to manage these challenges with relative ease.
Let’s take a closer look at how a CLM solution can manage these challenges.
Managing a multitude of contract delivery obligations.
Rather than using an Excel spreadsheet to manage a contract’s obligations, CLMs can provide a means to set each contract obligation date within the contract's associated meta data. A date is set for each individual contract obligation and is automatically entered into the individual’s calendar with a reminder. As each date approaches, an email reminder is automatically sent to the responsible party(ies) to alert them that a specific action must to taken. The problem of manual tracking and of missed dates and obligations is solved.
Tracking negotiated contract changes.
A CLM allows data to be tagged when contract language changes have been granted, in general or in specific. Contract meta data check boxes allow identification of non-standard language, recording specific variances where necessary. To see all documents with specific language changes all you must do is initiate a simple meta data search and a report is easy generated with the corresponding information.
Discovering potential liability exposure.
Enabled CLM solutions allow users to search for a word, value, phrase or term of art that may have unknowingly made its way into multiple contract documents. Anywhere the search value appears in a document, a hyper link is created that takes the user to the wording location. What might take someone days or weeks to complete, can be accomplished in minutes.
Contract spreadsheet tracking is no longer sufficient
These are just a few examples of how CLM solutions make life easier for executives and contract managers. Gone are the days when expiration date lists are sufficient to manage contracts. CLMs provide a means to do contract management they way it should be done, with full know of a contract's obligations and potential liability.
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