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Contract Life Cycle Management System

Business Challenge
An estimated 80% of business-to-business transactions are underpinned by legally binding contracts and agreements. Though many of these contracts contain clauses, terms, conditions, commitments and milestones that need to be tracked and managed over the contract’s life to maximize business benefits and minimize associated costs or risks, most organizations never actively manage their contracts during the agreement period. Contracts are archived away in departmental fi ling cabinets never to be reviewed again until a problem arises or the contract has already expired. Contract Management software enables an organization to be proactive in the management of its contracts. Organization employing contract management software has a deeper and more contextualized understanding of the risks, obligations and benefits associated with each contract.

High Costs of Creating and Managing Contracts
Legal costs relating to contract creation, approval and maintenance constitute a significant cost to an organization, particularly when contract work is outsourced to external law firms. Internal legal specialists can also be high cost resources if they spend excessive time creating, approving and maintaining the legal integrity of contracts.

More significant though, are the associated direct and indirect costs of managing and administrating contracts and legal agreements. A clear example of direct costs is the insurance firm that employs 23 full-time employees in one department to re-type data held within insurance policy documentation (or in other words, sales contracts) into their various back-end systems. For indirect costs consider the company that does not manage and control their contracts. These costs can take the form of unfavorable commercial terms negotiated by one business unit while another business unit negotiates better terms with the same supplier.

Corporate Governance Legislation and Regulations
Publicly traded companies and in particular, organizations that operate in highly regulated environments must comply with increasingly stringent legislation and regulations surrounding the disclosure of corporate information. Contracts are used to manage financial information that is critical to meet the compliance regulations.

Management of Risks and Liabilities
Hidden in the detail of many contracts are terms, conditions and commitments that, if not tracked and managed, can leave an organization open to unnecessary risk. There have been many examples where contract terms have been changed, either by the buying or selling organization to win the business that can ultimately turn a profitable transaction into an unprofitable one. Extent of liability, warranty periods, penalty clauses, auto-renewing clauses, and sales discounts are all examples of clauses that any CFO or Corporate Counsel will be looking for before approving a contract. Having the ability to automatically flag any of these key clauses that do not meet the organization’s expectations is a key part of any Contracts Management system.