An Introduction to Contract Management Systems
Contract management systems (CMS) are digital platforms used to create, distribute, and manage an organization’s contracts and negotiations. They automate the laborious process of handling business-critical contracts and store them in a centralized, accessible location. CMS allows companies to establish a uniform system that streamlines management throughout the contract lifecycle, whether creating new documents, managing ongoing agreements, or referencing closed contracts. Contract management systems fall into two broad categories: enterprise content management systems (CMS), which focuses on organization and storage of content, and workflow management systems (WMS), which concentrate on automating the contract management process. Either way, a well-designed CMS will serve to reduce time and costs for its users.
CMS software will often come pre-loaded with widely used industry template contracts, such as NDA or IP clauses, that need only be customized to fit the specific business needs of an organization. Because these templates are usually outdated, a good contract management system will allow users to update the clauses and formats of typical contracts to meet current standards and regulations, as well as allow for the inclusion of stored templates .
As companies become aware of the negative impact disorganized paperwork can create, and with information technology vastly improving, the demand for CMS has steadily increased over the past several years. In a 2016 ARAG Global Legal Insurance Study, 96% of businesses surveyed were using at least one CMS in its various forms, either established by the company or accessible online. An organizational system that can track and monitor the progress of a contract through the business process is invaluable in maintaining an organized but flexible approach to professional obligations.
For years business owners relied on paper-based records to organize contracts and agreements, but as the financial implications of disorganized paperwork began to reveal themselves, outdated methods of contract management no longer proved practical. With the quantity and value of contracts constantly increasing, relying on an increasingly irrelevant process becomes less and less tenable. The transition to electronic contract management gained momentum in the late 1990s and is now standard practice for the modern business. With the advent of the cloud, the management of contract documents – and the security, consistency, and efficiency it now offers – is now available to all organizations, regardless of size, sector, or industry. Today, 80% of corporate contracts are managed electronically.
The Must-Haves in a Contract Management System
An ideal contract management system is a comprehensive solution which incorporates the following key features:
Automated Workflow
An effective contract management system will seamlessly lead your company through each phase of the contract lifecycle. Not only must all of the various contract creation activities be coordinated with those of the people involved, but also the follow-up activities are crucial. From approval to execution, the right software will use the automated workflow features of email, alerts and messages to ensure that the right tasks are done and that everyone involved can see the progress.
Centralized Repository
Centralized contract management essentially means creating a goldmine of accurate and crucial data, where not only do search results return exactly the documents you expect, but the software also generates consistent, accurate and real-time reports as to the status of all of your contact data.
Compliance Management
Maintaining regulatory compliance requires contract management software that offers comprehensive and consistent oversight capabilities. For example, it must automatically notify the relevant contacts of upcoming deadlines, the performance of automated audits will ensure that your entire contract portfolio is in compliance, and the archiving of compliance support documents should make it a straightforward process for all of the audit team members to find the information they need.
Analytical Capabilities
Whether you need to review the historical data to determine the contract cost and revenues, predict future risks and profits, or gauge negotiation concessions, a robust reporting capability is crucial to the success of any contract management system.
The Advantages of Using a CMS
There are numerous benefits to pre and post-contract award management. For starters, rejecting inferior or non-conformable offers and counter-offers is easier and quicker, leading to a more efficient and streamlined acquisition process. In addition, a CMS is critical for reducing, mitigating, and managing risks associated with multiple government contractor compliance issues and new Commercial Item Rule changes as well as costs connected with a delayed contract and any resulting disputes. Moreover, it provides much improved internal coordination and communication, since contract award management is usually the job of several departments (i.e., finance, legal, etc.), and each department has its information and expertise consolidated in one online location. Finally, a CMS enables government contractors to harness data analytics to produce analytical and statistical reports (i.e., contract type, periods of performance, pricing, etc.) that result in better decision making by the management team.
Selecting the Ideal CMS for Your Organization
When it comes to contract management systems, there is a wide array of options to choose from. Some vendors offer basic solutions for small businesses, while others have enterprise-level systems that can perform almost any contract-related activity. To determine which contract management system best fits your needs, start by compiling a list of your most important must-have and nice-to-have features.
Scalability
As your business grows, its contract needs will change as well. A contract management system with the capability to expand along with your company will ensure that you don’t have to change platforms down the line as your operations get larger. Some systems only allow for a limited number of users, while others impose restrictions on the amount of data you can upload. A CMS should be able to grow with your organization to meet your ever-changing needs.
Integration With Other Software
Contract-related activities often involve many other parts of a business, such as sales, marketing, and human resources. You ultimately want a contract management system that integrates into your existing software and hardware to streamline your operations and ensure consistency across all departments. CMSs with built-in integration capabilities are preferable to those with limited or manual integration options because they allow for a more seamless implementation process.
User Experience
The usability of a contract management system depends on its layout and functionality. Typically, intuitive programs with simple design and logical features are easier for employees to use. No matter how complex its offerings, a contract solution should simplify the user experience, rather than make it more convoluted. Look for positive reviews and feedback from customers when choosing your CMS.
Cost-Effectiveness
You can save both time and money by implementing the right contract management system for your business. When researching potential solutions, check to determine whether they have free trial versions, which will allow users to test the platform out before making a financial commitment. The CMS you’re considering should also have a good reputation for efficiency and effectiveness across all departments, which will ultimately reduce time spent performing manual tasks while minimizing the risk of errors. As you compare different systems, make a T-chart or spreadsheet with the pros and cons of each to help you identify the solution that will be the best fit for your company.
Pitfalls and Remedies in Contract Management Systems
One of the main challenges faced by companies is the implementation of the CSM itself. The implementation is not an issue in principle, but it depends on a host of factors. If your application is simple and you are prepared to do the setup yourself, then you should perform a test before any real implementation. Alternatively, if the application has complex approvals or involves a significant number of users, you may want to have a consultant involved. Depending in your implementation, the consultant may be able to customise the program for you or alternatively provide you with the best practices.
Typically a consultant is not needed until the analysis stage, where the goals of the entire company are to be understood, there are often many different departments that want their own ideal system . This can prove to be a problem when implementing a new CSM, as it may seem easier to do nothing than to try and get approvals from all involved departments. An example of this could be doubling up on redundant clauses in one agreement because one department is adamant they need it for one scenario and the other department adamant they need it for another scenario. We have seen this impact the successful implementation of a CSM before and therefore we would suggest lengthy discussions with all departments involved. The ultimate decision should be that when there is a difference of opinion regarding the wording of a clause, revising the wording or compromising (i.e. leaving the clause out of one contract) is the best solution.
The Future of Contract Management Systems
As new technologies continue to emerge in the field of systems technology, practical applications for enhancement of existing contract management systems is an area of particular focus within the legal industry. Now more than ever, legal departments are asking whether their current set of systems is equipped to support the even more efficient practices of the future and how best to incorporate new technologies to meet their various, and sometimes conflicting, needs for efficiency, compliance and risk management.
An important trend in contract management systems is deep integration with decision-making tools. A centralized system is necessary for managing individual contracts but will also represent the most important source of information when it comes to implementing automated decision-making. The future almost certainly will include predictive analytics which provide greater visibility and reporting on historical and expected performance and outcomes as well as increased provisions for a compliance-driven approach to contract monitoring and compliance. In order to achieve this critical next level functionality, all relevant data must be integrated both horizontally across contract lifecycles and vertically across the organization from the enterprise-wide contract system repository and repository-based utilities for assessing compliance with individual contract terms.
Another critical path is the extensive application of artificial intelligence (AI) which is expected to reduce the margin of human error while also facilitating the increase in automated decision-making. Already, AI is being used to perform data classification for legal research and eDiscovery and to digest large amounts of data. In order for AI-based applications to continue to improve and proliferate, comprehensive data analytics and modeling will be required. The importance of an enterprise-wide central repository and utilities for data classification are evident here.
An increasing trend is the use of blockchain technologies to create tamper-proof, immutable ledgering of contract data. Recent success stories can be found with respect to software distribution and digital content licensing. There are also limited but exciting uses of blockchain technologies to create tamper-proof record-keeping for log data which are essential to effective and transparent monitoring of contractual performance against specified parameters.
Finally, while the basics are important, the future holds new challenges for robust customization capabilities to facilitate broader organizational integration which will be critical to long-term adoption, extensibility and growth. This will include the ability to integrate with other enterprise systems and support the creation of inter-departmental workflows as well as integration with other third-party tools and databases. In our increasingly complex business environments, the importance of cross-platform, cross-border collaboration is paramount to effective global operations.
Experiences in Practice: Contract Management Systems
Salesforce.com has implemented a contract management system. They state, "We know that our sales people love what they can do with our new system, but we’re probably even more excited about the new visibility and controls that they have at their fingertips. Instead of having to search through stacks of contracts, the sales team can now create and access fully customizable documents anytime, anywhere, and on any device."
Meridian Link, Inc. has implemented a contract management system. They state, "We evaluated four different document management systems and selected Saylent’s contractor management system for its robust functionality and cost effective pricing. We then edited forms to conform to Meridian Link’s requirements and converted all existing documents into the system. The system is configured to allow the staff to easily modify documents and view the audit trail to determine who last worked on a document, when and what changes were made. We also leverage Saylent’s paginated statement technology to help us with merger and acquisition activities."
GRM is the largest independent document management firm in the United States with over 80 document management networks . They state that their CMS comes with "robust workflow capabilities," to allow "users to set up both simple and complex rules-based workflows to manage multiple documents to complete tasks," and "allows you to build customized tasks and assign them to individuals, as well as organize documents into virtual drawers to track the status of a group of documents."
PMI Mortgage Insurance Corp. has implemented a contract management system. They state that it is a "quick and easy way to manage your workflow electronically, simplifying and accelerating the closing process. PMI’s ChaseTrack contract and documents can be easily generated through ChaseTrack’s radi, secure web-based document management system. With ChaseTrack, you’re always able to get the most current version of your contract, which means fewer mistakes and less time spent correcting them."
B4U Internet (www.b4uinternet.com) has implemented a contract management system to manage the tens of thousands of contracts they have. They state that "iManage Contracts speeds the review and approval process, provides compliance monitoring, enables swift response to information requests and better dispute tracking and resolution."