Effective contract management is one of the most critical functions of the legal team in any organization. But traditional contract management processes and the latency to adopt automation has slowed legal operations, drastically impacting overall organizational performance. Research conducted by Gartner found that, "90% of legal staff report feeling that they slow the other functions down when they execute their tasks slowly." As a result, businesses are looking for avenues to fasten their legal operations.
Vineeta Teresa Job is a senior corporate counsel with more than 16 years of experience in the contract management space. She manages end-to-end contract lifecycle, compliance, contract governance, commercial relationships, and more. In a freewheeling conversation with Arjun K B and Akhilraj Rajan of Zoho Contracts, she explored the key challenges that contract managers face and how digital tools can help overcome them.
Typical challenges in contract management
Most challenges in contract management stem from the dynamicity of the current business environment. The involvement of multiple stakeholders and evolving business complexities have led to large volumes of sophisticated contracts. During our conversation, Vineeta shared the typical challenges contract managers and legal teams face in this current state.
Absence of a central repository for contracts
In a large organization, various departments have their contracts, and those contracts are signed with multiple customers and vendors. It becomes challenging and time-consuming for the legal team to track all of these contracts manually.
Inaccessibility of critical contract information
The second challenge is getting the relevant contract information for a quick interpretation. With contracts running thousands of pages, accessing specific contract information and communicating it to the relevant stakeholders becomes difficult.
"As contract managers, we have very stringent turnaround times. We want to respond to customers and other stakeholders as early as possible. We can't afford to spend much time searching for the contract sections," Vineeta explained.
Missed contract milestones
When you have huge volumes of contracts, it becomes difficult to track contract activities and manage obligations, which results in missed renewals, obligations, and terminations.
Unfulfilled contractual obligations
When the contract is signed, it only marks the start of a business relationship. The actual contract management lies in post-execution. The contract manager needs to monitor all of the obligations and the scope of services agreed upon in the contract. They need to monitor if the vendors comply with the terms and conditions mentioned in the agreement.
To ensure compliance, you need to conduct internal as well as external audits of your counterparties to understand if SOPs and other processes are being followed, the paybooks are balanced, and to ensure there are no data breaches.
"One aspect of paramount importance to ensure compliance is that there is no data breach. It's not an easy task to secure data when you have large vendors with multiple subcontractors," remarked Vineeta.
Vendor management challenges
You must scrutinize vendors at every step of the process, from initial evaluations, RFPs, MSAs, LOIs, SLAs, and NDAs to the final contract. You need to know if the vendors have all of the critical resources for the project or if they are sharing their resources with multiple projects. You also need to know if the vendors' subcontractors are managed as per the contract and the remedies available in the contract if there is a breach. If there is an NDA in place, you need to ensure that there is no data sharing by the vendor.
"Vendor management, irrespective of the industry, is a strategic relationship between the client and the vendor. Once you've onboarded a vendor, it's your responsibility to see where the relationship goes," Vineeta emphasized.
Contract management requirements for legal operations
A contract lifecycle management (CLM) tool has more to do than simply enabling contract execution. The real challenge lies in post-execution. The requirements for a contract are different for every client account, jurisdiction, and industry. Apart from easing the manual work of lawyers and contract managers, the tool should also aid them in decision-making by providing them with actionable insights. The features mentioned below are a must for any CLM system.
Comprehensive contract templates and clause library
The CLM tool should have a contractual clause library, which will accommodate the different alternative clauses based on the type of contract and the industry of operation. It should also have pre-defined templates and the ability for you to create your own templates.
"If my client is in the aviation industry, I select aviation, and I select the master service agreement based on the industry. I should get a template carved out containing all the required clauses," Vineeta stated.
Real-time co-authoring and collaboration
While drafting the contract, the CLM tool should permit multiple stakeholders, be it business, procurement, finance, legal, or sales. These parties must be able to edit and suggest changes in their areas of expertise to the contract simultaneously. But at the same time, the changes should not get overwritten.
Automated approvals and activity tracking
Automating approval workflows helps everyone in the organizational hierarchy get notified about the progress of the contract.
"There should be clearly established authority matrices, the approval workflows should be automated, and every stakeholder should get notification alerts. Also, maintaining an activity log enhances auditability and transparency," Vineeta emphasized.
Obligations tracking for better vendor governance
Contract managers should get reminder alerts of pending obligations. This feature helps them keep track of their duties, the vendor's contract deliverables, and the corresponding liabilities.
Advanced search and filter options, reporting, and analytics
The keyword search and filter options reduce contract managers' manual tasks. If the tool could search and extract all the clauses with the same keywords when the user searches for a specific term, it would make interpretation easy.
Reporting and analytics help gain quick, actionable insights.
"It helps my decision-making if I know how many contracts are pending approvals, negotiations, or signature, what the upcoming renewals are, what are the pending obligations, who are my vendors, or if a termination has happened," Vineeta reflected.
The future of CLM and the role of contract managers
Contract management tools save contract managers and legal teams a lot of time by automating repetitive, low-value tasks. This saved time enables them to focus on high-value tasks like strategic initiatives.
"Contract management tools will help us reduce our turnaround times. A work that takes ten days to complete could be reduced to as much as five days," Vineeta remarked.
The current CLM tools in the market
From this standpoint, the demand for contract management tools is soaring. The new emerging players in the market are stiff competition to legacy software companies who charge a premium for their products that are difficult to deploy. The new players have flexible pricing models and offer many customizations to customers based on their requirements.
Vineeta ended by saying, "The new players let you choose what you want and customize it based on your industry's domain or subdomain areas. So I think there's a lot of innovation that comes in with these tools."
As businesses survive and thrive in this volatile business landscape, the need for software solutions for efficient contract management is on the rise. Check out our blog on contract management challenges in revenue operations to learn more. If you're looking for a comprehensive contract management solution to help your business scale and optimize your legal operations, sign up for a free demo of Zoho Contracts.