Law stated as of 11 Sep 2015 • USA (National/Federal)
This Legal Update provides guidance for in-house counsel to effectively develop, implement and oversee the contract management process.
Many in-house lawyers have difficulty finding time to properly focus on their company's contract management process. However, effective contract management is crucial to the internal control, corporate governance and financial performance of a company.
An efficient contract management process coordinates and manages all stages in the life of a contract to ensure that:
The contract is structured properly and reviewed appropriately.
The contracting parties fully meet their respective obligations.
The objectives of the contract (such as business benefits and value for money) are realized.
Obtain key stakeholder support. The success of a contract management process requires the cooperation and support of multiple stakeholders throughout the company, including the legal department, the internal contract sponsor, the internal project team and senior leadership.
Prepare contract playbooks. A contract playbook is a guide that facilitates the efficient and effective drafting, review and negotiation of contracts. It explains the company's standard and acceptable fallback positions based on a predetermined negotiation strategy. All legal and relevant business personnel should be trained on how to use their applicable contract playbooks.
Create a central contract repository and contract register. A central contract repository, as the single location for electronically storing all of the company's contracts, is the definitive source of accurate and complete information about a contract. A central contract register tracks the company's contracts and summarizes key contract terms. Together they can help the company eliminate duplicate, inconsistent or incomplete contract documentation, create visibility into the company's contract obligations and relationships, and increase efficiencies.
Monitor contract performance by designating a contract owner and tracking key milestones. After the contract is executed, the company should have appropriate internal controls to ensure the contract is properly performed by the parties. Designate a contract owner to administer the contract and oversee performance. The contract owner should also use a tickler system (such as a physical calendar system or reminders in Outlook) to create alerts for tracking key milestone dates and events.
Audit the contract management process. The company should implement quarterly, bi-annual or annual audits of its contract management process. These audits should review the effectiveness of the contract playbooks and also track matters to determine if the contract management process is shortening sales cycles, reducing costs of sales and resulting in faster revenue recognition.
For additional guidance on contract management, Practical Law offers the following resources: