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Jarrod Stevens | 02 Sep 2021 | 9 min read
The Ultimate Guide to Contract Management Software
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Looking to learn more about contract management software, and how it can help your organisation? We’ve written a definitive guide on everything you need to know on the subject - what it is, what it can (and can’t) do, and how you can implement it.
What is Contract Management Software?
Contract management is a demanding job. It involves generating, negotiating, approving, implementing, monitoring and tracking an organisation's contracts with suppliers. It often extends to contracts with employees and other parties too. These contracts are legally binding, and any mistakes can have serious repercussions.
Contract management software can be used to digitise and automate these important processes in a logical workflow. This makes contract lifecycle management easier and more secure. On top of this, the best contract management software regularly offers new functionality, allowing for improved efficiencies not possible in the past.
Contract management software is also known as a contract management solution (CMS).
Contract Management Software: A History
Managing contracts and ledgers is nothing new. We have been keeping these kinds of records since the dawn of writing as contracts form the structure underpinning business transactions. For thousands of years, these records were written down and stored in a physical place, but with the advent of digital technology in the twentieth century, a new world for managing businesses opened up.
Back in 1979, VisiCalc was launched. Short for “Visible Calculator”, it was the first spreadsheet computer program for personal computers. Business administrators around the world were over the moon because their endless piles of papers and ledgers could now be digitised, making life easier. VisiCalc was followed by Lotus 1-2-3 and then Excel, the latter of which went on to dominate the market.
However, while the legendary Excel is great for simpler business needs, it falls short with more complex processes, particularly those involving tight legislative compliance audits. Spreadsheets just cannot accurately reflect the web of legal complexities that make up contracts.
Seeing the need for a better solution, early CMS’s began to emerge in the 1990s, which were basically document management systems using databases and PDF's. They were part of large ERP systems, hosted on-site and were not particularly automated, flexible or adaptable to changes. This left contract professionals still stuck with manual processing and its frustrations.
From 2010, cloud-based SaaS business process automation and management software broke into the market. This breed of software took the digitising of businesses to a whole new level, and the field of contract management embraced the opportunities it offered with open arms. To meet the unique needs of this space, specialised contract management software was developed. Now, the entire contract lifecycle could be digitally managed and integrated with other applications and processes.
Why Use Contract Management Software?
Many businesses still use spreadsheets and legacy databases to handle contract management. While tools such as Excel still have a role in business, a complete CMS outperforms these traditional solutions on multiple fronts.
Below is a list of nine ways a CMS uplifts existing processes.
1. Process control, workflow automation and keeping track of key dates
With a good Contract Management System, business rules, processes and procedures are standardised and controlled by locking them into automated workflows. Contract milestones are tracked and automated notifications trigger reminders to keep the contract execution on track.
2. Managing, tracking, reporting on and analysing the contract lifecycle
Inside a CMS, the whole contract lifecycle - with all the related documents and workflow steps - is stored in a central system. This creates a single source of truth for managing contract obligations. If paired with the right procurement solution, this can create greater efficiencies and reduce risk further.
Data is powerful but only if it is presented in a useful way. Most CMS’s come with a suite of reporting tools that inform business decisions and help track contract performance.
To learn about getting the most out of your suppliers, read: "Contract Management: How to Use "Carrot and Stick" to Motivate Others."
3. Productivity, cost and time saving, and a reduction in human errors
By digitising and simplifying the contract lifecycle via a CMS, an organisation can run more efficiently with fewer pitfalls to navigate. With tedious, repetitive manual tasks being automated, there are significantly fewer human errors. With more effective contract management you gain improved service delivery and better supplier relationships. Suppliers and customers benefit from the improved system a CMS offers and can be serviced more proficiently
4. Compliance, secure audit trails and traceability
Since every action in a contract management solution is logged and can be reported on, audit trails are secure, and there is full visibility across the platform. By encoding business rules and policies into a CMS, compliance can be ensured. Actions such as authorisations and checks and balances are set into the workflows.
5. Data security
Security threats are a reality and need to be taken seriously. A secure data repository and hosting environment is a given with cloud-based contract software.
6. Integrated document management and greater data accessibility
By having a central document repository, you avoid duplicates, old versions, lost documents and the potential of fraudulent documents. Furthermore, with a CMS, you can quickly locate important data.
7. Integration with other applications
A CMS need not function in isolation and the capability is readily available to integrate with other related systems. For example, data from a completed procurement event can be passed to the CMS so that the contract is drafted automatically and accurately.
8. Collaboration and global access with cloud-based SaaS
Cloud-based hosting enables employees to access the solution from anywhere, at any time, and from any Internet-enabled device, and so frees up the users to be location independent. This also allows for collaboration from a variety of sources.
9. Fraud and corruption detection
It is harder for corrupt activities to go undetected if everything is tracked in the system, including who logged in, when, from where and what actions were taken. Moreover, the strict workflow and authorisation processes make it difficult to avoid following correct procedures.
A good contract management solution should cover all of these points, according to Bert Myburgh, Strategic Account Manager for VendorPanel.
“Today, organisations require tools to reduce risk, ensure compliance, and support procedures relating to contract management – a good CMS should deliver on all these,” he said.
Where Software Can Add Value in the Contract Management Lifecycle
Each stage of the contract lifecycle needs to be managed. Below is a handy infographic that shows where software can help.
Specific Areas of Benefit
While the graphic above covers the benefits of a CMS at a high level, there are some areas where a software solution is a particular value-add.
Setting up your contracts correctly
With a CMS, you can ensure contract data enters the system in a consistent way. This is particularly important when it comes to reporting later on.
This consistency is often achieved by allowing users to designate mandatory fields that must be entered prior to a contract being added to the system.
Some common examples of mandatory fields include Contract Type, Title, Summary, Vendor, Contract Number, Contract Value, Department, Cost Centre, Award Date, Duration and Roles.
Assisting in the planning, creating and negotiating stages
All information around the contract is captured by the system. The process begins with an initial request for a contract and involves careful planning with all the players involved. After the first planning stage, the contract needs to be drafted.
This can potentially be a lengthy and laborious process, but a contract management solution can use a wizard-type tool, coupled with templates and a library of clauses, to produce these documents.
The negotiation process may include all the steps relating to the evaluation of vendor submissions and the solution can capture this information and ensure that it remains compliant to internal policies and external legislation.
Guiding contract review and handover via an automated approval workflow
A CMS should have an automated and logged review and approval process workflow that demonstrates to any auditor that the correct approval procedures for contracts have been followed, which can include digital eSignatures. Those responsible for setting up and negotiating the contract will hand it over to those responsible for executing it.
Once the contract has been through the approval procedure, it is registered in the system and the status becomes 'Active'.
Offering clear visibility in the contract execution stage
With hundreds of contracts, various contract managers and multiple spreadsheets in circulation, execution will only add to the risk of corruption, non-compliance, waste and inefficiencies - but using contract management software can eliminate these risks.
Features, such as a table of Events, help track the contract lifecycle by giving an all-in-one overview. An Events table displays all events associated with a contract, including, date of a contract review, defects entry, KPIs, milestones, warranties, etc.
A CMS is truly a vital tool for executing contracts properly. Think how the system also digitally deals with schedules of rates, work orders, purchase orders, payment certificates and document management, along with managing employees and their roles. A CMS can make sure that deliverables are being met and that value is not leaking from contracts. Action and reminder schedulers will ensure that you get the most out of contracts and that you remain compliant.
Vendor self-service functionality further facilitates contracts by providing vendors with access to their own information. A vendor can self-manage such functions as submitting extensions, payment certificates and KPI indicators.
Providing water-tight auditing and actionable reporting
Customised dashboards and reports give you real-time management information, which informs business decisions as well as helping you to track deliverables and KPIs.
Expediting contract renewal/updating
Automated reminders will let you know when it’s time to renew a contract. A CMS also makes it straightforward to draft a new contract based on the previous one and it monitors all your contracts from inception to renewal.
Wrapping up with contract termination and review
A CMS helps when it comes time to wrap up the contract. At this point, you often undertake a contract review and garner supplier feedback, which the solution can do via an online feedback form.
Looking for a PDF resource you can use to easily explain the benefits of contract management software to others? Download our resource: "8 Ways Software Helps with Contract Management Obligations."
Can Contract Management Software Integrate With Other Software?
An organisation exists as a single unit that draws from its individual parts. If these are not cohesively joined, the business cannot function properly. The same is true of your organisation’s software - you don’t want a bunch of solutions that can’t talk to each other.
The good news is that there are contract management solutions that allow for integration with other software, eliminating the dead-end software siloes that can so easily plague a company. This is important to create a single source of truth and make things audit-ready.
A good contract management solution can integrate with:
Sourcing and procurement software
Vendor/supplier management software
Risk management software
To learn more about successfully integrating a contract management solution, read: "Roadmap to Successful Contract Management Software Implementation."
What Should I Look For in A Contract Management Solution?
There are a number of things to consider when choosing a new CMS. You need to map your current situation, identify areas for improvement, and how the solution will meet these.
We've written a comprehensive checklist to help you when it comes to choosing a CMS, which you can download here.
How to Get Buy-In and Successfully Implement a CMS
Investing in a contract management solution can be a serious financial and organisational commitment. Too often, if the implementation is not done well, this financial outlay can be a waste.
This can be avoided by following a few basic guidelines, such as:
Getting all the stakeholders involved from the start
To find out in more detail how to ensure buy-in and plan for user adoption, read: "How To Successfully Implement Contract Management Software."
An integrated contract management solution can save you from costly, time-intensive, labour-intensive and error-prone manual work while helping you to get the most out of your agreements. Ultimately, the organisation runs better and produces better results - with happier employees - when there is an automated CMS in place.
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