Guide to Legal Contract Management
Create an efficient contract management workflow with strategies for reducing risk throughout the contract lifecycle.
Contract management is crucial for lawyers but also challenging and time intensive. Often, corporate counsel must manage a high volume of contracts and spend a significant percentage of their daily work on contract workflow tasks – specifically drafting, editing, and negotiating agreements.
A defined contract management process can help in-house counsel fulfill this critical responsibility more quickly. Bloomberg Law offers a smarter, faster approach to contract management – meaning few surprises and even fewer disputes.
Experience contract simplicity
Save valuable time and tackle complex contract management tasks with ease. Bloomberg Law Contract Solutions is tailored to meet the needs of corporate legal departments, specifically when it comes to addressing the most time-consuming and labor-intensive parts of contract management tasks.
Draft efficiently
Seamless integration with Microsoft Word provides a fast and easy starting point for drafting and revising contracts. Access everything you need without leaving your document.
Negotiate effectively
Advanced semantic analysis tools accelerate your review of draft agreements and allow you to efficiently identify and incorporate preferred language to ensure favorable terms – all within MS Word.
Operate confidently
AI-powered extraction of key contractual terms improves visibility into your final agreements, helping you identify and flag potential risks and obligations.
See Contract Solutions in action
CONTRACT MANAGEMENT TOPICS
CONTRACT MANAGEMENT RESOURCES
Confidentiality and Non-Disclosure Agreements Explained
Indemnification Clauses in Contracts
Non-Compete Clauses in Employment and Commercial Contracts
Sample Notification Letter of a Force Majeure Event
Sample: 10-Step Checklist for an Effective Contract Management Process
Contract management can be a challenging and time-consuming task for attorneys, especially as workloads increase in volume and complexity for in-house counsel. In a recent contract workflow technology survey, more than two-thirds of in-house legal professionals indicated that they manage a high volume of contracts, and 43% of respondents said contracts-related tasks represent at least half of their daily work.
This guide covers contract management, why it’s essential, and how Bloomberg Law Contract Solutions can help legal professionals manage their contracts more effectively and efficiently.
What is contract management?
A contract allows an organization that needs a product or service from an individual or another company to document its expectations and specific conditions for the business arrangement.
Contract management is creating and overseeing a contract through its life cycle. Often attorneys are responsible for drafting an agreement, negotiating its terms, finalizing the document, and managing final signoffs, perhaps monitoring its performance, helping with termination, and addressing potential breaches or other issues impeding performance.
What are the stages of the contract management process?
While different models can define the contract management process, there are five main phases:
- Due diligence
- Negotiations
- Agreement execution
- Oversight
- Closure
If done correctly, procedures for these phases must be communicated to stakeholders, including the needed reviews and approvals, the escalation process for noncompliance or breaches, and how to identify and change the permissible contract templates. Stakeholders should review these at the start for feasibility and then schedule periodic checks to monitor their effectiveness.
Due diligence
Beginning with due diligence, counsel must define the scope and prepare the business case, identify involved parties, set budgets, and complete background checks and approvals. This step is important to document the contract’s risk factors. For example, a contract is riskier when it includes an indemnification clause, which stipulates that one party will compensate the other for certain expenses often stemming from third-party claims, or a limitation of liability clause, which limits the amount one party can recover from the other in the case of a contract breach.
Having this information readily available to analyze, lawyers can perform risk assessments or conduct the “what if” scenarios to identify risks so that they can better mitigate them. Some organizations might create “risk scorecards” using Excel or a similar program to predict a contract’s potential risk. This approach can spur a host of issues since the relevant data is decentralized and maintenance is subject to human error that may not be caught – not to mention security issues if not stored properly.
Negotiations
Negotiations involve identifying necessary documents, such as sample contracts, that might expedite drafting. In the contract workflow survey, a majority of respondents (62%) indicate that drafting, editing, and negotiating constitute at least half of their contract work, so this stage in the process is probably the most time intensive. Counsel must pinpoint contract requirements, such as the value of the need the contract meets for the organization or the time scale and phase for the contract. Counsel then determines how to comply with requirements and launches discussions about the contract’s terms with stakeholders. During negotiations, counsel can update the preliminary contract if needed, obtain final signoffs, and deliver executed copies of the contract and related documents to all parties.
Agreement execution
When it’s time to execute the contract to make it legally binding, counsel will oversee the completion of the closing transaction and obtain performance signoffs. Increasingly, contract signings are done virtually, with lawyers relying on e-signatures. An internal signoff process that defines the required approvals and measures to execute contracts must be part of any reliable contract management strategy. Maintaining a record of those with approval authority can increase efficiency by identifying those with the authority to sign off in advance. Relevant parties can receive necessary training pertaining to the terms of the contract or reviewing relevant laws or policy documents to ensure compliance going forward.
Contract oversight and maintenance
In the survey, more than half (55%) indicate having no single platform or using general document systems for contract management. Lacking a centralized source makes oversight, an essential component of contract maintenance, difficult and time consuming. Following execution, counsel must have a plan for reviewing the performance of the contract on an ongoing basis. In this stage, they will ensure there is a procedure for amending the contract and can address requests for changes based on how well the contract performs. If a renewal of the engagement is needed and accounted for in the original contract, counsel will facilitate that change.
Contract closure
If a contract does not renew and parties have completed its deliverables, it may be time to terminate it. Counsel may also have cause to terminate a contract if breaches occur. When one party fails to complete deliverables on time, this breach of contract could result in termination depending on how fully the breach prevented the other party from receiving the promised commercial benefits of the contract.
In many agreements, the parties agree that certain events beyond a party’s reasonable control constitute an excuse to prevent or delay fulfilling deliverables by an agreed-upon time. This is called force majeure and can result in a contract breach or termination. Organizations must also retain contract files per required recordkeeping standards when closing a contract.
What are the standard elements of a contract?
Lawyers must consider the scope, key information, and the ideal format when drafting a contract. Scope refers to the core requirements of the proposed contract, and key information might include any approvals required to execute the contract, the histories of the parties involved, timing and deadlines, termination and breach procedures, and other details. Drafting a contract can be a lengthier process depending on the type of agreement.
While contracts vary in format, certain kinds might share a standard composition. Having a contract template pre-populated with contract information and metadata saves time and improves accuracy. They are especially helpful for quickly preparing the more common templates or forms organizations use such as service level agreements (SLAs).
For this reason, in-house counsel might consider creating a library for contract templates. When records are retained and readily accessible, contracts are easier to draft, update, and amend as needed. Libraries can house preapproved contractual forms or templates that may be used without prior approval. As an alternative approach, companies may keep an inventory of standard contract terms in each contract and a list of any applicable laws and regulations affecting their contracts.
How do you find market standard clauses?
Attorneys who manage contracts can reduce their risk by checking that the clauses in their contracts reflect market standard terms. Clauses are market standard if their language mirrors that of clauses appearing most commonly in other contracts nationwide. For example, a commercial attorney might search for a market standard noncompetition clause when drafting an employment agreement, or they might need a market standard clause that addresses vendor indemnity when drafting a vendor agreement. Attorneys who manage mergers and acquisitions might require market standard clauses for a merger’s closing conditions or for stock purchase or asset purchase description provisions.
Keeping an internal library of useful market standard clauses can make drafting easier. Even still, searching for market standard benchmarks can be laborious for in-house counsel with a high volume of contracts to manage.
What are the challenges of managing legal contracts?
Without the right workflow processes and tools in place, lawyers face some key challenges when managing legal contracts.
Contract management requires in-house counsel to take on several roles – advisor, advocate, and communicator, among others – often for a high volume of contracts at once (per the survey, 71%). For many in-house attorneys, analog methods and inefficient processes can make the role even trickier. For instance, 55% of survey respondents noted that they do not have a single, standardized contract management platform. Most respondents (62%) indicate that drafting, editing, and negotiating constitutes at least half of their contract work.
Drafting challenges can perpetuate when sample agreements are saved on desktops, in shared spreadsheets, or in email archives instead of centralized storage. Storage issues can also prevent lawyers from comparing specific clauses to what they used in previous contracts.
What are the risks of poor contract management?
In addition to challenges noted above, poor contract management practices can waste time and lead to unnecessary errors. A lack of centralized storage for sample contracts may force associates to duplicate their drafting, making it more difficult for in-house counsel to access samples with approved market standard clauses. Without a secure repository for their contracts, organizations face access challenges and potential security and privacy concerns.
Disorganized workflows and poor communication in contract management can also affect organizations’ bottom lines. For example, when the speed of a review takes priority over the quality of review, there is a greater likelihood for contract leakage – the term used when a contract’s expected value is greater than the value it generates. Under rushed negotiations, counsel may not have the time to negotiate proactively for their client, or they may overlook the external risks of the contract and prioritize approvals. Workflow problems can have financial consequences. According to a 2021 EY study, more than half of the responding business development leaders confirmed that inefficiencies in the contracting process have slowed their revenue recognition and resulted in lost business.
Why contract management is important for in-house counsel
Contract management is critical to in-house legal teams because they often store a high volume of contracts that must be organized and accessed easily. Additionally, contract management processes are top of mind for in-house counsel as organizations rely less on outside counsel for contract management.
Organizations need in-house legal teams to advise on various issues, but an inefficient contract management process can diminish their focus. For example, in-house counsel will have less time for the more strategic work if searching for contracts is time-consuming or if they must manually track which contracts have impending renewals.
Contract management workflows designed around defined internal controls make it easier for stakeholders to complete their assigned tasks and reduce the inefficiencies of chasing after them. When all stakeholders can readily access and search the relevant contracts, it creates a more streamlined process and helps prevent a drawn-out negotiation stage.
Simplify your contract management process with Bloomberg Law
The necessary tasks for each contract management stage can vary but adding structure to this labor-intensive process can take the research burden off attorneys, save time, and facilitate compliance with industry best practices. Our Contract Management Playbook breaks down how to streamline your contract management process to free up in-house counsel to deliver greater value, efficiency, and savings.
Software solutions can make contract workflows more efficient, but more than half of all contract workflow technology survey respondents aren’t using a single platform or use general document systems to manage contracts – and of those who are, 3 out of 4 in-house counsel are dissatisfied with their existing contract workflow technology. Having the right tool can keep the contract management process on track.
Bloomberg Law Contract Solutions can help solve in-house counsel’s most pressing workflow challenges, with minimal time and resources needed to onboard, implement, and use. Our platform combines the latest in AI-powered legal technology with workflow tools to provide a competitive edge to help attorneys be more productive and efficient.
Draft efficiently
Seamless integration with Microsoft Word provides a fast and easy starting point for drafting and revising contracts. Access everything you need without leaving your document:
- Find and open prior contracts from your library.
- Insert preferred language and favorited clauses.
- Leverage expert-drafted sample agreements and clauses, and millions of publicly filed documents.
Learn how Medi-Share spends less time on tedious contract review and due diligence work with Bloomberg Law Contract Solutions.
Negotiate effectively
Contract Solutions integrates advanced semantic analysis tools to accelerate your review of draft agreements and easily identify and incorporate preferred language to ensure favorable terms – all with seamless integration with Microsoft Word. It does this by allowing you to:
- Automatically compare clauses against your prior work, expert-drafted sample agreements and clauses, and millions of publicly available agreements.
- Quickly identify and review all internally defined terms.
- Instantly scan agreements for drafting errors.
Learn how VetCor uses Contract Solutions to speed up contract workflows and free up time to focus on negotiations.
Operate confidently
Our platform enables AI-powered extraction of key contractual terms that improve visibility into your final agreements, helping you identify and flag potential risks and obligations by allowing lawyers to:
- Save and track key terms.
- Compare obligations, dates, trigger language, and more across multiple agreements.
Additionally, the Bloomberg Law Contract Solutions dashboard tracks the contract versions created during negotiations and stores them in a central repository, making it much easier to see who made changes, what they entail, any responses, and when they were made. This allows for greater version control, freeing lawyers up to focus more on counseling their clients than searching volumes of useless, outdated documents.
Find instantly
The secure, centralized repository turns contracts into usable data. Out of the box, the Contract Solutions platform can ingest all of an organization’s contracts, automatically extract key terms, and deliver an organized repository of agreements that can be filtered, sorted, and searched across – with little to no effort from users. Bloomberg Law’s proprietary natural language processing (NLP) engine rapidly identifies and automatically extracts all clauses, creating a clause library from prior agreements.
Not only does the repository enhance the ability to act on renewals or necessary changes, but it also enables lawyers to safeguard, organize, and track contracts, templates, clauses, key terms, and obligations in one place – to quickly find what you need.
Learn how Contract Solutions allows NovaQuest to optimize its contract workflows and storage.
Request a demo to see how Contract Solutions simplifies and streamlines contract workflows for in-house legal teams.