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Contract Management 101

November 02, 2018

Contract management involves reviews, analysis, and other measures adopted to keep track of contracts throughout their life cycle. This process affects both pre-contractual and drafting related matters. While contract drafting is considered to require unique human skills, multinational companies have favored contract management via technology in order to handle a large number of contracts on a daily basis. Though the concept of using technology in contract drafting was introduced in the 1990s, total automation remains a far-fetched concept.

Pre-contractual activities

Pre-contractual activities involve preparation of the case to get approval from management, projection of the scope of the business transaction, and identification of the purpose of the contract for each party. The evaluation of available options and risks must present the possibility of their occurrence and the significance of their impacts. During the negotiation of a pre-contractual agreement, the parties must devise a joint strategy for the contract. They must also design template agreements with a skeleton of the basic terms of the potential transaction by identifying the contractual parties, subject matter, and purposes of the agreement.

Contract drafting

The life cycle of a contract usually involves four processes i.e. drafting, reviewing, managing, and analyzing contracts. The drafting stage involves writing the first contract; reviewing involves recognizing legal and business terms to improve the provided contract; managing involves storing and indexing existing contracts, and analyzing involves assessing the terms and market-performance of the contracts.

Post-contractual activities

During post-contractual activities, the parties take steps to ensure a smooth exit from the contract. The contracting party will have the responsibility to manage both the normal end of the contract as well as its early end in the case of unavoidable circumstances. There should be a record of full and accurate information of the contract and related transactions as proof, in case of accounting, tax control or litigation.

Technology in contract management

The advent of contract management technology focused on effectively using tools to create a finished contract, and reducing time and effort from human resources. Over the past couple of decades, contract management has evolved to play a considerable part in  minimizing risk and controlling resources in the event of a merger or company acquisition.  An effective contract management system organizes contracts, stores them, and optimizes  analysis and reporting.

During the early years of contract management technology, the programs used were less  sophisticated and functioned merely for automatic numbering, macros and document merge functions.  Later, more advanced tools became available which performed more complex functions than  common word processing tools. Some programs code documents automatically through  artificial intelligence (AI). Although existing drafting software is used for generating real estate leases,  trusts and estates, and routine divorce papers, it is ill-equipped for complex commercial transactions  and more nuanced agreements.

The programs are often criticized by practitioners as they limit originality and have only little room  to adapt to changes. Also, some lawyers are hesitant to welcome these programs due to fear of AI  replacing their jobs. However, most legal practitioners believe that technology advancements will not  affect their profession to a great extent as technology cannot address individual requirements.

The issues that contract management face lie mainly with the basic structure of contracts.  The pattern which contract drafters follow has not changed in decades, and most of the documents are  unique and made to meet specific conditions. The legal writing style followed by legal practitioners is  often complicated and obsolete so computers find it difficult to decode. The software used to read  contracts can’t read the documents fully, resulting in several “exceptions”. Also, key data is mostly  transferred manually to a database or spreadsheet for easy tracking.

The bottlenecks in contract management can be solved by standardizing documents, and reaching an internal consensus to keep the company’s processes centralized and well-organized. Instead of reviewing lengthy and complex parent contracts, realizing that the essence of a contract is primarily within the Statement of Works (SOWs) and schedules will simplify the contract management process.


References

Betts, Kathryn and Jaep, Kyle., 2017. The Dawn of Fully Automated Contract Drafting: Machine Learning Breathes New Life Into a Decades-old Promise. https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1306&context=dltr

Lagrange, Marion et al., 2016. Contract Management: From Drafting to Ending the Contract. http://www.acc.com/legalresources/quickcounsel/from-drafting-to-ending-the-contract.cfm

Naughter, Tara., 2017. A Brief Guide to Contract Management Software and Plans. https://www.contractworks.com/blog/a-brief-guide-to-contract-management-software-and-plans

Marais, Claude., 2015. Technology Revolution in Contract Management to Deliver Bottom Line Value. https://www.linkedin.com/pulse/technology-revolution-contract-management-deliver-bottom-marais

Martin, Kingsley., 2017. Contract Management’s Hi-tech Revolution – How to Make It Happen. http://journal.iaccm.com/contracting-excellence-journal/contract-managements-hi-tech-revolution-how-to-make-it-happen

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