Contract management is about managing a contract with the client to ensure that everyone involved fulfills them. The process covers reviewing, negotiating, and maintaining contracts. It also includes evaluating and implementing new agreements and terminating old ones.
Another crucial part of contract management would be communicating with clients about their needs and expectations. The contract management process involves three steps: negotiation, drafting, and execution.
Since contracts are a critical aspect of any business, you can expect to encounter problems regarding them along the way. Here are eight common pitfalls of contract management that you should know and how to solve.
Contract language and contract clause limitations
Contracts are essential documents; you can use them to manage parties’ expectations. However, for a contract to be effective, it must have the correct language and clauses.
Sometimes, contracts may not have all the necessary elements to bind them legally. For instance, if there is no consideration in a contract, likely, it will not be legally binding.
Contracts may also include clauses that are not enforceable under law or contain unreasonable or excessive provisions. This lapse could cause problems for both parties because one party might use these loopholes to exploit the other party.
To avoid these problems arising in the first place, legal counsel should review any contract before signing it to ensure that it contains all necessary elements and does not violate any laws.
Lack of clarity and scope on the goals
A lack of clarity and scope can cause the following problems:
- Lack of trust
- Delayed deadlines
- Increased costs for both parties involved
It is crucial to clarify the goals and objectives of the contract to help avoid these problems. This step will help you understand what tasks and goals need accomplishing and how you should do these tasks.
This step is also vital for both parties involved in the contract. They will know what the expectations are for them to do and how they can meet these expectations.
It is crucial for all parties involved in contractual negotiations to be clear about what they want from their partnership. This way, there will be no surprises, and both parties will know what they need from each other and what they should expect from one another.
Limited visibility throughout your contract process
Contracts are a vital document in the business world. They regulate relationships between two parties and define each party’s obligations and rights.
The contract process is long and can be challenging to manage. It includes many steps, such as negotiating the terms of the contract, drafting it, signing it, and executing it.
Limited visibility throughout this process can cause problems in contract management because the people involved might not perform some of these steps correctly or entirely.
There are many ways to solve this problem, including:
- using an automated workflow for drafting contracts and executing them,
- using a digital signature service for signing contracts,
- and using artificial intelligence for contract management
Slow contract turnaround time
Contract management is a crucial part of any company. It helps ensure that the company has a suitable contract for any situation.
Unfortunately, this isn’t easy when a contract requires a turnaround time that is too long. This poor turnaround time can cause problems in the following areas:
- The agreement may not be ready in time for the next step in the process
- The company may lose out on opportunities because they don’t have a current contract
- The company may have to pay more because they are working with an outdated agreement.
To reduce the turnaround time on contracts, consider using tools for Contract Lifecycle Management or CLM tools. It will help you organize your arrangements by date and category so that you can find them easily when needed.
Lack of standardization and centralization of contracts
The lack of centralization and standardization in contracts can cause problems like vague contract language, no clear definition of responsibilities, or even no mention of what happens if something goes wrong.
The solution to this problem is to create a standardized boilerplate contract that covers all the necessary points that are important for your company and has it reviewed by a lawyer before signing it.
This template will help you avoid any future problems with your contracts.
Disorganized management of expiry and renewal dates
Keeping track of the expiry and renewal dates of your contracts is vital. This vigilance will help you manage them better and avoid any problems that may arise from disorganized management.
The first step is identifying which contracts need to be renewed or expired. You can locate them by looking at the contract’s date or checking its status in your system.
Once you have identified which contracts need to be renewed or expired, you can start working on them one by one. Ensure you are renewing or expiring them on time, so they don’t get canceled automatically.
Not involving commercial teams in contract negotiations
When businesses did not engage the commercial team in contract negotiations, solving the problems arising from this lack of involvement was challenging.
First, the lack of involvement can cause misunderstandings and confusion when interpreting contracts. To prevent this from happening, one should ensure that all parties clearly understand what people agree upon before signing any agreements.
Second, if there are any errors in the contract or discrepancies with what was agreed upon and written down in the agreement, one should be able to point out these errors or discrepancies and resolve them quickly. This inclusion will help avoid future problems with these contracts later on down the line and ensure that all parties are satisfied with their agreement.
Missed deadlines and contract reporting
Missed deadlines and contract reporting can cause problems in contract management. For example, if a company misses a deadline, it might not be able to deliver the product on time, and this will cause an issue with the contract.
To solve this problem, companies should make sure that they clearly understand what you want from them and what the company expects from them.
For this issue not to happen, organizations must establish a set of rules and guidelines that are communicated with all parties before any contracts are final.
Contract management is tricky. Knowing the common pitfalls that you are likely to encounter with it can help you be aware of what usually leads to them. That way, you’ll be able to solve them before they even cause significant issues in your business.
Andi Croft is a freelance writer interested in topics related to business, technology, and travel. She has a passion for meeting people from all walks of life and bringing along the latest tech to enhance her adventures.