Contract Management explained

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Contract Management: this article will provide a practical explanation of Contract Management and Contract Management Software. The article starts with a general definition of Contract Management, followed by the stages of the process of this management discipline and some practical examples. You will also read how software plays a crucial role in contract management. Enjoy reading!

What is Contract Management?

In order to go deeper into Contract Management Software, it is necessary to explain its background and how the software is a program that was born for Contract Management or also known as Contract Administration.

Contract Management manages contracts with everyone involved in the company. It is also involved in negotiating the terms and conditions of the contracts to ensure compliance by both parties signing the contract and documenting.

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Contracts can be of many types such as: sales contracts, partnership agreements, trade agreements, and intellectual property agreements. Contracts are protected by the legal form in which they are configured with the rules that the company has and the laws that are constituted for the processing of personal or private information that the country has.

Contracts may also change as new business agreements or renewals are required that need to be modified. This can lead to a bilateral decision on what changes are needed. This way the contract can be in force and active in the organization.

The idea is to be able to follow the processes in a systematic and efficient way in the creation and analysis of contracts in order to maximize the financial and operational scope and minimize the risks that may arise.

Successful contract management

Qualified employees to perform the recruitment process is important, however, the complement to obtain quality results must be complemented with contract management software to achieve success.

The following results would then be expected:

  • Business benefits and financial returns
  • Cooperation with suppliers and the reception of the company’s needs
  • No contractual disputes
  • The delivery of services (contracting) is satisfactory for all parties involved.

Stages of contracts

The division of contracts and their due process is necessary.

1. Initial application

The contract management process should identify the documents needed to support the purpose of the contract.

2. Contract authorship

Draw up the contract in a systematic way.

3. Negotiating the contract

When the drafting is complete, the interested parties discuss and share their views on the contract.

4. Approval of the contract

Decisions must be made about the contract in order for it to meet its goal.

5. Execution of the contract

It is the process of signing the contract of the interested parties.

6. Management of obligations

Control of the project process will come out and meet the agreed objectives.

7. Revisions and restructuring

If something is not working, it is necessary to review and modify the contract again.

8. Audit and reports

Audits are important to review the process of projects and determine if the agreed objectives are being met in the company.

9. Renewal

It is the possibility of renewing the contract or creating new commercial contracts.

To give efficiency to the above, the Contract Management Software is necessary to have a high and efficient performance (create – collaborate – negotiate – sign – track – renew).

CLM Software

Life Cycle Management (CLM) software systems can handle creation, editing, collaboration, signing, date tracking and renewal. The entire life cycle of the agreed document. CLM automation can save a company’s costs and increase compliance with legal requirements.

The following steps make up the CLM:

  1. Creation of templates: the creation of templates allows the rapidity of the structuring of contracts.
  2. Monitoring: monitoring of contracts, separating old and new contracts.
  3. Authoring: setting up contract templates for commercial and legal issues.
  4. Creation: train employees to write the contracts needed.
  5. Approval: approval flow is necessary so that contracts are not risky and follow the necessary law to provide safe contracts.
  6. Negotiation: list the disagreements on both sides and modify these disagreements to reach a balance.
  7. Signing: when the contract is already defined it must be signed by the persons involved.
  8. Analysis: contracts must be analysed to look for risks or prevent them.

What is Contract Management Software?

Contract Management Software is a program that organizes and manages a company’s legal agreements such as service contracts, license agreements, leases and others.

The fundamental idea of this software is to optimize the process and order the administration of contracts and provide a unification of the processes of each contract with the modification and analysis of contract data. This makes the company manage in a faster and more efficient way the legal processes that are held or archived. In this way, risks can be reduced.

Within Contract Management the following activities may be executed:

  • Preparation and approval of budgets
  • Market studies
  • Registration and evaluation of suppliers
  • Preparation and review of contracts
  • Control of the documents you have such as: letters, policies, licenses, minutes etc.
  • Electronic or physical signatures
  • Payments and invoicing
  • Monitoring of third parties connected to the company
  • Contract renewals, among others

Contract Management: Benefits and key features

In the past, paper was used, but today it is used in a sophisticated way as a tool for contract management (Contract Management Software). This powerful tool is used by companies to keep track of all legal activities and even costs that move inside or outside the organization. The review, compliance and monitoring of the contracts that are made.

Employees no longer need to do everything by hand and file the contracts in physical folders on a shelf. Instead, the one-click speed makes contract work more organized and efficient, thus avoiding potential headaches for those in charge of this administration.

The Contract Management Software also helps with project portfolio management and expense analysis, providing visibility, monitoring and compliance for efficiency and speed in the contract lifecycle process. Contracts can be archived on a single platform, making it much easier for each member to access and search for information as the company needs to review or track a specific contract.

With this, the management of contracts makes the company a step further in the face of possible crises that may arise with customers or with the same employees. The companies are never out of the legal problems or situations that can be embarrassing, which is why from the beginning you want to hire or provide a service must be with the transparency of contracts and the review of these so that it does not breach or affect the people involved.

It is also possible that there are contractual risks in a company, so the best way to explain what these are and how to deal with them in the event that they arise in the organization.

Contract Management and contractual risk management

Companies that have large projects must strengthen their relations with investors or those involved in the project, so that they do not present contractual risks and can be on good terms.

The objective of contractual risk management is to identify, establish and prevent events that endanger the company. This is why contractual risk software focuses on the legal, financial and project areas.

The importance of contractual risk management

The importance of legality is one of the main factors in an organization. That is why legality becomes a strategic focus and starts to perform tasks like:

  • Performing risk analysis
  • Intervention of the legal area in financial and business risks
  • Adapt business strategies, including risk management in administration

Contract risk software

Today there are tools for contract management in which clauses, penalties and other risks can be monitored. There are also monitoring systems to measure and establish possible risks through financial and market variables.

The most appropriate thing to do is to always be aware of the possible risks that may arise in the contracts or relationships that the organization has.

Contract management as part of EU GDPR

The General Data Protection Regulation (GDPR) is the regulation of the EU legislation on data protection and privacy. It also controls the transfer of data outside the EU and EEA area. The focus of the GDPR is the control of the processing of private data of each individual for the regulation of business.

This is why contract management must be in line with data processing agreements as personal information must be handled with the necessary responsibility.

Therefore, the responsibility for legal information is among the necessary parameters required by the law for the control of legal and private information.

Contract management conclusions

The Contract Management Software, today is fundamental for organizations that want to have order and control of the legal and financial contracts they manage. Managing saturated information can become a problem, however, with software that manages and archives contracts makes the most sensitive information an organization has easily monitored and controlled.

This way, the legality is also controlled, an important issue that not only involves the good management of contracts but also the ethical and labour issue that must be taken into account when hiring and new relationships with suppliers and employees, among others.

Among the common commercial contracts are employment letters, invoices, purchase orders, and supplier contracts. The most difficult contracts are used for construction projects, goods or services that are strictly regulated, such as intellectual property agreements, outsourcing and international trade. Larger contracts require the use of Contract Management Software to assist in the conscious management of the business.

Today’s companies try to stay one step ahead of the risks that may arise, which is why contract management can avoid the loss of important dates that may generate costs and renewals of contracts with shareholders or suppliers that the company has.

The efficiency and speed of business management makes it increasingly important to use software for handling information with the responsibility of legal terms from the personal and negotiation, either in hiring employees or with agreements with other business entities.

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It’s your turn

What do you think? Is it necessary to have Contract Management Software in an organization? do you agree that it helps to monitor and control hiring? is control of legality fundamental to business success? do you have anything else to add?

Share your experience and knowledge in the comments box below.

More information

  1. Turner, J. R., & Simister, S. J. (2001). Project contract management and a theory of organization. International journal of project management, 19(8), 457-464.
  2. Mo, B., Gjelsvik, A., & Grundt, A. (2001). Integrated risk management of hydro power scheduling and contract management. IEEE Transactions on Power Systems, 16(2), 216-221.
  3. Turner, J. R. (2004). Farsighted project contract management: incomplete in its entirety. Construction Management and Economics, 22(1), 75-83.
  4. Huang, H., Sethi, S. P., & Yan, H. (2005). Purchase contract management with demand forecast updates. IIE Transactions, 37(8), 775-785.

How to cite this article:
Ospina Avendano, D. (2020). Contract Management. Retrieved [insert date] from Toolshero:

Original publication date: 03/14/2020 | Last update: 04/20/2023

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Daniela Avendaño
Article by:

Daniela Avendaño

Daniela Avendaño is a content producer and translator at toolshero. She obtained a Bachelor in Communications & Journalism, and with her theoretical and practical knowledge she supports the toolshero production team with interesting articles on management, personal & professional development, marketing and more. She is driven by sharing knowledge and stimulating others to develop.


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