Contract management: what it is and how it works + unmissable tips

The compass is one of the most important instruments for maritime navigation. On the high seas, navigators rely on their precise guidance, in order to make important decisions about the route to be taken to their final destination. For it to fulfill its function, however, it is essential to keep the compass calibrated and in good condition of use.

A sea of uncertainty, unnecessary disputes, inefficiencies, and waste of financial resources can also occur with your contracts if you don't worry about keeping a compass that gives you clarity about the rights and obligations of the parties involved and what were the deadlines and responsibilities assumed.

In this text, you will discover what contract management is. We will also discuss how the efficient management of your contracts plays a fundamental - and often saving - role for you and your company.

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The importance of the contract

What is a contract, anyway? Contracts are agreements made by two or more individuals, whether individuals or legal entities, with the purpose of establishing the rules and conditions for regulating, constituting or terminating a particular legal transaction.

The contract, therefore, is the instrument used to formalize the intention of the parties to achieve certain objectives, often complementary to each other, such as: donating and receiving a good, buying and selling a product, providing and receiving the provision of a service, granting and using a software license...

Because they create obligations that may be required of the contracting parties, contracts must be prepared according to each specific situation, in order to clearly and objectively portray the negotiated terms and conditions, being an instrument of security and protection for the parties involved that what was agreed will be fulfilled. Thus, once the legal requirements and principles are fulfilled, the contract becomes law between the parties.

In companies, the volume of contracts made can be complex and require high costs for managing these instruments and for complying with what has been agreed. Therefore, efficient contract management means ensuring safety, increasing the organization's productivity and reducing costs.

What is contract management?

We define contract management as the set of multidepartmental processes that comprise the entire life cycle of contracts, from initial business requests, document preparation, signature, fulfillment of obligations and their termination, to renewals, when appropriate.

We speak of efficient contract management when the entire contractual life cycle is managed in an agile, controlled manner and at the lowest cost by the responsible teams, from end to end, in order to maintain a structured organization of the contractual instruments.

Let's see what each stage of a contract's life cycle comprises:

Pre-conception: request

The contract life cycle begins with the request for a contract, either to establish the terms and conditions for the purchase of an input for the production chain, the acquisition of a tool to automate tasks, the execution of a consulting service or even the conclusion of a contract with your client to offer goods and services, for example.

One of the difficulties encountered in this phase is the decentralization of processes. When the legal department does not have a specific channel that centralizes the receipt of requests for drafting and reviewing contracts in an organized manner, it is very likely that a demand will be “lost” along the way or that it will be forwarded without the necessary information for its execution, requiring more time and/or rework by the team.

At the same time, without standardization of processes, it is much more difficult to obtain performance indicators and, therefore, more difficult to measure the efficiency of the services provided to the internal customer.

Design: negotiation and preparation of documents

This is the moment when the terms of the deal to be concluded are agreed and must be formalized in a document.

When drafting a contract, its content must reliably reflect what was agreed between the parties. When reading the draft contract, anyone, whether or not involved in that legal business, must be able to understand the real intention and will of the parties in a concrete and objective way.

In the same way, it is necessary to establish in a clear and transparent way the consequences for non-compliance with what was agreed. The clearer and more accurate the document is, the better (and more protective) the contract will be. It will serve as a reference instrument for the safety and security of the parties involved.

Therefore, it is essential that the parties involved are fully aware and sure of what they are hiring and that the lawyer who is drafting the document understands very well the legal business that is being carried out.

Birth: subscription

After negotiation, the drawn up contract must be formally signed by the parties involved. Any legal requirements regarding the content and form of the contract must also be respected. For example, the signature of two witnesses is a formal requirement required by the Brazilian Code of Civil Procedure for the contract to be enforceable.

Another very important requirement to be observed is the type of subscription to be used. Contracts can be signed physically or electronically and, in the latter case, it is important to pay attention to the types of electronic signature, commonly referred to as digital signatures, provided for each type of contract.

Finally, it is also necessary to verify at this stage whether the signatory parties have powers of signature and representation.

Term: implementation

During the term of the contract, the parties must comply with their obligations under the agreed terms and deadlines. In the event of any divergence of interpretation, default or doubt, the contract must be consulted in the light of the principle of objective good faith and even mentioned to guarantee its compliance and indicate the consequences of its default.

Termination: termination of the contract

The moment of terminating a contract occurs when the established deadline expires, its object has been fulfilled, or when the parties no longer have an interest in maintaining the contractual relationship. A contract can also be terminated because it has been canceled or declared void, or if there are any circumstances that occurred later that allow its unilateral termination.

Even if the legal transaction between the parties ends with the termination of the contract, it is also necessary to assess whether there are legal grounds to keep it archived even with its termination. Compliance with statute of limitations is an example of a regulatory provision that may require parties to keep contracts on file for their due protection in the event of a lawsuit involving such instruments. Consult the specific legislation so that you know how long your contractual instrument must be kept in your case.

Practical tips to make your contract management efficient

The best and fastest way to work for efficiency with regard to contracts is to adopt digital processes. Below, we've brought you some tips.

In the request phase

Have a system for receiving requests

Having a structured system for receiving contract requests is the first step towards efficient management of the lifecycle of these instruments. Thus, the choice of a tool to receive contract requests and record their progress and delivery cannot be overlooked.

When selecting your tool, verify that you will be able to generate reports to measure the level of service provided to your internal client, the deadlines for submitting documents, the amount of contracts negotiated, the urgency of the business to be able to prioritize the work and the volume of demand that each lawyer is receiving, to name a few. This way you can better manage your team's resources and make adjustments to your processes, giving you agility, transparency and, of course, much more efficiency!

In the negotiation and drafting phase

Maintain constant communication between the areas involved

Good communication is the key to successful contract management. From the beginning of the life cycle, even during the contract request phase, providing all the information necessary for the preparation of the document is essential to avoid rework and to verify the agility that the business requires. In the drafting phase, drafting the terms and conditions in a clear and objective manner, involving the plaintiff and operational areas in the revision of the document, and informing all the front-line teams of the operation that guarantees faithful compliance and avoids the application of penalties and even the early termination of the legal transaction. Throughout the contract lifecycle, alignment between teams must be constant and reinforced by well-structured processes.

Use automated templates

One way to ensure agility in drafting contracts is to automate the preparation of drafts. Today, in the market, we have several tools that make it possible to deliver a standard contract, without the need for the intervention of the legal department.

Automated models are an excellent tool for formalizing repetitive contracts that follow a pre-determined pattern. Using these tools intelligently frees up the arms of your legal department so that lawyers can dedicate themselves to more complex contracts that require more individualized and specialized professional action.

But note: using standard “templates” doesn't mean downloading templates from the internet. A contract model not tailored to your business is unlikely to provide the necessary security for hiring. To ensure efficiency, automated models must be designed and developed to reflect in a customized way the terms and conditions that will govern the concluded agreement.

Another important point to note is that when one of the parties imposes the terms and conditions of a contract on the other, leaving only the other party with the possibility of accepting the terms of the agreement or not, that contract will be one of adherence. Franchise or franchise agreements, software licenses, transportation and telephone contracts, and others are common examples of membership contracts. In these cases, the law tends to protect the adhering party, treating them as vulnerable in that relationship. Therefore, the provisions of these contracts must be drafted in a very clear and transparent manner. Article 423 of the Brazilian Civil Code states that “when there are ambiguous or contradictory clauses in the membership contract, the interpretation most favorable to the member must be adopted”.

Finally, whether the contract is negotiated or a membership contract, it is important that it provides for the best and worst possible situations that may occur during the hiring. Thus, insert output devices so that the possible termination of the contract can reasonably occur for the party (s), if applicable. Such clauses can save you a lot of future heartache.

In the subscription phase

Use a platform to sign electronically

A valuable tip at this stage is the implementation of an accessible and efficient subscription process, such as electronic signature.

The electronic signature allows parties to sign documents in a fast, secure, and legally valid manner, without the need for paper document printing, physical shipping logistics, or waiting for manual signatures. This streamlines the signing process and dramatically reduces the execution time of a contract. On the Clicksign platform, for example, all the signer needs is a device with internet access. The user can also choose which authentications will be used to generate proof of the signer's identity. The digitization of the formalization process also contributes to other phases of contract lifecycle management, such as facilitating document storage and consultation.

In the implementation phase

Store the signed document

Use the same electronic signature software to store the contract in a secure place with easy access to the teams that will manage contracts, especially the contracting area and those that will be responsible for monitoring performance measurement and payment. Proper archiving is important for easily retrieving information and maintaining the security of stored data.

Maintain an organization that makes sense for your company

This may represent the creation of folders with access permission, as well as the adoption of identifying patterns in the document title, for example. Thus, you will always have a catalog of documents organized rationally, with autonomy and practicality.

Define responsibilities

For efficient management, it is very important to define the areas responsible for implementing the contract. This may include different activities, such as monitoring deadlines and dates, monitoring the deliveries and obligations involved in the hiring, measuring performance, approving any invoices to complete the payment, etc. Communicate and involve the relevant teams to ensure the proper implementation of the contract.

Monitor deadlines and contract performance metrics

During the term of the contract, it is necessary to establish clear performance metrics and implement a monitoring system to monitor your progress, ensuring compliance with the agreed terms. This includes keeping track of deadlines, evaluating the quality of the products or services delivered, and carrying out regular analyses to identify possible deviations or opportunities for improvement. Such monitoring can be carried out by the responsible team using specialized software, for example. The more automated your process, the lower the chances of human error. Failure to meet a deadline can result in fines and even be fatal to the business relationship established by the contract.

Maintain alignment between teams

If it is necessary to draft or modify the provisions of the signed contract by means of an addendum or an email, update all the teams involved. This is because the amendment may add, remove, or modify clauses of a previously signed contract. Therefore, the changes brought may influence the processes that would need to be adapted to the new provisions.

Extract assertive data with automated processes

The automated document signing and storage processes make it possible to extract contract monitoring reports, as well as possible dates, the number of documents signed by the company, and other efficiency information about the processes involving contracts. Efficiency data is also important for improving management processes, such as contract negotiation time and discussion of standard contractual clauses, for example.

In the closing phase of the contract

Use the contract as an instruction guide for terminating the contractual relationship

The management of contractual deadlines is an important point for the efficient management of contracts. The arrival of the final term of the contract requires alignment with the teams involved regarding the possible renewal or renegotiation of the business terms. A good practice is to start the review process early in order to avoid interrupting the provision of the services or products. During this process, it is important to identify the teams that need to be aware of the agreed adjustments, updating them of what has changed. Take into account market changes or possible impactful news in your company to conduct negotiations in a transparent and collaborative manner.

Likewise, if there is no longer an intention to maintain a contract, check if it is necessary to notify the parties involved in advance and carry out final audits to ensure compliance and the liquidation of any outstanding obligations. It may also be necessary to sign a dismissal term to formalize the termination. Thus, it is possible to guarantee that there are no pending issues between the parties and to close the contract without major headaches.

Is it worth investing in efficient contract management?

You already know that efficient contract management primarily means maintaining the organization of information, ensuring maximum performance efficiency for the parties, and rationally using business resources.

But what are the benefits of adopting good practices for contract management?

Easy access to information

The organization of contracts is critical to ensure that all relevant information is readily available when needed. Investing in an organized contract structure avoids the loss of important documents, reduces the time spent searching for information, and makes it easier to consult clauses and deadlines.

Cost control to optimize resources

Efficient contract management provides control over a company's expenses and resources, including identifying cost-reduction opportunities and negotiating better conditions with suppliers and partners. In addition, the alignment between teams provided for in proper contract management allows organizations to identify unnecessary or inactive contracts. All of this avoids unnecessary expenses and maximizes the efficient use of resources.

Monitoring the performance of the parties

The contracts establish schedules and deadlines for completing specific activities. Proper contract management involves monitoring these deadlines, ensuring that the parties involved comply with their agreements. This maintains trust between the parties, avoids unnecessary delays, and is essential for the efficiency of business operations. Based on meeting expectations, organizations can adjust their compass to make adjustments, implement improvements, and make informed decisions about renewing or terminating contracts.

Any risks will be minimized

Effective management includes careful analysis of contractual clauses, assessment of legal obligations, and mapping the consequences of potential contractual violations. By anticipating and managing contractual risks, companies reduce litigation and avoid financial costs associated with legal disputes. There are reputational costs that can be too expensive and that can be avoided only with an efficient organization of contractual instruments.

Documentary evidence that proves regulatory compliance

Keeping clear and organized records of all contracts is essential to create documentary evidence that demonstrates compliance with regulations and other specific regulations applicable to the business model. This is particularly important in well-regulated sectors, where compliance is essential to keep the operation running and involves permission to act from a regulatory public body.

Good relationship with the parties involved

Rest assured that you only have the benefit of maintaining good contract management. Think about it: imagine that you need to hire a professional for your company. As finalists, there are two candidates: the first one that is organized and has information on the tip of the tongue in a clear and structured way, and a second that seems organized in the initial minutes of the chat, sells itself very well, but, during the interview, gets in the way of communication and presents noise in the organization of their ideas. Which one would you hire?

It seems obvious that the first candidate. You can be sure that your customer feels the same way. The rational organization of your contracts represents an asset that conquers customers and maintains an excellent relationship with suppliers and others involved in their business activities, in addition to the savings in resources resulting from efficient processes, when implemented. Nobody likes to celebrate business with someone who doesn't know how to organize themselves to remember and fulfill their agreements.

Thus, the reasons for you to adopt the best practices that increase your level of efficiency in contract management are clear. That's why good practices can and should always be applied, regardless of the size of your organization and your needs.

If you've never heard of contract management or if you've identified one or more practices that you don't adopt, know that you can start solving this issue today, especially for contracts that are in force or that are still being negotiated/renewed.

The starting point for implementing good practices for good contract management is the diagnosis. To do this, identify where in the life cycle the weaknesses of your processes are and solve them. We will address this issue in the topic below.

Use secure software for contract management in your business

Clicksign exists to support you throughout the life cycle of your contracts. It's time to simplify your processes: with Clicksign's electronic signature, 80% of contracts have their signature process completed within one business day. It's easy, fast and legally valid!

The Clicksign platform is a secure and impartial environment that allows the automated generation of contracts, the sending of documents for signature, and the management of signed documents. Check out what Clicksign offers you to support your management:

• ✅ You can create flows yourself that automate the generation, triggering for signatures, and archiving of your contracts by filling out one or two forms.
• ✅ Create organized folders with access permission to whoever needs it.
• ✅ Send documents for digital signature, with legal validity and with the guarantee that they will not be modified during the signing process.
• ✅ Choose the type of digital signature to be used. Clicksign makes all types of digital signatures available to you.
• ✅ Conveniently monitor the subscription process.
• ✅ Download your documents when you need them.
• ✅ Provide a term of access to the signed document through the Clicksign Validator for third parties, such as public agencies and notaries, to verify the content and signatures of your contract.
• ✅ Integrate the Clicksign subscriber with the systems you already use to further automate your processes.
• ✅ Get it all in a safe environment. Clicksign is the only Brazilian company in the electronic signature sector to obtain international ISO 27001 certification, attesting to the highest information security standards.

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