Some practical insights on how to manage contracts in a large multinational group.
Contracts are always very important to keep track of and they tend to become numerous over time. In addition, contracts are often complex and information seldom standardized. This makes it hard to monitor them in an efficient way. Our experience is that this is true for most groups.
Therefore, it is important to organize your contracts in such a way that you are able to address the following tasks properly:
In this article we will look at some of the aspects which you should consider when implementing a system for keeping track of your contracts.
Drafting – signing – storing and monitoring
There are several steps involved in the life cycle of a contract. Each step has its own challenges but here we will focus on the storing and monitoring part.
When you draw up a new contract you may use Word or specialized software. When the contract has been finalized, you either sign it manually or use an electronic signing solution before you store it and monitor action items agreed upon in the contract.
Before you store and monitor a contract, you need to decide on a process for how to ensure that you do not miss any contracts that you need to keep track of. This process could be manual or you could create a workflow by integrating drafting software and electronic signing software with storing and monitoring software, i.e. set up a digital and automated process for the entire workflow.
You need to consider that different types of contracts may have different items to keep track of. If you have many contracts of a certain type, perhaps as part of your specific business, e.g. you are a real estate company and sign rental contracts, you will normally have specialized software for the drafting and storing of these types of agreements. However, there are many types of contracts that do not recur at regular intervals but are still very important to keep track of. Our experience is that these types of agreements are often stored in a simple file structure without a proper monitoring system.
Before the contracts end up in the storing and monitoring solution, you should have addressed the points listed above. We will address each of them in a separate section below.
Store contracts in a secure manner
Once you have decided on a solution to store and monitor your contracts, you want to make sure that they are stored securely.
You may want to opt to install your solution and store contracts on your own servers to have control in-house, or you may want to go for a cloud solution. There is also the possibility to run your solution in the cloud but store the contracts locally and access them using a stored URL in the cloud.
There are different benefits with each choice you might make which we will not discuss here. It is sufficient to say that security measures should be put in place and followed up on a recurring basis and that information should be encrypted.
Access system and responsible people
When you have installed your solution, it is time to set up a reporting process and appoint people that should have access to perform different tasks.
It is important to have flexibility to give people different access rights. Some people should perhaps only have access to view contracts of a certain type whereas others should have access to edit them but only if they belong to a certain security level. Being able to manage access on a detailed level is important to ensure that you are able to work with a system effectively and are able to include all contracts.
In order to avoid missing any information or actions that should be taken for a contract, it is also important to appoint one or more responsible people for each contract. These people will then always be responsible for tending to that contract and making sure that nothing is missed, a task where the system should provide automatic support.
One key aspect, which is often forgotten in contract management solutions, is the access to updated and quality-controlled entity data directly integrated with the contract management solution.
When you add new contracts, you need all internal counter-parties, external counter-parties, signatories and basic entity information. If you have this information easily at hand, you will improve the efficiency and the quality of the data in the contract management solution significantly, as well as lay the foundation for making advanced analysis of contracts possible.
When you have entity data, documents and contracts stored in one place, you have a large portion of the information that is required for many processes. This enables additional possibilities which otherwise might not have been available. E.g. your contracts, legal entity structure, entity information and documents, all information which is required for review in a due diligence process, could be made available very quickly for an external due diligence team. The external people could then be granted restricted access to only those entities they should review, giving them the possibility to perform the same advanced searches that would be available for internal people.
Advanced monitoring possibilities
In order to monitor your contracts effectively there are a few things to think of, the first being that your system should be flexible enough to meet different requirements for different contracts. This means that your solution should be customizable to collect different types of information depending on the contract type being added. Also, you need to consider if you should focus on certain types of contracts or contracts that exceed a certain value.
Secondly, you should be able to follow a contract easily over time, e.g. how information changes and if a contract is replaced by a new contract or if contracts are related to each other, such as in a project.
Thirdly, it is important to be able to break down a contract into its constituents to be able to monitor parts separately. In this respect you should be able to set up different life cycles per item, action point or due date in a contract. This is important since most contracts have clauses that regulate different things that are handled separately from each other, and thus you cannot manage information based on a contract level only.
And finally, you should be able to set up reminders for each constituent you have identified and decide when to get a reminder and who should receive it. In relation to reminders it is important that you can easily find and keep track of these, not only when reviewing a contract but also in a calendar. Only information which is relevant to a user should be presented to that user, which is both a safety measure and facilitates presenting a simple overview of your information.
Logic, up-to-date data, changes and historical information
Each contract has a number of data points which most likely can be found elsewhere in the group. In order to avoid double entry of data and increase quality, you should consider integrating your contract management solution with your entity management solution and automatically retrieve data which is required in your contract management process. In addition, this will ensure that you always have up-to-date data and can follow changes which happen over time.
Access to entity data also allows for more advanced logic and functionality to be implemented. This could be automatic analysis of companies that are made dormant, but which have active contracts that need to be addressed. Another example is that you will automatically have a contract management solution for every entity in the entire group, negating the need for purchasing a separate system for each entity.
Providing a contract management solution throughout the group and not only for the parent company, gives you added possibilities as you will be able to perform better analysis of your contracts. One example of this would be when your procurement department can assess all purchases made by all your group entities from another group. Finding out how many of your group entities make purchases from the other group and to what value, will give them an advantage when negotiating discounts.
Search and reports
You need to look at which information you need on a recurring basis and make sure that the system can support the quick production of such reports. It should also be possible to set up customized reports for specific requirements from the start or at a later date.
It is important that the solution gives you a good overview of the information which is relevant to you, irrespective of what role you have in the group. The information should be presented on a dashboard that outlines all action items that are related to you.
Some examples of standard searches that should be possible to perform are that you should quickly be able to find all contracts in all entities signed by a specific board member, as well as all contracts in force in one entity.
You should be able to search among all data points entered for all contracts and appendices that have been uploaded for both active and archived information.
A full audit trail should also be available in the solution.
Whatever way you choose to manage your contracts, it is important to make sure you have a flexible and scalable solution so you are not stuck with a solution that cannot meet your changing requirements. In order to succeed, you need a user-friendly system that you can integrate with other software so it can become an integral part of your IT environment.
All of the above requirements are met by the Blika contract management module.