Five Myths of Contract Management

For many corporations, it's time to take those contracts out of the filing cabinet and put them to work for the company's bottom line.

For years the corporate contract has been an under-appreciated document in the business world. It was considered critical to have, but, once signed and sealed, employees often filed the contract away, never to view it again.

This habit of taking the contract for granted has led to the development of a number of myths regarding the field of contract management. For corporations, these myths minimize the need for a task-specific contract management system and ultimately lead to increased costs (both actual and opportunity) and decreased profits.

The sections below take a look at the five most common of these myths with the goal of setting the record straight: The contract is a vital business tool, and it is high time it was taken out of the filing cabinet and put to work for the firm.

Myth 1: Firms can manage their contracts with standard desktop applications like Access, Excel or Word.

Standard desktop applications have come a long way since the days of Wordstar v 1.0 and Quattro Pro, but they are still far from being a substitute for a contract management system.

Leading contract management packages leverage the familiar editing capabilities of word processing packages. However, word processing software was not designed for multi-user collaboration or enterprise-wide visibility and it cannot measure operational and financial performance against agreed upon contracts.

Contracts today tend to be highly complex and sophisticated documents that are designed to take into account a wide range of possible eventualities. As such, the system used to manage these documents needs to be specialized, robust and offer the centralized capabilities of an enterprise contract management system. It should effectively break up contracts into their various clauses and then store them based as both a unified document as well as a collection of clauses. For example, such a system should allow a firm to sort for all contracts that could be impacted by a change in a law, regulation or status of a customer or supplier.

Also, a viable enterprise contract management system should be able to link to other systems such as enterprise resource planning (ERP), legal or procurement solutions in a secure manner, permitting role-based access — an issue that is clearly germane to highly confidential documents like contracts.

Myth 2: ERP and customer relationship management (CRM) solutions provide all the contract management capabilities a firm needs.

While ERP and CRM solutions are important business tools and are effective at what they do, they are not always designed to handle the range of tasks associated with an effective contract management system.

In general, ERP solutions focus on transactions related to the product or service of the company, and CRM solutions focus on collecting and utilizing data about the customer. While each of these solutions touch on certain aspects of contract management, only an enterprise contract management system can provide visibility into all of your contracts, validate that the transactions meet the terms and conditions of the contract and ensure compliance. A contract represents a business relationship between parties, and this relationship has a number of distinct phases. A contract management system needs to address each phase.

The three phases that comprise the contract life cycle are as follows: