The Principles of Contract Management

As more companies embrace the value of process automation, they are utilizing contract management solutions.

As more companies embrace the value of process automation, they are utilizing contract management solutions. Contracts are formal, finalized agreements between businesses. An organization’s contracts are necessary for the legal protection of one or more entities. A contract is used to dictate the respective roles between a company and its vendors, customers, employees, and other partners.

The management of contracts provides your company a single source of truth across all of these relationships. Managing contracts includes the creation, review, signature, and storage of a contract. The contract management process poses a growing challenge as companies mature through business cycles from start-up to larger enterprise.

What is the function of contract management?

During each step of contract management, the management processes propel the contract through each stage of the contract lifecycle. Contracts need to be reviewed, signed, stored, and made visible to all associated parties. However, contract management is easier said than done.

By necessity, a set of contracts must be written in a precise legal language bound by law. Since lawyers are limited and expensive, not every organization can digest a 40-page independent contract. Some of a contract’s information is vital, like an exclusion clause that can protect an organization from liability. The solution most businesses use to read a contract is manual review and data entry, where they find basic terms of an agreement and summarize as much as possible.

Contract reviews can occur during any stage of contract management. During the negotiation process, a review helps in selecting the best terms for the type of agreement that best benefits your business. Several departments, including legal, project management, accounting, or procurement, may need information in the contract during the contract execution stage.

What happens if a mistake occurs during the contract management process? Sometimes, a first name, last name, email, phone number, signature, or date can be missing. Exposure to liability, risk, and other missed opportunities for profit can all impact your business. There are many kinds of pitfalls and failures in contract management.

What are the six stages of contract management?

The contract management process can be broken down into six key stages.

1. Initiation

During the contract initiation stage, a company decides to begin a business relationship with a partner, customer, vendor, or employee. Upon contract initiation, businesses should start the contracting process.

2. Negotiation

The business and interested parties discuss contract agreement arrangements and how they are mutually beneficial to both parties. This is the step before contract generation takes place.

3. Contractual obligations generation

A contract is written based on the agreed-upon terms from both sides. Contract generation may involve filling out a simple template or creating a completely new contract. If a new contract has to be written from scratch, it usually involves legal team members.

4. Approval

Both parties review the contract and sign their legal consent to be bound by the written terms. Contract lifecycle management (CLM) improves approval workflow and contract generation through templates, quick distribution, and automated reminders.

5. Execution

During the execution phase, the contract goes into effect. Both parties now find themselves bound by contractual obligations and compliance. Compliance needs to be assured by both parties. In the event of issues on either side, various termination triggers, damage clauses, and other liable effects might occur.

6. Renewal and termination

The contract comes up for review for a specific period. If the contract is written to be ongoing, it might be renewed, renegotiated, or amended. If it is designed to be executed only once, the contractual obligations are successfully terminated at an agreed upon date.

Each of these steps in successful contract management requires collaboration across your business teams.

Organizations often see contracts as the “software” of businesses. Contract management lays out a plan for two parties to cooperate to accomplish mutual benefits. The contract is created with language describing how both parties’ expected roles and actions will benefit each business. Much like software processes, contracts are executed over time and are defined by metrics whether they terminate or cycle endlessly.

What are the challenges of contract management?

Contract management challenges are common for nearly every business. By developing strong contract management skills, utilizing modern contract software, and applying a common sense and pragmatic way to manage contracts, almost any company can work to overcome contract challenges.

Creating understandable contracts

Contract management often depends on easily understandable contracts. Specific skills are required to draft comprehensive, concise, unambiguous, and understandable contracts without legal training.

Using different elements to contract management

The way companies manage contracts must account for many important factors, including:

  • Contract type
  • Total value
  • Criticality to the business
  • Type of goods and services provided
  • Performance requirements

These different factors often vary throughout long-term contracts, with reduced management as trust between the parties develops and solidifies.

Checking contract terms and conditions

It is easy to sign contracts without reading the contract terms and conditions, especially the “small print.” Not reading the terms and conditions can lead to subsequent surprises when managing contracts. It is crucial for someone with the proper knowledge and attention to detail to check contracts before signing.

Three-strikes approach to contract management breaches

If contract management refers to a supplier to the contractual terms, then whenever there is a mistake or failure of the requirements, the relations with a supplier may quickly deteriorate. Knowing the right way to apply the remedies for non-compliance can be a difficult task. The “three-strikes” approach can help issue non-contractual warnings for the first two instances of a breach.

Benefits of contract management software

Businesses invest in contract management when they reach a sufficient growth stage, which means that contract volumes are increasing. Since risk is rapidly increasing as well, it is essential to use CLM software to help provide oversight of the contract management process.

Below are a few key benefits to implementing a contract lifecycle management solution.

Performance speed

Creating a contract from a template is faster than writing one from scratch. Building a mass amount of documents is always faster if it can be done at scale rather than manually each time. Collaboration, negotiation, and a signature can happen faster without the manual processes that physical contracting requires.


Let’s say your new employer sends you a contract with a change. You wish to accept it, but unfortunately, there is a wrong start date. Your team has to take time to make changes in the contract, export it to a PDF, print it, and send it in the post for a few days. With the help of contract management software, one or more parties can make immediate changes to a live document without sending it through the mail.


Once someone has made a change to a document, they can email it via a link to all relevant parties.


Another benefit of contract management software is that your contract is now searchable. Storing and managing contracts in a digital system means that a level of searchability saves a vast amount of time over manual processes. Finding concrete results digitally in seconds is preferable to wading through filing cabinets.


Contract management software uses encryption and sophisticated protection to keep contracts safe behind multi-layered security protocols. Agiloft’s performance solutions work with robust defenses that keep your data safe. Read more about Agiloft security here.

Backed up

Physical contracts are vulnerable to loss and destruction. Contract lifecycle management stores documents indefinitely, backing them up regularly to nullify the risk of loss.


If your need for 10 agreements suddenly becomes 500, the last thing your organization and employees need is a bottleneck in legal. Agiloft users work with contract lifecycle management to quickly increase the volume of contracts they create without extra headcount or budget. Solutions need to be easy for your employees to adapt to and scale successfully.


Transporting an agreement is a business cost for which companies no longer allocate budget. Getting a services supplier agreement to a client across the seas can be instant, with users sharing and collaborating on legal documents regardless of their location, using contract management software.


Companies might have thousands of contracts that need to be retained; this number only increases as time goes on. Contract management software means that storage issues are left to the cloud, not a warehouse or filing cabinet. Contract management is also much easier without having a manager search for a physical copy from months or even years prior.

How Agiloft revolutionized the contract management process

Using the best software process to manage contracts eliminates time, bottlenecks, and human error from the management process. Modern automation for processing contracts utilizes artificial intelligence to scan, parse, tag, and store contracts to be retrieved and reviewed electronically. Contract lifecycle management structures data in contracts to make them exponentially more searchable. A process that once took weeks to complete can now take only a few seconds. Machine learning eliminates human error from contract review and spatial hardware requirements.

With Agiloft’s contract management lifecycle software, your company can manage contracts to make faster, better-informed business decisions.

Agiloft’s software service can automate the process of contract management and facilitate transmission and sharing of contract data. This is the closest thing to an automated legal team for contract management.

Business teams that use Agiloft for contract managing may see reduced costs, more efficient operations, mitigated risks, and increased profits. Forward-thinking businesses quickly reach for the best contract management and administration processes to compete more effectively and expand their bottom line.

Intelligent contract management and administration is perfect for streamlining your day-to-day business processes, along with minimizing risk and reducing the need for time-consuming processes associated with contract lifecycle management.

Agiloft’s contract management software automatically develops contract administration and provides a quick, long-term solution to your legal department’s time-consuming needs.

Use Agiloft’s contract management software to never miss a contract renewal date again, while maximizing revenue and reducing risk.

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