Are you stuck constantly putting out fires instead of getting the time to proactively prevent them? You’re not alone.
Contracts are what drive revenue and business at any organization, yet few have the right contract governance framework in place to help them keep up in today’s fast-paced industry. For in-house legal teams, this can turn into a nightmare incredibly quickly as the business scales. Moreover, broken processes can have expensive consequences in the long run, leading to increased risks, compliance issues, and lack of visibility.
“You can either be part of the cleanup crew or do stuff to avoid that cleanup situation altogether."
— Gitanjali Pinto Faleiro
General Counsel, Company Secretary & CCO at Greenhill & Co.
Here’s a comprehensive guide on how you can establish a contract governance model and, eventually, streamline it so that it basically runs itself while you focus on high-leverage work.
What good contract governance actually means
Contract governance is the framework of policies and processes that make up the A-Z contracting motion at your organization. This includes everything from creating and negotiating contracts to executing them, monitoring them, and staying compliant.
A successful contract governance framework enables legal teams and organizations by establishing clear roles and responsibilities, standardizing procedures, ensuring regular contract monitoring and tracking, and leveraging technology for greater efficiency. This helps you mitigate risks, reduce costs, ensure compliance, and achieve business objectives.
Ultimately, good contract governance means establishing a structured and efficient approach to managing contracts and helping your organization achieve its objectives while minimizing legal and financial risks.
Why is contract governance important?
Effective contract governance is essential for ensuring that contracts are effectively managed, enforced, and monitored throughout their lifecycle. Thoughtfully approaching contract governance helps legal teams to:
#1 Reduce risk and prevent inefficiencies
With greater oversight over contracts and streamlined processes replacing redundant tasks, legal teams are able to reduce mistakes, human errors, missed timelines, and wastage of resources, which helps minimize the risk of disputes and other legal issues.
#2 Ensure contract compliance
Ineffective contract governance often results in lost contracts and information, unfulfilled obligations, and non-compliance to regulatory requirements. This can lead to huge losses, both monetary and reputational.
#3 Enhance performance and collaboration
An efficient contract governance system allows legal teams and organizations to work at their most productive, by streamlining time-consuming and redundant tasks so they can focus on high leverage activities as well as establishing effective communication protocols in place.
#4 Manage costs and resources
With more streamlined processes, legal teams are able to manage resources and costs around contract management more efficiently, reducing duplicate work and redirecting resources in more productive areas.
#5 Improve business relationships
Effective contract governance helps in building trust and credibility between cross-functional departments as well as with counterparties. This ensures better collaboration, fosters positive business relationships, and reduces the likelihood of disputes.
#6 Provide greater visibility
A major challenge for many legal teams is ensuring transparency into a company’s contracting motion and obligations, and tracking risks, KPIs, and opportunities. An effective contract governance model enables this visibility and helps organizations make informed decisions.
What a successful contract governance framework looks like [Template]
A contract governance framework provides a comprehensive set of guidelines and procedures for establishing a structured approach to the entire contract lifecycle, from creation to compliance management. Here’s an example of what a successful contract governance model might look like, according to the stages of contract lifecycle:
Contract management strategy and planning
The foundation of a great contract governance framework is strategy and thoughtful planning. At this stage, the legal team sets procedures around high-volume contracts and frequent tasks to streamline contracting. This involves:
- Stratifying contracts on the basis of volume, priority, risk, effort required, etc.
- Collating standard clauses and fallback language for various contracts in one playbook or clause library.
- Identifying key stakeholders involved in the contracting process.
- Defining roles and responsibilities of each stakeholder, both within and outside the legal team.
- Strategizing a plan to streamline workflows, task assignment, tracking, and communication.
- Onboarding required tools to enable execution of your new process, such as a CLM, project management tool, etc.
Contract creation and editing
This stage involves drafting, redlining, negotiating, and collaborating on contracts. Usually, a great contract governance framework takes contract efficiency and turnaround time into account when solving for the contract creation and collaboration process. Legal teams can maximize efficiency during this stage by automating and optimizing the following processes:
- Drafting contracts: High-volume contracts are templatized and standardized, allowing relevant business team members to independently generate contracts. The process for requesting the legal team to draft new contracts is also streamlined and brought on to one platform.
- Obtaining approvals and collaborating on contracts: A process for requesting reviews and approvals is established, whether through a project management system or a specialized tool like a contract management software. Depending on the level of approvals and oversight needed for specific contracts, the process is streamlined to reduce friction as much as possible.
For example, approvals from people with whom contracts often get stuck are only requested when truly necessary, and triggered from the CLM platform when a certain threshold is crossed.
- Negotiating contracts: Once contracts are improved internally, there must be a singular established process to share them with counterparties, negotiate, and track progress, versions, and activity. It’s important to ensure that their contracts aren’t spread over email threads, text messengers, etc., to allow for greater visibility, accountability, and insight into the contract lifecycle.
Contract execution is a critical part of the contract management governance process. Companies usually try to make this process as smooth as possible to ensure friction doesn’t cause a deal to fall through.
“One of the revenue leaders I worked with told me, "Time kills all deals; you gotta close deals fast," and I keep this in mind every time I’m pulled into a sales deal.”
— Sue So
Head of Legal, Hopin
Great contract governance accounts for:
- Setting a streamlined process for digitally signing contracts.
- Ensuring compliance with local governing laws. For example, using the Aadhaar-verified e-signature process for Indian contracts.
- Establishing roles and responsibilities for stakeholders.
- Storing executed contracts into a centralized, searchable contract repository or database.
- Ensuring that all contract documentation is maintained and accessible.
Contract monitoring and reporting
Once contracts are executed, it’s important to continuously monitor performance, keep track of important dates and obligations, manage changes, and resolve disputes. This involves:
- Establishing a system for ongoing contract monitoring and oversight.
- Setting KPIs and creating periodical reports to gauge performance, productivity, and legal success.
- Ensuring continuous compliance with laws and regulations.
- Conducting regular audits of the contract lifecycle and management process to identify missed opportunities, blockers, and areas for improvement.
- Extracting key metadata from contracts to a centralized dashboard and tracking important dates and events, such as renewals and expiry.
Contract closeout and archiving
The last stage of contract governance includes archiving and making past contracts accessible once a contract is no longer active. This includes:
- Ensuring all parties have met their obligations.
- Establishing a process for closing out contracts.
- Reviewing contract performance against metrics and other contracts.
- Ensuring all contract documentation and communication is properly archived and accessible to any internal stakeholder who needs access.
6 tips and best practices to improve contract governance at your organization
Below are 6 tips and best practices to help you improve your contract governance processes and framework:
#1 Start with an audit
The first thing you need to do before you begin establishing a new process is assess your needs through an audit of your current contract governance processes. Look for gaps and inefficiencies, gather feedback from stakeholders, and identify redundant, repetitive processes that take up more time from your team than they’re worth.
#2 Define objectives and expected ROI
Once you’ve identified the gaps in your current processes, it’s time to lay down the scope of this exercise and the objectives you want to achieve. It’s essential to establish the expected ROI you want to achieve before you begin, to ensure all stakeholders and team members are on the same page.
#3 Establish policies and procedures around the entire contract lifecycle
A great contract governance model takes into consideration every aspect of the contract lifecycle. Identify aspects of your contracting motion that can be automated or streamlined — from contract request, drafting, and approvals to ongoing compliance management, monitoring, and reporting — and establish policies and processes around them for every stakeholder involved.
#4 Ensure transparency and communication
“You have to start by listening. If you don't do that, you'll end up talking in the wrong direction and not managing risks that actually matter. So, listening upfront, in my opinion, is the best way to build a relationship with business and counsel internal stakeholders.”
— Jonathan Franz
Head of Legal, Crunchbase
For your new contract governance model to work, it’s essential that you open up the channels of communication. Ensure you factor in continuous feedback and create transparent processes with extensive, accessible documentation for all stakeholders involved in the contracting processes at your organization.
#5 Provide training and support
Ensuring adoption of your new processes can be difficult without providing the necessary support to stakeholders. A thoughtful training program for both team members and cross-functional departments is essential for the success of your new contract governance model.
#6 Continuously monitor and evaluate performance
Alongside planning your new contract governance model, it’s essential to establish performance metrics or KPIs that will govern the success of your new processes. These could include turnaround times, adoption of contract templates, time saved on redundant tasks, reduced friction, ease of locating contracts and generating reports, etc. If you’re using a contract management software as the foundation of your new contract governance model, it should be easy to track these key metrics through your dashboard and the data on the platform.
Strengthen your contract governance framework with SpotDraft
In today’s fast-pased legal world, CLM software are key to streamlining and fast-tracking contract processes and ensuring that Legal’s impact is visible within the organization.
If you’re looking to improve the contract governance processes at your organization, SpotDraft can help you automate your end-to-end contract management lifecycle requirements. Request a demo today to speak to our in-house experts and see how we can help.
“SpotDraft does all the heavy lifting for us in terms of end-to-end contract management, maintaining all review versions, final validation before releasing for signatures, mapping parent contract to a subsequent child, saving important deadlines, notes, etc. It’s been a great experience.”
— Aruna M.