Contract management software constitutes a range of computer programmes, libraries and data used to support contract management, contract lifecycle management, and contractor management on projects and in the procurement of goods and services. It may be used with project management software.
Advantages and key functions
Most sophisticated projects involving contractors now use contract management software instead of relying on the manual management of paper contracts. It has become an essential tool for keeping track of multiple activities with cost implications and can be especially helpful for automating administration, ensuring compliance, monitoring risk, running reports and triggering alerts. In addition to these types of features, contract management software systems provide a centralized repository for employees to quickly access all contracts worldwide in one place. Having contracts stored in multiple locations can delay and interrupt the contracting process.
Contract management software is produced by many companies, working on a range of scales and offering varying degrees of customizability. Basic functions should include the ability to store contract documents, track changes to contract documents, search documents for a particular criterion, send key date alerts and to report required aspects of the contract. Other functions include managing a new contract request, capturing related data, following a document through a review and approval process, and collecting digital signatures.
Contract management software may also be an aid to project portfolio management and spend analysis, and may also monitor KPIs. Leading contract management software provides contract visibility, monitoring, and compliance to automate and streamline the contract lifecycle process.
A centralized repository provides a critical advantage allowing for all contract documents to be stored within one location. Having contracts stored in multiple locations can delay and interrupt the contracting process.
History
Historically, contract management has been seen as a "paper-intensive" process. Early steps from the early 2000's reported by the Aberdeen Group required extensive data conversion work to enable documents to be handled electronically. With the adoption of the European Union's General Data Protection Regulation in 2016, companies have needed to take additional steps in regards to contract management. Each data responsible entity is obliged to sign data processing agreements (DPAs) with the various vendors, who treat personal data on behalf of the data responsible. DPAs need to be regularly controlled, adjusted and renewed, which adds an extra agreement to such vendors or at least an extra DPA addendum to each agreement.
Contract risk management software (CRMS) for capital projects
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Very large enterprises, such as capital expenditure (capex) projects, involve multiple parties and high risk and uncertainty. They are unlike traditional operating contracts in that they are subject to shared deadlines in unique situations. As the complexity of these unique projects increases, the relationships between parties become more important. This requires contract management software, or contract risk management software (CRMS), to become more dynamic and responsive.
The terms of these capex contracts necessarily involve assumptions at the start of the process and are likely to change over the lifetime of the project lifecycle. For this reason, CRMS must be capable of recording one single instance of agreed changes to contract terms and incorporating these changes in an auditable and legally robust way. With multiple decision makers involved, CRMS should also make accountability more transparent and enable faster decisions about variation proposals.
Artificial intelligence in contract management software
Contract management software that uses artificial intelligence (AI) can identify contract types based on pattern recognition. AI contracting software trains its algorithm on a set of contract data to recognize patterns and extract variables such as clauses, dates, and parties. It also offers simple prediction capabilities, by sorting through a large volume of contracts and flagging individual contracts based on specified criteria. Current AI software can also read contracts in multiple formats and languages, extract contract data, and provide analytics. It can reduce the risk of human error in contract drafting and review.
References
- ^ "What is contract management software? - Definition from WhatIs.com". SearchFinancialApplications.techtarget.com. Retrieved 2016-08-11.
- "The Best Contract Management Software of 2015". PCMAG.com. Retrieved 2016-08-11.
- "Checklist before introducing a contract management system". biztoolcase.com. Retrieved 2023-01-29.
- White, Sarah K. "How to stop making costly IT contract mistakes". Cio.com. Retrieved 2016-08-11.
- Aberdeen Group, Best-in-Class Performance in Contract Management, published July 2015, accessed 27 October 2023
- Aberdeen Group, FineTooth Takes on Hidden Challenge of Contract Management, published 3 March 2006
- Rich, Beverly (2018-02-12). "How AI Is Changing Contracts". Harvard Business Review. ISSN 0017-8012. Retrieved 2023-08-16.