Utset, Manuel 5/2/2023

For Educational Use Only

Contract Management: Overview, Practical Law Practice Note Overview 2-618-0697

Contract Management: Overview

by Practical Law Commercial Transactions
Maintained • USA (National/Federal)

A Practice Note providing an overview of contract management and discussing the key points to consider
when developing and implementing a contract management process. Topics addressed include contract
initiation, drafting, negotiation, approval, execution, retention, performance and tracking, amendments,
renewals, terminations, and audits. This Note provides guidance that can be used with or without an
automated contract management system.

Preliminary Considerations
Obtain Key Stakeholder Support

Understand the Current State of Contract Management

Prepare a Contract Management Process Guide

Contract Initiation
Implement a Contract Review and Preparation Policy

Make Use of Internal Processes

Contract Drafting and Negotiation

Build a Contract Template and Clause Library

Prepare Contract Playbooks

Manage Work Allocation

Contract Approval and Execution

Design a Contract Workflow

Draft a Signature Authority Policy

Contract Retention
Create a Central Contract Repository

Maintain a Central Contract Register

Contract Performance
Designate a Contract Owner

Track Key Milestones

Contract Amendment
Develop a Change Control Process

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Contract Renewal or Termination

Set Contract Alerts

Gather and Use Contract Intelligence

Contract Audit and Analysis

Analyze Contract Performance

Audit the Contract Management Process

Effective contract management is crucial to the internal control, corporate governance, and financial performance of an
organization. An efficient contract management process coordinates and manages all stages in the lifecycle of a contract to
ensure that:

• The contract is structured properly and reviewed appropriately.

• The contracting parties fully meet their respective obligations.

• The objectives of the contract (such as business benefits and value for money) are realized.

• Contract weaknesses are recognized and corrected.

This Note provides an overview of contract management and discusses:

• The core stages in the life of a contract.

• Key considerations and practical steps to take when developing and implementing a contract management process that
efficiently manages the contract lifecycle.

Some companies may have off-the-shelf software solutions or custom-built contract management systems (CMS) that automate
and manage all or part of the contracting process, while others may find it difficult to allocate budget to this area. This Note can
be used with or without a CMS and includes guidance for managing all types of contracts, from a simple order to a complex
master agreement.

This Note is not exhaustive and may not address organization-specific issues. Counsel should review the organization's
contractual circumstances and available resources to determine if specific considerations and steps apply.

Preliminary Considerations

Obtain Key Stakeholder Support

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The success of a contract management process requires the cooperation and support of multiple stakeholders throughout the
organization, including:

• The legal department. The legal department needs to commit the time and resources to:

• review and rethink (if necessary) the existing contract management activities within the organization;

• collaborate with the business teams to develop a viable contract management process that integrates with
business practices;

• engage the right business personnel at appropriate stages throughout the contract management process;

• train the business personnel on the contract management process; and

• maintain and update the templates, policies, and procedures that underpin the contract management process.

• The internal contract sponsor. The business team sponsoring the contract should:

• recognize the value and importance of the contract management process;

• follow contract management policies and procedures; and

• understand when and how to collaborate with other internal personnel to successfully implement the contract.

• The internal project team. The organization should assemble an internal project team with a contract owner (see
Designate a Contract Owner) to manage the contract and its underlying project. The composition and size of the team
depend on the scale, nature, complexity, and significance of the contract and the skills and experience necessary to
implement the contract. Team members may include personnel from:

• marketing and sales;

• research and development;

• manufacturing;

• quality control;

• logistics;

• procurement;

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• legal;

• finance;

• risk management;

• human resources; and

• other relevant departments.

• Senior leadership. Implementing a contract management process can require organization-wide changes to policies,
procedures, and personnel roles. For the organization to embrace these changes and for a contract management
process to take root in the organizational culture, the organization's senior leadership should:

• sponsor the implementation of a contract management process;

• articulate the importance of a contract management process and set clear objectives and expectations regarding
strategy, financial performance, and legal and regulatory compliance;

• drive the organizational changes needed to build a contract management process;

• emphasize the roles that each key stakeholder in the organization must play in implementing the contract
management process; and

• allocate resources to improving contract management capabilities, such as improving strategies, policies, and
practices, and upgrading organizational and technological tools.

Understand the Current State of Contract Management

Most companies have pockets of contract management activity (such as filing cabinets to aggregate executed contracts or
contract templates developed by individual counsel within the legal department). These activities are often conducted in a
fragmented, manual, and ad hoc manner. To build an efficient contract management process, counsel should identify:

• Current challenges in the organization's management of its contracts. For example, determine if:

• reviewing, preparing, or concluding contracts is time-consuming or takes too many steps;

• obtaining contract approval is difficult or takes too long;

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• tracking due dates for contract deliverables is disorganized; and

• the allocation of personnel and resources to certain contracting tasks is insufficient and causes bottlenecks.

• Existing tools within the organization that are currently used for contract management (such as filing systems, policies
and procedures, spreadsheets, databases, and information technology (IT) solutions) to determine how those tools can
be used, improved, or replaced.

• The areas where automation or other resources (such as tools or personnel) may feasibly be added and benefit
the organization most. For more information on identifying and using technology to increase efficiency, see Practice
Notes, Using Technology to Increase Law Department Efficiency and Designing and Implementing Legal Technology
Roadmaps.

Prepare a Contract Management Process Guide

A contract management process guide is a resource for both the legal department and the business teams. The guide helps
these groups understand:

• Each step in the contract management process and how it affects the outcome of the contract and the organization's
interests.

• The different roles and responsibilities of specific personnel (such as the legal department and the contract sponsor)
throughout the process.

• The different levels of review required for different types of contracts.

• How the organization's contracts, personnel, and policies are organized and connected to form the overall contract
management process.

All internal personnel involved in the contract management process should be trained on how to follow and use the contract
management process guide.

Contract Initiation
Business teams often involve the legal department in a project only when they need a contract drafted or reviewed, and sometimes
only after they have already completed negotiations and need help documenting the terms. However, this approach can lead
to inefficiencies in the contracting process (for example, if the parties need to renegotiate terms to avoid potential legal pitfalls
that were not identified earlier).

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When considering a material transaction, the contract sponsor should engage in-house counsel in the early stages of planning
and negotiation so that counsel can:

• Introduce negotiating positions that are protective of the organization as early as possible.

• Steer the parties away from contractual terms that may exceed the organization's risk tolerance or that do not comply
with the organization's policies.

• Help the business team formulate the business case for executive approval of the contract (see Design a Contract
Workflow).

• Work with the business team to achieve more effective and efficient transaction results.

Implement a Contract Review and Preparation Policy

To streamline the contract initiation process, counsel should implement a contract review and preparation policy that:

• Requires employees to gather all information and internal approvals needed to facilitate counsel's drafting or review of
the contract.

• Standardizes employee submissions of contract requests to the legal department, such as through an online tool or a
paper-based request form (for a sample contract request form, see Standard Document, Contract Review or Preparation
Request Form).

• Clearly communicates the business team's responsibility to review and confirm the transaction's business terms.

• Manages employee expectations for when the legal department can finish drafting a new contract or reviewing an
existing contract.

For a sample policy, see Standard Document, Contract Review and Approval Policy.

Make Use of Internal Processes

Counsel should determine if other internal processes within the organization can reduce contract risk or substitute for legal review.
For example, counsel may choose to exempt from legal review certain contracts that are:

• Approved through the organization's internal requisition or other acceptance processes, such as standard purchase
orders.

• Viewed as lower risk because:

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• the contracts fall below a certain dollar value; or

• the legal department's review of these contract types does not greatly reduce the organization's risk exposure.

• Generated by business personnel using the organization's unmodified legal templates (such as for the organization's
receipt of confidential information) (for a sample agreement, see Standard Document, Confidentiality Agreement:
General (Unilateral, Pro-Recipient), and for

Contract Drafting and Negotiation

Counsel should standardize and accelerate the contract drafting and negotiation process by:

• Maintaining a contract template and clause library as a starting point for drafting or reviewing any contracts.

• Preparing a contract playbook to guide the drafting and negotiation process (see Creating a Contract Playbook
Checklist).

The benefits of using a contract library and contract playbook include:

• Improved legal department responsiveness and turnaround time.

• Quicker negotiations facilitated by having pre-approved fallback positions for different contract scenarios.

• Reduced contract closure time.

• Time and resource savings created by allowing counsel to make single changes that are replicated across all
appropriate contracts.

• Greater consistency in the organization's contract positions.

• Lower compliance risk and better negotiation leverage from using pre-approved contract templates that protect the
organization instead of working from executed contracts that may:

• no longer comply with regulatory or internal compliance requirements; and

• include pre-negotiated terms that do not start from a position of strength.

Build a Contract Template and Clause Library

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A contract library is a central repository of standardized and approved templates and clauses that can be used to draft and review
contracts. To create and maintain a contract library, counsel should:

• Locate and compile the existing contracts and templates stored across the organization. These may be stored in
employee hard drives, network shared drives, emails, and hard copy files.

• Organize contracts by category. For example, organize contracts by contract type, such as supply, service, license,
loan, distribution, and nondisclosure agreement. Identify the most frequently used contract types and the most
commonly included terms (such as indemnity clauses in supply agreements or quality control provisions in license
agreements).

• Discuss and evaluate past contracting history with key internal stakeholders. Solicit feedback from business, risk
management, compliance, and legal department personnel to:

• identify the high-risk and high-value areas for the organization;

• determine the steps needed to minimize and allocate risk (for example, by requiring certain levels of insurance
requirements, specific dispute resolution processes, and anti-corruption representations and warranties); and

• select the types of contracts that can be negotiated and executed by the business teams with minimal to no legal
department assistance, using appropriate contract playbooks.

For a discussion of risk allocation mechanisms in contracts, see Practice Note, Risk Allocation in Commercial Contracts
and Avoiding Key Risk Allocation Pitfalls Under Commercial Contracts Checklist.

• Select and prepare the preferred, alternative, and mandatory versions of key contracts and clauses. Consult with
key internal stakeholders to make these determinations.

• Set permissions on the contract templates and clauses. Restrict editing rights to ensure the integrity of the
documents.

• Make the contract library easily searchable and accessible. Give appropriate access rights to relevant personnel,
such as the legal department and the business personnel who access self-service contract templates.

• Appoint one or more legal department personnel with responsibility for the contract library. This appointee
should update and maintain the contract library with new contract templates and clauses.

For sample contract clauses to build a contract library, see General Contract Clauses Toolkit.

Prepare Contract Playbooks

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A contract playbook is a guide that facilitates the efficient and effective drafting, review, and negotiation of contracts. It explains
the organization's standard and acceptable fallback positions based on a predetermined negotiation strategy. Separate contract
playbooks can be prepared and tailored to address the specific needs of different users (such as the legal department and different
business teams). All legal and relevant business personnel should be trained on how to use their applicable contract playbooks.

To create contract playbooks that reduce cycle times for contract negotiation and streamline the contract review process, counsel
should:

• Evaluate existing contracts. Consult with internal stakeholders to understand:

• how and why the organization reached specific contract positions;

• any problems, highlights, or lessons learned from negotiating and implementing specific contract positions; and

• the impact of specific contract positions on the organization, including its financial performance and its relationship
with its counterparty.

• Track deviations from standard contract positions. Determine the extent to which the organization has agreed or is
willing to agree to alternative positions.

• Explain the use of standard contract terms. For example, explain:

• the internal policies that restrict or mandate certain contract terms (for example, jurisdiction and venue
requirements, prohibitions against granting most favored nation status, and liability cap requirements);

• when particular contract templates and clauses should be used and in what circumstances;

• when alternative contract language should be used; and

• what specific approvals are needed to use the various contract templates and clauses.

For presentations that counsel can use to train employees about contract playbooks, formation, and enforcement, see
Standard Documents:

• Contract Playbook Training for Contract Negotiators: Presentation Materials;

• Contract Basics: Amendments: Presentation Materials;

• Contract Basics: Battle of the Forms: Presentation Materials;

• Contract Basics: Force Majeure and Business Interruption: Presentation Materials;

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• Contract Basics: Formation and Enforcement: Presentation Materials;

• Contract Basics: Indemnification and Limitation of Liability Clauses: Presentation Materials;

• Contract Basics: Setoff Under Commercial Law: Presentation Materials;

• Contract Basics: Term Sheets, Letters of Intent, and Memorandums of Understanding: Presentation Materials; and

• Contract Basics: Understanding the Relationship Between Representations, Warranties, Covenants, Rights, and
Conditions: Presentation Materials.

• Draft multiple fallback positions to use when a counterparty pushes back on a contract clause. Draw from
negotiation experience to determine:

• how business needs, compliance, legal and finance obligations, organizational risk tolerance, and the geographic
areas that apply to the contract affect the organization's contract positions; and

• how to balance protecting the organization with facilitating counterparty acceptance.

• Prepare negotiation guidelines. The guidelines should:

• clarify the internal rationale behind each contract position;

• include contract intelligence (see Gather and Use Contract Intelligence), key negotiation issues, and common
pitfalls; and

• provide the external argument to be made to the counterparty to support the organization's positions.

For sample guidance that can be included in the negotiation guidelines, see Practice Notes, Contract Negotiations:
Business Briefing and Drafting and Negotiating an Effective Statement of Work: Business Briefing.

• Identify the types of contracts that can be prepared or reviewed by the business teams. Prepare appropriate
contract playbook instructions for any self-service contracts. For guidance that business teams can use to review and
execute simple commercial contracts, see Reviewing and Executing a Commercial Contract (for business personnel)
Checklist.

• Develop checklists for reviewing contracts that are prepared by the counterparty. The checklists should help
counsel:

• confirm that the organization's required terms are included in the contract; and

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• revise the contract to insert any missing terms that are priority items for the organization.

(See Drafting or Reviewing a Commercial Contract Checklist.)

• Continuously update the contract playbooks. Periodically review the contract playbooks to reflect:

• transaction outcomes and lessons learned (for example, the organization may need to alter a position that
impedes the closing of too many deals);

• internal and external feedback; and

• changes to the organization's circumstances, applicable law, industry standards, and market trends.

For sample contract playbook templates, see Standard Documents:

• Playbook Template (Purchase of Goods Agreement) (Pro-Buyer).

• Playbook Template (Services Agreement, Procurement-Side).

• Playbook Template Confidentiality Agreement: General (Unilateral, Pro-Discloser).

For a sample selection of drafting and negotiating guidance that can be incorporated into a contract playbook, see:

• Practice Note, Drafting or Reviewing a Commercial Contract.

• Practice Note, Negotiating and Drafting an Executive Employment Agreement.

• Drafting and Negotiating a Contract Manufacturing Agreement Checklist.

• Drafting and Negotiating an Exclusive Distribution Agreement Checklist.

• Drafting and Negotiating a Sale of Goods Agreement Checklist.

• Key Negotiating Points in Private Acquisition Agreements Comparison Chart.

• Pre-Contractual Considerations Checklist.

• Standard Document, Cheat Sheet: Using Contract Building Blocks to Company's Advantage.

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Manage Work Allocation

If appropriate for the organization, counsel should create a system that efficiently allocates work within the legal department
and allows the business teams to exercise a limited level of self-service contracting. A workload distribution and time allocation
system based upon type, complexity, and value of contracts can help the organization:

• Speed up contract preparation.

• Make more efficient use of in-house legal talent, creating savings for the legal department.

• Retain motivated legal professionals by aligning skills and work sophistication.

• Manage variations in legal department workload.

When creating a work allocation system, counsel should:

• Determine the skill sets, experience levels, and interests of legal department members (including attorneys, paralegals,
and contract professionals) so work can be allocated accordingly.

• Identify the more routine, less complex contracts and tasks that can be allocated to junior staff or even outsourced. For
more information on outsourcing, see:

• Outsourcing a Business Function Checklist;

• Practice Note, Outsourcing: Overview;

• Practice Note, Rightsourcing: Seeking a Balance between Insourcing and Outsourcing; and

• Practice Note, Offshore Outsourcing.

• Reserve sufficient time and attention of senior legal team members for more complex contracts and value-added tasks
(such as getting to know and understand the business units they support and building relationships with key executives
in those businesses).

• Specify the self-service contracts that can be prepared by the business teams using unmodified contract templates and
the contract playbooks.

Contract Approval and Execution

All contracts need commitment and approval at the appropriate levels of organizational leadership. Obtaining this support is
often the biggest bottleneck in the contract lifecycle. Contract sponsors may spend time following up with multiple people in

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an approvals chain to determine why a contract is delayed. A well-designed contract workflow and a clear approval policy can
streamline this approval process.

Design a Contract Workflow

A contract workflow guides the contract from concept phase through drafting, negotiation, final approval, and implementation.
It describes the order in which:

• The contract moves through its lifecycle.

• The relevant personnel participate in the contracting process.

• Contracting tasks are performed, both sequentially and simultaneously.

In designing a standard contract workflow that accelerates the approval process, counsel should consider:

• Obtaining appropriate approval prior to undertaking the negotiation process, preferably from the senior executive who is
most likely to sign the final contract.

• Having the business team work closely with counsel to formulate a detailed business case that:

• demonstrates the contract's alignment with the organization's goals and strategies;

• explains the contract's objectives, timeline, and success and risk factors; and

• articulates the support of key internal stakeholders.

• Integrating any approval requirements that already exist or should be implemented to comply with regulatory obligations
and internal policies. Early integration of these requirements can prevent contract holdups and duplication of work. For
example, additional requirements may include:

• board of directors approval of material contracts (for sample board resolutions, see Standard Clauses, Board
Resolutions: Approving a Significant Commercial Contract);

• credit department approval of certain customers; and

• the due diligence review of third-party agents (for a sample policy on using third-party agents and more
information on third-party due diligence, see Standard Document, Policy for the Use of Third-Party Agents Outside
of the United States and Practice Note, Risk-Based Due Diligence of Third Parties in Commercial Transactions).

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Draft a Signature Authority Policy

Unless signature authority is already covered in a delegated authorities or other internal policy, counsel should draft a signature
authority policy that:

• Designates the personnel within the organization by position (such as the president, vice president, or director), not by
name, who are authorized to approve and sign contracts on behalf of the organization (for sample board resolutions
granting authority, see Standard Clause, Board Resolutions: Granting Execution Authority to Officers).

• Promotes the efficient operation of the business by providing criteria for delegating that authority in specific
circumstances.

• Establishes clear limitations on that authority.

• Describes the responsibility of the authorized signer to confirm that:

• the transaction and its terms are consistent with the organization's business objectives;

• all necessary approvals have been obtained; and

• relevant policies have been followed.

• Simplifies the signing process, including if appropriate, by implementing the use of electronic signatures (see Practice
Note, Signature Requirements for an Enforceable Contract and Standard Document, Electronic Signature Policy).

For a discussion of policies for designating and delegating organizational authority, see Practice Note, Best Practices in Corporate
Subsidiary Management: Authority.

For resources to help the organization develop and implement a signature authorization and delegation of authority policy, see:

• Standard Document, Signature Authorization and Delegation of Authority Policy.

• Standard Document, Delegated Authorities Table.

• Standard Document, Delegation of Authority Form.

• Standard Clauses, Board Resolutions: Approving a Signature Authorization and Delegation of Authority Policy.

Before submitting a contract for execution, counsel should:

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• Carefully review the final contract to ensure it does not vary in any way from the form agreed by the parties, and check
for accuracy and consistency.

• Consider having the contract signers initial each page of the contract, including all attachments. Though not a legal
requirement in the US, the parties may want to initial the pages to evidence the contract's accuracy and completeness
and to avoid substitution of modified, unapproved pages.

Contract Retention
Companies often store contracts in multiple places across different departments and business teams. These multiple contract
repositories can lead to:

• Duplicate and inconsistent contract versions.

• Incomplete sets of transaction documents.

• Low visibility into the organization's contract obligations and relationships.

Having a central contract repository can resolve these issues and increase efficiencies. As the single location for storing all of the
organization's contracts, the contract repository is the definitive source of accurate and complete information about a contract,
including its amendments, statements of work, and other supplemental contract documentation.

Create a Central Contract Repository

When creating a central repository for all contract documentation, including executed and in-process contracts:

• Set up an electronic repository for all contracts. This may be a shared network drive, cloud-based solution,
document management tool, or other software that the organization may have with document management capabilities
(for example, Access or SharePoint). The central contract repository should:

• be searchable and allow for easy retrieval of documents;

• be accessible to relevant personnel;

• grant access privileges (such as administration, read-and-write, and read-only permissions) only to individuals who
require them based on user positions and roles (such as the legal department and the contract owner); and

• be secure from data loss and unauthorized access, including access to sensitive, restricted, or confidential
data. For more information on the privacy, data security, and export control laws governing the collection, use,

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and disclosure of certain types of information, see Practice Area Essentials: Data Privacy & Cybersecurity and
Complying with US Export Control Regulations Checklist.

• Scan all paper-based contracts and file the paper originals. After scanning contracts into the electronic repository,
file the original hard copies in a central, fireproof filing cabinet, or filing room.

• Upload all digital contracts into the electronic repository. Include all supplemental transaction information (such as
requests for proposals, bids, pricing, amendments, and renewals) relating to the contract that is important for contract
performance and future negotiation.

• Tag and index all contracts. Use key contract terms and assign unique contract numbers.

• Comply with the organization's record retention requirements. For more information on setting up a document
retention policy, see:

• Practice Note, Drafting a Document Retention Policy;

• Document Retention Policy: US Checklist; and

• Standard Document, Document Retention Policy.

Maintain a Central Contract Register

Counsel should maintain a central contract register (for example, using an electronic database or Excel) to track the organization's
contracts and summarize key contract terms. Multiple contract registers may be created to track information for the specific
departments or businesses. An effective contract register generally should include the following elements:

• The contract register should contain all relevant contract details and be set up to produce reports for meeting the
organization's management, reporting, and audit requirements.

• Responsibility for maintaining the contract register should be clearly assigned to one or more internal personnel (such as
the legal department or contract owners).

• Formal procedures should be established for maintaining the accuracy and completeness of the contract register (such
as a cross-check between the register and the organization's accounting system).

• Data input should be automated, to the extent feasible, to improve consistency and reduce the likelihood of human error.

• System access controls should prevent unauthorized access, amendment, or alteration to the contract register and
contract details.

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• The internal audit team should conduct a periodic review of the contract register and its tracking process.

For an Excel spreadsheet that can be used to track contracts at all stages, see Standard Document, Contract Management
Spreadsheet.

Contract Performance
The organization should have appropriate internal controls to ensure contracts are properly performed by the parties. The level
of administration and oversight required depends on the nature and size of the project. Proper contract oversight requires:

• A correct understanding of the contract requirements.

• A contract administration plan, including a plan for periodic review of the contract to assess performance.

• Close monitoring of contract performance throughout the term of the contract.

Designate a Contract Owner

Designate a contract owner to administer the contract and oversee performance. The contract owner is responsible for
coordinating with other internal personnel (such as the business team and the legal department) to:

• Monitor and ensure that contract requirements are satisfied by both the organization and the counterparty, including:

• goods and services are delivered in a timely manner and meet the performance and quality requirements in the
contract;

• payments are duly made;

• other conditions are fulfilled; and

• applicable laws and internal policies are complied with.

• Track obligations and rights under the contract (for example, track purchases to see if the organization has met volume
discounts or can claim rebates, or consider if counterparty failures have triggered the organization's termination rights).

• Follow the organization's risk mitigation steps and escalation protocol for handling any contract deviation, problem, or
dispute with the counterparty (for guidance on handling commercial disputes, see Practice Note, Avoiding and Managing
Commercial Disputes in the US: Overview).

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• Maintain an open and constructive relationship with the counterparty.

• Manage contract modifications, renewals, and terminations (see Contract Amendment and Contract Renewal or
Termination).

• Oversee the contract close-out and track post-termination obligations (such as confidentiality and warranties) (see
Contract Renewal or Termination and Track Key Milestones).

• Provide periodic updates on contract status and performance to senior management and other relevant personnel (such
as the legal department and the contract sponsor).

If the organization is using a CMS or other IT solution that requires the contract owner to enter contract information into specific
fields, the system should include clear instructions on the specific data required for each field.

Track Key Milestones

The contract owner should use a tickler system (such as a physical calendar system, reminders in Outlook, or another IT solution)
to create alerts for tracking key milestone dates and events, such as:

• Due dates for payments and deliverables.

• Dates for performing other contract obligations (such as applying for licenses or filing registrations) and reviews.

• Contract expiration dates (see Set Contract Alerts).

• Contract renewal dates (see Set Contract Alerts).

• Dates for fulfilling post-contract obligations (such as deadlines for returning work product, the date for releasing
escrowed funds, and expiration dates for confidentiality or non-competition requirements).

Alert notifications should be sent to internal stakeholders (including the legal department, senior management, and relevant
business personnel), taking into account the organizational approval process.

Contract Amendment
During the term of the contract, one or both parties may want to modify the contract because of changes in circumstances.
Counsel should create a standard process (often referred to as a change control process or a change management process) to
efficiently manage changes in the contract and its underlying project. The objectives of change control procedures are to:

• Manage each change request from initiation through closure.

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• Process change requests based on the direction of appropriate authorized personnel within the organization.

• Communicate the impact of changes to appropriate internal personnel.

• Allow small changes to be managed with minimum cost to the organization.

Develop a Change Control Process

The organization should develop a change control process that includes:

• Model contract terms to use when drafting the original contract documentation. These terms help the parties
avoid misunderstanding and ambiguity about their roles and responsibilities and the actions to be taken in any given
situation, and cover issues such as:

• how to request a change;

• assessing the impact of the change on the contract, the business, and the relationship of the parties; and

• properly documenting the change (for sample documentation, see Standard Documents, Amendment Agreement
and Services Agreement: Change Order Form).

• Contract workflow steps. These steps ensure that:

• each change request is properly defined, considered, and approved before implementation (see Design a Contract
Workflow);

• approved changes are controlled and no unnecessary changes are made;

• the project remains on schedule, deliverables are met, and business is not disrupted; and

• resources are used efficiently and the project remains within budget.

• A change request form and change log. The change request form documents details of a change, including the
business case. The change log records all changes requested and decisions made. The change log, change request
form, and any amendments or change orders should be maintained with the main contract in the central contract
repository to keep the contract history up to date (see Create a Central Contract Repository).

For a sample agreement to use in amending or modifying many types of commercial contracts, see Standard Document,
Amendment Agreement.

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Contract Renewal or Termination

Set Contract Alerts

To efficiently manage contract renewal opportunities, the organization should have sufficient lead time for making informed
decisions about renewals and terminations. The organization should set:

• Contract expiration alerts. These alerts notify the contract owner to trigger the renewal process on a date well before
contract expiration. This gives the organization time, with minimal disruption to its business, to negotiate the most
favorable terms if it wants to:

• extend or renew its contract with the same counterparty; or

• enter into a different contract with a new counterparty.

• Contract renewal alerts. For contracts that have automatic or semi-automatic renewal clauses, these alerts notify the
contract owner of a renewal option on a date well before action needs to be taken. This includes contracts that require
the organization to affirmatively notify the counterparty by a certain date if the organization wants to exercise its right to:

• renew the contract (for a sample renewal notice, see Standard Document, Notice of Renewal); or

• not renew the contract (for a sample non-renewal notice, see Standard Document, Notice of Non-Renewal).

These alerts give the organization time to review contract performance to determine if a contract:

• still provides value or should be allowed to expire; and

• is still favorable on its terms or needs to be renegotiated.

• Contract evaluation alerts. For contracts that allow the organization to terminate for convenience, these alerts remind
the contract owner after an appropriate period of contract implementation (determined by the organization based on
the contract type) to review and evaluate the counterparty's performance under the contract. These alerts help the
organization to promptly terminate underperforming contracts (for a sample termination notice, Standard Document,
Notice of Termination for Convenience).

Gather and Use Contract Intelligence

Contract intelligence is knowledge and information relating to an organization's contracts that can be used to support negotiation
and decision-making processes. This information includes:

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• The organization's negotiation experience and contracting, such as:

• historical information on how similar prior contract terms were negotiated;

• the success of varying negotiation approaches; and

• the risk and reward resulting from varying contract positions.

(See Prepare Contract Playbooks.)

• The results of its contract analyses (see Analyze Contract Performance).

• Its profiles of counterparties and their relationships with the organization.

To ensure that the organization renews valuable contracts and terminates underperforming contracts based on sound contract
intelligence, counsel should:

• Maintain all transaction-related documents. All information (such as purchase orders, email from the counterparty,
pricing schedules, and change orders) should be:

• stored in the central contract repository and accessible to the contract owner and the business team (see Create a
Central Contract Repository); and

• reviewed by the business team for a complete context of contract performance before deciding to renew or
terminate a contract.

• Have visibility into other relevant contracts. Counsel should review the contract register and search the central
contract repository to find other contracts with the same counterparty or similar contracts with other third parties.
Visibility into other contract terms can provide the organization with leverage when negotiating renewals or key business
intelligence to make termination decisions.

• Keep all relevant internal stakeholders informed. Consult with relevant personnel to determine if a contract should be
terminated or new terms should be added to a contract renewal.

For sample agreements to use when parties to a commercial contract have mutually agreed to terminate the agreement and
release claims, see Standard Documents, Termination Agreement and Release Agreement.

Contract Audit and Analysis

Well-executed audits and analyses of the organization's contract processes, procedures, and terms help an organization:

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• Improve business performance.

• Develop stronger relationships with its counterparties.

• Increase the organization's reputation in the marketplace for efficiency, quality, and good business practices.

• Reduce risks, costs, and delays.

• Promptly identify potential problems and compliance issues related to the contract.

• Identify areas for improving the contract management process.

The organization can facilitate the auditing process by:

• Maintaining contract history to ensure accurate data and audit trails of transactions.

• Preparing management reports with contract status updates that provide the necessary information to evaluate contract
terms (such as warranties, pricing, quality guarantees, and service levels).

• Reporting audit results and recommendations to senior management to gain support for implementing changes.

Analyze Contract Performance

The organization should conduct an ongoing evaluation of its contracts to:

• Assess the business value, financial performance, and productivity of each contract. For example, counsel should
determine if the organization:

• received all the benefits for which it paid;

• paid more than it should;

• paid for things it did not need;

• had unclaimed rebates and credits;

• made duplicate payments; and

• had high processing costs.

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• Measure counterparty performance and identify the organization's best business partners.

• Track service levels and key performance indicators to measure performance relating to price, delivery, quality, and
service, and other values that are important in determining the success or failure of the contract. For resources to help
the organization set service levels in outsourcing agreements, see Practice Note, Service Levels and Service Credit
Schemes in Outsourcing and Standard Document, Service Level Agreement.

• Compare the pre-contract business case to the post-implementation results to determine if the original outcomes and
benefits have been achieved.

• Establish benchmarks for quality, responsiveness, compliance, and cost. Assess these benchmarks against other
contracts, business partners, and industry standards.

Audit the Contract Management Process

The organization should implement quarterly, bi-annual, or annual audits of its contract management process by:

• Tracking matters (such as by contract type, contract volume, average days to close, personnel time per contract, region,
business unit, and other key business factors) to determine if the contract management process is:

• shortening sales cycles;

• reducing costs of sales; and

• resulting in faster revenue recognition.

• Reviewing the effectiveness of its contract playbooks, including:

• monitoring the use and results of using its contract playbooks;

• conducting a risk-benefit analysis to determine whether taking stronger negotiating positions results in a material
reduction of risk;

• conducting a post-contract analysis of operational costs associated with the use of certain contract terms; and

• comparing negotiated contract terms against actual performance to identify deficiencies (such as missed
deadlines).

• Tracking changes and amendments that fall outside of pre-approved ranges, and the author of the changes. Having
insight into these changes is also vital for proper risk management.

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• Gathering feedback from contract stakeholders to make improvements to the contract management process.

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