7 common challenges for contract management professionals

In the world of legal operations, contract management is a critical yet often underappreciated task. It involves drafting, reviewing, executing, storing, and maintaining contracts that serve as the backbone of business relationships. Despite its criticality, however, legal departments often grapple with a variety of challenges in managing contracts effectively.

In this blog, we’ll explore seven of the most common issues faced by legal operations in contract management today and how they impact the broader business or organization.

7 common challenges in contract management today

1. Inefficient manual processes

One of the main challenges in contract management is the reliance on manual processes. Many organizations still use traditional methods such as emails, spreadsheets, and paper documents to manage contracts. While these methods may have sufficed in the past, they are increasingly inadequate in today’s technologically driven business environment.

Manual processes are time-consuming and prone to errors. They often lead to delays in contract approval and execution, which can impact business operations negatively. In 2018, Gartner reported that an average lawyer working within a legal department spends 25% to 40% of their time on work that doesn’t even need to be done by a lawyer — a worrying statistic since time is money.

2. Lack of standardized templates and clauses

Then, there’s the absence of standardized contract templates and clauses. When different teams or individuals within an organization create contracts from scratch or use varied templates, inconsistencies are bound to arise. These inconsistencies can lead to misunderstandings, increased risks, and potential legal disputes.

Standardized templates and clauses help ensure uniformity and compliance with legal and regulatory requirements. However, creating and maintaining a repository of such templates can be labor-intensive and requires ongoing efforts to keep them updated with changing laws and regulations.

3. Poor visibility and tracking

Effective contract management necessitates clear visibility into the contract lifecycle. Unfortunately, many legal departments struggle with poor visibility and tracking mechanisms. Contracts often get lost in email threads or buried in shared drives, making it challenging to locate and retrieve them when needed.

Without proper tracking, it becomes difficult to monitor key dates such as renewal or termination deadlines. Missing these dates can result in auto-renewals of unfavorable contracts or unintentional breaches of contract terms, both of which can have significant financial and legal repercussions.

4. Inadequate collaboration and communication

Contract management is not a siloed activity confined to the legal department. It involves collaboration among various stakeholders, including sales, procurement, finance, and senior management. Inadequate collaboration and communication can hinder the contract management process and create bottlenecks.

For instance, getting approvals from multiple stakeholders can be a slow process if there is no streamlined communication channel. Miscommunication regarding contract terms or obligations can also lead to disputes and delays. A lack of centralized communication platforms exacerbates these issues.

5. Difficulty in managing contract changes

Contracts are dynamic documents that often require amendments and modifications over their lifecycle. Tracking different versions of a contract, ensuring all parties are aware of the changes, and obtaining necessary approvals can be cumbersome. Contract review, alone, takes lawyers an average of 92 minutes per document (compared to a mere 26 seconds for AI).  

Failure to manage contract changes properly can lead to discrepancies between what was agreed upon and the final executed contract. This can result in disputes, non-compliance, and financial losses. An effective contract management system should facilitate easy tracking and management of contract changes.

6. Ensuring compliance and managing risk

Compliance with legal and regulatory requirements is paramount in contract management. However, staying ahead of the curve amidst ever-changing laws and regulations is a significant challenge – with significant implications. Non-compliance can lead to legal penalties, reputational damage, and financial losses.

Risk management is another critical aspect of contract management. Identifying and mitigating risks associated with contracts requires thorough analysis and vigilance. Legal departments must ensure that contracts include appropriate risk mitigation clauses and that the organization adheres to those provisions.

7. Limited use of technology

Despite advancements in contract management technology, many legal departments are slow to adopt these tools. The limited use of technology can be attributed to several factors, including budget constraints, lack of awareness, perceived risk aversion, and resistance to change.

Contract lifecycle management (CLM) software can automate many tasks, provide better visibility, and improve collaboration. It can also offer analytics and reporting capabilities that help in making informed decisions. Although CLM solutions require time and resources, more than two-thirds of legal teams have budget allocated for contract management tools. Oftentimes, it comes down to building a solid business case for the tool and gaining stakeholder support across the organization.

The business impact

Contract management challenges don’t just affect the legal department; they ripple out across the entire business.

Consider the following impacts:

1. Inefficiencies and errors in contract management can lead to financial losses through missed deadlines, unfavorable terms, and penalties for non-compliance. Businesses lose an average of 9% in annual revenue due to inefficient contract management, according to World Commerce and Contracting.
2. Poor visibility and tracking can result in lost revenue opportunities and strained business relationships.
3. Inadequate risk management can expose the company to significant legal and financial liabilities.

The cumulative effect of these challenges can hinder the organization’s ability to operate smoothly, innovate, and grow. Therefore, addressing contract management issues is not just a legal necessity, but a strategic imperative for overall business success.

In summary

Contract management is a complex and multifaceted function that presents numerous challenges for legal operations professionals. Addressing these challenges requires a combination of implementing sophisticated CLM tools, implementing standardized templates and workflows, fostering better communication and collaboration, and risk management.

By tackling these issues head-on, legal departments can enhance their contract management processes, reduce risks, and contribute to the overall success of the organization.

Learn how Agiloft CLM addresses all these challenges – and more. Watch our three-minute explainer video now.