6 Ways to Improve Contract Change Management with a CLM Platform

For enterprise businesses, thousands of contracts dictate their business operations. These contracts range from supplier and service-level contracts to employment agreements and partnership pacts. But, as any enterprise managing thousands of contracts can attest, change is a constant companion in the business world. In the ever-changing business landscape, contracts must adapt to changing circumstances. Managing these changes in thousands of contracts is no small feat. Whether due to market fluctuations, shifting business priorities, or evolving regulations, contract change management is pivotal in ensuring contracts remain relevant.    

Contract change management is critical to successful business operations, particularly for enterprises that manage thousands of contracts. Change management can be a particularly complex endeavor since it involves multiple stakeholders, differing terms, and diverse requirements.  

In this blog, we will delve into the world of contract change management, examining the rationale behind changes, the process, the challenges, and the steps involved to improve this essential aspect of contract management.  

But first… 

What is contract change management?  

Contract change management is the systematic process of handling modifications and amendments to existing contracts. These changes can range from simple revisions to complex overhauls, all aimed at ensuring that contracts remain up-to-date and relevant in a dynamic business environment. This process can be daunting for large enterprises managing thousands of contracts and could lead to potential legal risks and financial loss.  

Here are some of the pain points in managing contract changes for an enterprise business.  

Complexity: Managing a huge volume of contracts, ranging from Procurement, Sales, employee, and partnership agreements, can be incredibly complex. Keeping track of what needs to be modified, when, and why is a serious challenge.  

Risk Management: Failing to properly manage contract changes can lead to compliance issues, disputes, and even legal action.  

Inefficiency: Manual contract change management processes are often inefficient, requiring significant human intervention and leading to slower contract TAT and bottlenecks in workflow. 

Communication Challenges: Coordinating with various stakeholders, including legal teams, vendors, and internal departments, can be a communication nightmare. 

Auditability: Maintaining a comprehensive history of contract changes is difficult in manual systems, which can lead to audit and compliance issues.  

An efficient contract change management strategy can mitigate risks, avoid legal disputes, and ensure that contractual relationships remain effective and beneficial for all parties involved.  

The rationale behind changes in a contract 

Contracts are not static documents; they are living agreements that require adaptability. Various factors can trigger changes in a contract, including:  

Market Conditions: Economic shifts, changes in supply and demand, and fluctuations in commodity prices can necessitate alterations to the terms and pricing of contracts. 

Regulatory Changes: New laws and regulations can significantly impact contractual obligations, requiring adjustments to ensure compliance. 

Business Strategy: Companies evolve, and as they do, their priorities and strategies change. This can lead to modifications in contractual terms to align with new goals. 

Force Majeure Events: Unexpected events like natural disasters, pandemics, or geopolitical crises may disrupt contract performance, necessitating adjustments to mitigate risks and losses. 

Performance Issues: If one party fails to meet its obligations under the contract, modifications might be necessary to address the shortcomings and ensure continued performance.  

Steps involved in contract change management 

Contract change management is a systematic process that involves several critical steps to handle modifications and amendments to existing contracts. These steps help ensure that contracts remain relevant and compliant with changing business needs and external factors.   

The contract change management process can be broken down into the following: 

Identification of Change: The need for a contract change is identified. This could be initiated by one of the parties or due to external factors such as regulatory changes, evolving project requirements, force majeure, etc.  

Evaluation: The proposed change is evaluated to ensure it aligns with business goals, and legal requirements and is feasible. 

Negotiation: Parties negotiate to discuss and agree on the modifications. This can involve changes in scope, pricing, or other terms. 

Approval: Once the revised contract is drafted, the change needs approval from all relevant stakeholders. 

Documentation: After reaching a consensus, the changes are documented and incorporated into the contract as an amendment or addendum.  

Execution: The amended contract is executed, and the new terms come into effect. 

Monitoring: Continuous monitoring ensures that all parties adhere to the updated contract terms.  

6 Ways to Improve Contract Change Management 

Enterprises can leverage an end-to-end contract lifecycle management platform to address these challenges and streamline contract change management. Here are 6 ways a robust CLM platform can help:  

Centralized Repository: A centralized contract repository can help businesses store, track, and manage all contracts in one place. The repository is easily accessible and offers version control features to ensure you work on the latest document.  

Automate Notifications: Leverage contract management software to automate notifications and alerts for key contract milestones. This includes reminders for contract renewal dates, review periods, and pending changes. Automation reduces the risk of missed deadlines and ensures that contract changes are addressed promptly. 

Standardized Templates: Contract lifecycle management platforms offer standardized contract templates that can be easily modified for specific situations, reducing the time required for contract change negotiations.  

Access Control: Assign role-based access to contract data, ensuring only authorized personnel can make and approve changes. 

Audit Trails: Maintain detailed audit trails within your contract management platform. These trails record all changes made to contracts, including who made the change, when it was made, and why it was made. Audit trails provide transparency and accountability, which can be essential for compliance and dispute resolution.  

Real-time Collaboration: Collaborative tools enable real-time collaboration among internal and external stakeholders, even if they are geographically dispersed. This ensures that all parties can work on contract changes simultaneously, reducing delays and speeding up the process.  

4 Do’s in Contract Change Management

Document All Changes: When changes are made to a contract, it is imperative to document them in writing. This documentation should include the nature of the change, the reasons behind it, and the approvals from all relevant parties. The importance of documentation cannot be overstated. According to a survey by WCC, 49% of organizations reported that inadequate documentation was a leading cause of contract disputes. 

Maintain a Clear Audit Trail: An audit trail is a chronological record of all modifications made to a contract, including who made the changes and when. This is vital for transparency and accountability. Maintaining a clear audit trail not only helps in case of disputes but also provides insights into the history of the contract's modifications. 

A study by Deloitte found that 35% of organizations identified a lack of visibility into contract changes as a significant challenge.

Regularly Review and Revise: Regular reviews allow organizations to proactively address issues, align contracts with changing business strategies, and avoid potential disputes arising from outdated terms and conditions. 

A study by the Aberdeen Group showed that best-in-class organizations review and revise contracts 40% more frequently than their peers.   

Leverage Technology: Modern businesses implement cutting-edge technologies to streamline contract change management processes. An end-to-end CLM can reduce the time and effort required for changes and provide analytics on historical changes, making it easier to spot trends and potential issues.

4 Don'ts in Contract Change Management

Don't Make Verbal Agreements: Relying on verbal agreements for contract changes is risky. Verbal agreements are difficult to prove and often lead to misunderstandings or disputes. The WCC survey also revealed that 70% of organizations experienced contract disputes due to oral changes. Written documentation is critical to preventing conflicts.

Don't Overlook Contractual Procedures: Every contract typically includes specific change procedures. These procedures may include requirements for written notices, approvals, or formal amendments. Failing to follow the contractual procedures outlined in the original agreement can invalidate the contract change. 58% of respondents in a study by McKinsey & Company cited not following proper procedures as a significant cause of contract disputes.

Don't Delay Communication: Prompt and effective communication is vital during the contract change process. Failing to communicate changes promptly can lead to misunderstandings, delays, and disputes. According to the Deloitte study, 62% of organizations experienced issues due to a lack of timely communication during contract changes.

Don't Ignore Risk Assessment: Making changes a contract can introduce new risks. Conduct a thorough risk assessment when implementing contract changes. Assess the potential risks associated with the modifications and ensure they are mitigated appropriately. A study by WCC found that 37% of organizations identified increased risks due to contract changes.

Manage contract changes with a CLM 

By understanding the rationale behind changes and implementing an efficient process, businesses can ensure their contracts remain aligned with their evolving needs and the dynamic business environment. The pain points of manual contract change management can be alleviated through automation, centralized repositories, and standardized workflows. By doing so, enterprises can remain agile and responsive to their dynamic challenges.   

Discover how SimpliContract’s end-to-end contract lifecycle management platform can improve your contract change management framework.