Contract Initiation: What Every Business Should Know

Content

• What is contract initiation?
• What does contract initiation entail?
• What are the common challenges in contract initiation?
• Miscommunication and Misalignment
• Inefficient Processes
• How do you streamline contract initiation?
• Ensuring Clarity and Precision
• Prioritize Contracts
• Using Automation and Standard Forms
• Self-serve Contracts
• Business Integration
• Conclusion

Contracts govern over 80% of day-to-day commercial transactions. Across the business, written agreements are necessary for procurement teams to onboard vendors, salespeople to close deals, and human resources to hire new staff. That’s why organizations require a quick and efficient way to initiate and create contracts. 

They need to pay more attention to how they initiate contracts. If businesses depend on email chains, messages, or paper exchanges, it can slow things down and lead to costly mistakes. It indicates dissatisfaction among your departments, partners, customers, and vendors. Here’s how you can prevent common pitfalls of contract initiation, improve the process, and accelerate lifecycles.

What is contract initiation?

Contract initiation is the first step in the contracting process in which parties recognize the need for a contractual agreement and initiate requests. In this pre-award phase, organizations or individuals evaluate the purpose and expectations for the contractual relationship.

Before beginning the process of drafting, negotiating, and signing any kind of contract, the parties involved must communicate their requirements to legal professionals through the request. This stage is critical to setting a healthy foundation for the contractual relationship, where everyone is on the same page. Thus, they can end up with mutually beneficial contractual terms that protect the interests of all parties.

What does contract initiation entail?

As we know, businesses require contracts for all kinds of purposes. The first step in developing these legal agreements is determining the need for them. For example, if the procurement team wants to onboard a supplier to procure a specific good, they will need a vendor contract that outlines the terms. They will submit a contract request to the legal department according to standard procedure. 

Apart from initiation, it’s essential to communicate relevant information to legal professionals. It includes information on objectives, timelines, parties involved, and specific terms that need to be included. According to the contract type, businesses can set the parameters necessary to create the contractual agreement.

What are the common challenges in contract initiation?

At first glance, the initiation process seems simple. All you need to do is make a contract request to the legal people, communicating expectations and requirements. Sounds easy enough, doesn't it? That depends on the tools and systems you utilize for contract management. If not, you end up facing several challenges during initiation.

Miscommunication and Misalignment

Whether an NDA, service agreement or vendor contract, involved parties must effectively communicate the purpose and goals before setting down the terms. If the objectives are misaligned during the initiation process itself, it can lead to a messy and drawn-out contract lifecycle. Businesses will have a harder time getting the contract through negotiation and approval processes. 

They will have to keep starting over because they will wind up with a contract that does not work for everyone. There won’t be a consensus regarding goods, services, payments, etc. This is wasting precious time they don’t have while onboarding suppliers, customers, or partners. That is why it is vital to set the tone of the contractual relationship during the initiation process. 

Inefficient Processes

Most of the time, businesses don’t have a well-established procedure for initiating a contract lifecycle. They depend on manual methods or general communication tools to make requests. Although this is effective, it may lead to unneeded delays and non-standardized processes. The responsible parties won’t have accurate information to draft agreements efficiently. 

Businesses need a formalized process to establish what sort of information to pass on to the legal team while making requests, including party names, contract types, priorities, and deadlines. It helps to ensure the competency of the contractual agreement and get it through negotiation, approval, and execution with complete ease. Without a proper template in place, legal professionals might spend a lot of time second-guessing pertinent details for the contract. 

How do you streamline contract initiation?

A company's contract initiation procedure has a significant impact on the final result. The sales, procurement, finance, or HR teams must be able to get their request to the legal department without fuss or delays. Businesses can employ all kinds of tools and strategies for contract initiation. There are emails, messaging, request forms, and many other options. Here’s how businesses can best utilize them to get the contract across the line with little time and error.

Ensuring Clarity and Precision

Ambiguity in contracts can sabotage business relationships. Hence, parties must explicitly communicate requirements and expectations from the contract during the request stage. It includes timelines, quality standards, obligations, and any milestones that need to be achieved. Communicating this information during the initiation stage enables legal professionals to draft contracts that align with every party.

A well-written contractual agreement minimizes the risk of disputes and breaches in the future. Moreover, if contract content is competent, it can quickly pass through reviews, approvals, and signing. It eliminates unnecessary deviations from primary specifications. Thus, there is no need to constantly rewrite, regroup, or double-check it. 

Prioritize Contracts

Not every contract is equally valuable to the company. It will be difficult for legal to prioritize high-value requests, though, if they all end up in the same backlog without any distinction. That is why businesses must develop a system for prioritizing contracts based on factors like urgency, value, and strategic importance. 

A low-, medium-, and high-priority system allows legal teams to focus on the most critical contracts first, optimizing time and resources. They can also set up deadlines for contract generation to ensure companies can close the deal on time. It filters out low-value, routine agreements from the top of the priority list. 

Using Automation and Standard Forms

If you’re depending on emails or forms to initiate requests, requesters will have a hard time monitoring the progress. It can cause unnecessary delays in the generation process and make it harder for businesses to get customers, vendors, or employees across the finish line. Automotive solutions tailored to streamline the contract lifecycle can prove more beneficial in these situations. 

For instance, Dock 365 contract management software allows requesters to initiate contracts and track their status within a single platform. They can do that by populating standard request forms with fields for contract name, department, party name, contract type, and priority. Contract owners can set up mandatory fields to ensure relevant information is always available for legal professionals. The dashboard also provides a comprehensive overview of all contract requests and their current status.

Self-serve Contracts

Enabling teams to create, negotiate, and execute routine contracts without legal involvement can go a long way in accelerating the process. With pre-written templates and clauses, sales, procurement, and other departments can draft watertight agreements for their needs. 

Standardized templates ensure the content complies with organizational, legal, and industrial standards. It removes the necessity of making contract requests at every turn and assigning legal professionals low-value work. They can utilize automation to route legal agreements through their lifecycle in no time. Self-serving contracts can improve the responsiveness of business needs in the consumer, vendor, and employee sectors.

Business Integration

In most cases, contract management and related tools exist in isolation. It can delay the contract initiation process by commercial teams. Dock 365 enables businesses to overcome these challenges by integrating their contract management system with ERP and CRM systems. It empowers sales and procurement departments to request contracts within Salesforce, Oracle NetSuite, Dynamics CRM, or Business Central.

Salespeople or procurement teams no longer have to switch between multiple platforms to oversee contracts. It creates a single source of truth and eliminates discrepancies that can arise from manual data entry. Thus, businesses can maintain accurate records of contracts, client interactions, and financial transactions. They can utilize AI data extraction tools to pull the necessary information from CRM/ERP into templates to self-serve contracts.

Conclusion

The contract initiation stage lays the groundwork for successful agreements and fruitful business relationships. Apart from initiating requests, commercial teams must convey essential information and the needs of all parties to legal professionals responsible for drafting contracts. Clearly articulating requirements, expectations, and desired outcomes, companies can minimize misunderstandings and streamline the negotiation process.

Dock 365 contract management software allows stakeholders to submit contract requests easily, ensuring all necessary information is captured upfront. Or they can self-serve contractual agreements using customizable templates for various contract types, enabling quick drafting while maintaining consistency and compliance.