Contract Success Starts with Obligation Management CLM

The International Association for Contract & Commercial Management (IACCM) estimates that poor contract management can result in the average organization losing 9.2% of annual revenue. That is a staggering statistic that immediately shows you the bottom-line impact robust obligation management can have in your CLM system. 

 In a highly competitive business environment, every organization's relationship is basically formed by contracts with customers, suppliers, partners, and employees. 

Contracts need to be managed with a great deal of effectiveness; one of the major aspects of this is obligation management in the contract management process.  

Combined with a powerful CLM system, obligation management can enhance significantly an organization's capability to ensure compliance, reduce risks, and optimize the outcomes of a business. 

In this blog, we will explore what obligation management CLM entails in contract management, what are the challenges in implementing the same, and what benefits an organization can achieve upon adaptation. 

Understanding Obligation Management CLM  

Obligation management refers to the "systematic tracking, monitoring, and enforcement of the duties, responsibilities, and commitments as stated in the contract."  

There are a set of different obligation types that vary considerably, but they include financial commitments, such as payments and penalties; performance commitments, such as delivery time, quality, and adherence to regulatory requirements. 

A Contract Lifecycle Management system integrated with the functionality to manage obligations enables organizations to manage these obligations right from the very beginning through to the end of a contract lifecycle.  

Starting from drafting the contract, negotiating, executing, and performance monitoring, ending with renewals or terminations this is carried out with obligation management, which ensures adherence to the agreed-upon terms throughout.  

This helps not only in minimizing risks but also maximizes the value derived from contracts. 

The Role of Obligation Management in CLM  

Compliance stands out as a very important aspect of obligation management.  

There are obligations included in most contracts related to legal and regulatory requirements.  

With obligation management integrated into the CLM system, an organization can keep track of such requirements by automatically tracking and sending reminders to stakeholders about upcoming compliance obligations. 

Accountability is the second important aspect of obligation management.  

Most contracts involve a number of parties with different responsibilities and deliverables. 

It is accountability within the obligation management system that keeps track of who is responsible for what. 

For example, in a large construction project, there might be numerous contractors and subcontractors.  

An obligation management system could trace the responsibilities, deadlines, and deliverables of all the parties concerned, thus minimizing the risk of disputes and delays. 

If all parties know that something is being observed and recorded, they are more likely to make more timely and accurate fulfillments of their commitments. 

Obligation management also has an essential role in managing the financial aspects of contracts.  

It ranges from tracking payment terms to milestones, penalties, and incentives.  

If obligations relating to financial matters are fulfilled on time, organizations will avoid late fees and missed payments, revenue leakage. 

Moreover, obligation management enables penalties to be imposed on non-conformities.  

Effective management of obligations could also result in improved relationships between suppliers and partners.  

In cases where both parties to a contract fulfill their obligations, there is increased trust and cooperation. It could lead to better terms in future contracts and better partnership deals. 

This could be something as simple as a supplier adhering to the delivery timelines and quality standards of the contract.  

If the obligations are not followed, the obligation management system clearly captures a breach and allows further discussion and negotiation with more informed parties. 

Challenges in Implementation  

Though the benefits are quite evident, the implementation of obligation management within a CLM system is not without its challenges. It involves navigating several obstacles to successfully use it.  

Complexity of Contracts

One of the major complexities with obligation management is that modern contracts have become quite complicated.  

Contracts can hold a large number of obligations across multiple documents, which are too hard to track and enforce manually.  

This is where a CLM system becomes invaluable, offering a single source of truth for managing all contract-related obligations. 

However, setting up the system for proper capture and tracking of all obligations will be very time-consuming and complex.  

The system requires a profound knowledge of the contracts and the ability to configure it to reflect the specific needs of the organization.

Integration Issues

Obligation management would need to be integrated with other enterprise systems, such as ERP or CRM.  

In such cases, a properly implemented CLM system can overcome this challenge by allowing clear and flawless integration that will provide visibility into all contractual obligations across the organization.  

When a contract requires financial involvement, the CLM system needs to be integrated with the accounting system so that payments are properly accounted for. 

Without due integration, there is always a chance of miscommunication and errors, resulting in missed payments or application of penalties.

User Adoption and Change Management

The new obligation management system within the CLM framework requires a change in the way people work.  

The success of this system depends upon the user's adoption through training and support.  

Without training, users may fall into old, inefficient habits which increase risk.  

Overcoming this challenge requires an organization to invest in comprehensive training programs, which would assist users in learning about the full benefit of the system and the way to apply it.  

Continuous support and updates will also be necessary to update the system so it can keep on meeting the ever-changing needs of the organizations regarding contracts and obligations. 

How Microsoft 365 Enhances Obligation Management 

Microsoft 365, with all the tools it offers, like SharePoint, Teams, and Power Automate, offers a powerful basis on which CLM systems can be set up.

The integration of Microsoft 365 into a CLM platform offers a set of advantages aimed at improving the management of obligations. 

Centralized management of data and documents: Driven by SharePoint, the single cloud-based repository stores all documents and obligations pertaining to contracts. This ensures real-time assurance in the most current status of contracts and tracking of obligations, no matter where the people may be located. 

Seamless Collaboration: Microsoft Teams enable the legal teams, contract managers, and other stakeholders to collaborate in real time. Integration with the CLM system allows seamless communication through Teams on any obligation and the ability to assign tasks so that nothing falls between the cracks. 

Automation of Workflows: Power Automate-a component of the suites by Microsoft 365-allows organizations to automate repetitive tasks, such as reminding when a deadline is nearing, report generation, and flagging of potential breaches of obligations. This in turn cuts down on human error and ensures that obligations, when it comes to contracts, are timely met. 

Compliance and audit trails: Microsoft 365 has a powerful compliance and security system that allows auditing trails and access control. These are quite important in the management of obligations, given that they regulate contracts by ensuring that only the authorized personnel get access to them and further ensure that actions pertaining to said contracts are audit-tracked for later reference. 

📑 Also read: Microsoft 365 for Secure Healthcare Contract Management 

📑 Also read: Master Your Startup Contracts with Microsoft 365 

Dock 365 – A Microsoft 365-Enabled CLM Solution 

Instead of teaching an entirely new system, Dock 365 integrates well within the set-up environment of Microsoft 365, thus being quite easily adopted by and accessible to the teams.  

Coupled with Microsoft 365, Dock 365 provides a rather pragmatic and effective way of improving contract management without necessarily having the steep learning curve associated with most new software. This is important in organizations working to simplify their obligation management processes. 

Key Capabilities of Dock 365 for Obligation Management  

Tracking of all contractual obligations on a single platform: This allows users to create automated reminders, assign tasks, and monitor the actual execution of an obligation in real time. 

Microsoft Teams and SharePoint Integration: With Dock 365, the integration of Teams and SharePoint means that all contract data will be available, sharable, and secure. The users can collaborate on the obligations right inside Teams, while SharePoint acts as a single source of truth for all contract documents. 

Advanced Reporting and Analytics: Through Dock 365, it is easy for an organization to develop detailed reports on obligation performance, compliance status, and risk areas. In return, the data will drive the obligation management to higher decision-making and proactively manage the contracts. 

Custom Workflows: With custom workflows, Dock 365 allows the adjustment of workflow processes with regard to a particular organizational setup. Its flexibility provides full assurance that all obligations run through specific organizational processes and requirements. 

Obligation management is more than just a best practice; it is an essential part of the CLM system for organizations that want to make the maximum out of contract management with minimum risk and in compliance with regulations.  

Since business in the world keeps on transforming every day, organizations need to come forward and establish obligation management in CLMs to comply with the challenge.  

It allows an organization to address the complexities of modern contracts for long-term success through a proactive approach. 

Request a free demo of Dock 365 and get to see its seamless integration with Microsoft 365, bringing your operations to new levels of efficiency and compliance.