Contract Management Blog by Contracts 365

The 9 Stages of Contract Lifecycle Management

Written by Jessica Alden | October 13, 2020

Businesses enter into contracts for certainty. But did you know that all contracts - no matter how well written - involve a degree of risk? Contracts may actually create risk in business transactions. From initiation and negotiation to award and renewal, contracts involve complex actions that can and do go wrong. The good news is that contract management software can help to mitigate that risk. In this article, we review the nine stages of contract lifecycle management and offer ideas on best practices to ensure that your business runs as smoothly as possible.


An Introduction to Contract Lifecycle Management

Understood as a methodical process for managing contracts at all contract lifecycle stages, Contract Lifecycle Management (CLM) is essential for business operations. Rarely is it the case that executives sign contracts only to put them away in a drawer for reference at some uncertain date in the future. Several aspects of running a business rely on contracts, including: having clarity on the terms of service, establishing deadlines, providing means of effective dispute resolution, and administering human resources. It is important, therefore, that legal teams manage contracts and automate where possible. This is where Contract Lifecycle Management comes in. To manage a contract well, the key contract stages - such as issuance, negotiation, implementation, and renewal - must execute on time. Lawyers must also control contracts with efficiency. Contracts are expensive, and expending more resources than necessary dwindles the company’s bottom line.

Moniker aside, CLM is about much more than ‘managing’ contracts. CLM is also about ensuring that such management is as efficient as possible. This efficiency is imperative. Indeed, stakeholders recognize that managing contracts without an underlying system is burdensome. A Gartner report on Contract Lifecycle Management found that:

“Procurement, sales, and legal teams are always pressured by the business to speed up contract development and execution. Without a CLM solution, contract negotiators struggle to execute contracts within the expectations of the business.”

The ultimate responsibility for effectively managing contracts falls on a company’s general counsel and legal teams. They are responsible for ensuring the company’s compliance with relevant laws and facilitating beneficial relationships with vendors, customers, and competition. Clear agreements are the essence of both of these core responsibilities. In this regard, good Contract Lifecycle Management software can make a considerable difference to the day-to-day workload of a company’s legal department.

Some of the core benefits of Contract Management Software include:

  • Accurate time management for each contract stage
  • Appropriate workload allocation for each contract stage
  • Creation of documentation and records for audit and compliance matters
  • Establishment of rules and processes for company operations
  • Performance indication and measurability of deliverables
  • Ability to spend more time on high-value activities
  • Better allocation of expensive resources, like general counsel time

What does Contract Lifecycle Management actually look like in practice, though, and how can lawyers use it to ensure smooth business operations?

The 9 Stages of CLM and CLM Best Practices

Contract Lifecycle Management is a process that necessitates a view of the individual stages of the contract lifecycle. Management activities fall under each lifecycle stage. Contract Lifecycle Management software can assist in the effective execution of each of these activities.

Knowing that contract management software can help may not be enough to achieve the best management efficiency and performance. Management must include best practices to achieve effective contract lifecycle management across the entire enterprise. Read on to discover not only what contract management software does but how to get the most out of it.

1. Request

Contracts serve a certain purpose; usually, one party proposes a contract to the other. The purpose may be evident in the circumstances, such as creating a contract to sell an asset. The purpose may also be evident because of an existing agreement, for example, the end of a current employee's employment contract. Either way, the request and any supporting documentation are critical to negotiating the contract terms. Accordingly, lawyers need to place a high degree of focus on the early stages of contract requests. Contract management software can help formalize the process and serve as a repository for relevant information and material.

2. Negotiation

Any general counsel knows that the negotiation of terms is one of the most critical stages of a contract’s lifecycle. Productive and efficient negotiations rely upon good preparation. One aspect of good preparation is having the positions, documents, and intended outcomes in one place. Contract management software can serve as a repository for these purposes and facilitate the request and approval of amendments. With powerful contract management software, legal teams can save considerable time on administration. This, in turn, frees up resources for the more valuable substantive aspects of the negotiation.

3. Approval

Well-drafted agreements must include regular opportunities for review and approval. Depending on the agreement created, both internal and external reviews may be necessary. Each individual involved may be privy to different types of information - some of which may be confidential. This is especially the case with companies that have over 500 employees. In large companies, the sheer number of stakeholders with varying degrees of authority introduces considerable complexity. Contract management software enables general counsel and legal teams to set up internal and external review processes and assign the requisite permissions for designated stakeholders. Introducing conditional logic into the review process enhances speed further. Such logic may include introducing a base number of approvals before the contract may progress to the next lifecycle stage.

4. Execution

Once approved, the contract is ready but will remain unsigned. Contracts require signatures for execution. However, getting a contract signed is not as straightforward as it may seem. While some contracts are printed and signed in person (‘wet signature’), more and more companies rely upon electronic signatures. Obtaining an electronic signature requires compliance with any applicable laws on signatures. These laws vary considerably between jurisdictions. Contract management software can assist by ensuring that signatures are compliant as well as sending requests for signature automatically upon approval. It is important to you choose a contract management software that has e-signature fully integrated into the contract lifecycle process and integrates with popular systems such as Adobe Sign and Docusign. 

5. Storage

Having executed the contract, legal departments must keep contracts somewhere for easy reference. Here, effective contract lifecycle management requires both the availability of the requisite storage facility and the indexing of the contract, any supporting materials (such as appendixes), and corresponding metadata for fast and accurate search. Contract management software creates collections with standard and custom search terms for each record. Such software can also generate reports for a variety of purposes.

6. Management

Storing records in one place is only half of the battle when it comes to managing many - often complex - business agreements. Effective contract management software requires that the storage is secure, reliable, backed up to local or off-site servers, and safeguarded with appropriate retention policies. This is to avoid common mistakes like accidental deletion and incorrect modification. Furthermore, key events should be assigned for automatic reminders or requests for relevant parties, helping to smooth out the process of day-to-day management. Each of these core functions can be operationalized with contract management software. This helps general counsels, legal teams, and other contractual parties to cut risk. In turn, this allows lawyers to focus on high-value activities that impact the company’s performance.  When evaluating contract management software, it can be more efficient to have a software that integrates with your existing IT infrastructure. 

7. Retrieval

Contracts need to be accessible to be useful in everyday business transactions. This is imperative not only for speeding up record management but also for ensuring solid business relationships. Leaders can also make informed and accurate business decisions if contracts are easy to access. For that, a robust search and retrieval system is important within a contract management software solution. Lawyers should grant appropriate access to various parties. This includes setting permissions to ensure proper handling of the data (some of which may be legally protected).

8. Reporting

Contract lifecycle management software involves reporting of several different types. Key staff members - like general counsel and legal teams - need to be able to get reports on the number and type of contracts in storage. Knowing who accessed the records and made changes to them and when, is also important. Critical to the general counsel is access to reports on the state of compliance with obligations in those contracts. Issues like late payments, non-delivery of products, ultra vires changes to the contract, and other potential breaches need flagging for prompt attention. Contract management facilitates in-depth reporting. It also allows lawyers to set up tailored notification systems to complement a business’s internal processes.

9. Renewal/Disposition

Contracts are operational for the time specified therein. Upon reaching the end date, legal departments must decide whether to renew the contract or dispose of it. Many overlapping factors play into this decision. Lawyers must consider the completion of obligations, adequacy of deliverables, receipt of competitive prices, and the stability and benefit of the underlying business relationship, among other factors. Renewal or disposition need not be a lengthy process, though. Contract management software can ensure the amendment, renewal, or disposition of the contract even well in advance of the end date.

It is clear that contract lifecycle management principles and the contract management software that implements them can have innumerable benefits for general counsel and legal departments. Other key figures responsible for ensuring the effective management of contracts within a company also benefit from contract lifecycle management software. As contracts are the lifeblood of any business, contract lifecycle management is necessary to ensure the health of the company and its ability to thrive.

Contracts 365 –the Leading Contract Management Software for Microsoft 365 Customers

Contracts 365 is the leading contract management software for businesses that run Microsoft 365. With usability, functionality, and security at the forefront of development, Contracts 365 addresses all aspects of the contract lifecycle through a modern, intuitive interface specific to your users. With over twenty years of experience and thousands of satisfied users, Contracts 365 can take your business’s contract management to the next level. Get in touch today for a no-obligation conversation about how contract management software can enhance the efficiency of your business.