What is Contract Lifecycle Management?

Contracts are one of the most important components of any modern-day organisation. Contracts can be defined as binding agreements that specify certain legally enforceable rights and obligations that pertain to two or more mutually agreeing parties. The process of tracking and handling a contract from drafting to termination is known as Contract Lifecycle Management (CLM).    

According to Forrester, the contract management software market is expected to be worth £9.5 billion by 2025. The growing contract management industry has increased the need for aspiring professionals to know about CLM. This blog will tell you all you need to know about Contract Lifecycle Management, the different stages of CLM process as well as the benefits it provides.  

Table of Contents 

1) What is Contract Lifecycle Management? 

2) What are the stages of a contract? 

3) How does Contract Lifecycle Management work?

4) Best practices for implementing CLM

5) What is Contract Lifecycle Management software? 

6) What are the benefits of Contract Lifecycle Management software? 

7) Conclusion 

What is Contract Lifecycle Management? 

Contract Lifecycle Management (CLM) can be defined as managing and tracking every aspect of a contract for compliance, performance, and other success factors through each stage of its lifecycle. Contract Lifecycle Management encompasses the tracking and managing of a contract from execution to renewal or expiration.  

The management process begins when a contract is requested and continues throughout the delivery and into contract renewal. A robust CLM process helps organisations adopt a disciplined approach to managing agreements, which helps mitigate risk and increases the likelihood that essential contracts perform as expected.   

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What are the stages of a contract?

Several stages make up the contract creation process, all of which we will discuss briefly as follows: 

a) Contract creation 

The first stage of the process is the creation of a contract. Companies create contracts manually or with the help of templates in a stage known as drafting or generation. Microsoft Word documents and PDFs are considered the de facto standards for contract files. Hence software solutions designed for document generation focus on enabling custom Word and PDF generation.   

b) Contract negotiation 

After the contract has been created, they need to be negotiated with counterparties (i.e., companies with whom one signs contracts) before signing them. While a contract is being negotiated, legal teams on both parties need to be able to detect document changes, comments and versions.  

c) Contract approval 

In organisations of a smaller size, a General Counsel can review and approve each part of a contract on their own. However, as companies grow in size, contracts require the approval of the functional and regional departments for the different parts of a contract. To achieve this manually, someone would have to review every contract, check to identify the departments who need to approve it, and send it to every involved party for them to review it. Contract Lifecycle Management tools help automate and track review progress.    

d) Contract execution 

Once all parties involved are ready to agree to the contract, they will have to sign it. This step of the process poses interesting logistical challenges for Contract Lifecycle Management because the prevalent tools for this step – the eSignature solutions – must be sold as separate solutions.  

e) Contract storage 

The most basic requirement is that the contracts are stored securely. However, it is also important to make sure that the company folders are easy to navigate, that metadata is recorded in a central database for convenient reporting, and that the contextual history of a contract is stored and not just the executed contract. Contract storage is an excellent instance of a contracting task that might be handled appropriately by general software solutions in the early stages of a company.  

f) Contract management and analytics 

The final stage of the Contract Lifecycle process is Contract Management and analytics. This stage of the contract lifecycle remains the least developed in the CLM space because Contract Management is less important to most companies than contract execution and requires accurate contract data from the previous contract stages.   



 

Best practices for implementing CLM

These  primary steps will help you deploy the Contract Management System in the whole enterprise:

a) You have to start at the executive level. All the executives must adopt the Contract Management System. If you don’t have your company's support, then it will be difficult for you to allocate resources for budget, and training will be difficult.

b) Clear communication and proper alignment at the highest level will inspire the organisation to implement a Contract Management System.

c) You cannot achieve properly implement CLM if you don’t have a strong team. To make your CLM effective, assemble a qualified team to help you govern and execute the program efficiently. However, remember, before you create a team, the organisation's leaders must be on board and aligned with your CLM program.

d) Training is crucial if you want to implement CLM successfully. The training needs to occur across several departments so employees can learn how to use the new technology according to their necessity and which will fit the department they are a part of.

e) It would help if you had a current plan and a future plan. If you don’t know what you want out of your CLM programs, you will never be able to achieve your desire. So, formulate a future plan and a current one, then work on linking the gap between them. You can start this by assessing your present Contract Management System and then identifying the areas you need to improve.

f) If you set the metrics and goals of the new CLM program, you can demonstrate your Return on Investment (ROI) from the very early stages. If you clearly define your organisation's project success, it will not get overlooked in the implementation stage.

g) Break up the large chunks of the contract into small, manageable sizes. This will help you in tackling the implementation and yield a quick ROI. It will also give you the benefit of starting small. When starting small, you are can introduce a Minimal Viable Product (MVP), allowing you to learn and leverage important insights down the process.

h) You need to prioritise contracts and migrate them into the new CLM platform as soon as possible. You will come across many legacy contracts and compliance documents while relocating them. This can concern a few organisations, especially those just starting their digital journey.

i) You need to rigorously test your new CLM to see if it generates the result initially planned for your organisation. Involving talented and knowledgeable people in your organisation in the Contract management testing process will help avoid or reduce project risks during roll-out.

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What is Contract Lifecycle Management software? 

Contract Lifecycle Management Software can be defined as technology enabling organisations to simplify and automate their contract workflow, from creation to tracking and reporting. CLM software offers valuable features during each stage of the contract lifecycle. This differentiates it from other solutions, such as contract negotiation or contract reminder software, which focus on one phase of the lifecycle.   

What are the benefits of Contract Lifecycle Management software? 

Contract Lifecycle Management software simplifies managing the different processes involved in the contract lifecycle. Almost every aspect of the CLM process can be accomplished manually, but incorporating purpose-built software helps save you valuable time, reduce risks and provide an organisation with greater insight into the details of a contract portfolio. Let’s discuss some of its benefits:

1) Faster, easier contract signing: CLM software solutions have a built-in electronic signature capability or can be integrated with standalone e-sign tools. This feature saves you the hassle of securing a physical signature and helps you avoid delays once all parties are ready to proceed with an agreement.   

2) Contract organisation, access and visibility: CLM software helps an organisation store and organise all its contracts in one central, online location. This feature of CLM software facilitates convenient searching for an organisation’s essential documents. Advanced search functionality makes finding contracts or key terms easier and eliminates the need to scour through inboxes and shared drives to find contracts.   

3) Automated contract tracking and reporting: CLM software ensures less manual work as it eliminates the need to keep up with contract deadlines manually. By taking advantage of alerts and notification features, an organisation can configure its CLM solution to send e-mail reminders before crucial contract dates, such as end dates or termination notice windows. With the help of custom reporting tools, an organisation can easily set up, schedule and share reports based on the data tagged in contracts. One can also see details like which contracts expire soon or which contracts contain force majeure clauses.  

Conclusion 

Overall, Contract Lifecycle Management can be defined as tracking and managing each aspect of a contract for its performance through each stage of its lifecycle. An efficient CLM system helps an organisation adopt a disciplined approach to managing agreements, which helps mitigate risk and increases the likelihood that its contracts perform as intended. CLM software has several benefits – it eases the signing process, facilitates convenient access and automates tracking. 

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