Managing an organisation’s contracts is one of the most cumbersome challenges since each contract goes through a series of events right from its conception. From simple employment contracts and vendor-supplier agreements to in-depth partnership agreements, sale agreements, and loan agreements, every contract spans an infinite range of complexity, length, and terms. Since contracts are binding under the law, a complete understanding of the contract lifecycle is imperative for legal departments. The stages of a contract from inception to possible renewal include. In simple terms, the “lifecycle” of a contract generally involves organising and making sense of its intricacies. It begins with a contract request and involves events such as contract drafting, review, approval, signature, and compliance. This article sheds light on the different stages of contract lifecycle management and how a business can use contract management software to optimise its contract lifecycle management operations.
Contract Management vs. Contract Lifecycle Management
The term “contract management” refers to overseeing every aspect of a contract – from the initial drafting and negotiation to subsequent renewals. Contract managers are generally responsible for ensuring that all organisational contracts are up to date, deadlines are met on time, and compliance and data security policies are followed.
Contrarily, contract lifecycle management focuses on using digital tools to streamline every step of the contractual arrangement. The ultimate goal is to maximise productivity by integrating human and technological resources. The benefits of contract lifecycle management include simplification, enhanced accuracy, better team collaboration, and reduced legal expenses.
What are the Various Stages of Contract Lifecycle Management?
CLM tools go one step ahead of contract management to include additional stages of contract lifecycle management. Each of these stages involves different management requirements, stakeholders, and skill sets. Every enterprise must identify the various stages of CLM and integrate the right tools in order to ensure that each contract is executed effortlessly. Here are the 8 stages of contract lifecycle management:
Stage 1: Contract Requests
The contract lifecycle officially begins with the inception stage. At this step in the contracting process, all parties must lay out their goals for collaborating. Depending on the nature of the contract at hand, the first step entails an evaluation of the terms and conditions, the establishment of parameters, the formulation of objectives, a strategy to carry out the contract terms, and defining the details such as the start and end dates, as well as any obligations, renewal terms, and responsibilities of each party to the contract. This stage of contract lifecycle management often determines whether an agreement will be processed quickly and smoothly or not.
Stage 2: Contract Drafting
Once the parties to a contract identify and address their needs in the contract, they must lay down the groundwork for drafting the contract. Also called “contract creation,” this stage involves the parties formalising the contract terms and conditions by combining standard clauses, key dates, counterparty information, and other essential data into a single document.
It is also essential to define the parties involved in a contract, the goods or services being exchanged, and the agreement conditions at this stage of contract lifecycle management. With a CLM tool, an enterprise can use instant templates to draft even the most complicated of contracts that are frequent to its operations. The use of CLM software can save time and prevent mistakes by starting the contract drafting process with a set template, and the contract manager can fill in the details as needed.
Stage 3: Contract Negotiations
Once the drafting stage is complete, the parties entering into the contract must review it carefully to ensure that all the terms are accurate and mutually agreeable. One of the most critical parts of any of the stages of contract lifecycle management is the negotiation work, where the parties collaborate to finalise the document’s framework and specifications. After extensive negotiation and redlining, the parties’ responsibilities under the contract are detailed. Due to the criticality of this stage, most enterprises now rely on contract management software over paper-based procedures and antiquated computer systems.
Stage 4: Contract Approvals
After the parties are satisfied with the negotiations, a new draft of the contract is prepared and reviewed. A careful reading of every line and word of the document is essential to comprehend the clauses fully, check for legal validity, and anticipate any risks or conflicts down the road. There needs to be a standard approval period for contracts that go back and forth between both parties. The time taken to get approvals may depend upon how many individuals are tasked with its finalisation.
When all parties are satisfied with the terms of the negotiations, a final review of the contract is conducted. Compliance standards, obligations, key dates, milestones, and other contract-specific requirements are ensured to be met. Maintaining a smooth approval process requires that all parties to the contract have access to a complete and accurate history of all modifications made to the contract. Effective contract lifecycle management relies heavily on audit trails, which a good CLM software can quickly provide. Enterprises can use a CLM tool to keep track of a contract checklist that includes items such as clauses, termination rules, dates, costs, language, and grammatical errors that may alter the document’s meaning altogether.
Stage 5: Contract Signing
An executive or other authorised signatory puts their name to a contract after it is reviewed and approved. In today’s increasingly mobile and digital world, it can be helpful to have a streamlined system for managing contracts at the different stages of contract lifecycle management, which includes the option of electronic signature.
Stage 6: Contract Execution
Once the contract is signed, both parties agree to carry out their duties and meet their commitments in accordance with the agreed-upon schedule, key dates, deliverables, payment terms, and other terms of the agreement. Task assignments, escalations, key dates, milestones, task approvals, cost management, etc., must be monitored when keeping tabs on contractual commitments. Enterprises can avoid contract breaches and other potential risks by using a centralised contract management system to manage all of their contracts in a single repository.
Stage 7: Post-Execution Compliance
When the contract is in effect, both parties are responsible for keeping it updated and intact. The parties are responsible for maintaining the data in a safe place where authorised users can easily access it and use it to compile personalised reports. The contract owner is also responsible for renewing the agreement when its term ends, handling any outstanding termination conditions, issuing and paying any unpaid invoices, making any necessary changes to the agreement, and storing the finalised agreement in a centralised repository.
If the contracts are revised, the process is repeated to ensure that all parties are aware of the revised terms. Further, keeping track of compliance with applicable rules, guidelines, standards, regulations, laws, and practices is essential. Good contract management software helps the enterprise ensure that such compliance requirements are met promptly at all stages of contract lifecycle management, in addition to laying the groundwork for future agreements and thereby preventing any legal disputes and bottlenecks.
Stage 8: Contract Renewal
The final phase of a contract’s lifecycle can be different from one contract to the next. Renewal of a contract is appropriate when the parties’ relationship is mutually beneficial, and they wish to carry on their business. Parties equipped with a contract management software solution can easily revisit their contracts, renegotiate terms, and extend their collaboration in a more streamlined manner, as opposed to having to go through all of the above-mentioned stages of contract lifecycle management once again.
Simplifying all Stages of Contract Lifecycle Management with a Contract Management Solution
A contract lifecycle management system equipped with Artificial Intelligence can simplify the contract management process by handling all these labour-intensive tasks in minutes. Enterprises can get access to a library of editable DIY contract templates that can be used on the go. Using a repository of clause libraries can save time compared to manually creating contracts and reduce the risk of errors.
All parties with access to a contract can see all versions of a contract at once under one single centralised workplace. A good contract management tool like LegisTrak also offers solutions like safe storage of contracts, vendor management, in-built editor, access control, e-signing and stamping, and much more.
Implementing automation tools that aid all the different stages of contract lifecycle management is an excellent way for businesses to save time and effort while also increasing accuracy and productivity. Organisations can better manage risks, improve financial outcomes, and guarantee compliance with regulatory requirements by incorporating contract management lifecycle software.
