Managing an organisation’s contracts is a significant challenge, since each contract moves through a series of events from initial conception through to completion. From simple employment contracts and vendor-supplier agreements to detailed partnership agreements, sale agreements, and loan agreements, contracts vary widely in complexity, length, and terms. Since contracts are legally binding, a complete understanding of the contract lifecycle is essential for legal departments.
In simple terms, the “lifecycle” of a contract involves organising and making sense of its different stages. It begins with a contract request and moves through drafting, review, approval, signature, and compliance. This article covers the different stages of contract lifecycle management and how a business can use contract management software to optimise its operations.
Contract Management vs. Contract Lifecycle Management
The term “contract management” refers to overseeing every aspect of a contract, from initial drafting and negotiation through to subsequent renewals. Contract managers are generally responsible for ensuring that all organisational contracts are up to date, deadlines are met, and compliance and data security policies are followed.
Contract lifecycle management, by contrast, focuses on using digital tools to manage every step of the contractual arrangement. The goal is to maximise productivity by combining human judgment with technological support. The benefits of contract lifecycle management include simplification, improved accuracy, better team collaboration, and reduced legal expenses.
What are the Various Stages of Contract Lifecycle Management?
CLM tools extend beyond basic contract management to cover additional stages of the contract lifecycle. Each stage involves different management requirements, stakeholders, and skill sets. Every enterprise needs to identify the various stages of CLM and put the right tools in place to keep each contract moving through the process efficiently. Here are the 8 stages of contract lifecycle management:
Stage 1: Contract Requests
The contract lifecycle begins with the inception stage, where all parties lay out their goals for collaborating. Depending on the nature of the contract, this stage involves evaluating terms and conditions, establishing parameters, formulating objectives, and defining details such as start and end dates, obligations, renewal terms, and the responsibilities of each party. This stage often determines whether an agreement will be processed quickly and smoothly.
Stage 2: Contract Drafting
Once the parties have identified and addressed their needs, they lay the groundwork for drafting the contract. Also called “contract creation,” this stage involves formalising the 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, the goods or services being exchanged, and the agreement conditions at this stage. With a CLM tool, an enterprise can use pre-built templates to draft even its most complex recurring contract types quickly and accurately. Starting from a set template rather than a blank document saves time and reduces the risk of errors, with the contract manager filling in the specific details as needed.
Stage 3: Contract Negotiations
Once drafting is complete, the parties review the contract carefully to ensure the terms are accurate and mutually agreeable. Negotiation is one of the most critical stages of contract lifecycle management, where parties collaborate to finalise the document’s framework and specifications. After negotiation and redlining, each party’s responsibilities under the contract are clearly set out. Given how critical this stage is, most enterprises now rely on contract management software rather than paper-based procedures and outdated systems.
Stage 4: Contract Approvals
Once the parties are satisfied with the negotiations, a new draft is prepared and reviewed. Reading every line of the document carefully is essential to understand the clauses fully, confirm legal validity, and identify potential risks or conflicts. A standard approval period should be set for contracts moving back and forth between parties, and the time required for approval depends on how many people are involved in finalising it.
The final review confirms that compliance standards, obligations, key dates, milestones, and other contract-specific requirements are met. A smooth approval process requires that all parties have access to a complete, accurate history of every modification made to the contract. Audit trails are central to effective contract lifecycle management, and a good CLM tool provides these automatically. Enterprises can also use a CLM tool to maintain a contract checklist covering clauses, termination rules, dates, costs, language, and any errors that could alter the document’s meaning.
Stage 5: Contract Signing
An authorised signatory signs the contract once it has been reviewed and approved. Electronic signature capability within a CLM platform makes this step faster and more convenient for enterprises managing contracts across teams and locations.
Stage 6: Contract Execution
Once the contract is signed, both parties carry out their duties according to the agreed schedule, key dates, deliverables, payment terms, and other conditions. Task assignments, escalations, key dates, milestones, task approvals, and cost management all need to be monitored to keep contractual commitments on track. A centralised contract management system helps enterprises avoid breaches and other risks by managing all contracts in a single repository.
Stage 7: Post-Execution Compliance
While the contract is in effect, both parties are responsible for keeping it up to date and accurate. Contract data should be stored securely where authorised users can access it and generate reports as needed. The contract owner is also responsible for renewing the agreement when its term ends, resolving outstanding termination conditions, issuing and settling any unpaid invoices, making necessary amendments, and storing the finalised agreement in a centralised repository.
If a contract is revised, this process repeats to ensure all parties are aware of the updated terms. Tracking compliance with applicable rules, guidelines, standards, and regulations is essential throughout. Good contract management software helps ensure compliance requirements are met on time at every stage of the contract lifecycle, while also laying the groundwork for future agreements and reducing the risk of disputes.
Stage 8: Contract Renewal
The final stage of a contract’s lifecycle varies depending on the agreement. Renewal makes sense when the relationship between parties is mutually beneficial and both wish to continue working together. With contract management software, parties can revisit contracts, renegotiate terms, and extend the relationship efficiently, rather than starting the entire lifecycle process over again.
Simplifying all Stages of Contract Lifecycle Management with a Contract Management Solution
An AI-powered contract lifecycle management system can simplify the contract management process by handling these labour-intensive tasks in minutes. Enterprises get access to a library of editable DIY contract templates ready for immediate use. Using a repository of clause libraries saves time compared to manually creating contracts and reduces the risk of errors.
All parties with access to a contract can view every version in one centralised workspace. A good contract management tool like LegisTrak also offers secure contract storage, vendor management, a built-in editor, access control, and e-signing and stamping capabilities.
Implementing automation tools across the different stages of contract lifecycle management helps businesses save time and effort while increasing accuracy and productivity. Organisations that adopt contract lifecycle management software can better manage risk, improve financial outcomes, and maintain compliance with regulatory requirements.
