Contract Lifecycle Management (CLM) is the proactive, methodical management of a contract from initiation through award, compliance and renewal. Implementing CLM can lead to significant improvements in cost savings and efficiency. Understanding and automating CLM can also limit organizational liability and increase compliance with legal requirements.
Before you decide to manage the lifecycle of your business contracts, you need to understand exactly what that lifecycle looks like. Everyone knows that a contract needs to be drafted, negotiated, and signed, but that’s only a small part of a larger story. For a company to fully unlock the value of their contracts, they need to know and incorporate these essential steps into every agreement.
The key steps in the Contract Lifecycle Management (CLM) process:
- Request – The lifecycle of any contract typically begins with a request from the business, describing what they need for some project or deal. The challenge is to make the request process simple and intuitive, collecting the right information to guide people quickly to the appropriate paperwork, whether it’s a complex purchase order or a simple NDA. With a fast and easy request process, the risk of rogue deals – and risky terms – is dramatically reduced.
- Create – To create new contracts, amendments, purchase orders, and the like, your team needs to draft one or more documents based on approved templates and clauses. For complex or risky deals, the creation of documents is typically handled by contracts professionals and other experts. For simpler deals, people in the business may prefer a fast, self-service option for creating their own documents. And in many scenarios, automated wizard-based document assembly will deliver better quality documents much faster than manually drafting in Word.
- Approve – Depending on risk, value, and other factors, most enterprises have rules about who must approve each contract. These rules are typically defined in a “delegation of authority” and shared with everyone who needs to know. In some cases, the rules may be baked into a workflow process which prevents the release of documents while an approval task is pending. In other cases, ad hoc approval tasks may be recorded for audit trail and compliance purposes, but with fewer controls and more flexibility for individual users.
- Negotiate – Most businesses will negotiate the terms of larger deals, to balance the contractual allocation of risk against the value and importance of the deal. Negotiations may cover commercial or legal terms, and may touch many different people on either side of the transaction. Throughout the process, negotiators may leverage a variety of tools, including playbooks with preferred and fallback positions, clause libraries, document redlines and comparisons, and issue lists.
- Sign – To close any deal, each party must sign the final agreement. This may be achieved by wet signature on a paper document, or by digital signature on an electronic document. When all signatures are complete, the final executed contract is exchanged and retained by each party as the golden record of their agreement.
- Capture – For complete insight into a contract portfolio and contractual risk, it’s essential to capture all relevant documents in a central system, and to capture structured, machine-readable data from those documents. This may include robotic “discovery” of contractual documents scattered across internal systems, automatic OCR conversion and cleanup of imaged documents into text, robotic extraction of data using AI and machine learning techniques, and human review for quality assurance and high complexity scenarios.
- Comply – The most immediate challenge for any active contract is to comply with its various obligations and commitments. Failure to satisfy a performance, payment, reporting or credit support obligation will likely trigger a contractual breach, with the risk of termination and exposure to substantial liabilities. Perhaps worse, contractual and regulatory compliance failures can cause serious brand damage.
- Manage – Beyond compliance, an enterprise must manage the rights, renewals, amendments and relationships defined throughout its contract portfolio. Automated tracking and alerts can eliminate the high cost of missing an important right or renewal. And for effective management of customer and vendor relationships, contractual data must often be linked to performance data and external reference databases.
- Optimize – With more data, and improved insight into contractual terms and performance, a business can optimize its portfolio for better value, lower risk outcomes. For high performance contract teams, the goal is a continuous feedback loop between the contract portfolio and business performance. If, for example, the data shows that certain negotiation issues consume a large chunk of time, but yield no measurable difference in risk or performance, you may tweak the playbook to remedy those issues quickly.
Why Contract Lifecycle Management
Is your company skipping any of the steps? If so, don’t worry; you’re not alone. At any organization, it’s easy for one person to just handle “their part” of the process and move on without understanding the entire lifecycle. Indeed, while basic contract management software can help companies improve their contracting process, they still struggle to gain an executive-level view of their contracts that answers important questions about revenue, risk, and obligations.
In a perfect world, companies could count on:
- A 360-degree view of all contracts, including vendor, customer, partner, employee, and finance & governance.
- A consistent enterprise view of all contractual relationships and all contract risk.
- Certainty over all contract commitments, including revenue, spend, rights, obligations & compliance, and more.
- The ability to operationalize contract commitments through performance and compliance tracking.
- Certainty over their contracting process through control and auditability.
- An accelerated contracting process by eliminating bottlenecks & reducing costs.
