Contract Lifecycle Management (CLM) is the process of tracking and managing every aspect of a contract for its performance, compliance, and other success factors through every stage of the document's lifecycle — from execution to renewal or expiration. The management process itself begins when a contract is proposed or requested and continues throughout the delivery of the promised good or service and into contract renewal. Having a strong CLM process in place helps organizations maintain a disciplined approach to managing agreements, which can help mitigate risk and increase the likelihood that important contracts perform as intended.
Businesses create or adopt CLM systems to help streamline and add structure around various aspects of the contract lifecycle, most commonly in the form of contract management software. Some CLM solutions are meant to solve every part of the contract lifecycle, while other solutions offer a way to impact specific pieces of the process quickly and affordably. ContractWorks, for example, is designed to give teams a simple, straightforward way to sign, store, monitor, and report on corporate agreements. There is no such thing as a one-size-fits-all CLM solution — every business has different challenges, requirements, and budgets, so it’s best to find the type of software that aligns with your unique situation.
Why is Contract Lifecycle Management Important?
CLM helps organizations minimize contract risks, ensure compliance with regulations, audit contracts for performance, and stay organized from beginning to end. Effective contract lifecycle management translates to cost and time savings for any organization.
What Are the Stages in the Contract Lifecycle Management Process?
The contract lifecycle management process is broken down into seven key stages, including Planning, Implementation, Pre-contract, Handover, Contract, Pre-renewal, and Post-contract.
Planning stage - This is where you develop your CLM strategy based on your company’s needs and resources.
Implementation stage - During the Implementation stage, you build out your contract management process to deliver against your strategy, and ensure everyone involved in the process understands the objectives and is comfortable with any tools they’ll be using along the way.
Pre-contract stage - This is where you’ll draft, negotiate, and sign your contracts.
Handover stage - Once the contract is signed, you’ll want to make sure that all stakeholders have what they need to manage the signed agreement, and that all-important details like roles and responsibilities, obligations, and contract milestones are accounted for.
Contract stage - This is one of the most important stages in the contract management process, where those managing the agreement track important milestones and obligations, monitor performance, and ensure that the contract delivers the intended results.
Pre-renewal stage - This is the time to evaluate the overall performance of the agreement and decide whether to terminate, renegotiate, or renew the contract.
Post-contract stage - Now that the contract has ended, the Post-contract stage is the time to ensure all conditions have been met and tie up any final loose ends before conducting a contract post-mortem to help you improve in the future.
Within these seven stages, there are numerous contract management tasks and processes that make up the full contract lifecycle. Below is a more comprehensive breakdown of the CLM process, from request to re-negotiation.
Request, Authoring, Negotiation, and Approval
The first step in the contract lifecycle is the request for a contract. At this point, a draft of the contracted agreement is written. However, it is important to understand that most contracts aren't agreed upon and signed as-is; there may be substantial changes that need to be made before all involved parties can reach an agreement.
The negotiation process then begins when the contract is first drafted and available for all involved parties to review. Oftentimes, the negotiation stage is one of the longest and most challenging of the entire lifecycle. Depending on the number of parties involved, it can take quite a bit of back-and-forth before a final agreement can be reached.
Still, during this stage, different parties and internal departments will review and ultimately approve the contract. In cases where contract management software is used, the signing process can be streamlined, as these programs often include useful features that allow users to route official versions of the contract to partners and other authorized individuals as needed during the contract signature process.
Storage and Organization
Another important aspect of contract lifecycle management is the storage and organization of contracts. In fact, you could go so far as to say that the success or failure of CLM hinges on organization. This step of the process involves making sure that contracts are properly filed, organized, and able to be found easily when needed.
Even though a contract has been signed, there is a possibility that it will be edited down the road. And it will most definitely need to be referenced at some point. For this reason, an increasing number of organizations have begun moving away from physical storage of contracts and instead utilizing cloud storage for all of contracts and other important documents.
There are many reasons as to why this makes sense for businesses of all sizes. Cloud storage (with the right security features) allows permitted users to easily access a library of contracts. When uploaded, these contracts can be tagged with relevant information so that they can be found using a simple search feature. Ultimately, digital storage makes it easier to organize, store, and retrieve contracts as needed.
Tracking and Reporting
Another important step in contract lifecycle management is tracking and reporting. This is where a great deal of risk falls, which is why organizations and agencies need to focus on refining this stage and ensuring compliance so that nothing slips through the cracks. This will provide you with detailed oversight of your user’s actions and an easy way to track down mistakes or missing documents to make corrections.
Successful CLM involves carefully monitoring contracts for milestone dates, compliance, and any other important parameters. This is where having contract management software in place can be useful. The software can help improve contract compliance, making sure that you never leave out critical items.
A contract management program can make note of potential issues and risk levels and bring them to your attention. Tagging clause usage and taking collaborative notes is a great way to catch problems early on before they cost your company a lot of time, resources, and money to resolve.
Performance and Re-negotiation
Contracts can under-perform or become obsolete, which is why it's important to analyze the performance of a contract over time. Running customized reports on contracts based on specific criteria is an important part of any CLM process. For example, being able to generate contract reports based on commission rates, business territory, or even renewal term lengths can help give you and your organization valuable insight as to how your contracts are performing. From there, your team can make well informed decisions.
An efficient contract lifecycle management process builds in time for your due diligence, management, and legal teams to regularly review contacts for compliance and performance. Contracts that are under-performing can be terminated or re-negotiated into a more favorable agreement for your business.
Benefits of Contract Lifecycle Management Software
Contract lifecycle management software makes it easier to manage the various processes involved in the contract lifecycle. Just about every aspect of the CLM process can be accomplished manually, but incorporating purpose-built software can save you valuable time, reduce risks, and give you greater insight into the details of your contract portfolio.
Here are a few reasons why organizations turn to contract lifecycle management software to manage their contracts more effectively:
Contract organization, access, and visibility - CLM software allows you to store and organize all of your contracts in one central, online location, so you always know where to find your most important documents. Advanced search functionality makes it easy to find any contract or key term instantly, eliminating the need to scour through inboxes and shared drives to find what you’re looking for.
Automated contract tracking and reporting - CLM software takes the manual work out of keeping up with contract deadlines. By taking advantage of alerts and notification features, you can configure your CLM solution to send you email reminders in advance of key contract dates — like end dates or termination notice windows. And with custom reporting tools, you can easily set up, schedule, and share reports based on the data tagged in your contracts, so you can see things like which contracts expire in the next 90 days or which contracts contain force majeure clauses.
A Note on Security
Contracts often contain sensitive information, which is why security concerns should be at the forefront when it comes to deciding how and where you'll store and organize your contracts. At the very least, your contract data needs to be encrypted both in transit and at rest. This way, even if an unauthorized user were to gain access to one of your contracts, the information would be unreadable.
Two-factor authentication is another important security feature to look for when choosing a contract management solution for your organization. This requires not only a username and password to log in, but an additional security measure; typically, this involves having to enter a one-time login code sent to your mobile device. Other potential safety features to look for may include:
Printing disable options
Audit logs (for tracking who has accessed or edited documents)
Permissions management for restricting access
Security is a top concern, from the first draft of a document until long after it's signed. Without the proper safety features in your contract management software, a breach of security can cause significant legal trouble for your organization.
Industries and Internal Teams Involved in CLM
CLM is central to any field that relies on contracts. Improved contract management can help companies across a number of industries, including manufacturing, telecommunications, technology, healthcare, and financial fields.
Within any agency or organization, numerous departments may be involved in CLM efforts:
Sales and sourcing departments - these drive the need for external contracts and are involved in negotiation, approval, and performance measurement.
Legal departments - these are often in charge of maintaining contracts in compliance-heavy industries (such as healthcare). This department is involved in negotiation, approval, compliance, and regular audits. Oftentimes, legal teams will also work with due diligence teams to verify all contracts are acceptable to the management team before moving forward.
Human resources departments - these employees usually leverage contract lifecycle management internally. They may also be involved in internal negotiation and use performance measures and special clauses in contracts to understand the state of the business in relation to its employees.
Management teams - these tend to oversee each of the relevant teams in lifecycle management to ensure that all are working towards the same goals and following organizational protocol.
Simply put, CLM is essential for all modern organizations. Improving the contract lifecycle management process will allow you to stay better organized and up-to-speed on your company's contract performance. Furthermore, effective contract management will improve your governance and accountability, helping your company to avoid missteps that could affect its future.