For any agency or organization that works with contracts on a regular basis, the concept of contract lifecycle management (CLM) is likely a familiar one. It's no secret that CLM plays a vital role in any organization that leverages legal agreements. Specifically, CLM is used to track and manage every aspect of a contract for its performance, compliance, and other success factors and through every stage of the document's lifecycle (from execution to renewal or expiration). The management process itself begins when a contract is proposed and continues throughout the delivery of the promised good or service and into contract renewal.
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.
These days, there are all kinds of different software options available when it comes to contract management. And of course, there's no such thing as a "one-size-fits-all" CLM solution for any agency or organization. Still, contract management solutions like ContractWorks represent the most efficient software solution for most contract lifecycle management needs, and can help organizations make the most of this vital process.
Contract Lifecycle Management: A Modern Business Necessity
Customers, business associates, and legal authorities alike expect organizations to remain diligent and accountable for their contract management. And organizations like government agencies are held to a higher standard than ever when it comes to contracts. Even the smallest mistakes in CLM could lead to a damaged reputation for any business or organization.
How Contract Lifecycle Management Works
In order to understand the most important aspects of contract lifecycle management, it's helpful to begin with a thorough understanding of the typical contract lifecycle and what the process looks like for most organizations.
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. Often times, the negotiation stage is one of the longest and most challenging of the entire lifecycle; that's because, 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 negotiations process can be streamlined here, as these programs include useful features that allow users to route official versions of the contract with partners and other authorized individuals as needed during the approvals process.
Storage and Organization
Another important aspect of contract lifecycle management is 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 if 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 is instead utilizing cloud storage for all of their 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 parameter. This is where having contract management software in place can be useful. The software can act as your personal compliance team, making sure that you never leave out critical items.
A contract management program can make note of potential issues and risk level and bring them to the attention of your organization. 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 for the performance of a contract to be analyzed 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 ended or re-negotiated into a more favorable agreement for your business.
A Note on Security
Contracts often contain sensitive information, which is why security concerns should be at the forefront of your mind 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 program 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 one's mobile device or e-mail address. 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
- privacy blind
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. Often times, 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.