What is Contract Lifecycle Management?
Contract Lifecycle Management (CLM) is a method of tracking and managing a contract from its initial request through its possible renewal. Employing CLM can help an organization realize significant improvements in efficiency and lower operational costs.
Understanding Contract Lifecycle Management
Organizations use CLM to administer all aspects of the contract process. CLM can help your organization organize and streamline the contract process, audit your contracts, ensure compliance with appropriate regulations, and minimize any associated risks – legal or otherwise.
CLM begins when a contract is first proposed and tracks all the steps through the contract's execution and renewal. It is typically implemented via CLM software – either standalone programs or integrated into a larger software suite.
CLM software works by using basic templates, standard terms, and repeatable conditions that can be reused for each new contract initiated. Contracts created with CLM software are digitally stored and easily tracked. Contracts created with CLM are also easily searchable, which can come in handy when dealing with compliance and other legal issues. CLM software typically includes a contract management dashboard that provides a visual overview of the contracting process.
Organizations that use CLM realize several distinct advantages, not the least of which are increased efficiency and lower administrative costs. CLM is often used by legal firms, sales departments, and other entities that generate a large number of detailed contracts.
The Nine Steps of CLM
The contract process consists of nine distinct steps. CLM manages and streamlines all of these steps.
The contract lifecycle starts when one party proposes or requests the contract. Information provided at this time by the initiating party, and sometimes by the other party, is assembled. This information typically includes details about the service or goods being contracted, the contract's start and end dates, and any other stipulated milestones.
2. Authoring, Negotiation, and Review
After the contract has been requested and key information provided, the contract is created. CLM software can automatically generate a draft of the contract based on predesigned or stored templates and the information provided by both parties. The contract will contain all necessary clauses, terms, conditions, and other legal verbiage.
The first draft of the contract is then circulated to key players from both parties. These parties review and redline the contract, noting and negotiating required and suggested changes. When the review is complete, the final version of the contract is generated, typically in PDF or Microsoft Word format.
The contract is now ready for final review by key stakeholders. This review should include attorneys from both parties. When the final contract has been approved by all parties, it is ready to be signed.
All contracts require signatures to be final. The approved contract is sent to authorized representatives from both parties for the formal signing. This can be done physically or online, using digital signatures.
The signed contract is stored electronically in the CLM software's digital database. In addition to the contract, the database stores contractual metadata and all supporting documents.
The records management stage is ongoing, as it continuously ensures the safe and secure storage of the documents. Files are stored digitally, multiple backups are made regularly, and document retention policies ensure all contracts and supporting documents are safely and securely stored for the long term. Security policies ensure that no unauthorized modifications are made to the documents. This stage also ensures compliance with all storage requirements and regulations.
During the long-term storage, documents need to be available for retrieval by approved parties. For this reason, all documents and contract metadata are thoroughly indexed so they can be quickly and easily searched. Queries can include filters to help identify documents that match specific criteria. Relevant documents can then be retrieved from the system for future use.
All parties, including legal counsel, can receive reports on the number and types of contracts stored in the CLM system. These reports can contain information about who accessed the records, who made changes to the records, and what those changes entailed.
Reports are also generated detailing the state of compliance regarding stipulations in the contracts. Any noncompliance is flagged for attention as necessary.
The final stage of the process comes when a contract reaches its end date. At this point, the contract can be renewed, with or without amendments, or it can be rendered inactive and disposed of.
10 Key Benefits of Contract Lifecycle Management
CLM offers multiple benefits to all parties involved in the contractual process. Here are 10 of them.
By using standardized templates and documenting every step, CLM helps improve the accuracy of all contacts created. Less language is left to personal interpretation – the system ensures that specific legal and company-specific clauses and language are always included.
Streamlinedthe Contractual Process
CLM automates and streamlines many steps of the contractual process. Storing much of the information makes it easier to recall that information in future contracts without manual input. It also eliminates many redundancies present in manual processes. New contracts can be turned around much faster than before. Because of the use of digital signatures, execution of a contract is also faster. Instead of waiting days for all the signatures to arrive, a contract can be executed the same day that all parties agree to the final format.
Better Tracking of Contract Changes
Because every change and every step are digitally recorded, CLM accurately tracks all changes to a contract. It's easy to return to a previous version of the contract or discover exactly when a specific change took place.
Improved Access to Contracts and Information
In a large company, it's easy to lose track of individual contracts. The Journal of Contract Management found that 71% of all companies couldn’t locate at least 10% of their contracts. This isn't a problem with CLM, because all contract data is stored digitally. This makes it easy to search for specific contracts or information within or between contracts. In addition, CLM dashboards and reporting provide access to more detailed meta-information.
The CLM process provides a detailed audit trail that can be used to ensure and prove legal, regulatory, and contractual compliance. Legal compliance is also improved using predesigned templates and rules-based contract authoring.
Fulfillment of Contractual Obligations
It's hard to keep track of all the obligations contained in every contract – these obligations are often overlooked or ignored.
With CLM, these obligations are easy to highlight. CLM software keeps track of every obligation in every contract and sends notifications to appropriate parties when obligated dates or events are upcoming.
Better Management of Contract Renewals
Under manual systems, too many contracts are left to expire without notice. CLM highlights contracts that are due to expire so they can be renewed, renegotiated, or amended.
With CLM, you don't have to reinvent the wheel with every new contract. You can create templates for specific types of contracts and store them for use with future agreements.
CLM ensures all contracts drafted in different parts of the company meet the same basic criteria, use the same language, and contain the same clauses and sections. Contracts are standardized, as are the processes used to create and negotiate them.
Reduced Costs and Overhead
By automating the process of creating and executing contracts, CLM eliminates considerable time and expense.
Fewer staff are necessary to manually store and retrieve physical contracts. Digital records management can be done with minimal staff and cost. In addition, because all contracts are now digital, you save on expensive overnight shipping for contracts that need to be reviewed or signed.
In a classic analysis, Aberdeen Research found that automating CLM reduced administrative costs by 25% to 30%.
The bottom line is that CLM makes the entire contractual process easier for all involved.
There's less manual work, less paper-shuffling, and less waiting for others to take action. The contractual process becomes more automated and more straightforward for non-legal staff to implement. It also makes it easier to train staff, since everyone is now using the same tools to work through the same steps in the process. CLM just makes life easier.
Why CLM is Right for Your Business
If your business or organization deals with even a small number of contracts, you need CLM software, such as ContractAI from App Orchid.
Creating and managing contracts can be time-consuming and confusing. By automating and standardizing all aspects of the process, CLM software makes it easier for you and your staff to create new contracts – and to do so considerably faster and cheaper.
Contract lifecycle management may not be sexy, but it's crucial. CLM ensures that all the i's are dotted and the t's crossed, every time, on every contract. It ensures that you're compliant with all applicable laws and regulations, and that parties to all contracts live up to their legal obligations.
CLM makes contracts easier to create, manage, and enforce.