In today's fast-paced business environment, mastering the art of contract management can be fundamental to success. Whether you’re negotiating a game-changing deal, reviewing an existing agreement, or looking to streamline your contract management processes, it’s advisable to have a deep understanding and knowledge of Contract Lifecycle Management (CLM).
In this guide, we’ll explore what CLM is, why it’s important, how it works, the phases of a contract's lifecycle and the best practices involved.
What is contract lifecycle management?
Contract Lifecycle Management (CLM) refers to the process of managing contracts from initiation to execution and, eventually, contract closure. It encompasses all stages of a contract's existence, from contract creation and negotiation to contract approval, implementation and ongoing monitoring. CLM provides a structured framework for businesses to handle their contractual obligations efficiently and minimise risks associated with contract management.
Why is contract lifecycle management important?
Contract lifecycle management is vital for businesses for several reasons:
- Efficient contract negotiations
- Minimising risk
- Improved contract visibility
- Time and cost savings
Efficient contract negotiations
CLM streamlines the contracting process, allowing businesses to negotiate terms and conditions more effectively. It helps identify key contractual obligations and ensure they align with the business objectives.
Proper management of contracts reduces the risk of disputes, non-compliance and financial loss. CLM enables businesses to proactively monitor contract terms, deadlines, and obligations, minimising the chances of contract breaches and resulting legal complications.
Improved contract visibility
CLM provides a centralised repository for contracts, making locating and accessing important documents easier. It enhances the visibility of key contract terms, enabling businesses to track performance, renewal dates and potential risks. The ability to analyse critical contracts in this manner gives businesses an advantage when it comes to risk management and decision-making more generally.
Time and cost savings
By automating contract-related processes, businesses can save time and reduce administrative burdens. Tools such as CLM software streamline contract creation, approvals, and reviews, removing manual tasks and repetitive work.
The 5 phases of a contract's lifecycle
A contract goes through several distinct phases during its lifecycle. Understanding these phases helps businesses effectively manage contracts from start to finish:
1. Initiation – the contract lifecycle begins with the initiation phase, where the need for a contract is identified. This phase involves scoping the contract, setting objectives and identifying key stakeholders. You can think of this as laying the foundations for the contract.
2. Creation – the creation phase involves drafting the contract, including the terms and conditions, obligations and specifications. Clear and concise language is essential to ensure the contract accurately reflects the parties' intentions.
3. Negotiation – the negotiation phase focuses on reaching a mutual agreement on the finer detail of the contract's wording. This phase often involves back-and-forth communication, revisions and clarifications.
4. Execution – once the negotiation phase is complete, the contract moves into the execution phase. This is where the parties involved sign the contract and commit to fulfilling their respective obligations. Electronic signatures are increasingly used to streamline this process, making it more efficient and secure.
5. Management – the management phase encompasses the ongoing monitoring and administration of the contract. This includes tracking key dates, performance metrics and compliance with contractual obligations. Effective contract management processes and systems play a crucial role in this phase to ensure that the contract is implemented properly and that any necessary adjustments are made.
Contract lifecycle management process
Businesses can follow a structured CLM process to manage the contract lifecycle effectively. Here's an overview of the typical steps involved:
1. Identify the need – determine the need for a contract and establish the objectives and scope.
2. Draft the contract – create a well-drafted contract that clearly outlines the terms, obligations and expectations of all parties involved. Seek legal advice if necessary to ensure compliance with relevant laws and regulations.
3. Negotiate the contract – engage in effective negotiations to reach a mutually agreeable on the precise wording of the contract. Communicate any changes or revisions during this phase.
4. Obtain approval – seek appropriate approvals from relevant stakeholders, ensuring all parties are in agreement with the finalised contract terms.
5. Execute the contract – ensure that the contract is signed by all parties involved, using electronic signatures if preferred. Store executed contracts in a secure and easily accessible CLM system.
6. Monitor performance – regularly monitor and track the contract's performance, ensuring all obligations are met. Implement processes to handle any deviations or issues that may arise.
7. Renew or terminate – assess the need for contract renewal or termination based on the agreed-upon terms. Follow the necessary procedures and provide proper notice when taking such actions. Seek legal advice where necessary to ensure that any required notices are validly served in accordance with the contract.
Contract lifecycle management best practices
To maximise the benefits of contract lifecycle management, it's important to follow best practices. Here are some key tips to enhance your contract management processes:
- Centralise contract repository – maintain a centralised repository for all contracts, ensuring easy access, version control and security
- Standardise templates – develop standardised contract templates, where possible, to ensure consistency and streamline the contract creation process
- Implement CLM software – invest in CLM software to automate contract management processes, enhance collaboration and improve efficiency
- Establish clear approval workflows – define clear approval workflows to ensure all contracts go through the appropriate review and approval processes
- Regularly review and update contracts – schedule regular reviews of existing contracts to identify any necessary updates or revisions (this helps to ensure contracts remain aligned with evolving business needs and regulatory changes)
- Train and educate staff – provide training to employees involved in the contract management process to enhance their understanding of CLM principles and best practices
- Engage legal support – seek legal advice when drafting or negotiating complex contracts to mitigate legal risks and ensure compliance with relevant laws and regulations
Get legal assistance from LawBite
Contract lifecycle management ensures efficient and effective handling of contracts, reducing risks and improving overall business operations. Our comprehensive services cover everything you need for streamlined CLM. From structuring your CLM processes to contract reviews, drafting, negotiation, and dispute management, we can offer you support at every stage.
Our commercial lawyers are skilled at drafting clear and tailored contracts that reflect your intentions and provide the necessary legal protections. We'll work closely with you to understand your requirements and ensure your contracts provide the protections you need.
Negotiating contracts can be complex, but with LawBite, you're in good hands. Our lawyers are adept negotiators who’ll represent your interests effectively, maintaining solid relationships while securing favourable outcomes.
In the unfortunate event of a contract dispute, we'll provide comprehensive dispute management services. We'll guide you through the resolution process, seeking amicable solutions whenever possible. If litigation becomes necessary, we'll fight for your rights and work towards a positive resolution.
We aim to simplify the legal landscape, empowering you to protect and grow your business. Partner with us to take control of contract management. Let us handle the complexities of CLM so you can focus on what matters the most, your business. To find out more about our contract services, book a free 15 minute consultation with one of our lawyers, or call us on 020 3808 8314.