The success of any business depends on how well it manages its contracts. Contract Lifecycle Management (CLM) is a critical component of effective contract management. CLM is creating, storing, tracking, and managing contracts throughout their entire lifecycle, from initiation to completion.
As businesses become increasingly reliant on contracts, having an efficient and secure system to manage them is increasingly important.
This article will explore the critical components of contract lifecycle management, the benefits of implementing it, and the best practices for achieving success.
Here is what we shall learn in this post:
- What is Contract Lifecycle Management?
- 5 Stages of Contract Lifecycle Management
- Benefits of Contract Lifecycle Management
- Challenges of Contract Lifecycle Management
- Tools and Processes for Contract Lifecycle Management
- Best Practices for Contract Lifecycle Management
- The Need for Contract Management Systems
- How can Deskera Help You?
- Key Takeaways
- Related Articles
What is Contract Lifecycle Management?
Contract Lifecycle Management (CLM) is a process that governs the entire lifecycle of a contract, from its creation to its fulfillment, including the negotiation, execution, and management of contracts.
It is designed to streamline and automate various contract processes, such as negotiation, approval, and storage, as well as track key data points related to the contracts. CLM helps organizations ensure compliance and mitigate risk while improving efficiency, reducing costs, and providing better visibility into contracts.
5 Stages of Contract Lifecycle Management
Each business has its own protocols for managing contracts and contract lifecycles, however, the process may be broken down into five distinct stages.
Contract creation and authoring is the first stage in the contract lifecycle management process. This stage is the foundation for all other stages in the process and involves the development of a contract between two parties.
The parties involved in the contract must agree to the terms, conditions, and obligations of the agreement.
During this stage, the contract should be drafted and reviewed by legal counsel to ensure that it accurately reflects the intentions of both parties. The contract should also be reviewed for clarity and accuracy, as well as for any potential legal or technical issues. Once both parties agree to the contract, it can be signed and executed.
Contract Collaboration and Negotiation
This stage in contract lifecycle management is the stage of the contract lifecycle where the parties involved in the contract come together and negotiate the terms of the agreement.
During this stage, each party will present their proposed terms and conditions for the contract and then work together to come to an agreement that is satisfactory for both sides.
This stage also includes discussing any potential conflicts or disputes that may arise from the contract and working to resolve them before they become an issue. This stage is typically followed by a contract signing and execution stage.
Contract Award and Execution
During this stage, the two parties involved in the contract agree to the terms and conditions of the agreement and sign the contract. This is the point at which the actual performance of the contract begins and the parties are responsible for ensuring that the terms and conditions of the contract are met.
This is usually followed by a period of monitoring and enforcement of the contract. During this period, the parties can make changes to the contract if needed and ensure that both parties are meeting their obligations.
This is the stage in contract lifecycle management that involves the implementation, monitoring, and enforcement of the contractual agreement between two or more parties. During this stage, the parties involved in the contract are responsible for making sure that all requirements and conditions of the contract are adhered to, and any disputes are resolved in a timely manner.
In addition, the contract administrator is responsible for keeping detailed records of all activities related to the contract, as well as maintaining communication between the parties.
This stage is often considered one of the most important aspects of contract management. It ensures that the terms and conditions of the contract are fulfilled and any disputes are resolved quickly and efficiently.
Contract Close-out or Renewal
This stage is the last stage of a contract life cycle. It is the process of formally ending the existing contract, either by terminating it or renewing it for a certain period of time. This stage is important to ensure that both parties are in agreement with the terms of the contract and that all obligations have been met.
The close-out or renewal stage also involves the review of any performance or financial issues, and any necessary adjustments or corrections. This stage is also used to document the conclusion of the contract and to ensure that all parties are in agreement with the outcomes.
It is essential that all financial, legal, and administrative aspects of the contract are addressed before the contract is finalized.
Benefits of Contract Lifecycle Management
The benefits of contract lifecycle management can be summed up as follows:
Contract Lifecycle Management (CLM) provides a central repository for all contracts, enabling users to easily monitor, track, and manage all contractual documents. This helps to ensure that all contractual documents are compliant with regulations and internal policies.
CLM systems provide a centralized view of all contracts, enabling users to quickly access the most important information and identify any potential issues or risks.
CLM provides an efficient and effective way to manage contracts, allowing for better collaboration and communication between departments. This leads to improved efficiency and better decision-making.
Challenges of Contract Lifecycle Management
Companies may frequently encounter the following challenges in contract lifecycle management:
Cost of Implementation
Cost of implementation is a major challenge in the contract management lifecycle. This is because it requires significant resources to implement the contract, including personnel, materials, and other resources.
Additionally, the cost of implementation can vary greatly depending on the complexity of the contract and the number of parties involved. The cost of implementation can also be affected by the length of the contract and any associated projects.
Also, cost of implementation can be impacted by any amendments or modifications that are made to the contract. All these factors must be taken into consideration when determining the overall cost of implementation.
A learning curve that occurs when a company is trying to adjust to a new contract, process, or system could be a challenge in CLM. As the company and its employees learn the new system, there can be a period of trial and error, as they figure out how to best utilize the new system.
This period of learning may result in delays in the execution of the contract, as well as some mistakes or mistakes that need to be corrected. Additionally, the learning curve can result in higher costs and slower progress in the contract management process, as the company and its employees must become accustomed to the new process or system.
Manual processes can be time-consuming and prone to errors. This can lead to delays in the contract process and costly mistakes. These can be a challenge because they require a significant amount of manual effort to complete.
It can include activities such as creating, approving, negotiating, and tracking contracts. Manual processes can also be time consuming and difficult to track, making it difficult to ensure contracts are managed efficiently and effectively.
Unclear Roles and Responsibilities
This is a common issue faced by organizations. It occurs when the roles and responsibilities of the different stakeholders involved in the contract lifecycle are not adequately defined, communicated or understood.
The lack of clarity can lead to miscommunication and poor coordination between stakeholders, resulting in misunderstandings and delays in the process. It can also lead to disputes and legal issues. Additionally, it can make it difficult to identify who is ultimately responsible for certain tasks or decisions.
By having a clear and concise understanding of the roles and responsibilities of all stakeholders, organizations can ensure that the contract lifecycle is managed effectively and efficiently. Thus, reducing the risk of disputes and delays.
Without clear roles and responsibilities for each stage of the contract lifecycle, it can be difficult to ensure that tasks are completed in a timely manner.
Disparate systems can present a challenge in CLM. Disparate systems refer to the situation when an organization uses multiple, disconnected systems rather than a single, unified platform to manage its contract data and processes.
Disparate systems can make it difficult to track and manage contracts in a unified manner, resulting in a lack of visibility and control. This can lead to inefficient processes, errors, and compliance issues.
Additionally, disparate systems can make it difficult to access and analyze data across different systems. Thus, resulting in difficulty in making informed decisions. By unifying an organization's contract lifecycle management into a single platform, companies can gain a holistic view of their contracts, enabling them to better manage, monitor, and optimize their contract processes.
If different systems are used to manage each stage of the contract lifecycle, data can be lost in transition or not easily accessible.
Tools and Processes for Contract Lifecycle Management
Contract Lifecycle Management tools and processes are essential for organizations to reduce the risk associated with the contract process. They enable organizations to streamline the process of creating, managing, and archiving contracts while ensuring compliance with legal and regulatory requirements.
CLM tools and processes provide a centralized system for tracking and managing contracts, enabling organizations to easily view the history of a contract and quickly identify changes or potential risks. They also enable organizations to automate the process of generating contracts, reducing manual labor and errors.
Furthermore, they provide visibility into the entire contract lifecycle, helping organizations to effectively manage contracts and improve their efficiency. The following tools and processes can help companies align their goals with contract creation:
- Document Management System: A document management system is used to store and manage contracts and other documents related to the contract lifecycle. It allows users to access, search, and edit documents quickly and easily.
- Contract Management Software: Contract management software helps to streamline the contract creation, negotiation, and approval process. It also helps to track and manage contract documents, as well as generate reports and analytics related to the contracts.
- Collaboration and Communication Tools: Collaboration and communication tools, such as email, instant messaging, and video conferencing, are used to collaborate with internal and external stakeholders throughout the contract lifecycle.
- Automation and Reporting Tools: Automation and reporting tools are used to automate tasks and generate reports to give users a better understanding of the contract lifecycle.
- Risk Management Tools: Risk management tools are used to identify, assess, and monitor potential risks associated with contracts.
- Compliance and Auditing Tools: Compliance and auditing tools are used to ensure that contracts comply with applicable laws and regulations.
Best Practices for Contract Lifecycle Management
Best practices for contract lifecycle management are important for businesses because they help ensure that all contracts are handled in an efficient and effective manner. They also help to ensure that all contracts are up to date, provide accurate information, and comply with applicable laws and regulations.
Best practices help to reduce the risk of contract disputes and ensure that contracts are properly tracked and managed. Ultimately, best practices provide businesses with the assurance that their contracts are properly managed and are in compliance with applicable rules and regulations.
1. Establish a standardized contract process and review it regularly.
2. Create a centralized repository for contracts and associated documents.
3. Utilize automated workflow tools to ensure that contracts are reviewed and approved in a timely manner.
4. Set up automated reminders for contract renewals, expirations, and other important dates.
5. Keep all stakeholders informed and involved throughout the contract lifecycle.
6. Develop reporting capabilities to monitor the status of contracts.
7. Utilize analytics to identify areas for improvement within the contract lifecycle.
8. Monitor contract performance to ensure compliance with contractual terms and conditions.
9. Utilize technologies like ERP to streamline the contract lifecycle.
What is Contract Management System?
Contract management systems are software solutions designed to help organizations manage the entire contract lifecycle. They provide a centralized platform for contract creation, storage, and management.
This allows organizations to streamline the process of creating and managing contracts, ensuring compliance with all applicable laws and regulations. Also, it provides visibility into the status of contracts and their associated financials.
Contract management systems can also help organizations manage vendor relationships, track contract performance, and generate detailed reports for analysis.
Features of Contract Management System
The features of the contract management system can be summarized through the following points:
- Document Storage: The platform should provide secure document storage, allowing users to store and access contracts, including related documents, from anywhere.
- Automated Notifications: Automated notifications should be sent out to relevant parties when contracts are near expiration and when changes are made.
- Easy Access: Users should be able to quickly and easily access contracts and related documents, as well as other features.
- Contract Negotiation: The platform should allow users to negotiate contracts electronically and track negotiation progress in real-time.
- Contract Performance Tracking: Contract performance should be tracked and monitored so that users can easily identify performance trends or issues.
- Reporting: The platform should generate detailed reports that can be used to monitor and analyze the performance of contracts.
- Compliance: The platform should ensure that users are in compliance with all applicable laws, regulations, and policies.
- Security: The platform should provide robust security measures to ensure that documents are kept secure and confidential.
The Need for Contract Management Systems
Contract management systems are essential for businesses to ensure efficient, secure, and compliant contract management. With the increasing complexity of contracts, businesses need a system that will help them manage them without the need for manual intervention. A contract management system can provide businesses with the necessary tools to manage their contracts from start to finish.
This includes the following:
- tracking contract performance
- keeping records
- providing analytics and reporting
A contract management system also helps businesses to easily access and store contracts, making them easier to find and manage.
Summing up, a contract management system can help businesses ensure that they are compliant with applicable laws and regulations.
Contract Lifecycle Management is a vital tool for any business. It streamlines the entire process of contract creation, approval, and management, saving time, reducing costs, and limiting risk. It also helps businesses ensure that all contracts are compliant with existing regulations, while also providing a full picture of the business's contractual obligations.
Ultimately, Contract Lifecycle Management provides businesses with the necessary tools to ensure that contracts are managed properly and efficiently, allowing them to focus on their core operations.
How can Deskera Help You?
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Deskera Books is an online accounting application that assists small businesses in better managing their money.
- Contract Lifecycle Management (CLM) is a process that governs the entire lifecycle of a contract, from its creation to its fulfillment, including the negotiation, execution, and management of contracts.
- Contract creation and authoring is the first stage in the contract lifecycle management process. This stage is the foundation for all other stages in the process and involves the development of a contract between two parties.
- Contract collaboration and negotiation is the stage of the contract lifecycle where the parties involved in the contract come together and negotiate the terms of the agreement.
- During execution, the two parties involved in the contract agree to the terms and conditions of the agreement and sign the contract.
- During contract administration, the parties involved in the contract are responsible for making sure that all requirements and conditions of the contract are adhered to. Also, any disputes are resolved in a timely manner.
- Contract close-out or renewal is the last stage of a contract life cycle. It is formally ending the existing contract, either by terminating it or renewing it for a certain period.
- Companies can have better visibility, compliance, and efficiency with a CLM process in place.
- Cost of implementation is a major challenge in the contract management lifecycle. This is because it requires significant resources to implement the contract, including personnel, materials, and other resources.
- Disparate systems can present a challenge in CLM. Disparate systems are when an organization uses multiple, disconnected systems rather than a single, unified platform to manage its contract data and processes.
- Contract management systems and document management systems are some of the tools organizations can utilize for efficient CLM.
- Document storage, automation, easy access, and heightened compliance are some of the benefits of contract management software.