What is contract lifecycle management, and how do you manage contracts efficiently? The answer to this question, in terms of execution, has remained more or less the same for quite some time. However, technological improvements over the past few years have begun to offer drastic changes to the methods and tools by which we do it.
Welcome to Precisely’s Contract Management 101. In this contract lifecycle management series, we’ll take a closer look at what contract lifecycle management actually is, the features of available solutions and some, both general and specific, tips and tricks. All to help you on your way towards becoming a contract management champion.
This is the first part of our series and we’ll begin by answering a commonly asked question:
What is contract lifecycle management?
Many might think of just jamming contracts in a file cabinet when they hear the term but it does involve a few more important steps.
To begin with, contracts come in all shapes and sizes, from simple standard agreements to comprehensive, resource demanding and legally complex ones. Contracts are the backbones of businesses, and successful contract management can help forge profitability through long-term business relationships.
At the same time, poor contract management can result in lost revenue because of a plethora of reasons. Such as missed renewal dates, early terminations or deficient collaboration.
Contract management, or contract lifecycle management, is often described in words similar to the process of managing contracts to maximize performance, all the way from initiation to renewal or termination. This is, however, not a very elaborate answer.
Times and technologies are changing, and thereby also the answer to what contract lifecycle management is. Contract lifecycle management solutions have been around for a long time and are, as of today, a combination of human interaction with machine functionalities.
Contract management used to involve a lot of inefficient processes that were demanding on both man-hours and other resources, such as manual drafting, proofreading and inefficient approval processes.
This traditional image is also one that is deeply set among many, even though technology and software have come a long way and evolved these processes.
Therefore, it’s time to repaint the picture and bring justice to contemporary contract lifecycle management. Let’s begin by taking a look at the different phases of contract management from an operational and a transactional perspective, in which present contract lifecycle management software should, and can, offer support.
The focus of this article is on a modern take on how to manage contracts effectively, click here if you wish to learn more about why traditional contract management is inefficient.
Contract lifecycle management phases
The contract lifecycle can be categorized into two primary phases – the operational phase and the transactional phase – which are in turn subcategorized into processual steps.
The operational phase
It is during the operational phase that mainly general, not contract specific, preparatory work is done. A big part of the operational phase relates to establishing routines, all in order to streamline your contract management process and provide you with the best conditions possible for entering the transactional phase.
Specify —the first part of the operational phase mainly involves specifying authorities and responsibilities for everyone involved in the contract management process. For areas such as overseeing development, defining the contract and document-related responsibilities and deciding other authorities and roles.
- Develop – second is the development step, which is a heavy one production wise. This is where standard terms and clauses, templates and boilerplate (standardized language) are determined, along with procedures for utilizing them.
- Nurture – monitoring is a crucial part of the contract lifecycle. Performing research of different sorts, such as mapping recurring issues in the contracting process, allows for suggestions for, and nurtures, improvements.
- Educate – implementing policies, having (and correctly using) the right tools as well as providing training in the tools for those operating the processes is, of course, crucial for quality consistent contract management.
- Measure – the last step of the operational phase is the analysis — defining your metrics and KPIs, all in order to ensure that contracts are performing properly and that your goals are met. Define and regularly report on any data that can directly provide you with these indications.
The transactional phase
When routines and other frameworks have been established, it’s time to move on to the transactional phase. This is the contract specific phase, meaning that a vast majority of agreements that you transact goes (or at least should go) through it.
- Assess – the first part of the transactional phase relates to evaluating whether or not an agreement should be initiated at all. Identify a suitable contract model, or review the counterparty’s proposed terms and conditions. If the counterparty is the proposing side, the transactional phase jumps to the “negotiate” step.
- Approve – now, it’s time to involve all of the concerned internal stakeholders for review. Have them evaluate and approve or disapprove non-standards and correlating factors, such as necessary resources and related contracts. Important to mention, however, is that approval can be a recurring step of the transactional phase.
- Assemble – if all pieces come together, it’s time to push the go button. In other words, creating the required contracts with the use of templates, or by drafting completely new contracts.
- (Approve) – after a contract has been assembled, depending on how your team is structured, it’s common practice to review it before moving on to negotiations.
- Negotiate – handing over a finished draft to your counterparties usually sheds some light on disagreements. Such as strategy, fallbacks and trade-offs. This is where you’ll attempt to redraft and concord, or in worst case, terminate the negotiations.
- Execute – once the agreement has been negotiated and all terms are agreed between the parties, it’s time to execute, or in other words signing and issuing the contracts.
- Manage – how are your contracts performing? This step involves handling complaints, disputes, and changes, as well as recordings of these. This naturally also involves storing your contracts, which preferably should be done in a clearly defined and central repository.
- Evaluate – if not evergreen ones, contracts will eventually reach an expiration date. With previously mentioned procedures for measuring performance data in hand, it’s time to make a decision of termination or renewal. And the contract lifecycle recommences.
It’s the circle of (a contract’s) life!
What is contract lifecycle management?
According to us, there isn’t a descriptive enough one-line answer to “what is contract lifecycle management?“. Not least since contract lifecycle management can be described as the process of maximizing performance in all of the steps of the operational and transactional phases.
But now that we’ve established what the contract management process can look like in theory, it’s time to ask an important question in light of the latest decade’s technology improvements – how has software improved the different stages of the contract lifecycle?
The contract lifecycle begins as soon as a request for a contract is made. Functions in charge of contracts, e.g. the legal department, begins to look for re-usable legacy contracts and/or templates. This is also where the first bottleneck can occur in case contracts are not easily located.
Modern technology, such as cloud-based searchable storages and libraries, eliminate the need to dig through file cabinets. Thus making it possible to find exactly the contract or template you’re looking for in the blink of an eye.
Perhaps more importantly, best-in-class cloud-based contract lifecycle management systems always ensure that the latest version of a specific template is at hand.
Next up, it’s time for an unnecessarily time-consuming step – drafting the contracts. Even if legacy contracts or templates are available and found, chances are they’re in need of editing, proof-reading and possibly more editing before they can be re-used.
As a bare minimum, certain fields in the template needs to be filled in — and often the same information is entered in multiple parts of the contract. Contract management software can not only streamline the contract authoring with the help of automation but also make it possible for anyone to create compliant contracts in a matter of minutes, even without legal expertise.
For instance, using intelligent templates and questionnaire-based drafting. If you’d like to learn more about contract creation and drafting software, click here to read more about the functionalities and benefits of such solutions.
Approval (and perhaps, negotiation)
After finalizing the first draft of the contract, there’s often a need for e.g. upper management or the legal function, to approve it. Without clearly defined responsibilities and workflows, the approval process often becomes long drawn.
Contract lifecycle management solutions streamline the approval process with the use of automated and customizable approval workflows. Typically, this means that each relevant stakeholder is notified automatically once the contract is ready for approval. Likewise, the person requesting the approval will automatically receive a notification when the contract has been approved.
Depending on the nature of the contract, it may often be negotiated. Traditional negotiation practices often involve sending a red-lined Word document back and forth, which results in a lack of a clear overview of all changes from the first draft.
Instead, modern contract management solutions enable you to carry out the negotiations in the contract management application. You will get a complete audit trail and version control covering all changes that have been made since the first draft.
What is contract lifecycle management? “Contract Management consists of all the various tasks and activities that enable an organization to maximize the value of its recorded relationships.”
– Rajini Saudranrajan, Iris Corporation Ltd.
The next step in the process towards answering “what is contract lifecycle management?” is the execution of the contract.
In the traditional way, this means sending the contract for signing by postal service or courier, which quickly turns into a long waiting period. Especially if the receiver isn’t located in the same city or even country.
Modern contract management technology reduces this process from weeks to days or even hours using legally binding e-signatures. While helping businesses take a big digitization step by stop using paper. It’s like killing two birds with one stone. Or in this case, two contracting inefficiencies in one feature.
After the contract has been executed and signed, it’s time to store and monitor it. More or less common solutions are filing cabinets, local storages on hard drives and cloud storages.
These solutions do organize the contracts to some extent but a regular lack of searchability and reportability still makes it hard to locate and analyze them.
As you may have heard before, it is estimated that ten(!) percent of all signed contracts in a company have completely disappeared (Faulkner Information Services).
Dedicated contract management platforms offer a central and full-text searchable repository, with the ability to set up different user access levels and permission settings on documents and folders. Thus allowing for authorized staff to instantly locate, search for and report on contracts and their performance. From anywhere, at any time.
While the contract has been executed and put in a repository, the contract lifecycle doesn’t end here. You will often need to follow up on each party’s rights and obligations, as well as when the contract needs to be terminated, renegotiated or renewed.
Many of these actions pass by unnoticed due to a lack of monitoring procedures (or that the contract is lost in space). Tracking and following up on a contract is complex and resource demanding.
Nevertheless, missing e.g. a renewal or termination, or to follow up on each party’s rights and obligation, exposes your company to major legal risks and can severely reduce profits.
Utilizing modern monitoring and alerts functionalities make sure that any upcoming follow-up actions, renewals or terminations are surfaced before it’s too late.
PS. I’ve seen monitoring efforts of all kinds and forms. Often, the follow-up actions are set up in a private calendar or remote spreadsheet by the person in charge of taking the action.
Although this might work on a short term, I highly recommend a more centralized approach where all reminders and upcoming alerts are kept in one place. The reasons are many.
For instance, increased efficiency (e.g. by allowing team members to seamlessly assign alerts to others within the contract management platform) and risk diversification (e.g. not losing track of the upcoming actions whenever an individual leaves the company).
Answering “what is contract lifecycle management?”
So, what is contract lifecycle management? We’re still going to describe it as the process of managing contracts to maximize performance throughout the entire contract lifecycle.
As you can tell, however, the presence or absence of modern contract management solutions reshape the contract lifecycle process. And makes for a lot more elaborate answer to what contract lifecycle management is.
Hopefully, we’ve managed to provide you with new insights and bring some justice to contemporary contract management.
Don’t miss part two of Precisely’s Contract Management 101 series, where we get into the challenges of contract management and how to tackle them.
Learn more about the Precisely contract lifecycle management platform