Contract Lifecycle Management, or CLM, is the term used to describe the collection of processes involved in the tracking and monitoring of a contract throughout the course of its duration – that is, from the point of document creation to the point of termination, followed by archive storage.
Unlike standard document management processes, Contract Lifecycle Management is a vital and valuable business strategy that can potentially generate previously untapped profit through the effective control and administration of active legal agreements.
The adoption of Contract Lifecycle Management processes is a proactive step that helps organizations avoid the consequences of a contract collection that is inadequately controlled. These consequences can include wasted resources, failure to fulfill obligations and requirements, and significant increases to risk through human error. Indeed, to put it simply, managing contracts in terms of their lifecycle ensures that nothing is missed, nothing is late, and everything is taken into account.
What is the contract lifecycle?
The Contract Lifecycle is the collection of stages in contract development and use. In order to manage the Contract Lifecycle effectively, it is essential to develop a clear and specific understanding of what these stages are, and what they involve.
The initial stage of the Contract Lifecycle is its creation. Several departments or areas of administration may be involved in this stage, include Legal, Sales, Human Resources or Procurement. Depending on the type of organization involved, and the nature of the contract, this may include:
- Tender Process
Approval and Execution
Once the contract has been drafted, all parties must agree to the terms and approve the contract. The agreement is then executed, with its terms and conditions put into effect. The contract is now active, which means that risk is potentially further escalated.
Once the contract is executed and made active, it must be monitored for performance. This constitutes the bulk of the Contract Lifecycle Management process and continues for the duration of the agreement. Performance monitoring uses data analysis to determine compliance levels, complete ongoing risk assessments, and surface any potential issues that may lead to conflict or dispute. This stage may involve the negotiation, drafting and execution of amendments, which involves a number of different departments.
Renewal or Termination
As the Contract Lifecycle draws to a close, a period of review is required to determine whether renewal or termination is needed. The overall performance of the contract will be an important consideration. If renewal is expected, then renegotiation is involved, and the lifecycle begins again. If it is termination, on the other hand, then the specific terms and conditions relating to that decision should be surfaced and fulfilled in a timely fashion.
Once the stages of the Contract Lifecycle are conceptualized, the complexity of the management process becomes clear. It is because of this complexity that it is so important to approach the management of contracts as a lifecycle, rather than dealing with them in terms of classification. It is the lifecycle approach that ensures the emphasis remains on the relationship to which the contract pertains, rather than the minutiae of individual clauses. Since Third Parties and suppliers are a notable source of increased risk, remaining focused on the relationship helps to keep that risk under control.
How is the contract lifecycle managed?
Manual Contract Lifecycle Management is possible, but quickly becomes overwhelming as soon as the number of contracts requiring management exceeds ten. This is because truly effective Contract Lifecycle Management is led by data, and accurate data analysis of large volumes of documentation is both time consuming and a drain on valuable resources. For this reason, Contract Lifecycle Management software is a scalable solution. It allows for the comprehensive processing of information and the generation of actionable data at a level that adjusts according to demand. A Contract Lifecycle Management software package can grow with your organization, as required.
With modern digital solutions comes a high degree of automation. This greatly reduces the need for human input, and therefore the risk of human error. By removing the human element of basic administrative and data-based processes, the pressure on staff deployment is relieved and personnel are available to be assigned to more challenging tasks. Furthermore, the potential for workflow bottlenecks is also eliminated because automation ensures that the right task is flagged up to the right person at the right time.