Contract lifecycle management: everything you need to know

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Contract Management

If your business struggles with a high volume of contracts, it’s time to improve your contract lifecycle management (CLM). Whatever your industry, you likely handle several types of contracts on a routine basis, such as employee and independent contractor agreements, vendor contracts, and nondisclosure agreements. It’s up to your business, particularly your in-house legal department, to take responsibility for those contracts.

Unfortunately, the reality is that overseeing these agreements from beginning to end is a significant burden. The greater the volume of routine contracts, the more it bogs down your in-house team. Your lawyers focus on low-value work instead of tasks that provide greater value to the company.

To conquer the massive quantities of contracts, your team needs to address CLM. Instead of relying on traditional track changes for version control and spreadsheets for organization, your business can implement more efficient processes backed by contract solutions like Ontra.

What is contract lifecycle management?

CLM is how your organization oversees your contracts and related legal documents, from initiating a new agreement through execution, compliance, and renewal or expiration. The term CLM insinuates a combination of streamlined processes and automation. It’s an advancement from the days of managing contracts through old-school spreadsheets.

What is a contract lifecycle management system?

At its core, a contract management system (CMS) is the internal processes your business uses to execute, track, and enforce contracts. It’s how you manage the creation and supervision of all your agreements. A CMS involves your permissions, workflows, document storage, calendars and reminders, and anything else related to your agreements.

Given it’s the year 2022, a CMS typically involves digital processes and solutions. But the technology organizations use varies significantly.

What is the difference between contract management and CLM?

How the corporate world talks about contract management and CLM has evolved. Many professionals use the term “contract management” to mean manual processes to handle their organizations’ contracts. We’re talking spreadsheets, email chains, and paper files. Although, you might hear the term “contract mismanagement” nowadays.

CLM is a strategic approach to contracts involving some form of legal technology and more efficient workflows. However, professionals might use the terms contract management, CMS, and CLM interchangeably.

What is the contract lifecycle?

When transitioning away from manual contract management and into a more advanced CLM approach, you must consider each stage of the contract lifecycle. Your in-house team will want a smooth transition from one step to the next to speed up contract execution and mitigate the risk of noncompliance.

Here’s a broad overview of the contract lifecycle:

  • Initiation: The parties move forward with drafting and negotiating a contract.
  • Negotiations: The parties go through stages of redlining and negotiating the contract provisions. Contract creation and contract review usually involve several stakeholders and approvals.
  • Execution: When the parties finally agree to terms, they execute the negotiated agreement through an electronic signing method.
  • Storage: Each party must store the contract for their records in a secure yet accessible location.
  • Performance: Each party complies with their side of the bargain and monitors the other party’s actions. This stage can last months or years, and often requires the ability to quickly find, search, and review the contract provisions.
  • Reporting: Depending on the number and complexity of an organization’s contracts, being able to report on costs and compliance is important.
  • Amendments: In some cases, the parties negotiate addendums to their contracts.
  • Expiration: Eventually, the parties approach the end of the contract. They may benefit from an auto renewal, negotiate a new contract, or choose to part ways.

The disadvantages of traditional contract management

Historically, contract management was inefficient and time-consuming — plagued with manual processes, repetitive tasks, and spreadsheets. Without consistent internal workflows and standards, your contract provisions could vary drastically, complicating your compliance efforts.

While spreadsheets have their time and place, they offer little help for tracking compliance and renewals. They also lack any way to standardize provisions, extract structured data from contracts, or gain actionable insight from past agreements.

The purpose of CLM is to move away from this scenario and into a stronger position to comply with and enforce your agreements. You can get more out of your contracts with the right tools.

What is contract lifecycle management software?

CLM software enables parties to execute contracts faster and more efficiently by removing traditional barriers, such as emails and draft version confusion. A solution geared toward contract management offers visibility into the negotiation and drafting process. There’s less confusion as the agreement evolves from one version to the next. Approvals are simplified through notifications and electronic signature integrations.

Benefits of CLM software

  • Improved visibility, workflow, and collaboration
  • Increased predictability and consistency
  • Elimination of manual tasks
  • Creation of contract templates
  • Rules and permissions to enhance security
  • Better redlining and version tracking
  • Secure, centralized repository
  • Faster execution
  • Enhanced preparation for renewals
  • Robust reporting capabilities
  • Easy-to-track audit trails
  • Lower risk of noncompliance

Should your business use CLM software?

Whether your organization should use CLM software depends on its specific needs. If your business works with a high volume of contracts, it might benefit from legal technology that offers greater visibility, automation, and streamlined workflows. It may be possible to shave days or weeks off your average contract execution timeline with technology-enabled efficiency.

The more contracts your business handles on a regular basis, the more important it is to use tools available to oversee your agreements. CLM software that enables you to search contracts and generate reports can improve your compliance and enforcement efforts.

Questions to ask about your contract lifecycle process

In deciding whether you need to overhaul your contract management process, first identify and gather key stakeholders. Then, as a group, answer these questions:

  • Can you identify bottlenecks in your contract execution process?
  • Do you store your finalized contracts in a centralized and secure repository?
  • If a particular employee left, would you have trouble accessing executed contracts?
  • Do you have standardized contract provisions your employees know to use?
  • Do you have employees offering or negotiating non-standard terms?
  • Can you easily track which contracts will expire in the next 30, 60, or 90 days?
  • Can you easily identify which contracts will automatically renew?
  • Are you able to quickly identify the status of each contract?
  • Can you easily and quickly answer questions about a specific contract?
  • Has your business been on the receiving end of a dispute or lawsuit due to lack of compliance?
  • Can you easily track other parties’ performance with the contract terms?
  • Can you easily generate a report on your company’s duties and liabilities?

The group’s answers may lead your team to better recognize the strengths and weaknesses of your current contract management processes. If your answers highlight risks and liabilities, your team can move forward with defining your organization’s needs and researching CLM software.

CLM requires change management

Discussions surrounding CLM often focus on the technology. However, CLM also represents a shift in attitudes toward contract management. As of 2022, many businesses have distributed teams, which need and want better ways to collaborate, execute contracts, and mitigate risk. Professionals no longer accept manual and repetitive tasks when there are better options.

CLM involves improving processes to make the contract management process faster and less stressful for everyone involved. That might entail creating contract templates and standardizing provisions. It might include clarifying who has drafting authority and final approval. CLM software can help with these steps, but it won’t transform a company’s CMS alone. As a business, you have to plan and navigate change management for your teams.

Contract management isn’t ready for full automation

CLM software may include some forms of automation. That can be helpful. However, negotiating, overseeing performance, and enforcing contracts requires a human touch.

Many of your commercial contracts will vary slightly based on the other party’s requirements. While you might start contract creation with standard provisions, the final agreement could look a bit different, which affects your compliance efforts. It takes professional experience and insight to decide when to stray from your standard provisions.

How Ontra complements CLM software

Ontra is not a run-of-the-mill CLM platform. As a human-in-the-loop artificial intelligence (AI) platform, Ontra is a comprehensive and scalable solution for routine contract workflows. Our technology, combined with our expert legal network, goes beyond executing high volumes of routine contracts by offering Contract Automation and Intelligence. Through document processing and document automation, your organization can improve workflows, save time, and gather actionable data from hundreds or thousands of contracts.

Learn more about contract automation solutions from Ontra

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