CPM/U1 Topic 4 Contract Management Process Cycle
Every contract has a lifecycle, from drafting to utilization to expiration. Businesses using outdated manual contract management processes may wonder, “What is contract lifecycle management, and how can it help my business?” Contract lifecycle management, or CLM, streamlines management of each contract, making it easier for companies to deal with tens to thousands of vital contracts that affect their business and could expose them to risk. Managing one contract may be simple enough, but as contract portfolios grow, managing every stage of every contract becomes extremely difficult and ultimately, truly impossible to do well. That’s where contract lifecycle management, or CLM, comes in.
Contract Management Process Cycle (CLM) increases revenue and reduces expenses by:
- Improving accuracy and decreasing errors through automatic contract generation, use of intuitive artificial intelligence, and elimination of repetitive tasks
- Protecting contracts and processes through software storage, eliminating risk of lost contracts because of theft or destruction of physical assets like hard drives and paper and ink
- Employing centralized organization that makes contracts easier to keep track of, eliminating timely and complicated email chains that are ripe for error, and getting approvals from the right people more quickly
- Improving visibility and predictability into issues or roadblocks
- Getting contract renewals executed on time through increased reliability
With a contract lifecycle management system like Exari, contracts are drafted in minutes instead of hours or days. Effective CLM gives businesses an edge as they save time and eliminate hassle as accuracy and contract service improves.
9 Essential Steps of Contracting
Before you decide to manage the lifecycle of your business contracts, you need to understand exactly what that lifecycle looks like. Everyone knows that a contract needs to be drafted, negotiated, and signed, but that’s only a small part of a larger story.
For a company to fully unlock the value of their contracts, they need to know and incorporate these nine essential steps into every agreement.
The lifecycle of any contract typically begins with a request from the business, describing what they need for some project or deal. The challenge is to make the request process simple and intuitive, collecting the right information to guide people quickly to the appropriate paperwork, whether it’s a complex purchase order or a simple NDA. With a fast and easy request process, the risk of rogue deals — and risky terms — is dramatically reduced.
To create new contracts, amendments, purchase orders, and more, your team needs to draft one or more documents based on approved templates and clauses. For complex or risky deals, the creation of documents is typically handled by contracts professionals and other experts. For simpler deals, people in the business may prefer a fast, self-service option for creating their own documents. And, in many scenarios, automated wizard-based document assembly will deliver better quality documents much faster than manually drafting in Word.
Depending on risk, value, and other factors, most enterprises have rules about who must approve each contract. These rules are typically defined in a “delegation of authority” and shared with everyone who needs to know. In some cases, the rules may be baked into a workflow process which prevents the release of documents while an approval task is pending. In other cases, ad hoc approval tasks may be recorded for audit trail and compliance purposes, but with fewer controls and more flexibility for individual users.
Most businesses will negotiate the terms of larger deals, to balance the contractual allocation of risk against the value and importance of the deal. Negotiations may cover commercial or legal terms, and may touch many different people on either side of the transaction. Throughout the process, negotiators may leverage a variety of tools, including playbooks with preferred and fallback positions, clause libraries, document redlines and comparisons, and issue lists.
To close any deal, each party must sign the final agreement. This may be achieved by wet signature on a paper document, or by digital signature on an electronic document. When all signatures are complete, the final executed contract is exchanged and retained by each party as the golden record of their agreement.
For complete insight into a contract portfolio and contractual risk, it’s essential to capture all relevant documents in a central system, and to capture structured, machine-readable data from those documents. This may include robotic “discovery” of contractual documents scattered across internal systems, automatic OCR conversion and clean-up of imaged documents into text, robotic extraction of data using AI and machine learning techniques, and human review for quality assurance and high-complexity scenarios.
The most immediate challenge for any active contract is to comply with its various contract obligations and commitments. Failure to satisfy a performance, payment, reporting, or credit support obligation will likely trigger a contractual breach, with the risk of termination and exposure to substantial liabilities. Perhaps worse, contractual and regulatory compliance failures can cause serious brand damage.
Beyond compliance, an enterprise must manage the rights, renewals, amendments, and relationships defined throughout its contract portfolio. Automated tracking and alerts can eliminate the high cost of missing an important right or contract renewal. And for effective management of customer and vendor relationships, contractual data must often be linked to performance data and external reference databases.
With more data, and improved insight into contractual terms and performance, a business can optimize its portfolio for better value, lower risk outcomes. For high performance contract teams, the goal is a continuous feedback loop between the contract portfolio and business performance. If, for example, the data shows that certain negotiation issues consume a large chunk of time, but yield no measurable difference in risk or performance, you may tweak the playbook to remedy those issues quickly.