Contract lifecycle management
What is contract lifecycle management (CLM)?
Contract lifecycle management is the end-to-end process, from contract creation through to renewal or expiry, of all of an organisation’s legal documents.
What does CLM stand for?
CLM is defined as contract lifecycle management. As with most corporate jargon, whilst this appears to be an abstract form of legalese (who knew contracts have lifecycles?), it is actually a fairly intuitive concept. It effectively describes the various stages a legal agreement goes through, from inception through to renewal or expiry. We will cover these stages in-depth below.
Before doing so, it’s important to explain that - regardless of whether your organisation devotes any time, effort, or resources to contract management at all - if it has dealt with any legally binding agreements, it has participated in the process of contract lifecycle management. Now, why is that relevant?
Why is contract management important?
Understanding that contract lifecycle management is already part of your business operations, even if informally or without a CLM system in place, is crucial because it highlights potential risks and inefficiencies. Without a structured framework or contract management solution, contracts can become disorganised, obligations can be overlooked, and valuable opportunities for renegotiation or optimisation can be missed.
Formalising CLM practices ensures that your organisation isn’t just managing contracts reactively, but instead leveraging them as strategic tools to reduce risk, improve compliance, and maximising value throughout their entire lifecycle. In other words: whilst a business may fail for any number of reasons, there simply does not exist a successful business without solid contract management processes.
What are the six stages of contract management?
Now that we’ve defined contract lifecycle management and acknowledged the importance to a thriving business, let’s cover the various stages in more detail.
1. Initiation and planning
Fundamentally, this stage covers any period of interactions between parties that culminates in the need for a legal agreement. Contract lifecycle management, therefore, begins before pen ever goes to paper. The initiation and planning phase is important in establishing a common desire for collaboration, the intentions and expectations of both parties, which a contract will ultimately formalise.
2. Drafting and creation of contract
This phase will look very different depending on the scope and scale of the agreement. Whereas some contracts are highly customised (think M&A deals, or complex restructurings) others follow fairly standard template-based terms. It can often be desirable to reuse the same terms because they lead to predictability and standardisation amongst stakeholders. Typically, a template-based CLM system thrives in the second scenario; think employment agreements or NDAs in-line with pre-approved reviews from legal representatives. Automation tools can expedite this stage by providing templates and collaborative editing features.
3. Negotiation of terms
This is where parties discuss and amend the contract terms to reach a mutually beneficial agreement. The negotiation stage may involve multiple rounds of revisions, redlining, and legal review to ensure that all terms are agreed upon before proceeding. Surprisingly, many companies still use e-mail and microsoft word to negotiate contract. This can lead to multiple parallel sources of truth that live in different systems, making the process sensitive to changes and mistakes. A dedicated CLM software system can radically streamline negotiations, and subsequently help stakeholders find common ground. You would be right to assume that parties do not enter into agreements that are not mutually (and distributively) beneficial, and so utilising a CLM tool in procurement, human resources, and real estate discussions is a direct enabler of value-add to all parties involved.
4. Approval of final contract
The contract goes through an internal approval process involving relevant stakeholders, such as legal, finance, and compliance teams. Whilst this process may be simple in small orgs (requiring only one or two stakeholders to sign-off), the complexity of these approval flows can become unmanageable without a CLM tool in larger enterprises. Bottlenecks - we’ve all come across them. Automated workflows streamline this stage by routing the document through the appropriate channels based on predefined rules. Importantly, they a good CLM software will leave a complete audit trail of all exactly what form of a document has been signed off, and by who. This is key in revisiting business decisions and compliance, months and years down the line.
5. Contract execution and adding to contract repository
After approval, the contract is signed by representatives of all parties, making it legally binding. This can be done using electronic signature platforms like DocuSign, Adobe Sign or Docfield, which also ensure secure storage and authentication of the contract. At this point, it is important to add the final (or, executed) version of the contract to your document management system, or contract repository. This can be as simple as Microsoft Sharepoint, Google Drive, or dedicated CLM repositories like Docfield and Icertis. The fact that contracts have been version-controlled, and the executed version is ready to hand makes it very easy to ensure you’ve got the correct version at all stages.
6. Compliance monitoring and contract renewal
Post-execution, organisations must track obligations (fancy word for: ensure they are operating in compliance with the agreement), monitor performance (for example, up-time SLAs for key systems), and ensure compliance with the agreed terms. As the contract nears its end date, businesses decide whether to renew, renegotiate, or terminate the agreement.
