Wondering what are the steps in a contract lifecycle management?
You are the right place.
In this article, we will look at seven steps in the contract lifecycle management leading from the contract initiation to the renewal or expiry of the contract. An effective contract lifecycle management can help your business accelerate your contract closing cycles, improve your contract workflows and allow your business to focus on closing deals as opposed to getting bogged down by long and tedious administrative delays.
In this article, we will look at:
- Contract templates
- Contract creation
- Contract review
- Contract approval
- Contract execution
- Contract performance
- Contract expiry
- Contract lifecycle management takeaways
Let’s get started…
1- Contract templates
The first step in your contract lifecycle management process is to look at your contract templates and ensure you have a good contract template library in place serving your business units.
To increase your overall contracting speed, you’ll need to curate a solid contract template and inventory so your business stakeholders can pick and choose the relevant contract for their business needs easily and at any point in time.
Through a contract template, you will have the contract terms and conditions vetted and pre-approved thereby minimizing the risk of contracting undesirable contractual obligations.
By ensuring that your business stakeholders constantly access the latest contract template, you will also ensure that they will use the latest version of the contract incorporating any ongoing modifications and updates .
Your organization’s template library can help you accelerate your contracting cycle and close your deals faster.
2- Contract creation
Contract creation is the step where an actual contract is drafted as required for a particular business transaction.
The contract creation is the second phase in your contract management steps.
If you are selling a software solution, you will want to draft your software license agreement, end user license agreement or subscription agreement. No matter the contract you need, at the creation stage, you’ll need to put together the right contractual framework for the intended business transaction.
A good and streamlined contract creation process will help you save a lot of time and energy.
3- Contract review
As your contractual negotiations advance, you must remain on top of the ever evolving terms and conditions. Your contract review step will help you mitigate business risk and achieve your commercial objectives as you progress in your contract lifecycle management.
Dealing with a simple contract is not too big of a deal.
On the other hand, when you are dealing with complex contracts with many terms and conditions each affecting a different business unit, an amazing contract review process will shine through.
In this contract review step, you want to ensure that you read the contract in full and grasp its entire scope.
If you are using your company’s template, this exercise will be much easier.
If you are using your client’s paper, then you’ll need to carefully read through your contract and extract all the terms and conditions important to flag.
You want to ensure that your contract review step will help you identify the contractual obligations that align with your company’s policies and those that do not.
Ultimately, you should draw a table or a review grid where you outline the result of your contract review in terms of commercial terms, products and services, obligations and so on.
4- Contract approval
You are now at the contract approval step, the fourth step in your contract lifecycle management.
To lead to this step, you have hopefully used your company’s contract template, incorporated the variable elements into the draft such as the commercial terms, client name and any particular clauses needed, and you went through a thorough review to ensure that you fully understand the scope of your contract.
It’s time now to get it approved by your business.
Every organization will have a different approval process, so this step will be either quick or more involved.
For instance, a start-up organization may directly send the contract to its CFO, a founder or CEO directly for vetting and approval. Quick and fast.
On the other hand, a mature international Fortune 500 organization may have a unique approval process per product line, region or other metrics.
No matter the process, you need to be agile and execute fast.
There is no reason why the approval process should delay your company in closing deals. The more time you lose, the more you can expect that your competitors are taking advantage of that time.
Make sure the right stakeholders approve the deviating terms and conditions of your contract and ensure that those approvals are tracked and recorded for future reference.
5- Contract execution
Contract execution is such an exciting step in your contract lifecycle management! Maybe you will even open a bottle of champagne, a good one!!
This is where your hard work gets materialized. You now have a real and concrete signed contract in your hands.
This step can be handled traditionally, fully digitized manner or anywhere in between.
Many countries now readily recognize electronic signatures as valid and contractually binding.
A very famous platform is DocuSign allowing companies to digitize their contract execution process. In this manner, you can define a contract execution workflow and let the platform seek the needed signatures.
Having used electronic signature platforms for a long time, we consider that they must be a staple tool in any legal department operation, companies and firms.
The other way the execution process can be handled is through traditional means.
One party will print and sign the contracts in ink and mail them to the counterparty for signature. This process will take much longer to complete and you may lose your documents in transit! That’s how things were done for a long time and are still done in some parts of the world.
Nonetheless, some countries in Europe and Latin Americas require a contract to be formalized through original ink signatures.
So make sure you understand the legal requirements of the country in which you are signing so your contract can acquire a legally binding effect.
6- Contract performance
After you’ve signed your contract, it’s time for real business to be done, we are now in the contract performance step of your contract lifecycle management process.
You’ve gone through an entire negotiation cycle with your client and now it’s time to deliver on your obligations and in return expect your client to deliver on its obligations.
Tracking the life of a contract is important to ensure you are offering your services in compliance with the terms of your contract and applicable laws.
The goal is for your company to deliver on its contractual obligations but not leave money on the table by failing to claim it’s entitlements or giving more than was negotiated. Your company will need to find the right balance.
In the course of the execution of your contractual obligations, you can go through amendments, addendums, revisions or any other form of modification.
This is both healthy and normal.
If you handled your contract lifecycle management steps properly, you’ll have a good understanding of your contract without having to read the whole thing over and over again every time there is a modification needed.
You should have a term sheet where you track the main obligations of your contract and all the applicable amendments.
At any point in time, when you look at your contractual relationship with a client, you must know exactly what obligations you are bound to.
7- Contract expiry
Every contract will one day come to an end and expire leading us to the final step in the contract lifecycle management, contract expiry.
Your contract can expire with the passing of time or based on an event triggering a termination clause.
Perhaps you can terminate the contract for convenience or perhaps there is a termination for cause.
Whatever the case may be, you must manage the expiration and termination process adequately.
If your contract is scheduled to expire, you should have reminders and alerts in place to remind you that the expiry is coming up. This way, you can assess if you need to renew the term of your contract or let it expire. Maybe your contract has an automatic renewal provision and to terminate it, you’ll need to give a notice.
Stay on top of it.
If you trigger the termination through the exercise of a contractual right or clause, you’ll need to have a proper process in place to track your post-termination obligations.
For example, your organization and business units must cease rendering services, shipping products or ordering inventory while the contract is terminated.
There must be a level of coordination that will allow your company to ensure it exercises its contractual rights and remedies without doing something in parallel to compromise its rights.
If you are terminating for cause or feel that you may be engaged in a legal battle or litigation, you’ll want to put a legal hold on activities related to that particular client or entity.
This is a compliance obligation that you must observe and you could achieve that through a solid contract lifecycle management process.
8- Contract lifecycle management takeaways
The successful handling of each step in your contract lifecycle management is crucial to ensure your business closes deals fast and mitigates risk.
Every step of the contract lifecycle management can be optimized through process improvement and workflows.
Have a look at your organization’s contracting process and see how you are handling each of the steps we’ve outlined in this article.
We hope that this article gave you a better understanding of the formal steps in a contract lifecycle management.
What can you change? What can you improve? Do you have a bottleneck in this process? We would love to hear from you. Drop us a comment.