Contract Lifecycle Management
Contract Lifecycle management CLM is the systematic process of managing contracts from initiation and creation through execution, performance, renewal and eventual termination or expiration. Effective CLM allows companies to streamline their contract-related activities, reduce risks, ensure compliance and optimize the value derived from contractual agreements. It also promotes transparency and accountability in contract-related activities.
The Contract Lifecycle Management starts with the Contract Initiation where the needs for a contract are identified and assessed. Based on the assessment, the contract process is initiated by capturing the contract requirements and objectives.
The contract authoring and creation then takes place where the contract terms, conditions and specifications are drafted while proper communication is held among stakeholders, including legal, procurement, and business teams. This collaboration is crucial during the negotiation and drafting phase for the review and refinement of the contract terms.
Once the legal and compliance review is finalized ensuring that the contract complies with the relevant laws and regulations and that the legal concerns or risks are addressed, internal approvals are obtained. The contract is executed by obtaining signatures from all involved parties, either through physical signatures or electronic signature solutions (reducing delays and enhancing security). All versions and amendments of executed contracts are stored in a centralized, secure and organized digital repository for easy access and retrieval.
Contract Compliance and Obligations Management is critical for any business. The performance should be continuously monitored and tracked against contract obligations and milestones including delivery schedules, quality standards and service levels to ensure compliance and contracts should be regularly audited to ensure compliance with agreed-upon terms and conditions, regulations and organizational policies; Potential risks associated with non-compliance contract should be identified and mitigated and key performance indicators (KPIs) should be established to allow the measurement of the performance of contracts and service-level agreements. Communication between parties should be fostered in order to address issues, changes or disputes promptly and automated alerts and notifications should be implemented to keep track of important dates and obligations, such as renewal, termination and milestone deadlines.
An efficient compliant minimal risks contracts management
If changes to the contract are required, amendments should be made with a proper management of the process of drafting, negotiating and executing amendments through formal amendment processes. Similarly, if circumstances change, renegotiation of the contract terms should be undertaken with the consent of all parties.
Before deciding whether to renew, renegotiate or terminate a contract, an appropriate evaluation of the performance and terms of the contract should be done and key dates should be tracked. Based on the assessment and planning, proper notifications should be provided to the other party in advance of contract expiration or termination. Renewal processes should be initiated proactively to prevent lapses in services or agreements and when a contract reaches its conclusion, all obligations should be fulfilled and assets should be returned or transferred as specified in the contract.
Expired contracts and associated documents should be archived for future reference and potential legal requirements and retention policies should be established in compliance with legal requirements and organizational needs.
Analytics and reporting are essential for a CLM’s continuous improvement. Data performance analysis uses contract data to generate insights and to analyze contract performance, financial impact, compliance, vendor relationships and risk management; the evaluation of the performance of suppliers or vendors inform future contract negotiations and decisions while reports and dashboards inform decision-making and strategy. Feedback, lessons learned and industry best practices can be solicited from contract stakeholders to identify areas for improvement in the contract management process and comparison of contract management practices with industry benchmarks allow efficiency and effectiveness. Finally, integrating the CLM software or systems with other enterprise applications, such as procurement, finance, and CRM systems, allow seamless data sharing. This process optimization of the CLM process increases efficiency and reduces risks.
