Contract Lifecycle Management 101: What It Is and Why Your Business Needs It

What is Contract Lifecycle Management?

Contract lifecycle management or contract management streamlines contracts, from creation to renewal/termination. It lets you automate drafting, negotiate terms, manage approvals, monitor performance, & reduce risk with centralized data & e-signatures. Helping stay ahead, save time, & boost compliance.

Without a proper CLM system in place, businesses are more susceptible to errors, delays, and compliance issues.. See “CLM Readiness Checklist”

In today’s competitive business world, having an effective CLM system is essential. It enables organizations to optimize workflow, minimize errors, and enhance collaboration across teams. With proper contract management, businesses can improve negotiation outcomes, ensure contract compliance, and drive cost savings.

In this article, we will dive into the basics of Contract Lifecycle Management, explore its benefits, and discuss why your business needs it. Whether you’re a small startup or a multinational corporation, you have to make contract easier for your whole organization and those external entities that work with you. So let’s get started.

Understanding different types of contracts

Are you constantly juggling numerous contracts and struggling to keep track of their lifecycle? If so, you’re not alone. Many businesses face the challenge of managing contracts efficiently and effectively. That’s where Contract Lifecycle Management (CLM) comes in.

Understanding common types of business contracts

In the world of business, contracts are the foundation upon which agreements and relationships are built. These legally binding documents come in various forms, each serving a unique purpose and playing a vital role in commercial transactions.

“A contract is an agreement between parties, creating mutual obligations that are enforceable by law.

The basic elements required for the agreement to be a  legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

In some states, elements of consideration can be satisfied by a valid substitute.

Possible remedies for breach of contract include general damages, consequential damages, reliance damages, and specific performance.” 

— Legal Information Institute

From safeguarding sensitive information through Non-Disclosure Agreements (NDAs) to defining the terms of partnership in Partnership Agreements, understanding the different types of common business contracts is essential for sound business practices.

Here is an illustrative list of contracts that we may see in the normal course of business:

1. Non-Disclosure Agreements (NDAs): Legally binding contracts that protect sensitive information by prohibiting parties from disclosing or sharing it with third parties.

2. Employment Contracts: Agreements outlining the terms and conditions of employment, including salaries, benefits, job responsibilities, and termination clauses.

3. Vendor Agreements: Contracts governing the procurement of goods or services from suppliers, specifying terms like pricing, delivery, and quality standards. They also govern the supplier’s relationship.

4. Service Level Agreements (SLAs): Documents defining the expected level of service from service providers, including response times, performance metrics, and remedies for service failures.

5. Sales Agreements: Agreements detailing the terms of sales, including product specifications, payment terms, delivery conditions, and warranties.

6. Lease Agreements: Contracts governing the rental of real estate or equipment, specifying rental terms, responsibilities, and options for renewal or termination.

7. Partnership Agreements: Documents outlining the terms and conditions of business partnerships, including profit sharing, decision-making, and dispute resolution.

8. Licensing Agreements: Contracts granting permission to use intellectual property, such as software, patents, or trademarks, under specified terms and conditions.

9. Loan Agreements: Documents defining the terms of loans, including principal amounts, interest rates, repayment schedules, and collateral if applicable.

10. Franchise Agreements: Contracts granting individuals or entities the right to operate businesses under franchisors’ brands, detailing fees, support, and operational requirements.

11. Master Services Agreements (MSAs): Contracts that establish the terms and conditions for a long-term service relationship between a service provider and a client, including pricing, scope of work, and responsibilities.

12. End-User License Agreements (EULAs): Contracts that outline the terms under which software or digital products are licensed to end-users, including usage restrictions, warranties, and support.

13. Shrink-wrap Agreements: Contracts that come with software or hardware products and are accepted by the user by breaking a seal or opening the packaging, typically specifying terms and conditions of use.

14. Mergers and Acquisitions (M&A) Agreements: Contracts governing the merger or acquisition of companies, specifying the terms, conditions, and financial arrangements of the transaction.

Importance of contracts

The importance of contract lifecycle management for businesses

Managing contracts manually can be a daunting task, especially when dealing with a large volume of contracts and complex terms and conditions. Without a proper CLM system in place, businesses are more susceptible to errors, delays, and compliance issues. Here are some reasons why contract lifecycle management is crucial for businesses:

1. Efficiency: CLM streamlines the contract management process by automating repetitive tasks, such as contract creation, approval, and renewal. This eliminates the need for manual intervention, saving time and reducing administrative burdens.

2. Visibility and Control: CLM provides businesses with a centralized repository for storing and accessing contract documents. This enables stakeholders to have real-time visibility into the status, terms, and milestones of each contract. With a clear view of their contracts, businesses can make informed decisions, track performance, and ensure compliance.

3. Risk Mitigation: CLM helps businesses identify and mitigate potential risks associated with contracts. By tracking key dates, obligations, and performance metrics, businesses can proactively manage risks and take necessary actions to avoid disputes, penalties, or legal issues.

4. Cost Savings: CLM allows businesses to analyze contract data, identify cost-saving opportunities, and negotiate better terms with vendors or suppliers. By optimizing contract terms, businesses can reduce expenses, improve profitability, and maximize ROI.

Common challenges in contract lifecycle management

Common challenges in contract lifecycle management

While contract lifecycle management can bring significant benefits to businesses, there are also common challenges that organizations may face. These challenges include:

1. Lack of Visibility: Without a centralized CLM system, it can be difficult to have a clear view of all contracts, their status, and key milestones. This lack of visibility can lead to missed deadlines, compliance issues, and increased risk.

2. Manual Processes: Managing contracts manually can be time-consuming, error-prone, and inefficient. Manual processes can result in delays, data entry errors, and difficulties in tracking contract changes or updates.

3. Ineffective Collaboration: Contract management involves multiple stakeholders, such as legal, finance, and procurement teams. Without effective collaboration tools and processes, miscommunication and delays can occur, affecting the contract management process.

4. Limited Scalability: As businesses grow and deal with an increasing number of contracts, manual processes become increasingly challenging to handle. Without scalable CLM software, businesses may struggle to manage a large volume of contracts efficiently.

5. Lack of Standardization: Inconsistent contract templates, approval workflows, and processes can lead to errors, delays, and non-compliance. Standardizing contract management practices is vital for ensuring consistency and accuracy.

Key Components of a contract lifecycle

Key components of contract lifecycle management

Effective contract lifecycle management involves several key components that work together to ensure a seamless contract management process. These components include:

7 Phases of Contract Lifecycle Management

Contract Intake through Execution

This stage comprises of all the steps that a contract goes through from request until it is signed.

1. Intake Request: This stage allows anyone in the company to initiate a request to receive a contract. In some cases it could be a self service request. In others, it could be triaged and run through a particular process to start the contract creation process e.g. legal, sales operations, procurement.

2. Contract Creation: This stage involves the initial drafting and negotiation of the contract terms and conditions. CLM software often provides templates and workflows to standardize the contract creation process, ensuring consistency and accuracy.

3. Contract Negotiation: A contract will require multiple parties to provide input. Some of these parties might be internal such as finance, insurance, etc. In other cases it would be the counter party, outside counsel and such. Typical contract negotiations will require back and forth of discussion legal and business terms and exchanging contract redlines.

4. Contract Review & Approval: Once the contract is drafted, it goes through a review and approval process involving various stakeholders, such as legal, finance, and procurement departments. CLM software streamlines this process by automating approval workflows and facilitating collaboration among stakeholders.

5. Contract Execution & Storage: After approval, the contract is executed, and both parties involved sign the agreement. CLM software helps track and store executed contracts, ensuring easy access and retrieval when needed.

Contract Post-Execution

Post-execution steps involve activities that happen after a contract is signed. Typically, after execution the business parties involved are required to perform according to what they agreed on. In parallel, there are activities that are done to ensure performance and compliance against the contract.

1. Contract Monitoring & Performance: Throughout the contract lifecycle, it is essential to monitor key milestones, obligations, and performance metrics. CLM software provides dashboards and alerts to keep stakeholders informed about important dates, renewals, or deviations from the contract terms.

2. Contract Renewal/Termination: As contracts approach their expiration dates, CLM software sends notifications and reminders to stakeholders, allowing them to initiate the renewal process in a timely manner. This ensures continuity and avoids potential gaps or disruptions in business operations.

Benefits of implementing contract lifecycle management software

benefits of contract lifecycle management system

Implementing contract lifecycle management software can bring numerous benefits to businesses and functions of all sizes and types. Here are some key advantages:

  1. Close Deals Faster: Automate approvals and signatures with a CLM system, speeding up contracts and agreements.

  2. Stay Compliant, Stay Stress-Free: Track key dates and obligations with CLM, avoiding legal or financial hassles.

  3. Boost Your Bottom Line: Find hidden costs and negotiate better contracts with CLM, saving money and increasing profit.

  4. Collaborate Easily: Share documents and track changes seamlessly in a central platform, improving communication across teams.

  5. Ditch the Paper Chase: Access all contracts securely from anywhere with CLM, no more filing cabinets or lost documents.

  6. Never Miss a Sale: Close deals quicker and secure renewals with CLM’s automated alerts and e-signatures, maximizing customer value.

  7. Negotiate Like a Pro: Use pre-approved clauses and smart tools in CLM to create and negotiate strong contracts every time.

  8. Manage Suppliers With Ease: Standardize contracts, track performance, and stay ahead of risks across your entire network with CLM.

  9. Free Up Legal Minds: Automate routine tasks with CLM, empowering legal teams to focus on complex legal matters and strategy.

  10. Make Smarter Contract Decisions: Get deeper insights, manage risks proactively, and make data-driven decisions with CLM’s built-in AI.

  11. Manage relationships: CLM’s are a key tool to manage supplier/vendor relationships, client relationships, employee relationships, etc.

Research the vendor’s reputation and customer reviews to ensure they have a track record of delivering reliable, high-quality CLM solutions.

Getting value out of your contract lifecycle management

To overcome the challenges and maximize the benefits of contract lifecycle management, businesses should follow these best practices:

1. Centralize Contract Data: Implement a centralized CLM system to store and manage all contract-related information. This ensures easy access, visibility, and control over contracts, reducing the risk of errors and non-compliance.

2. Standardize Contract Templates: Develop standardized contract templates to ensure consistency and accuracy in contract creation. Templates should include predefined clauses, terms, and conditions that align with legal and regulatory requirements.

3. Automate Approval Workflows: Use CLM software to automate approval workflows, ensuring efficient collaboration among stakeholders. This streamlines the approval process, reduces bottlenecks, and improves overall efficiency.

4. Implement Contract Monitoring: Regularly monitor and track key milestones, obligations, and performance metrics throughout the contract lifecycle. CLM software provides dashboards and alerts to keep stakeholders informed and enable proactive contract management.

5. Train and Educate Employees: Provide training and education to employees involved in the contract management process. This ensures they understand the importance of contract management and follow best practices to maximize efficiency and mitigate risks.

6. Integrate with Business Systems: Contracts are business documents therefore connecting CLM to the business system will bring more value to the business. For example, connecting CLM to the source to pay process will help procurement keep an eye on their contractual obligations. Similarly, connect the CRM to the CLM will help the sales team monitor their upcoming renewals, price increases, and such.

Choosing the right CLM

How to choose the best contract lifecycle management solution for you

Here are 6 criteria to choose the best contract lifecycle management solution for your business:

1. Ease of Use: Look for user-friendly CLM software that is easy to navigate and requires minimal training. Intuitive interfaces and workflows ensure quick adoption by employees.

2. Integration Capabilities: Ensure the CLM software can integrate with your existing systems, such as CRM, ERP, or document management software. Seamless integration eliminates data silos and enhances overall efficiency.

3. Artificial Intelligence (AI): There is no silver bullet here. There are vendors in the market that do moderately well to excellent in recognizing clauses and data points for coding executed contracts. Others can also do first party template to third party paper comparison. Some have even started demonstrating redlining for particular types of contracts. However, the results are all over the place. So, leverage someone who has expertise with these vendors or conduct a proof of concept for a good fit.

4. Customizability: Choose a CLM solution that allows customization to align with your business’s specific contract management requirements. This ensures flexibility and scalability as your business grows.

5. Security and Compliance: Verify that the CLM software provides robust security features, such as data encryption, access controls, and audit trails. Compliance with industry standards and regulations is crucial for protecting sensitive contract data.

6. Vendor Reputation: Research the vendor’s reputation and customer reviews to ensure they have a track record of delivering reliable, high-quality CLM solutions. Request demos and references to evaluate their capabilities.

Implementing CLM

Implementing contract lifecycle management in your business

Here are the 6 best practices in implementing contract lifecycle management:

1. Assess Your Needs: Identify your business’s contract management pain points and requirements. Determine the key features and functionalities you need in a CLM solution.

2. Research CLM Software: Explore different CLM software options available in the market. Evaluate their features, pricing, and customer reviews to shortlist the most suitable solutions.

3. Request Demos: Contact the shortlisted vendors and request demos of their CLM software. Evaluate how well the software aligns with your requirements and whether it meets your business’s needs.

4. Pilot Testing: Select a few contracts or a specific department to pilot test the CLM software. This allows you to assess its effectiveness and gather feedback from users.

5. Rollout and Training: Once the pilot testing is successful, roll out the CLM software across the organization. Provide comprehensive training to employees to ensure they understand the software’s functionalities and best practices.

6. Continuous Improvement: Regularly review and assess the effectiveness of your CLM system. Gather feedback from users and make necessary adjustments or enhancements to optimize the contract management process.

But, wait, before you get there.. Here is a pre-flight checklist..


CLM Readiness Checklist

Before you undertake the contract lifecycle implementation process here are some steps that will help you get ready.

Stakeholder-Buy-in

  • Identify Key Stakeholders: Identify the key stakeholders involved in the CLM implementation process.

  • Communicate the Vision: Clearly communicate the vision and benefits of the CLM system to gain stakeholder support.

  • Create a Stakeholder Engagement Plan: Develop a plan for engaging with stakeholders throughout the implementation process.

  • Address Concerns: Be prepared to address concerns or objections from stakeholders and provide solutions.

  • Highlight Value Proposition: Emphasize how the CLM system aligns with the organization’s strategic goals.

  • Provide Training and Resources: Offer training and resources to help stakeholders understand the system’s capabilities.

People Readiness

  • Skills Assessment: Assess the current skill set of team members and identify gaps in contract management knowledge.

  • Training Needs Assessment: Develop a comprehensive training plan covering CLM system use, best practices, and compliance requirements.

  • User Roles and Responsibilities: Define clear roles and responsibilities for contract management team members.

  • Change Management: Implement a change management strategy to address potential resistance to new processes and tools.

  • User Feedback Mechanism: Establish a mechanism for users to provide feedback and suggestions.

  • Champion Network: Identify and empower CLM system champions within the organization.

Process Readiness

  • Process Evaluation: Conduct a thorough evaluation of existing contract management processes.

  • Process Mapping: Map out ideal contract management processes to be supported by the CLM system.

  • Standardization: Standardize contract templates, approval workflows, and compliance checks.

  • Automation Opportunities: Identify opportunities for workflow automation within the contract lifecycle.

  • Data Migration: Plan for the migration of existing contract data into the CLM system.

  • Integration Strategy: Determine how the CLM system will integrate with other systems.

  • Performance Metrics: Define key performance indicators (KPIs) to measure process effectiveness.

  • Documentation: Create clear documentation of updated contract management processes and procedures.


Contract Lifecycle Management System vs Enterprise solutions

In an established working environment, you may already have enterprise systems that may look and feel like a contract lifecycle management system. Each department such as HR, IT, legal, procurement, sales, real estate, business development, and facilities may also have additional systems.

While, everyone may be conducting business and managing their contracts using some form of technology they may not be using the best solution to accomplish what we have covered earlier in this article.

In this exploration of contract management options, we’ll highlight key pros and cons to help you make informed choices.

1. Document Management Systems (DMS): DMS is adept at storing and organizing documents, including contracts, with basic collaboration features. However, it lacks advanced contract management capabilities such as automated workflows, compliance checks, and detailed contract analytics. For example, DMS may not efficiently automate approval processes, potentially causing delays.

2. Spreadsheets and Manual Tracking: While cost-effective, spreadsheets and manual tracking can be error-prone and lack automation. Managing a large volume of contracts using these methods may lead to inefficiencies, especially in contract approval workflows.

3. ERP (Enterprise Resource Planning) Systems: ERP systems manage various business operations, including basic contract management features. However, they lack specialization in contract management and may not offer advanced contract tracking and comprehensive compliance checks.

4. CRM (Customer Relationship Management) Systems: CRMs excel in managing customer relationships but are unsuitable for complex contract management. They lack advanced procurement workflows, legal compliance checks, and detailed contract analytics, posing challenges for handling diverse contracts.

5. Email and File Sharing Platforms: Email and file sharing platforms facilitate communication but lack structured contract management features. Organizing, tracking, and reporting on contracts can be challenging, impacting contract approval workflows and compliance management.

6. Custom-Built Solutions: Custom solutions offer tailored features but come with high development and maintenance costs. They often lack scalability and may become obsolete, posing long-term challenges compared to dedicated Contract Lifecycle Management (CLM) systems.

Conclusion - future of CLM

Conclusion: The future of contract lifecycle management

In conclusion, contract lifecycle management plays a vital role in efficient contract management and business success. By automating and streamlining the contract management process, businesses can save time, reduce risk, and improve compliance.

With the right CLM software, organizations can enhance collaboration, optimize workflow, and drive cost savings. As businesses continue to grow and face increasing contract volumes, having an effective CLM system becomes even more critical. Invest in the right CLM solution for your business and unlock the benefits of streamlined contract management.


References and Additional Resources:

  1. Contract (definition), Legal Information Institute – Wex Toolbox, Cornell Law, https://www.law.cornell.edu/wex/contract

  2. Digital contract management as an enabler, Kirk Samson and Marc Lessem, Excellence Journal, WorldCC.

  3. Document Management, Contract Management, Records Management, and Knowledge Management Systems: What Are They, What Do they Do, and What are the Differences?, Danish Butt, Association of Corporate Counsel.

Disclaimer: This article is provided for educational and information purposes only. Neither Swiftwater & Co. or the author provide legal advice. External links are responsibility and reflect the thinking of their respective authors – those are provided for informational purposes only.

Danish Butt
Danish Butt

Danish is a visionary leader with 20+ years in transforming global enterprises. An advisor to chief legal officers, he excels in merging business growth with strategic vision and risk management. His impactful roles at Huron Consulting, Siemens, and Morae Global highlight his diverse expertise