Contract Lifecycle Management Best Practices

In this article I explore essential contract lifecycle management best practices.

We will discuss how contract lifecycle management (CLM) is a systematic approach that streamlines every stage of contract creation, contract negotiations, and execution, enhancing an organization’s efficiency.

Along the way, we will cover the best practices that will help improve your CLM processes, such as using automated contract management solutions, and tackle common challenges that may arise.

Understanding CLM can transform how your organization handles contracts, driving efficiency, compliance, and improving contract monitoring.

What is Contract Lifecycle Management (CLM)?

Contract Lifecycle Management (CLM) refers to the process of managing contracts from their creation through to execution, renewal, or termination.

By implementing contract lifecycle management best practices, organizations can minimize risks, reduce delays, and ensure compliance throughout the contract lifecycle.

The lifecycle typically consists of key stages: intake request, contract creation, contract negotiation, review and approval, execution and storage, monitoring and performance, and renewal or termination.

Each stage benefits from streamlined processes that improve efficiency and contract performance.

The term CLM is often associated with dedicated software systems that automate workflows, standardize procedures, and enhance contract visibility.

These tools help legal and business teams improve productivity, foster stronger business relationships, and optimize contract performance.

Why are CLM best practices important for businesses?

Implementing contract lifecycle management best practices is essential for organizations aiming to enhance their contracting maturity.

By integrating such practices, businesses can ultimately drive efficiency and boost profitability.

Key benefits of adopting CLM best practices include:

• Risk Mitigation: Reducing risks associated with missed deadlines and managing legal compliance, protecting the organization from potential penalties.
• Value Maximization: Extracting maximum value from contracts through better negotiation and management.
• Streamlined Workflows: Automating and optimizing workflows reducing administrative burdens and enhancing operational efficiency.
• Enhanced Communication: Improving collaboration between legal and commercial teams fostering clearer communication and alignment on contracting goals.
• Performance Tracking: Utilizing effective reporting tools to track performance metrics supporting obligation management and identifying potential risks early.
• Improved Contract Visibility: Reducing time spent searching for documents minimizing delays and avoiding missed deadlines.
• Efficient Renewal Processes: Streamlining contract renewals facilitating timely renegotiations and leading to better outcomes, driving overall efficiency and profitability.

What are the best practices for each stage of Contract Lifecycle Management?

The key stages of Contract Lifecycle Management (CLM) are essential steps that guide the process of managing contracts and each phase can be optimized using best practices.

Implementing contract lifecycle management best practices will ensure that every phase—such as contract intake request, contract creation using contract templates, strategic negotiations, review, approval workflows, execution, and secure contract storage—is executed with precision.

Contract Intake Request

The contract intake request stage is the initial phase of the contract lifecycle management process, where new contract requests are gathered and assessed for alignment with business objectives and compliance standards.

Implementing contract lifecycle management best practices at this stage ensures that the foundation for effective contract management is established.

To effectively manage this crucial phase, organizations can utilize automated tools, including legal service request portals and enterprise contract management solutions.

These tools streamline the submission and collection of requests, enhancing accuracy and efficiency.

Creating a standardized intake form is essential, as it ensures that all necessary information is captured upfront, facilitating smoother processing.

This intake process is then followed by routing the contract request through structured approval workflows, which include defined roles and responsibilities.

Implementing a clear process not only aids in tracking requests but also significantly boosts efficiency and business policy compliance.

It enables consistent evaluations and quick routing of requests to the appropriate personnel, reducing delays.

By adhering to these contract lifecycle management best practices, organizations can minimize bottlenecks and enhance overall operational effectiveness.

Contract Creation

Contract creation involves drafting contracts using standardized contract templates and playbooks laying the groundwork for successful negotiations.

Implementing contract lifecycle management best practices during this stage helps standardize the process and guarantees that critical components are consistently addressed.

Using these pre-agreed best practice templates and playbooks not only streamlines contract creation but also aids businesses in mitigating risks.

To enhance the effectiveness of these practices, it is essential to regularly update clause libraries, templates and playbooks to reflect current laws and organizational needs.

Additionally, providing training for employees on how to effectively use these templates and understand their implications fosters better compliance and efficiency in contract creation.

The contract creation stage contract lifecycle management best practices, help create robust contracts that drive expected outcomes.

Contract Negotiation

Contract negotiation is a critical phase that involves strategic discussions between parties to finalize terms.

Implementing contract lifecycle management best practices during this phase fosters long-term relationships, ensures that all contractual obligations are met, and nurtures commercial partnerships.

Mastering the art of negotiation can often determine the success or failure of these commercial relationships.

It is essential for all parties involved to recognize that effective communication skills and collaborative approaches are crucial for navigating complex discussions.

Leveraging technology, such as negotiation software, can streamline this process by promoting transparency and efficiency.

While most contract workflow software offers features to route and track negotiations, many do so primarily through redlining contract drafts back and forth.

Here are some tips for successful negotiation:

• Clear Communication: Establish open lines of communication throughout the negotiation.
• Collaborative Mindset: Focus on mutual gain rather than competitive positioning.
• Utilization of Technology: Use tools to enhance organization and visibility.

While negotiation is an art, the science can be managed through implementing the above mentioned contract lifecycle management best practices during this phase.

Review and Approval

The application of contract lifecycle management best practices in prior phases has a significant impact on the review and approval stage.

Established review and approval workflows facilitate timely decision-making, ensuring that contracts are executed and signed without unnecessary delays.

Contract review paths can be determined based on the information provided or aligned with business policies.

Typical enterprise contracts often need to be routed through multiple business functions, including legal, commercial, finance, and compliance.

Depending on the nature of the contract, additional reviewers or approvers such as HR, insurance, facilities, or customer service may also need to be included in the review process.

Once the internal and external review processes are complete, the contract workflow transitions to obtaining official approvals.

This stage may require the same parties who participated in the negotiation and review process to provide the final approvals.

The following best practices will help enhance your organization’s review and approval maturity:

• Establish Clear Roles: Define roles and responsibilities within the approval chain to ensure accountability.
• Utilize Technology: Leverage technology to automate review workflows, set reminders, and track progress efficiently.
• Conduct Regular Training: Provide ongoing training sessions for all team members to keep everyone informed and engaged.

Execution and Storage

Contract execution is the critical step where stakeholders formally agree to the contract terms, often facilitated by electronic signatures.

As a best practice, organizations should implement a designation of authority (DOA) process within their contract management systems.

Integrating the CLM solution with the enterprise system where DOA and staff hierarchy are stored allows contracts to be routed for formal approval based on established hierarchies.

This formalized routing ensures that the appropriate individuals have visibility into contracts and that only authorized personnel execute them.

One of the most effective contract lifecycle management best practices is enabling the CLM system to obtain electronic signatures through integrations with tools like DocuSign and Adobe Sign.

However, some situations may still require wet signatures, necessitating a flexible approach to document signing.

With the right tools, multiple parties can sign documents from anywhere, accelerating timelines and enhancing collaboration.

For long-term contract management, adopting best practices for secure contract storage is crucial. Companies should utilize a centralized repository that allows for efficient data retrieval.

In my experience, many organizations struggle to develop a proper centralized repository with an effective data model that addresses business needs.

Contracts are inherently fluid documents, often taking different formats even within the same organization.

Changing requirements over time can lead teams to either over-engineer or under-engineer their data models, rendering them ineffective.

Emerging technologies, like AI, offer valuable solutions for extracting insights from contracts, particularly in areas such as M&A, procurement, and sales.

For more on this topic, check out the webinar I hosted with Gary Wheeler, AI expert at Swiftwater, and Brendan Raybuck, CRO of Clearlaw.AI, where we discussed AI use cases for contract insights..

Above all, implementing data security measures, such as encryption and access controls, is essential to protect sensitive information.

Monitoring and Performance

Once contracts are executed, successful businesses adhere to contract lifecycle management best practices by prioritizing ongoing monitoring and performance assessment.

Effective monitoring can be challenging without a robust CLM repository and obligation management tool.

Focusing on performance metrics allows organizations to spot trends and anticipate challenges before they escalate into significant issues.

In addition to monitoring business and financial obligations, compliance monitoring is crucial as well.

Proactive management of contracts enhances an organization’s ability to navigate potential pitfalls, maximizing service delivery and contract value.

To continuously monitor contracts, organizations should conduct regular audits and reviews, providing a deeper understanding of contractual obligations.

Utilizing automated tools and AI can streamline the tracking of agreed upon milestones, making it easier to stay on top of important dates and requirements.

Integrating risk assessment frameworks – such as those for cyber risks – can also help highlight potential vulnerabilities within the contract lifecycle.

By implementing these set of contract lifecycle management best practices, organizations will get better oversight and performance of their contracts.

Renewal or Termination

The final stage in the contract lifecycle management process involves either contract renewal or termination.

Contract lifecycle management best practices emphasize the importance of reviewing contractual obligations and setting automated reminders through contract management tools to ensure timely decisions.

In this critical phase, organizations must conduct a thorough analysis of existing terms, performance metrics, and future needs.

Effective communication among stakeholders is essential, as it allows them to address any ambiguities or concerns that may arise.

Planning ahead not only facilitates smooth transitions during renewal or termination but also ensures compliance with legal requirements.

This includes implementing automated reminders to prevent missed deadlines that could lead to unfavorable consequences.

The best practice is to program these reminders weeks or even months in advance, allowing ample time for discussions and negotiations.

By embedding these practices into the contract lifecycle, organizations—whether in the private or public sector—can adopt a proactive approach that safeguards their interests and maintains healthy business relationships.

What are key overarching contract lifecycle management best practices?

Implementing contract lifecycle management best practices is essential for optimizing processes, guaranteeing obligation performance, ensuring compliance, and maximizing value throughout the contract lifecycle.

 

Establish Clear Contracting Processes and Procedures

Creating clear processes and procedures for each phase of the contract lifecycle is crucial.

Documented processes not only ensure compliance with regulations but also enhance organizational efficiency by providing a structured framework.

For instance, utilizing standardized templates during contract initiation reduces errors and facilitates tracking compliance with legal obligations.

Adopting frameworks such as Agile Contracting allows organizations to promote continuous improvement, enabling them to identify bottlenecks and optimize workflows.

Leverage Technology and Automation

Utilizing technology and automation is integral to effective contract lifecycle management.

Automated contract management solutions help reduce manual workloads and improve data security while ensuring compliance.

With tools like Onit, DocuSign, Adobe Sign, and Conga, organizations can automate reminders and track revisions, minimizing errors and bringing all parties into compliance throughout the contract lifecycle.

Advanced analytics and reporting capabilities also enhance oversight, enabling organizations to audit contract performance and manage risks effectively.

Foster Cross-Functional Collaboration

Cross-functional collaboration is vital for successful contract lifecycle management.

With nearly 25% of enterprise employees involved in the contracting process, fostering communication between legal and commercial teams is essential for achieving organizational goals.

Establishing clear communication strategies promotes teamwork and ensures alignment, while regular meetings and updates help address challenges and enhance collaboration.

This collaborative approach minimizes misunderstandings and streamlines processes, leading to a more effective contract lifecycle management.

Maintain Accurate and Organized Records

Accurate record-keeping is critical for effective contract lifecycle management, enabling compliance tracking and ensuring all contractual obligations are met.

Implementing a secure and centralized repository for contract storage streamlines management and protects sensitive information.

Key practices include establishing a standardized naming convention for quick document retrieval, utilizing metadata tagging for effective organization, and ensuring user access controls to protect confidentiality.

These practices improve efficiency in managing contracts and facilitate easier compliance tracking.

Regularly Review and Update Contracts

Regular reviews and updates of contracts are crucial for ensuring they align with current business needs and compliance regulations.

Periodic assessments allow organizations to adapt to changes in legislation and internal strategies, significantly reducing risks associated with non-compliance.

Updating contracts can clarify ambiguous terms and reinforce mutual understanding of obligations.

To achieve this, schedule assessments regularly—quarterly or bi-annually based on complexity—and utilize contract management software to automate reminders and track key dates.

By embracing these essential strategies for effective contract lifecycle management, organizations can enhance operational efficiency, mitigate risks, and strengthen relationships with stakeholders.

What are the Common Challenges in CLM and How to Overcome Them?

Common challenges in Contract Lifecycle Management (CLM) include lack of standardization, poor communication, and limited resources, all of which can hinder organizational efficiency and compliance with contractual obligations.

 

Lack of Standardization and Legal Templates

Lack of standardization prevent implementation of contract lifecycle management best practices and lead to inconsistencies, compliance issues, and increased risks.

Unique departmental procedures heighten the chances of errors, resulting in lost revenue and strained relationships.

In my experience, an inconsistent setup magnifies challenges, making standardization of processes, procedures, policies, and templates even more critical than automation.

Organizations must adopt standardized practices, especially for legal teams.

Implementing a centralized CLM system like Onit can streamline document creation and enhance overall efficiency, but it is the standardization that truly drives success.

Poor Communication and Visibility

Poor communication and lack of visibility in contract lifecycle management can lead to misunderstandings, missed deadlines, and ineffective compliance tracking.

These issues often result in contract disputes, increased legal risks, and missed opportunities for value creation or cost savings.

The ripple effects can impact vendor relationships, internal collaboration, and overall business performance.

Contract lifecycle management best practices emphasize designing processes with built-in visibility and strategic checkpoints.

Well-designed CLM processes incorporate clear stages, each with defined objectives and responsible parties, enhancing overall transparency.

Implementing regular milestone reviews and approval gates throughout the contract lifecycle ensures all stakeholders remain informed and engaged.

CLM software can amplify these process improvements by providing real-time status updates, automated notifications, and comprehensive audit trails.

By integrating visibility-focused processes with robust CLM tools, organizations can create a synergy that dramatically improves contract oversight and management.

This approach addresses communication gaps and enables proactive issue identification, fostering a more efficient contract management environment.

Limited Resources and Budget

Limited resources and budget constraints pose significant challenges to effective Contract Lifecycle Management (CLM), often forcing organizations to make difficult trade-offs.

Contract lifecycle management best practices emphasize strategic approaches that focus on process optimization and human capital development, even in resource-constrained environments.

This resource scarcity can lead to understaffed legal teams, overworked contract managers, and neglected contract oversight.

The resulting inefficiencies often outweigh perceived savings from budget cuts.

Prioritizing essential CLM activities allows companies to concentrate on high-impact areas that directly affect their bottom line and risk profile.

Organizations can implement lean contract management processes, eliminating unnecessary steps and focusing on value-adding activities.

Cross-training employees across different contract management functions can create a more flexible and resilient workforce.

Implementing a culture of continuous improvement in contract management practices can lead to incremental efficiency gains over time.

By leveraging these strategies, organizations can align their contract management efforts with budget limitations while still achieving significant outcomes.

This approach fosters a culture of efficiency and innovation in contract lifecycle management, turning a potential weakness into a competitive advantage.

Resistance to Change

Resistance to change is a significant hurdle in adopting Contract Lifecycle Management (CLM) best practices, often stemming from fear of new technologies and disruption of established routines.

Contract lifecycle management best practices emphasize a strategic approach to change management, focusing on education and demonstration of value.

Highlighting tangible benefits of CLM — processes, policies and tools — such as improved efficiency and enhanced compliance, can help alleviate fears and showcase value addition to existing workflows.

Engaging employees through comprehensive training sessions empowers them with knowledge and skills, boosting confidence in new CLM practices.

Implementing a phased approach to CLM adoption allows for gradual acclimation, reducing the shock of change and allowing for iterative improvements.

Creating an environment of openness and support encourages feedback and collaboration, making employees feel valued in the transition process.

By addressing resistance head-on, organizations can smoothly integrate CLM best practices, turning initial skepticism into enthusiasm.

Elevating Business Through Contracting Efficiency

Contract lifecycle management best practices are essential for enhancing efficiency, mitigating risks, and ensuring compliance with contractual obligations.

Implementing structured CLM approaches streamlines processes and facilitates better communication across teams.

Advanced CLM strategies improve contract oversight, leading to enhanced accountability and transparency throughout the organization.

Effective contract lifecycle management results in better risk mitigation, reduced operational costs, and increased productivity.

As businesses evolve, mature CLM practices become increasingly crucial for maintaining a competitive edge.

Organizations embracing innovative CLM solutions position themselves for success in dynamic markets.

Implementing CLM best practices optimizes business relationships, safeguards interests, and drives strategic value.

By prioritizing contract lifecycle management, companies transform contract handling from an administrative task to a powerful business growth tool.

In a volatile business environment mastering CLM is critical for organizational success and sustainability.

 

Contact us (Swiftwater & Company) to learn how our teams of in-house, contract managers, business process, and operational experts can help you implement contract management lifecycle best practices within your organization.

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Frequently Asked Questions

What are the key components of contract lifecycle management best practices?

The key components of contract lifecycle management best practices include establishing clear contracting processes and procedures, leveraging technology and automation, fostering cross-functional collaboration, maintaining accurate and organized records, and regularly reviewing and updating contracts.

How does contract lifecycle management improve business efficiency?

Contract lifecycle management streamlines the entire contract process, from creation to renewal, by automating tasks and providing a central repository for all contract information. This reduces the risk of errors and delays, leading to improved efficiency and productivity.

What role does technology play in contract lifecycle management best practices?

Technology is essential in contract lifecycle management best practices as it enables automation, organization, and centralization of contract data. It also facilitates collaboration and tracking, ensuring that all parties involved are on the same page.

What are some common challenges in implementing contract lifecycle management best practices?

Some common challenges in implementing contract lifecycle management best practices include resistance to change, lack of proper training and resources, and difficulty in integrating with existing systems. It is essential to address these challenges proactively to ensure a successful implementation.

How can contract lifecycle management help with compliance and risk management?

Contract lifecycle management helps with compliance and risk management by maintaining an accurate record of all contracts and providing visibility into contract terms and obligations. It also ensures that all parties adhere to regulatory and legal requirements, reducing the risk of non-compliance and potential penalties.

What are the benefits of using a contract lifecycle management software?

A contract lifecycle management (CLM) software offers numerous benefits, including improved efficiency and productivity, reduced risk of errors and delays, increased visibility and control over contracts, and enhanced risk and performance management.

 

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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.