Contracts are integral to business operations. Simultaneously, managing the sheer volume of them can feel overwhelming. Internally, your human resources department manages employee contracts. Externally, your procurement department manages vendor contracts. Furthermore, each department likely has third-party contractors who help fill staffing gaps. However, getting documents signed is only the start of the contract lifecycle.
To reduce costs and ensure compliance, you need to understand contract lifecycle management and how to implement best practices.
What is Contract Lifecycle Management (CLM)?
Contract lifecycle management is the set of processes and technologies that enable you to track and manage everything from drafting a document to contract termination. The contract lifecycle begins long before you have a signed document, and your business needs to have a management process governing all stages.
Your digital transformation strategy needs to address contract management and implement appropriate technologies. Some examples of digital solutions that can be used across the contract process include:
● Cloud storage
● Electronic signature
● Legal technology
When looking for a contract management software, you need to consider your business needs and how the solution integrates into your other business processes.
Why is contract lifecycle management important?
Contract lifecycle management gives you a way to reduce costs and streamline activities so that you can mitigate financial and compliance risks without impacting employee productivity. Many organizations use spreadsheets to manage contracts from request to termination. However, as you increase the number of employee, customer, vendor, and contractor contracts, this becomes overwhelming.
Digital contract management offers the following benefits:
● Reduced costs: Reduce money spent on paper, postage, and storage
● Increased productivity: Searching, sharing, and collaborating more effectively across different departments
● Robust compliance: Documenting internal control processes and protecting privacy
● Maximize revenue: Tracking and completing renewals
The contract lifecycle
When you understand all stages of a contract’s lifecycle, you can manage it more effectively and efficiently.
A contract’s life begins before you even have a drafted document. As soon as someone requests a product or service, you initiate the contract process. Consider these examples:
● An employee having an introductory call with a contractor
● A prospect requesting pricing from a sales associate
● Procurement requesting an estimated timeline from a potential supplier
These requests begin discussions that will lead to the contract’s terms and conditions down the road.
For every contract that gets signed, someone needs to write a first draft. If you’re the one sending out the document, then you need to ensure consistent terms and conditions across all similar contract types. Most companies use templates for authoring to ensure consistency. However, different types of contracts may require different wording. For example, an indemnification clause may be different for a small contractor compared to a technology vendor.
Ideally, everyone agrees to the initially drafted terms and conditions. However, depending on the contract this may not be the case. For example, a customer may require you to change the choice of law language or request a discount. You need to document all changes and ensure appropriate document versioning.
Depending on the contract’s purpose and value, you might have different approval requirements. For example, you may authorize departments to sign contracts up to a certain dollar value. If the contract requires additional authorization, procurement or other internal decision-makers may need to approve the spending prior to contract execution. This means that you need to track and document who needs to review the document, when they completed the review, and whether they allowed or denied the contract.
Executing the contract is the process of getting all the signatures on the document. Managing the process between two signatories can be challenging. With more complex contracts, you may need multiple signing parties which makes tracking time-consuming.
A contract’s life isn’t over once it’s been signed. You have ongoing management duties that include:
● Tracking budget and deadlines
● Assessing risk
● Monitoring compliance with service level agreements (SLAs)
When you have high volumes of contracts across multiple business areas, this becomes overwhelming, especially if you don’t have a way to assign responsibility or automate reminders.
Most companies need to comply with laws or industry standards. For example, if your contract contains customer personally identifiable information (PII), you need to comply with consumer privacy laws like the General Data Protection Regulation (GDPR) or the California Privacy Rights Act (CPRA). Further, you may have financial reporting requirements.
Your contracts fall under two categories of compliance:
● Data protection: ensuring that only authorized users can access the PII they contain
● Documentation: proving that you have all the financial details needed for legal disclosures
Finally, your business needs to track contract renewals and terminations. A renewal extends the contractual relationship. When it’s a customer contract, you want this done as quickly and efficiently as possible because the renewal directly impacts revenue. If you’re terminating a contract, you need to do it before the renewal date. For example, if it’s a vendor relationship, you may end up with payment obligations longer than you expected.
Best practices for managing the contract lifecycle
As your organization builds out processes for managing contracts, you want to consider some best practices that can help you streamline operations.
Establish a contract repository
With a contract repository, you have a single source of information that makes managing activities easier. When you have all your contracts in one location, people know where to look for them and can search for what they need.
Enable self-service on routine contracts
When you allow people to create and send routine contracts without getting the legal department involved, you can save time and increase productivity. For example, if a purchase is within someone’s spending authority, then giving them control over the contract ensures employees can focus on critical contracts.
Furthermore, some contracts that don’t involve exchanging money pose a low business risk, like Non-Disclosure Agreements (NDAs). Giving people a self-service option for these completes the process faster without adding transactional costs.
When you create standard contract language for various use cases, you can use templates that streamline processes. Some types of contracts that benefit from standardization and templatization include:
● Partnership agreements
● Independent contractor agreements
● Indemnity agreements
● Equipment leases
● Employment agreements
Create a collaborative workflow
With so many internal stakeholders involved, having a collaborative workflow that tracks activities can enable faster time-to-completion. This workflow should include:
● Assigning ownership for the contract
● Documenting who made edits or amendments
● Tracking when someone made changes
● Ensuring communication across all users
Implement approval processes
Automating the approval process alerts people when they need to review the document. For example, your legal department may be negotiating language and conditions, but you need a CEO to sign the final document. A CEO may not need to track the changes but does need to know when the document is ready.
When you automate the approval process, you ensure that everyone knows their responsibilities and can act as soon as possible.
Track contract process
As part of your reporting and compliance requirements, you need to track all contract data. This includes giving everyone involved insight into:
● Contracts you have
● Responsible parties
● Contract status, like completed, outstanding, or draft
● Completion dates and signatories
Tresorit is a trusted partner on your way to better contract lifecycle management
Security and privacy are fundamental to contract lifecycle management. You need to protect the sensitive information that contracts contain while streamlining the process. People need access to the documents, but you also need to restrict that access according to the principle of least privilege.
This is where Tresorit can play a crucial role in helping you build out your optimal contract lifecycle management solution. With the latest addition to the Tresorit portfolio, Tresorit eSign, you can implement streamlined processes by building workflow automations, signing documents, and storing completed contracts directly in Tresorit's secure workspace. Tresorit eSign enables you to track completion status, and provide a complete audit log.
By using eSignatures, you can eliminate burdensome and costly manual processes to increase revenue, promote productivity, and accelerate time-to-completion.