July 23 by Eric Dreshfield
The contract lifecycle is a broad discipline that includes everything from managing your executed contracts in a repository to requests, authoring, negotiation, and execution. Effective contract management requires an understanding of every step in the contract process, including any process that contributes, creates, or uses contract data. Here is a more detailed look at the key functions and process steps a contract undergoes during its lifecycle from request through approval.
Execution: The Contract is Put Into Effect and into a Repository
Execution is the stage where the contract goes into effect, at which time the terms become a set of instructions for the different parties who need to deliver against them. This is where having a seamless process for getting contract details to fulfillment is critical and where revenue recognition kicks in.
What happens to the contract document once the contract is executed? Ideally, it’s stored in a centralized place where it’s easy to access in case of a dispute or a need for modification. Unfortunately, for a lot of businesses, a contract’s final resting place is a file cabinet somewhere in the legal department or an individual’s hard drive.
If you manage your contracts that way, you are missing a lot of the revenue growth opportunity afforded by contract management and potentially opening yourself up to risk. You can’t manage what you can’t find.
Compliance: Meet all Reporting, Search and Government Requirements
While you’re handling all the obligations created by contracts, there are plenty of other things you need to do with the contract data. You need to provide regular reporting to internal and possibly external parties about the contracts and your performance to obligations. You also might need to locate specific contracts to comply with industry requirements, government regulations, audits, and responses to lawsuits.
To meet all these needs, it’s important that your repository have detailed search and reporting capabilities. You want to be able to search for business terms, contract clauses, performance to obligation, and free text. Without a repository, searching for information in your contracts can be costly, time-consuming, and distracting.
The quicker you can access the information inside your contracts and take necessary action, the more money you’ll save, the more you’ll reduce overall risk, and the less you’ll pull the business away from its key activities.
Amendment/Renewals: Contracts are Changed and Renewed, Then the Cycle Starts Over
Before your contract expires, you’ll want to send a new version to the customer for a renewal. This will kick off a new round of drafting, negotiation, approvals, and so forth. In short, the contract lifecycle starts over. If you’re managing your contracts without software, it’s easy to lose track of renewals. You might rush to get a contract signed before the last agreement expires or even let a contract expire by accident.
Sometimes your contract won’t get to renewal before it needs to be revised—perhaps your company was acquired or a new law came into effect requiring you to update your existing contracts with new language. In cases like this, you need to amend contracts and notify customers.
Your contract management software should provide alerts, reporting, and search abilities that enable you to stay on top of renewals and handle amendments. Just like in the compliance step, a manual system will make renewals and amendments truly difficult.