July 12 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.
Request: A Business Users Asks for a Contract
The first step in the contract process is for someone in the company to request a new contract. In many companies, the request process can be very informal and disorganized. When templates are not
centrally located or accessible, it results in outdated contracts used as ad-hoc templates, exposing the company to financial and compliance risk.
A casual contract request process is also slow and inefficient, with the details needed to create the contract shared by email or verbally.
By automating the contract request process with a guided self-service tool, individual business groups can request the contract types they need, and the contract creators—usually in the legal department—can respond according to measurable service level agreements (SLAs) they have with their business teams.
Drafting: A Contract is Created
When it comes to actually creating a contract, the goal is to eliminate manual work and reduce the time required without introducing unnecessary risk. If legal has to get involved to create every single standard contract, your contract management process and sales cycles become riddled with costly bottlenecks, as lawyers have a very specialized set of skills and their time is very valuable. It’s ideal, wherever possible, to use templates for everyday contracts and common clauses.
That way, high-value resources can focus on the exceptions, such as complex or oneoff strategic agreements that require significant negotiation. With contract lifecycle management, the drafting process can be significantly automated with centralized templates that are automatically filled in with contract details. Once your lawyers have approved contract templates one time, software can reuse the templates over and over with almost no intervention. Your legal team lives in Microsoft Word, so finding a tool that will integrate with Word is critical to their adoption of CLM.
Negotiation: Terms are Agreed Between Parties
The negotiation phase is what typically comes to mind when thinking about contracts, but you have to be careful not to limit the scope of negotiation to price. Everything about the business exchange is included in the contract: service levels, liabilities, options for renewal or termination, intellectual property, publicity, and dozens of other factors. Nearly all of these terms are potentially open to negotiation.
You need to make sure those terms offer the best outcome for your business while still remaining agreeable to the other party.
During the negotiation phase, it’s important to have the most up-to-date terms and then track any changes the counterparty makes. It’s easy enough to track changes using built-in capabilities in Word, but these tools aren’t designed for documents that pass through many hands and it’s fairly easy for the other side to slip something into a Word document without notice. With contract management software, changes can be tracked in real time with visibility to all involved, maintaining accuracy and consistency throughout negotiations. Since most of a contract manager’s or lawyer’s time is spent working with Microsoft Word, it’s important that your CLM system allows users to perform the negotiation tasks directly inside the tool they’re most familiar with using.
Approval: Internal Controls Ensure the Best Outcome
Part of the challenge of approvals is finding the right balance between too much oversight and not enough oversight. This is where the speed vs. control conundrum is felt most acutely. Your sales teams’ paychecks ride on getting the contract through, but depending on the importance of the contract, you may need a high level of legal or executive involvement to ensure your interests are protected.
It’s critical that your contract management system has the ability to facilitate the approvals and controls needed to protect the company’s interests while maintaining the flexibility to automatically navigate the quickest route to executing the agreement.
Approvals must come from all of the appropriate internal teams. With an advanced contract management system, this can be done electronically and even on mobile devices, dramatically decreasing your contract cycles.