If you’re looking for contract software, you’ve come across the term “contract lifecycle management.” Law firms and in-house legal teams that create and manage commercial contracts know that contract creation and management are a long, complex process that can take years from beginning to end – and some contracts just go on indefinitely.
Contract lifecycle management (CLM) software helps teams manage CLM workflows and processes more efficiently and effectively. To understand the solutions and how they stack up against each other, though, you first need to understand the contract lifecycle.
The contract lifecycle encompasses all stages a contract goes through from its creation through its conclusion. These stages include negotiation and drafting, execution, ongoing obligation management and compliance, and eventually either renewal or termination.
Effective contract lifecycle management ensures that business agreements are clear, all parties satisfy their respective obligations, and each party’s interests are protected, minimizing risk and maximizing value throughout the contract's duration.
Many people have discussed the contract lifecycle in terms of just two simple phases: pre-signature and post-signature. Pre-signature entails all the steps of contract creation: negotiation, drafting, and execution. Once the contract is signed, the focus moves to post-signature obligation management, performance monitoring, and compliance.
While that framework is a convenient overview of the lifecycle of one contract, it helps to look more closely at what each of these steps entails. These are the key stages in the contract lifecycle:
The business relationship and negotiation start before the first draft of a contract even exists. Typically, the parties start by exploring the possibility of a business relationship without focusing on precise contractual obligations. If the arrangement seems promising, then it’s time to move forward with a contract.
With the need for a contract identified, the parties establish goals, objectives, and stakeholders. Legal teams and business stakeholders meet internally to outline requirements, risks, and compliance needs, keeping in mind their broader business goals and both internal and external compliance requirements.
One party takes the lead producing a first version of the contract. This process typically starts with a template that organization uses for that specific type of agreement. The legal team makes any additions or edits necessary based on preliminary business discussions.
As the parties engage in ongoing negotiation, the legal teams incorporate the results of those discussions by drafting and revising contract provisions, definitions, and key dates. This process may involve input from multiple non-legal departments, such as sales, procurement, or finance, to address all necessary aspects of the contract.
After internal stakeholders have signed off on the first draft, the legal team sends it to the other party’s legal team for review. This initiates a back and forth process that can entail several rounds of revision as the parties review, negotiate, and make adjustments to the terms to ensure both sides agree on key points.
Discussions focus on terms that directly impact the business relationship, including pricing, scope of work, timelines, and responsibilities. Each legal team works with its internal stakeholders to review every round of edits and ensure their business interests are protected, while trying to accommodate the other party.
Sometimes, the parties determine that they can’t reach an agreement, and they walk away from the negotiation. If the parties are able to agree on terms, however, it’s time to sign the contract.
All parties sign the contract, making it legally binding.
Contract execution has often in the past entailed acquiring multiple pages with “wet” signatures to ensure that every party has a proper record of the deal. It formerly was not uncommon to require that the signatories sign the document in front of a notary public.
These days, however, it’s more common to use e-signature platforms to streamline this process.
After the contract has been executed, both parties monitor their performance of the contract terms to ensure that each side fulfills its obligations, such as deliverables and payment schedules. Regular tracking and performance evaluations help prevent disputes and ensure timely completion, promoting a healthy business relationship.
In addition to contractual obligations, each party must pay careful attention to compliance with external regulations and internal policies. External regulations could include data privacy statutes or reporting requirements, while internal policies might dictate specific accounting practices or contract review processes involving compliance, finance, or other teams. Non-compliance can trigger penalties or even termination of the contract, depending on the protections built into the agreement.
Periodic audits help track and promote ongoing compliance with contract terms, external regulations, and company policies.
Circumstances often change over the course of a business relationship. If this happens, the parties may need to amend specific provisions in the contract. Amending a contract typically involves drafting new language, getting all parties to sign the instrument containing the new contract provision(s), and appending it to the original contract.
When both parties have completely fulfilled their contractual obligations, the agreement reaches its end. A contract may terminate early if a party defaults or otherwise fails to satisfy its commitments. Some contracts expire at the end of a set period of time, or on a specific date. A closeout process ensures all terms have been completed, final payments have been made, and any assets have been returned to the appropriate party if required.
Alternatively, the parties may want to continue the business relationship. Some contracts contain auto-renewal provisions guaranteeing that the agreement will continue automatically unless at least one party opts out. Other contracts require the parties to draft a new agreement by a set deadline if they want to continue the arrangement.
The contract and its records are archived for future reference, audit purposes, or legal requirements. Analysis of contract performance and lessons learned can inform future contracts and help teams improve their contract creation and management processes.
Effective management in each stage of the contract lifecycle helps ensure a smooth, compliant, and effective process, from creation through termination.
There are lots of CLM software solutions that promise to help teams manage some part or all of the contract lifecycle. While many of these platforms may seem similar on the surface, it’s vital for buyers to understand the substantive differences between them.
Digging deeper shows that some platforms are better at one particular part of the CLM process than other parts, even if they claim to manage the entire lifecycle.
BoostDraft’s approach to contracting is a little different. Rather than an end-to-end CLM platform, we focus on providing legal document editing software that makes contract review and drafting more efficient.
This focus enables us to be hyper-responsive to customer needs and feedback, iterating quickly on customer experience and market trends to deliver the best contract drafting assistant on the market.
Ready to see for yourself how BoostDraft saves more than a million users an hour a day on contract review and drafting? Get a demo!