In the 1980s, Japanese contracts used to be really short (often up to 1 page) compared to lengthier American contracts. And most lawyers outside Japan would get surprised by contract length. Till recently, only 19% of Japanese businesses felt that written contracts are an important legal concern. The antipathy to contract is not new in this culture as relationships or handshakes triumph over written legal contracts. Unfortunately, businesses in other parts of the world deal with lengthier and complex contracts. Each contract is combed through and checked minutely for clauses, potential risks or deviant contract language. Legal team pored over the contracts from authoring to execution of contracts. Legal teams use multiple technology tools to provide consistent legal language and streamline Contract lifecycle Management(CLM) processes using software.
What is Contract Lifecycle Management (CLM) ?
Contracts define the responsibilities, rights, and obligations for the enterprise relationship with suppliers, vendors, partners, customers, or employees. They play an instrumental role in mitigating risk associated with commercial or non-commercial commitments between two entities in the business ecosystem. Contract lifecycle management is the process of managing contract authoring, execution, and active monitoring to derive maximum value and minimize underlying risk in contracts. The CLM process streamlines and automates contract processes in all stages from initiation of contracts to renewal of contracts.
7 stages of Contract Lifecycle Management
Contract Lifecycle is the entire time period when a contract remains active. E.g., Contract lifecycle for a two-year managed cloud service provider starts from initiation of contract request till the end of contract tenure.
Contract Lifecycle has multiple stages during Journey of Contract. Some of key stages are:
1. Authoring
Contract lifecycle begins with the enterprise department initiating a request to legal department for drafting the contract document. (ex. NDA, Service agreement, standard licensing agreement)
2. Review and Approvals
The legal team collaborates with the requested business user(s) to identify and define recitals, KPIs, milestones, indemnification, and other competitive clauses and contract terms.
3. Negotiation
In the negotiation phase, different stakeholders in the contract edit, review, and accept changes in the contract to make it beneficial for all parties. Traditionally this might be done offline and increases risks of data loss / incorrect clause.
4. Contract Execution
Executing the contract allows users to control and shorten signature process using electronic signature, wet signature, etc.
5. Revisions and amendments
- Contract management does not simply entail drafting a contract and then pushing it into the filing cabinet without another thought. Contract audits are important in determining both organizations’ compliance with the terms of the agreement and any possible problems that might arise.
6. Auditing and reporting
Using manual contract management methods can often result in missed renewal opportunities and lost business revenue. Automating the process allows an organization to identify renewal opportunities and create new contracts.
7. Renewal
Collating all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.
Afterthoughts
For each organization, the definition of Contract Lifecycle varies. Some organizations consider Contract Management from strategic sourcing to awarding contracts as as part of contract lifecycle. In some cases, organizations consider managing executed contracts as part of contract lifecycle. Despite such wide differences in definition, major common objectives for any CLM initiatives across organizations are to achieve compliance, improve contract negotiations and achieve optimal performance for contracts. Like a swiss knife, CLM tend to provide different problems and different benefits across each organization.
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