What Does
Contract Lifecycle Management Mean?
Contract lifecycle management (CLM) is the process of nurturing and maintaining contracts through their various stages, from the initial draft to their eventual renewal. CLM streamlines the management of contracts by keeping track of all relevant documents and introducing a structured process for handling them.
While contract lifecycle management can be done without digital technology, it is typically done with the help of CLM software.
Safeopedia Explains Contract Lifecycle Management
Every organization enters into contracts with its customers as well as any contractors they hire. A contract acts as a guide to the terms of a business relationship and reduces risks for all parties. Inefficiently managed contracts, however, can be costly and create legal challenges.
Stages of a CLM Process
The stages of the contract lifecycle are:
- Creation: Formalizing an agreement between two parties by putting it in writing. The written document should cover all important aspects of the contracting relationship, including services receivable, commencement and termination dates, and contingencies. Templates are typically used to ease this process, but they should be reviewed carefully and customized to fit the needs of the specific contract.
- Negotiation: A redlining process that takes place after the first draft of the contract is delivered. During these negotiations, it is advisable to keep a record of all changes in case of a future dispute or an audit.
- Review and Approval: Sending the contract to each of the parties to review and either approve of it or request further changes.
- Administration and Execution: When all agreements are finalized, one person will typically be responsible for signing and sealing the final document.
- Management and Renewal: Once the contract starts, it must be followed up to the time of renewal or termination. Doing so can include a number of tasks, like tracking contract milestones, meeting obligations outlined in the contract, tracking amendments, and conducting to audits to ensure compliance. Renewal of the contract will depend on the terms outlined in it and the willingness of the parties to continue the contract.
- Reporting and Tracking: Tracking contracts ensures that contractual obligations remain on track, approaching milestones are planned for, and deadlines are met. Failing to meet the time-sensitive obligations detailed in the contract can lead to financial or legal risks.
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