What is Contract Lifecycle Management (CLM)?
Contract lifecycle management (CLM) is a methodology for the proactive, methodical management of a contract from its initiation through award, compliance and renewal. CLM can lead to significant cost savings and efficiency. Furthermore, implementing CLM limits organizational liability and increases compliance with legal requirements.
What are the stages of Contract Lifecycle Management?
The stages of contract lifecycle management include:
- Request – involves gathering all the relevant information and data needed to create a contract that works for both sides. It is arguably one of the most important stages in a contract’s lifecycle and can take some time depending on who is involved.
- Authorization – the stage in which the two parties put their terms into writing and ‘solidify’ their clauses and relevant information relating to their contractual obligations.
- Negotiation – when both parties continue to negotiate specific contract parameters until all details have been agreed upon. This stage precedes final approval of the document. The length of time spent in this phase depends on the type of negotiation, the involved parties, the size and scope of the contract, how many people are involved, etc. Use of contract lifecycle management software can drastically reduce the amount of time spent in this phase.
- Approval – once a contract has been negotiated and agreed upon by both parties, it can be approved. Department heads, executives, and other relevant individuals may need to get involved in the approval process to ensure that everything is as it should be. Once a contract has received the necessary approvals from all of the appropriate departments/individuals, it can then be signed by both parties.
- Signature – the contract is signed by whoever needs to sign it in order to become official. If contract lifecycle management software is used, this stage can be done electronically/digitally through the internet or integrated software.
- Obligation – involved parties will be responsible for fulfilling obligations established in the contract.
- Compliance – refers to the fact that all parties involved in a business relationship or contract keep to their responsibilities. Without a system for managing contracts, businesses risk legal ramifications, late fees and other problems resulting from contract non-compliance.
- Renewal – after a contract has expired, or is about to expire, it needs to be renewed and renegotiated. Contract lifecycle management software helps businesses track the expiration dates of their contracts and manage renewals as they come due.