What is Contract Lifecycle Management?

Contract lifecycle management (CLM) is the management of an organization’s contracts from initiation through execution, performance, and renewal/expiry.

Contract Lifecycle Management (CLM) Defined

Contract lifecycle management (CLM) is the management of an organization’s contracts from initiation, negotiation, execution, performance, and renewal/expiration.  Activities include creating new contracts, negotiating on terms, securing approvals, executing agreements, monitoring contract performance and ensuring ongoing compliance. In short, contract lifecycle management optimizes the entire contract process from start to finish.

Effective and proactive contract lifecycle management is achieved through the use of contract management software. Having a CLM system streamlines these critical stages, from initial drafting to final renewal, by automating workflows and centralizing contract data. Moreover, CLM software can lead to significant improvements in cost savings and efficiency. Understanding and automating CLM can also limit an organization’s exposure to risk by reducing missed obligations and increasing compliance with legal requirements.

Stages of the Contract Lifecycle Management (CLM) Process

While each of these stages is vital in the contract management process, some steps have traditionally gotten more attention than others. For example, for years, software devoted to managing contract templates in an organization has been available.

More recently, with the rise of tools like artificial intelligence and machine learning, post-execution contract management has gained more attention as a way to accelerate, protect and optimize businesses.

Let’s look more closely at each stage of the contract management process and how contract management software can improve the process.

A diagram of contract lifecycle management

1. Template Authoring:

Simplifying an organization’s template library can greatly improve contract risk management and accelerate contract turnaround with template selection rules and the Icertis contract management platform’s comprehensive template lifecycle management capabilities. The smart template authoring contract management process allows designated business users to pull library clauses into the contract document, enter custom text, tag metadata in the document, and tag other data such as exhibits and annexures. Rules ensure that any new templates go through an approval process before becoming available for creation. 

2. Contract Creation:

Extensive rules engines offered by CLM software enable the dynamic contract creation from templates and clauses. Contract content is assembled automatically using any criteria associated with the contract, such as region, products, services, or price terms. Rules-based contract authoring capabilities significantly improve the scalability and agility of contracting operations while also enforcing appropriate process controls.

Advanced contract lifecycle management software even enables no-touch contract creation within line-of-business systems like CRM, sourcing, and procurement—taking input and auto-build contracts based on defined business rules. Bulk data upload and contract creation are even possible with best-of-breed solutions. By empowering business users to create contracts in self-service mode, organizations can achieve faster time to revenue, improve cycle times and significantly reduce legal operating expenses during the contracting process.

3. Contract Negotiation:

The ideal outcome of a negotiation is a mutually agreeable contract that all parties can fully abide by. The final contract should clearly outline expected results and include plans for addressing potential breaches by either party.

Typically, the negotiation process begins with a draft contract presented to the vendor. The supplier then reviews and provides feedback, leading to further discussions through meetings or digital communication. Many organizations impose deadlines for reaching an agreement, after which they may seek alternative suppliers.

The best-in-class CLM software enables users to negotiate from a position of strength. Gain intuitive insights into contract redlines, accelerate your contract reviews with an instant, intuitive summary and eliminate risk. Leverage predefined playbooks to provide negotiators with starting positions and fallback language that aligns with commercial and risk strategies.

4. Contract Review:

Contracts should help a company achieve its commercial objectives, not hinder them. Through intelligent, automated contract review, companies can achieve the full potential of negotiated contracts through better enforcement of commercial terms. The contract lifecycle management process captures commercial terms of products and services, prices, discounts, rebates, and incentives in a structured form, integrates that data with enterprise systems, and helps enforce terms. Workflows ensure a review process to assess compliance before posting to financial systems for settlement.

5. Contract Approval:

Effective contract approval begins with leveraging all the data associated with a contract using rule-based workflow definitions. Best-of-breed CLM platforms automatically assemble workflows and orchestrate the approval process, with support for sequential and parallel approvals. Workflows are changed dynamically based on negotiation updates to ensure governance. Business users can easily manage the intuitive rules, definitions, and updates, and they can also intervene manually to influence a workflow with ad hoc steps.

6. Contract Execution:

Contract execution has become highly digitized and mobile. Recently, an NFL quarterback executed a $10 million contract from his phone while sitting in a fast-food parking lot! CLM solutions should feature out-of-box integrations with electronic signature platforms like Adobe Sign. These secure integrations help orchestrate the signature process based on user-defined workflows while seamlessly updating the contract document and data back to the central repository after execution. Manual-signature workflows should also be supported, using QR codes to validate incoming signed documents.

7. Contract Operation:

The contract operation process encompasses documentation of all key features of the contract, communicating key provisions to internal stakeholders, outlining roles and responsibilities for ongoing management of the commercial relationship, and preparing various internal systems to handle the transactions and commitments outlined in the agreement.

Its various terms and conditions must be clearly organized and communicated to internal users. If a contract stipulates that payment terms are net 30 days, for example, there should be a mechanism for notifying the accounts payable department of that fact. Purchase orders, volume agreements, and acceptance criteria must likewise be clearly communicated to relevant stakeholders.

8. Contract Performance:

Post-execution contract administration used to be beyond the purview of digital solutions. This is because the contract language is difficult for computers to parse, leaving it to human managers to carry out contract actions.

However, this is no longer the case with the advent of AI. The large language models that underpin artificial intelligence are exceptionally good at parsing and understanding language. Today, contract lifecycle management software users can gain valuable performance insights in all areas of contracts from legal, finance, sales, and procurement. Contract lifecycle management software includes a full-featured analytics module that enables insights into data such as cycle times, deviations, savings, risks, expiry, contract renewal statistics, and procurement and sales metrics on contract revenue and spending.

Contract managers can also achieve better compliance for contract commitments by identifying, capturing, assigning, and tracking the completion of tasks assigned to business owners—even with commitments involving third-party paper and complex commitments, such as those with multiple owners or across regions or business units. Users can easily create commitments in the web interface or Microsoft Word, and commitments can also be auto-created and assigned to owners using rules.

Lastly, users can identify and manage risk post-execution. A configurable risk model helps track risks across different categories, such as financial, contractual, performance, and third parties. Users can look up and leverage internal data, as well as external data, from sources such as D&B and Thomson Reuters to determine risk scores, ensure proactive risk monitoring, and increase visibility for stakeholders.

9. Contract Expiry or Renewal:

Contract lifecycle management software provides proactive alerts and notifications for significant milestones, including contract expiry or contract renewal. A configurable dashboard provides insights into what the business impact of expiry or renewal will be, so contract owners are not caught off guard.

Contract renewals present opportunities to lock in prices, renegotiate terms, or otherwise effect positive changes in the busine Unfortunately, contract renewals often fall through the cracks, leading to missed opportunities.

An enterprise-grade CLM solution will trigger review processes by alerting key stakeholders whenever contracts are up for renewal. Armed with contract analytics that quantify vendor performance and overall contract value, decision-makers will be better equipped to determine the best path forward.

Commercial Applications of CLM

Contract Lifecycle Management (CLM) is a valuable tool for a wide range of industries. Sectors such as technology, healthcare, finance, real estate, and manufacturing heavily rely on CLM to manage contracts efficiently and effectively. These industries often deal with complex contracts and regulatory requirements, making CLM an essential tool for streamlining operations and mitigating risks.

CLM is also beneficial for sectors such as automotive, energy and utilities, retail, education, and government. These sectors often deal with large volumes of contracts that require standardized legal language and processes.

Below are some real-world examples of agreements that can benefit from having a CLM system in place:

By automating contract processes, improving visibility, and ensuring compliance, a contract lifecycle management system helps organizations in these industries optimize their operations and achieve their business goals.

The Benefits of CLM Solutions Are Clear

The right CLM solution connects the contract process to order fulfillment and billing, eliminating errors, reducing risk, and ensuring that revenue can be forecasted more accurately. Empowered with information, you can treat contracts like what they are: Assets, providing deep insights and competitive advantages all along the contract supply chain. Below are some of these benefits, in detail:

Increased efficiency:

Automates routine tasks, reduces manual effort, and speeds up contract processes.  

Improved accuracy:

Minimizes errors and inconsistencies through standardized templates and workflows.  

Enhanced visibility:

Provides real-time insights into contract status, obligations, and performance.  

Reduced risk:

Identifies potential legal and financial risks early on, mitigating losses.  

Better compliance:

Ensures adherence to legal and regulatory requirements.  

Cost savings:

Optimizes contract terms, reduces contract cycle time, and lowers operational costs. 

Stronger relationships:

Improves collaboration and trust between the contracting parties.  

Data-driven decisions:

Generates valuable insights for informed decision-making.

Consider Icertis Contract Intelligence

The Icertis Contract Intelligence (ICI) platform is the leading contract management solution in the cloud. The platform's easy-to-use, intelligent, enterprise-wide contract management software transforms the foundation of commerce by turning contracts into valuable corporate assets.

Icertis’ platform has been named a leader once again in four consecutive Gartner Magic Quadrant reports. Global 100 clients, including Daimler, Johnson & Johnson, and Microsoft, have all chosen Icertis as their contract management solution. To learn more about how the Icertis Contract Intelligence Platform can help you manage your contracts, schedule a demo today.

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