What is a contract lifecycle?
The contract lifecycle is the many stages that a contract will go through during its journey to execution and includes: briefing, writing, negotiation, amendment, approval and execution, through to storage and renewal.
Typically, a contract’s life begins after the business approaches Legal with an agreement with another party which they want to formalise with a contract. The business will need to compile all necessary information for Legal so they have a clear understanding of what the agreement is for, who it is with and any risks that may be associated.
Legal will then take this brief and begin drafting the contract. Also known as ‘authoring’, at this stage, both parties add all their contract clauses and terms such as key dates and payment terms.
After Legal drafts the contract, it will generally be shared with the counterparty. At this point, the business and the counterparty will negotiate the terms drafted until they come to an agreement on final expectations and outcomes.
As part of the negotiations stage, all parties will share the contract with their relevant stakeholders who are needed to approve the contract before it is finalised. This might be internal Finance leads or the CEO. Once all key stakeholders from both parties have approved the contract, it then is ready to be executed.
When the drafting stages of the contract wrap up there the next step is signatures. Typically the most senior team member of the department (or somebody they have duly authorised) signs a contract to ratify its agreement. From this moment, the contract holds the most value since the process began. Increasingly, businesses are opting to incorporate e-signature technology in their contracting process to speed up the execution process.
Once a contract is executed, a critical stage of the lifecycle process is storage. Traditionally, this can be as simple as a filing cabinet at best and the contract owner’s desk drawer at worst. With the shift to digital, content repository platforms have crept in to replace physical storage. These systems are suitable for holding the contract, but are not intuitive or enable the business to find individual contracts easily.
Another alternative many businesses are opting for is a cloud-based contract management platform. These software platforms automatically store all contracts at all stages of the contract lifecycle in a single, searchable platform. This ensures that all contracts are accounted for and accessible, regardless of who intuitively owned the contract.
Often business contracts executed will be for a limited period. It is generally best practice to review every contract ahead of its expiry and reevaluate if the business would wish to renew the contract.
Giving yourselves ample time ahead of the contract expiry ensures the business has plenty of time to begin negotiations for a new contract.
Unfortunately, as the saying goes, out of sight, out of mind. One of the problems of traditional filing cabinets and digital storage systems is that it is very common for some details to be forgotten… such as expiry dates!
Missing an expiry date not only causes businesses to miss out on opportunities for renewal but potentially exposes a business to risk as if a contract expires they are no longer protected by the terms it contains.
To keep ahead of their contracts, many businesses are leaning on contract management software, such as Plexus Gateway, which enhances the contract lifecycle with customisable reminders. This way, the business will never miss an opportunity to act on a contract expiry and negotiate a renewal.
What is contract lifecycle management?
Contract lifecycle management is a system or process that clearly outlines how a business handles its contracts and covers the contract through all stages of its life lifecycle.
For some businesses, contract lifecycle management can be as simple as its processes for contract compliance and operations. Documented as a ‘playbook’, these processes would indicate how contracts should be managed by the business including details such as: which member of the Legal team is responsible for reviewing certain contracts, how the Legal team should be briefed to draft a contract and how the contract should be filed in the business’ storage system.
Unfortunately managing processes offline in this manner quickly becomes insufficient as the business grows.
What are the risks of insufficient contract lifecycle management systems?
As more contracts begin to be needed from more areas of the business Legal aren’t able to effectively track and manage all of them. This potentially exposes up the business to risks such as:
Contracts are lost… And so are opportunities for renewal
Contracts inappropriately stored can be a risk to the business as they can get lost and the business might miss out on meeting agreed-upon obligations or terms if the original contract owner leaves. This is a particular risk factor businesses face when they have team members leave the business or move into new roles.
Another danger with outdated storage management practices is that businesses might miss out on critical opportunities to negotiate renewals as the expiry dates approach.
Legal drag becomes a costly blocker to execution
For some businesses, Legal is able to work on a one-to-one basis with their team and the counterparty to form drafts out of briefs in emails and verbal conversations. Once they have been briefed and written the contract, Legal would typically email (or worse - print and courier!) it to all necessary approvers and signatories, then once signed, store the contract in their filing system.
While managing contracts in this format is sufficient for smaller businesses who deal with fewer contracts, this style of managing contracts quickly becomes inefficient as contract volume increases.
When Legal is required to sift through their incredibly full email inbox, lengths of instant message chains and recall verbal support requests to ensure the relevant facts are correctly documented it is understandable that contracts will take longer to be generated and executed.
Unfortunately, every minute a contract is delayed is stuck in the draft and the approval process costs the business money.
Inappropriately managing the briefing stage of the contract lifecycle sets the contract off on the worst foot possible and inevitably sets the impression that Legal is a blocker to execution.
Legal is involved too late in the contract process
Following from that previous point, if the business begins to view Legal as an inefficient ‘blocker’ to execution they will inevitably start to circumvent contract processes and avoid Legal altogether.
While a speedy execution is definitely an asset to getting an agreement signed, the business is not aware of key legal risk factors that lawyers are experts in avoiding. We have seen businesses avoid Legal review to get a contract signed, only to regret it later when they missed key term inclusions that would have protected them from incredibly costly penalties when the agreement turned sour.
Best practices for contract lifecycle management
Many businesses are taking control of their contract lifecycle management and opting to utilise contract management software such as Plexus Gateway to securely manage the briefing, drafting, negotiation, approval, execution, and storage stages of all contracts in an easily-searchable platform. This software even removes the risk of missing key dates with its ability to customise automated alerts for important contract milestones and renewal dates well in advance.
Contract lifecycle management software simplifies the contract lifecycle process with automated contract process workflows so there is little risk of business non-compliance. It essentially makes the desired contract lifecycle workflow process the path of least resistance.
It also provides the businesses with a single source of truth for all contracts. They’ll never again have to experience that sinking feeling when it comes time for a renewal discussion and you don't have a copy of the signed contract again!