Contract Lifecycle Management Best Practices You Should Be Following in 2024

Key Takeaways:

• Contracts govern most business relationships. Effective contract lifecycle management ensures streamlined processes, improved efficiency, minimized risk, and maximized potential from negotiated contracts.
• Contract lifecycle management challenges include stakeholder alignment, resource allocation, time and resource inefficiencies, and decentralized contract storage, leading to potential compliance issues.
• The focus of contract lifecycle management best practices includes centralized repositories, automation, streamlined negotiations, electronic signatures, and active monitoring for contract optimization and compliance.
• Outsourcing contract management offers access to expertise, cost-effectiveness, and streamlined processes enabling in-house teams to focus on strategic tasks.

Contracts are the lifeblood of most organizations. They govern relationships with customers, suppliers, vendors, investors, employees, and more. That’s why contract lifecycle management is so important, especially considering that “a typical Fortune 1000 company manages between 20,000 and 40,000 active contracts at any given time, at least 10% of which are misplaced, difficult to find … or otherwise unmanaged or forgotten.”

Understanding contract lifecycle management and its implications for your business can help you make informed decisions, save unnecessary costs, and enhance contract efficiency.

What is Contract Lifecycle Management

Contract lifecycle management is the entire process of managing a contract from inception to conclusion. This process is typically divided into four stages

1.       Initiation and Planning: Identifying the need for a contract, setting goals and expectations, and outlining the terms and conditions of the contract.

2.       Creation and Negotiation: Drafting, reviewing, and negotiating the contract terms to ensure they align with the interests of all parties.

3.       Contract Approval: Acquiring the necessary approvals (and signatures!) and endorsements from all parties, including legal review and stakeholder approval.

4.       Contract Execution: Implementing the agreed-upon terms, covering aspects like delivering goods or services and meeting contractual obligations.

Importantly, the goal of contract lifecycle management is to streamline the above process, improve efficiency, minimize risk, and maximize the potential of negotiated contracts.

It’s a specialized and often resource-intensive process that’s not necessarily feasible for all businesses. Let’s look at some challenges and how best to address them by implementing best practices and considering a holistic solution like outsourcing your contract lifecycle management.

Challenges, Best Practices and Solutions in Contract Lifecycle Management

Implementing an effective contract lifecycle management system can be fraught with challenges. Recognizing and addressing these by implementing best practices can significantly enhance your organization’s efficiency and compliance.

Key challenges

• Stakeholder Alignment and Budgetary Approval: Making sure that all relevant parties understand the value and necessity of a contract lifecycle management system is crucial. It will go a long way towards getting budgetary approval as this often requires showing a potential return on investment and efficiency gains.
• Wasted Resources: Many businesses don’t have a legal department or a designated team dedicated to contract management. It becomes the job of one person – often an executive or even sometimes the CEO – who ends up spending a considerable chunk of time drafting, reviewing, and managing routine contracts, which can divert resources from more strategic tasks.
• User Adoption: If you decide to use an in-house contract lifecycle management system, its success hinges on successful user adoption. This means dedicating time, resources and money to training and ongoing support to encourage user engagement and maximize the system’s benefits. Even then, implementing and managing contract management technologies can be complex and resource-intensive.
• Poor Metrics Tracking: Traditional methods of tracking contract metrics, such as spreadsheets, are slow, inefficient, and prone to errors.
• Decentralized Contract Storage: Finding contracts can be a significant issue, with 90% of professionals struggling to locate existing contracts leading to wasted time and inefficiencies. Manual contract storage methods also lead to difficulty in maintaining version control. Without proper version control, there is an increased risk of non-compliance and errors in contract management. Additionally, contracts are not easily accessible, especially for non-legal departments, which can hinder compliance with contractual terms and regulations.

Contract Lifecycle Management Best Practices

When thinking about best practices for contract lifecycle management, it’s worth identifying and addressing the bottlenecks in your current contract management workflow. In some businesses, contracts may become an administrative burden for the person having to manage them, while in others, missed renewals can become costly.

Moreover, if you don’t get timely notifications or updates about the status of each contract, such as when the other party has signed it, it can often lead to delays, potentially causing embarrassment for the company.

That’s why contract management best practices are more than just ticking a box or streamlining operations. It’s ensuring proactive management through features like centralized contract storage, automated notifications and communication, electronic signatures, and insights into contract renewals and expirations.

Here are 6 contract lifecycle management best practices you should follow:

1.               Create a Centralized, Smart Contract Repository

Implement a centralized contract lifecycle management repository, preferably in the cloud or installed on-premise, to store contracts in one central location. It will help you maintain control, ensure legal compliance, and avoid data loss. With this approach you can control who has access to the contracts; you can capture contract data such as dates, duration, and value; and get contract portfolio visibility with customized dashboards. This also makes resolving queries about contracts a breeze.

2.               Leverage Automation for Routine Tasks

Successful companies prioritize speed, adaptability, and a customer-centric approach. To achieve these objectives, it is necessary to integrate them into every aspect of business operations. If not, processes will encounter obstacles, delays, or inefficiencies. This is best achieved by combining automation with human expertise e.g. automating contract signatures and sending out daily or weekly reports but leaving the actual contract review, negotiation and drafting to human experts.

3.               Streamline Your Contract Negotiations

When negotiating a contract, versions and amendments are usually redlined in Word or marked up on PDF with additional requests shared via email. What’s important during this process, and especially during negotiations, is to make sure that all parties have access, and are working on, the most recent version of the contract. Working with outdated versions can complicate tracking changes and create potential conflicts. Additionally, it can impede the negotiation process and introduce the risk of errors or misunderstandings in the final agreement. Maintaining a simple but effective process around ensuring documentation is always up to date and current is therefore important for smooth and efficient contract negotiations..

4.               Use Electronic Signing Options

Electronic signatures have emerged as valid ways of signing contracts online and as mentioned above, is one of the key areas where automtion is very helpful. They provide a seamless signing experience and real-time notification when contracts are signed and, overall, just make the contract signing process quicker and easier.

5.               After-care: Monitor and Analyze Contracts

Contracts can present unforeseen risks themselves. This is because they specify numerous obligations that the parties involved must comply with. Contracts that are neglected in the filing cabinet can become potential liabilities for companies and their customers. For instance, they might fail to fulfill the terms or meet the deadlines stipulated in the contract.

Good contract management as part of contract lifecycle management actively follows up on all contracts. This involves checking, for instance, when a contract or a contractual clause expires or needs to be renewed, and when certain steps need to be taken as a result. Regular evaluation of contracts will help you identify opportunities for process optimization, thereby improving organizational performance.

6.               Outsource Routine Contracts and Contracts Management

Of course, one of the most holistic solutions to the challenges of contract lifecycle management is to outsource your contracts management and administration function to experts. It will help you improve efficiency, enhance compliance, and reduce risks. Let’s look at this in more detail.

Outsource Contract Management

Outsourcing is one of the most effective ways to improve the management of your entire contract lifecycle, including managing the day-to-day functions and requirements of your routine contracts. When you outsource, you rely on the experts to help you implement best practices at all contracting stages.

Outsourcing provides a streamlined contract management workflow that simplifies contract management, reducing the risk of contractual breaches and non-compliance. Sterlington’s outsourcing solution gives you access to experienced lawyers and paralegals who specialize in contract management and the contract management lifecycle. Our experts are all lawyers with 10+ years of experience who understand your business and, most importantly, contracts. We use comprehensive playbooks and training to ensure consistency while delivering using a team-based model that also protects against the risk of a single point of failure.

When you automate the administrative tasks around routine contracts, it allows your in-house team or executive who used to deal with these contracts to focus on higher-value work while the experts manage the contract negotiations and streamline the process on one platform. Electronic signatures, as an example of automation, can significantly speed up the contract lifecycle, while smart storage solutions ensure the security and confidentiality of contracts.

Adopting a centralized platform for all your contracts minimizes errors and improves the visibility, accessibility, efficiency, and security of contract data, making it easier for organizations to meet compliance and regulatory requirements. Our clients have the peace of mind that they’re working with a law firm that will ensure that all contracts adhere to legal requirements, reducing the risk of regulatory non-compliance and legal disputes. Sterlington’s flexible technology platform supports custom processes, tailored reporting, and an easy user experience.

Final Thoughts

Mastering contract lifecycle management is important for any organization looking to optimize its operations, mitigate risks, and ensure compliance. As highlighted in this article, effective contract lifecycle management involves a comprehensive approach that covers all the contract stages, from creation to completion to archiving.

It also requires implementing best practices to address challenges such as stakeholder alignment, in-house management issues, user adoption, inefficiencies, and compliance concerns. These best practices include, among others, creating a centralized contract repository, leveraging automation for routine admin, and considering outsourcing solutions.

Outsourcing contract management to Sterlington offers a comprehensive solution. It gives you access to experienced legal professionals who specialize in contract management and the convenience of automation to onboard new contracts fast and being kept in the loop every step of the way with automated reports. This approach is not only cost-effective and simplifies contract management but also allows in-house teams to focus on more valuable tasks.

Learn more about the benefits of outsourcing legal contracts and how Sterlington’s Legal Outsourcing Services can help unlock the potential for your business to thrive in a highly competitive marketplace.