Contracts are legally binding – and thus need to be executed properly. As such, organisations should be equipped with a thorough understanding of the contract lifecycle. The contract lifecycle is the process under which a contract is authored, reviewed, sent for signature, executed, and – potentially – renewed. The “lifecycle” is an archetype used to compartmentalise and understand a contract’s complex evolution. The lifecycle begins with contract requests and concludes when said requests are fulfilled – with the possibility of contract renewal. Learn about the eight stages of the contract lifecycle below.
Stage 1: Requests
This is the kick-off contract stage that starts the contract lifecycle. In this stage, contract parties and stakeholders can express what they are expecting to get out of the contract. This first phase of the contract lifecycle allows parties and stakeholders to gather crucial details associated with a new contract, an amendment, a renewal, etc. The contract request stage can set the stage for whether a contract enjoys efficient processing or is plagued by delays and bottlenecks.
Stage 2: Authoring
Once contract parties have established and addressed contract requests, they have laid the foundation for contract authoring to begin. Also known as the contract writing stage, this phase sees contract parties putting the terms and conditions of a contract into writing by amalgamating standard contract clauses, key dates, counterparty information, and other important data. It’s important to keep in mind who is entering a contract, which services are being offered, and which terms have been agreed upon.
Stage 3: Negotiations
During the contract negotiation stage – arguably one of the most important phases of the contract lifecycle – contract parties negotiate the framework of specifications drafted during contract authoring. After back-and-forth redlining and collaboration, agreed-upon terms and conditions provide clear insight into the expectations of contract parties.
Stage 4: Approvals
Once everyone involved is comfortable with the negotiations made, the contract goes through a second draft and is reviewed by the parties. Contract approvals should follow a general approval time as they bounce back and forth between both parties. How far up the chain of command the approval has to go may influence how long it takes to get approved.
Once the parties are comfortable with the negotiations made, a final contract review is undergone by all involved stakeholders. Parameters are put in place to meet compliance standards, obligations, key dates, milestones, and special terms of a contract. For a healthy contract approval cycle, contract parties must provide an up-to-date and easily-accessible record of changes that have been made to the contract. As such, an audit trail recorded by leading contract management software is essential for efficient contract lifecycle management.
Stage 5: Signatures
After approvals, a chief employee or someone with signing authority can sign a contract. Contract lifecycle management software systems that offer user-friendly and robust electronic signature software can make it easier to sign contracts in the office or on the go, one-off or in bulk – in an increasingly mobile and digital landscape where manual, “wet signatures” are time-consuming and inefficient.
Stage 6: Obligations
Once the contract has been executed, all parties acknowledge their pre-defined responsibilities, milestones, contract key dates, deliverables, payment windows, and any other specific obligations.
Stage 7: Compliance
This stage goes hand-in-hand with obligations. It is agreed upon that, along with those noted within a contract, general and type-specific contract rules, guidelines, standards, regulations, laws, and practices are complied with. Robust compliance management helps decrease late fees, litigation fees, and bottlenecks and sets the stage for future contracts.
Stage 8: Renewals
The last stage of the contract lifecycle can vary depending on the type of contract that has been agreed to. Contract renewal is applicable when the relationship between parties is beneficial and the parties want to remain in contact to continue doing business with one another. Instead of needing to undergo all of the previously mentioned stages of a new agreement, parties are given the chance to revisit discounts, renegotiate terms, and engage in further opportunity realisation more seamlessly – if stakeholders are equipped with the best possible contract management software solution for contract approvals.
Contract Insight from Four
Now that you see how important every stage of the contract lifecycle is, you know that it is irresponsible to navigate the contract lifecycle without the help of robust CLM software. Contract management software from Four – Contract Insight® – is an acclaimed, long-trusted,and seamlessly integrated contract lifecycle management solution.
Contract Insight is a cloud-hosted (SaaS) or deployed (on-premise) contract management solution. The acclaimed platform is trusted by thousands of professionals for their contract management, legal document management, procurement and sourcing needs. Used by many Fortune 500 companies, Contract Insight gives you real time visibility into your contracts. It doesn’t just shore up your security; it will help you meet contract compliance regulations, centralise your contract management and improve your overall contract administration process.
For more information, contact John O’Brien, CEO at Four Business Solutions, global business consultants and software integrators providing business processes improvements in Finance, Supply Chain and Operations, across a broad range of industries.