Best Practices for Contract Lifecycle Management that Really Matter

Contract management lifecyle management remains a silent administrative task for most employees, that takes place behind the scenes.

The importance of contracts always becomes apparent when something doesn’t work as it should. This could happen because a contract wasn’t concluded or extended in a timely manner, resulting in the project being paralyzed or the supply chain breaking down.

In such situations, the importance of contract lifecycle management (CLM) for business processes and how damaging unstructured contract management is for all parties involved becomes immediately apparent. To prevent this from happening in the first place, companies and other institutions need to structure their entire contract management processes as intelligently and rationally as possible.

Ultimately, this will only be possible through consistent digitalization of contract lifecycle management. At this point, however, it’s important to understand that digitalization in itself doesn’t generate true added value. Rather, it’s the prerequisite for making processes faster, more effective and more efficient. In the blog post, we’ll show you what is important in practice.

1. Automated contract Workflows

Speed, flexibility and customer-friendliness are among the most important virtues of successful companies in the era of digitalization. In day-to-day business, these goals can only be achieved if they’re incorporated into all business processes. Otherwise, processes will be repeatedly blocked, stalled or slowed down. For administrative processes and office communication, this means that routine tasks must be automated as effectively as possible.

So much for the theory. But what does this mean for contract lifecycle management? It goes without saying that negotiating contracts at its core is a process that requires human expertise and competency. In addition to these competency-based processes, however, numerous points can be identified that affect core contract management processes and can be automated. For example, contract management software solutions can guide contracts through their lifecycle according to predefined routines.

2. Standardization of contract Documents

Employees in companies and institutions who handle contract management manually usually draft new contracts via copy & paste. This involves opening an old contract document, pasting the text into a new document, and then making changes at the appropriate points. The problem with this, however, is that this procedure is not only extremely error-prone; it also requires in-depth specialist knowledge.

It’s easier and far more reliable to work with template libraries, which contain text blocks that have been created together by the relevant lawyers and specialist departments. They also enable legal novices to create contracts. To do this, these text blocks are systematically inserted into the company’s design template to initialize a contract process and, if necessary, supplemented with data from the internal ERP system.

3. Seamless contract Collaboration

Contract management is teamwork. Particularly when it comes to negotiations, many other people can influence the drafting of the contract in addition to lawyers and in-house counsel. However, this need for collaboration often becomes a stumbling block in corporate practice because it involves many uncertainties. At the heart of this is orchestrating the most seamless collaboration possible on documents in the various phases of the process.

To make matters worse, in the age of working from home and New Work, the way people work has become much more flexible. Employees access documents at different times, on different devices and in different locations. External consultants may also have to be involved in the process. These challenges can only be overcome by digitalizing the entire CLM process and centralizing it via a platform in the cloud. You can only actively plan, promote and control the collaborative working process on contract documents if this requirement is met.

4. Transparency Across All Process Steps

However, the collaborative processing of contracts is not only an organizational problem. At least two departments are usually involved in contract drafting within a company: the legal department and a specialist department. Particularly in the contract drafting phase, conflicts of objectives can quickly arise between these departments. This is because while the legal department is focused on contract security, the specialist departments often work under competitive pressure and need to generate results quickly.

In order to resolve the resulting conflicts early on, or in an ideal case, prevent them from arising in the first place, the entire contract process must be structured in an incredibly transparent manner. When drafting a contract, for example, it must be clear which is the current version of a draft contract or which accompanying documents belong to a contract.

There’s a further argument in favor of ensuring the greatest possible degree of transparency in contract lifecycle management: a centrally established, clearly structured contract management system with standardized workflows means that processes aren’t dependent on personnel fluctuations. This way, processes can be continued much more easily when key employees are on holiday, sick or have left the organization.

5. Function-Based Role and Rights Management

The flexibility of collective contract design not only impacts the effectiveness of the processes; it also affects the issue of security. Security plays a prominent role in contract lifecycle management at various process steps:

• Contracts and accompanying contractual documents contain numerous details that may only be accessible to a small circle of decision-makers and consultants.
• Not all people who have access to documents are authorized to edit them.
• Not all people who can access or edit a document may also sign it to conclude a contract.

To meet these requirement profiles, finely balanced role and rights management must be integrated into contract management. It must be able to be precisely coordinated with the functions of the individual participants and thus help to enforce a company’s compliance regulations. An intelligent digital solution for the legally compliant electronic signature of

6. After-Care of Contractual Relations

Contracts not only enable business processes, they can also become imponderable risks in themselves. This is because they stipulate numerous obligations to which the signing parties must adhere. Contracts that lie unattended in the filing cabinet can therefore become ticking time bombs for companies and their customers – for example, because they fail to respond to contractually stipulated terms or deadlines.

To prevent this from happening in the first place, good contract management actively follows up on all contracts. This involves checking when, for example, a contract or a contractual clause expires or needs to be renewed, and when certain steps need to be taken based on this.

7. Legal Certainty in contract Archiving

Archiving contracts is something that many companies have not attached too much importance to for a long time. Old contracts used to be stored in file folders according to a more or less individually devised system and disposed of after years. However, in order to comply with the now very numerous requirements of commercial and tax law and data protection, this method is nowadays doomed to failure.

In order to establish legal certainty in archiving, it must now be possible to log work steps and issue access authorizations for almost all important documents. To make matters worse, legal requirements can mean that individual documents have to comply with different regulations. In this context, companies can only reliably establish legal certainty if they rely on an intelligent digital archiving solution for their contract management.

From Draft to Legally Compliant Signature: How Digital Contract Lifecycle Management Works

Lower costs, higher efficiency, increased agility, fewer compliance risks: digital contract lifecycle management (CLM) has a plethora of benefits. At the same time, migrating contract management to a CLM system is becoming another milestone for every company on their journey towards digital transformation. According to figures from an industry association, 75 percent of organizations across all industries have already digitalized their paper files.

The fact that this digital revolution is not an end in itself is clearly demonstrated by contract management. With the help of contract management software, you can quickly raise the contract lifecycle from all departments in your organization to a new level. We’ll explain in concrete terms what this means for the handling of contracts in your company. This will all be based on the seven stages of the digital contract lifecycle management process, which is used to professionally manage contracts in companies.

Template Creation & Contract Creation

In many companies where contract management isn’t digitalized, new contracts are often generated as follows: after a department requests a new contract, an employee simply generates a digital copy of an existing contract and adapts the text file to the new contractual terms. Although this seems a simple enough process, it’s extremely error-prone and therefore highly fiddly. Unintentional errors quickly creep into the contract structure if all relevant text passages aren’t adapted accordingly. This is a typical shortcoming of any manually performed process.

With digital contract lifecycle management, however, employees access a template library, consisting of checked text blocks that were previously created by the legal department in coordination with the relevant teams. In addition, you can create templates for generating contracts that comply with your company’s corporate identity and design guidelines.

By relying on these templates, it’s possible to generate contracts in a convenient and secure manner while simultaneously applying the same standards throughout the company when creating contracts. In an ideal case, the digital contract management system is connected to your company’s ERP or CRM system, so that all essential information about the contractual partners can be correctly imported into the contracts.

This process step highlights yet another benefit of digital contract lifecycle management over the traditional copy-and-paste method. Whether you have your own legal department or work with an external law firm, the software relieves specialist lawyers of having to perform simple routine tasks. The result? Your company saves costs by minimizing the number of hours spent on employing lawyers with high hourly rates.

Contract Review & Contract Approval

In addition to legal jargon, contracts also consist of a number of facts and figures that are stipulated in the contract and may contain accompanying documents. This may involve fixing prices, defining product designations, specifying delivery quantities and deadlines, issuing termination and confidentiality clauses, explaining liability and service agreements, and much more.

The initial contract drafting process is therefore often followed by many further contract amendments to iron out these finer details. In corporate practice, various management personnel, even from outside the legal apparatus, may be responsible for this process. Digital contract lifecycle management ensures that all participants are involved in this process in a transparent manner and can make changes to the contract at any time and from any location – provided they have the appropriate access authorization.

Not every contract process necessarily involves the people negotiating a contract also being responsible for approving it. For this reason, this step in the process often requires a seamless handover between different responsible parties. This phase is greatly simplified if all parties are able to work collaboratively on a contract document.

With digital contract lifecycle management, all the parties involved can flexibly access the entire contract and the contract creation process at any time, anywhere. All changes to the contract can be traced and assigned to individuals. At the end of the negotiation phase, it’s easier to express agreement with the latest version of the contract using the software.

Contract Execution

From a legal perspective, this process step is the most important step in contract lifecycle management. That’s because this phase is when the documents are signed. Most people in companies nowadays don’t sign contracts by hand – digital signatures have long become the norm.

Those responsible for contract management should be aware that there are three types of electronic signature:

• Legislators intentionally designed the simple electronic signature to be very open. With this signature, it’s possible to insert a scanned signature into a digital text document. However, this makes this form of signature only suitable for contracts with a low liability risk, such as purchase orders.
• An advanced electronic signature is uniquely linked to each signatory, enabling unique identification. This form of signature has a high legal validity that makes it suitable for complex contracts, e.g. a service contract.
• A qualified electronic signature has the highest legal validity, as it complies with the most stringent legal requirements when verifying an identity. Among other things, this includes use of facial recognition tools or video calls as well as the presentation of personal information, signature cards or other cryptographic tools. In business processes, this form of signature is used, among other things, for the transfer of personnel.

A digital contract lifecycle management system supports these processes, offering maximum security for the institutions involved and utmost convenience for all other parties.

Contract Performance & Contract Expiration

Contractual performance is about actually complying with all the obligations stipulated in the contract, e.g. making payments, delivering and receiving goods or services. Software-based contract lifecycle management helps monitor contract compliance by being connected to the company’s ERP or CRM system, enabling all relevant information to be found and accessed at any time.

Towards the end of the contract term, you’ll make a decision as to whether the contract should be extended – with or without the contents of the contract being adjusted – terminated or should simply expire. In this regard, the digital contract management system reminds you of all the necessary key dates and deadlines in a clear calendar, and will simplify the initiation of a new process if necessary.

The contract lifecycle is by no means over once a contract expires or is terminated. After all, every company must have access to old contracts, while there are strict legal guidelines concerning the storage of such important documents. Digital contract lifecycle management saves you from archiving old contracts in file folders, which then have to be documented, stored and eventually destroyed at great expense.

When a contract expires, it’s simply moved to the digital archive in the CLM system and stored there in accordance with all statutory retention and deletion periods. In addition to retention periods under tax law and audit-proof archiving that has been in force since 2018, this also includes strict data protection requirements pursuant to GDPR. This is where the intelligent digitalization of contract management proves to be another major leap forward. In the smart digital archive, authorized employees can access all old contracts in an extremely convenient manner via the search function.

Contract Lifecycle Management in the Era of New Work

There’s no denying that the coronavirus pandemic has dramatically transformed our working world. With the shift to working from home instead of in the office, we have witnessed the emergence of a new trend, albeit a controversial one. This trend goes by the name of “New Work”. We explore the issues behind this trend and how it’s affecting an increasingly crucial area of corporate activity: contract lifecycle management (CLM).

What Does New Work Stand For?

With this new way of working, positive values such as personal responsibility, independence and participation are becoming core guiding principles of the working world. The New Work movement is being driven in particular by the young elites, the digitally socialized Generations Y and Z, today’s twenty to forty-year-olds. New Work is synonymous with a highly digitalized working world that is connected, relies on teamwork, adopts agile working methods, offers flexibility and is committed to flat hierarchies.

In addition, New Work is an expression of a new working culture that places greater emphasis on maintaining a healthy work-life balance than on classic privileges such as a fancy company car or large office. Driving this are the changing desires and life plans of younger generations, who truly value a meaningful career, personal fulfilment and an excellent work-life balance.

What Is the Significance of New Work in Corporate Practice?

Many decision-makers in companies are asking themselves whether New Work is simply a trend that will fade away in a few years. The HR Report 2021, which was compiled by the Institute for Employment and Employability and the HR service provider Hays, supplies interesting figures for this discussion. A survey of 1,046 companies in the DACH region (Germany, Austria, Switzerland) concluded that more than half of the companies surveyed have already implemented elements of New Work. What this looks like in figures:

• 61 percent of all companies have already started to make working hours more flexible
• 55 percent are increasingly relying on project-based work
• 53 percent allow employees to work from home
• 51 percent of all companies have already introduced agile working methods

Incidentally, the pioneers of this development are companies with between 1,000 and 5,000 employees. New Work plays a particularly decisive role for companies in the industrial and service sectors. What’s more, companies with managers in the under-40 age cohort are much more committed to the values of New Work than companies with older management structures.

What Requirements Does New Work Place on Contract Lifecycle Management?

New Work demands and promotes a more flexible, agile working environment. Contract lifecycle management, i.e. the management of a company’s contracts from initial contract creation to final archiving, is affected by this in three ways:

1. New Work and digital transformation are having a massive impact on the overall contract management of companies. The increasing flexibility of business processes and working methods is posing new organizational challenges for numerous departments. Whether procurement, sales, finance or HR, the requirements for contract lifecycle management are changing in almost all departments due to digital transformation. Speed and flexibility have become the new guiding principles for effective working. Contracts and contract drafts must be available quickly, preferably 24/7 – whether at the office desk, at home, on the train or in the car.
2. The organization of contract lifecycle management itself must also be adapted to modern working environments. Employees working on different projects must be able to access relevant current and archived contracts in a flexible manner, while travelling or working from home. It must also be possible to control the contract design process transparently across all project phases.
3. With these new requirements, a third aspect of modern contract lifecycle management comes to the fore: the issue of security. Contracts contain a great deal of sensitive data, such as business secrets, personal data, important KPIs or financial information. Despite all its effectiveness, flexibility and transparency, businesses must ensure that this sensitive information can only be viewed by those who are actually authorized to do so throughout the entire contract cycle.

How to Best Meet the New Requirements of Contract Lifecycle Management

To ensure your contract management is ready for the digital future of New Work, it’s absolutely essential that you digitalize this business process as well. By relying on digital solutions that cover the entire contract lifecycle, you create the ideal prerequisite for your company to meet the requirements of New Work: efficiency, transparency, flexibility and security.

On the one hand, a software solution for contract lifecycle management can relieve your employees of having to perform numerous routine tasks and promote collaborative work. On the other hand, the software provides structured access to contract documents at all levels and across all project phases. This way, all parties involved have maximum transparency, while the company creates the best conditions for guaranteeing secure handling of sensitive company information.