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

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. In this blog post, 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.

1. Template 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.

2. Contract Creation

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.

3. Contract Review

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.

4. Contract Approval

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.

5. 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.

6. Contract Performance

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.

7. Contract Expiration

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.