Contract Lifecycle Management- A New Software for Contract

CLM or Contract Lifecycle Management is a software used for tracking of contracts from its initiation through execution and its subsequent renewal. The main aim of CLM is to reduce the paperwork involved and digitalizing contracts. CLM software can improve cost savings and efficiency and helps in limiting the exposure to risk by complying with legal requirements.

STAGES OF CLM

There are 5 stages of Contract Lifecycle Management which are as follows:-

1. Contract Creation- The first stage of CLM involves drafting of the contract template. While most people are dedicated to using CLM toc create a contract the most used tools for creating a contract draft is Microsoft Word or Google Doc. Most people still use the traditional tools such as MS Word or Google Doc as they are the easiest to use and moving to a new tool seems partial. Hesitancy to move to a new tool from traditional tools shows lengthy contract creation process and more errors.

2. Negotiation- After the first draft of a contract is created, the parties are called onto negotiate the terms of the contract till the final terms and conditions of the contract are decided. This stage takes a lot of time as it involves a lot of discussion between the parties with their respective lawyers wherein one or the other mistakes are definitely caught and attaining legal approval after correcting those mistakes is the biggest hurdle to a faster negotiation. The main reason for this hurdle is the lack of a platform to share contacts and revise the contract. This leads to the existence of multiple versions of the same contract which leads to confusion and loss of tracking the progress. Therefore there is a need to use online collaboration tools for negotiation and contract creation so that there is less possibility of human error and ensuring that all parties have access to the most recent version of the contract.

3. Signature of Parties- When its time to sign the contract many people use digital signature or electronic signature or a CLM tool for signature. However, many people still send contracts for approval through email attachment or a hard copy which leads to serious problems. Regarding workflow, different department approvals such as legal, pricing, procurement etc. and collection of signatures lead to delays and errors.

4. Contract Storage- Once contract is finalized and signed, the next part is to find a place to store the contract safely so that it does not fall into the wrong hands. Many companies use cloud storage to manage completed contracts but there are still some companies to rely on file cabinets to store contracts. Even though many companies use cloud to store contract, a certain percentage of companies complain about not finding the contracts in that cloud. A CLM tool is the perfect way to encourage unified storage and naming conventions of contracts. This leads to speeding up of location of right contracts and additional insights can be gained through AI and other advanced analytics tools.

5. Renewal of contracts- When the expiry date of a contract is due then it can be renewed. The contract can be renewed with the same conditions, re-negotiated, or terminated. Expired contracts need to be closed out and all users notified. 

FEATURES OF CLM

There are many contract management softwares each offering various benefits and features. The following are the features of a contract management software:- 

1. Contract Management which includes a repository for active contracts, expired contracts, drafts and archives.

2. Contract Search which includes searching for specific clauses and terms within a contract.

3. Contract Drafting which includes industry specific templates, digital/electronic signatures and clauses to be put in the contract.

4. Alerts and notifications which includes alerts regarding expiry and renewal of contracts.

5. Compliance which includes audit trail and following regulatory and statutory requirements.

6. Reporting which includes customized reports and contract status.

ADVANTAGES AND DISADVANTAGES OF CLM

The above features clearly emphasizes the fact that CLM is the best tool for making easy the process of contract management. Also, it helps in minimizing the paperwork involved in making the contract. The following are the advantages of CLM:-

1. CLM enables to easily track many versions of a contract so that the person is always working with the most up-to-date version and version history can be gone through to see what changes had been made.

2. Contract stages can take a lot of time when many parties have to physically receive documentation, review, approve and move forward. CLM speeds up this process electronically to enable parties to collaborate effectively on documents in real time.

3. Many attachments are exchanged during a contact's lifecycle that need proper security. CLM provides safe storage and can automatically combine your email or use file sync and sharing and electronic signature to get documents to the right people in a secure manner.

4. A structured CLM process will emphasize data collection as contract requests are created and workflows are processed then inserting the approved data (header, clauses, executive summary etc.) into the appropriate template without user intervention.

5. A global view of all the active contracts will be provided and it will be easy to pull data on status of other contracts. When there is a time to report on status of contracts in their lifecycles, no time will be wasted on manually searching for statuses and creating reports.

6. CLM helps you fulfill all contractual obligations leaving no fault which leads to litigation.

7. CLM reduces risk regarding compliance by approving the contract automatically. CLM smoothens the approval process no matter how complex the approval process is.

Even though there are many advantages of CLM, like every other technology there are certain drawbacks which are follows:-

1. Lack of communication among team members in CLM.

2. Losing track of contract renewal deadlines.

3. Disorganization of contracts due to storage of huge number of contracts in one cloud server.

4. Inconsistencies in management of clauses due to usage of same clauses in thousands of contracts.

5. Limited use or overuse of technology due to ineffective CLM software. 

CONCLUSION

There are many roadblocks that can cause CLM software to go out of control. CLM is like any other software which has its own pros and cons and the way to minimize the cons is to look for end-to-end solution that stops wasting valuable resources and seek positive results.