What is Contract Lifecycle Management (CLM)?

Contract Lifecycle Management (CLM) refers to the process of tracking and managing all aspects of a contract. From creation to termination or renewal, it outlines the various stages that ensure you manage contracts effectively.

Stages of CLM

CLM involves the following stages:

Creating templates

Standardised documents are created to serve as foundations for specific contracts. These templates include preset terms, clauses and language commonly used across contracts.

Contract creation

This stage involves drafting a specific contract using the chosen template and adding details relevant to the agreement. It includes identifying relevant parties, defining the scope and terms, outlining deliverables, setting timelines and assigning roles.

Contract review and approval

The contract is then reviewed to ensure its terms comply with applicable regulations and are clear to all parties. This stage often involves coordination between multiple stakeholders, including legal and finance teams, executive management and external parties, such as suppliers and collaborators. When everyone agrees that the terms are fair and clear, the contract is approved.

Contract execution

After approval, the contract moves forward to execution. This is where all parties sign the document, making it legally enforceable. This is either done via handwritten or electronic signatures. 

Contract performance and compliance

Throughout contract execution, the focus is on ensuring that all parties adhere to the terms. Performance is tracked periodically against key metrics and milestones. This is commonly performed using CLM software analytics tools that offer insights into cycle times, risks, renewal and upsell statistics, deviations and regulatory compliance.

Contract amendments and modifications

Changing circumstances might require amendments to the contract terms after execution. These can include adjustments to scope, financial terms or deliverables. Contract amendments are subject to approval from all parties involved.

Contract renewal and termination

As a contract approaches its expiry date, contract owners must decide whether to renew, renegotiate or terminate it.

Importance of CLM in EU law

CLM has shifted from traditional paper methods to digital solutions. As a result, CLM software must comply with the following regulations:

eIDAS

The eIDAS Regulation serves as a framework for electronic signatures and trust services in the EU. All CLM solutions must comply with eIDAS requirements for electronic signatures and electronic seals to ensure legal validity and recognition of signed contracts across all member states. The signatures must ensure integrity, authenticity and non-repudiation of signed data.

GDPR

The GDPR sets strict rules on data protection and privacy for EU individuals. CLM processes must observe security, consent management and data minimisation to protect personal contract data.

Benefits of CLM software

• Process efficiency: Automates and streamlines contract management processes, reducing admin workload and accelerating cycles.
• Minimal legal involvement: Teams can use pre-approved, standardised templates within the software, ensuring consistency and compliance with legal policies.
• Cost savings: Reduces administrative costs and potential penalties for non-compliance or contract disputes.
• Improved collaboration: Enhances communication and collaboration between contracting parties by providing a unified workspace, ultimately strengthening business relationships.
• Enhanced visibility: Offers all parties centralised and instant access to contract data, enhancing transparency and oversight.
• Reduced risk: Identifies and mitigates risks associated with contract terms, duties and compliance requirements.

CLM software and risk management

CLM solutions help identify potential risks in contracts, such as compliance gaps and financial issues. Advanced CLM systems use AI to track performance and compliance status, and trigger alerts in case of deviations.

They offer visibility into key contract dates and can be integrated with resource planning solutions, ensuring precise financial monitoring.

CLM systems also automate approval workflows for specific templates, prioritising high-risk contracts for prompt management.

Electronic signatures for CLM

The eIDAS Regulation outlines three types of electronic signatures; simple, advanced and qualified. Advanced and qualified e-signatures offer higher levels of security and legal validity. Using e-signatures streamlines the signing process, reduces delays and enhances security compared to traditional wet signatures. 

*Disclaimer: This content does not constitute legal advice. The suitability, enforceability or admissibility of electronic documents will likely depend on many factors such as the country or state where you operate, the country or state where the electronic document will be distributed as well as the type of electronic document involved. Appropriate legal counsel should be consulted to analyze any potential legal implications and questions related to the use of electronic documents.