What are the Three Phases of Contract Management?
Contract management is the process of administering the request, creation, negotiation, review, execution, and post-execution management of contracts and supporting documents. An effective contract management system helps a business keep track of all of its legal agreements from beginning to end and can result in faster contract flows, more accurate contracts, improved legal and regulatory compliance, and ultimately less business risk.
There are three phases of contract management. The pre-execution phase involves everything from the initial request through the authoring and negotiation of the contract, both internally and with third parties. The execution phase involves the signing and finalization of the contract. The post-execution phase involves obligation fulfillment, reporting, and archiving the contract. All active contracts go through all three phases – and these phases can be automated and streamlined via contract lifecycle management (CLM) software.
Phase 1: Pre-Execution
The pre-execution phase of the contract management process involves everything up to the signing of the contract.
Request and Intake
The first of the three phases of contract management begins with the request for the contract. Information that is crucial to the authoring of the contract is compiled, including details about the goods or services contracted, delivery dates and other milestones, and terms and conditions. Supporting documents are also assembled.
Creation and Drafting (Authoring)
Key information in hand, the first draft of the contract is created. At this point, the contract should include all requested terms, conditions, and other legal verbiage. This phase can be considerably sped up via the use of contract management software and contract templates that utilize pre-approved contract language from clause libraries.
Collaboration and Redlining (Negotiation)
The first draft of the contract is then distributed to all interested parties for review. Initially, this happens internally. Once approved internally, the draft is sent to the third party. During this stage the parties redline the contract for necessary and suggested changes. Differences between parties are negotiated. If both parties mark up their own versions of the contract, those versions are compared and discrepancies are noted for further discussion. The parties may collaborate on creating a version for final review. Some intelligent contract management systems enable real-time contract collaboration as well as call-and-response negotiations. In addition, CLM tools can automatically track all changes to ensure accurate and easy version control.
Final Reviews and Approvals
Internal stakeholders, including legal staff, now conduct a final review of the contract. Any last-minute changes are made and the approved contract moves forward to the execution phase of the process.
Phase 2: Execution
The execution phase of contract management is where the contract is signed and finalized.
Execution and Signatures
For a contract to be legally executed, authorized representatives or signatories from both parties must sign it. These signatures can be physical or electronic. Physical or “wet” signatures can be executed in person, with all parties present, or sequentially, done remotely by routing the contract between each party’s offices. Electronic signatures can be done simultaneously by both parties in a shared Word or PDF file or by using contract management software. E-signatures offer a much faster and superior user experience since contracts can be signed from anywhere on any device without having to print, sign, scan, and email contracts. They are also more secure and have been legally binding since the E-SIGN Act of 2000.
Finalization
The signed contract must now be finalized and made available to relevant departments and entities throughout your organization. This informs them of all commitments and obligations that need to be met.
Phase 3: Post-Execution
The contract management process doesn’t end when a contract is signed. There are several actions that take place in the post-execution phase, which is the last of the phases of contract management, primarily regarding contract storage, reporting, and disposition.
Obligations and Commitments
It’s important that both parties fulfill the obligations and commitments specified within the contract. To ensure complete compliance, you need to be aware of all the commitments and due dates. You also need to be aware of when the other party’s commitments are due. This is most easily done via automated alerts and tasks built into contract management software so that no new date gets overlooked.
Reporting and Auditing
All executed contracts need to be readily available for auditing by interested parties, including legal staff. In addition, you need to be able to generate reports on the status of all contracts in your system. It’s important that all contracts, both in-process and archived, be easily retrievable.
Amendments, Addendums, Renewals, and Terminations
The final disposition of a contract comes when the contract terms are completely fulfilled or the contract reaches its end date. At this point, you can choose to terminate or renew the contract. Renewals can extend the existing terms of the contract or the terms can be changed via amendments or addendums. Terminated contracts need to be noted as such and archived.
Archival and Data Retention
All contracts you create need to be securely stored in a digital contract repository. This ensures that contracts and associated documents are secured from unauthorized access and data theft, while at the same time providing easy access for authorized users who need to retrieve specific contracts or search for relevant information. Obviously, all data in this repository must be stored in a highly secure and reliable fashion such as on Microsoft Azure to protect against a potential data breach or loss. Access to the repository should be restricted to authorized personnel and a robust search engine should be provided to ease the query process.
How Contract Lifecycle Management Software Automates the Contract Management Process
Contract lifecycle management (CLM) software, such as Contract Logix’s Premium CLM Platform, automates all of the phases of contract management from start to finish. CLM software employs request and intake forms, pre-approved templates, automated workflows and alerts, reports, dashboards, collaboration, and e-signature technology, as well as a dynamic and secure cloud-based repository to store and search contracts and related documents.
When employing CLM software, you experience greater compliance with contract terms and conditions because the software keeps track and informs you of all relevant delivery dates. The entire contract management process is also faster with CLM because so much of it – including the negotiation and reviewing phases – is completely automated. If your organization handles a large number of contracts and/or is concerned about compliance and risk management, CLM software is essential.
Let Contract Logix Provide Contract Management Services for Your Organization
Contract Logix provides full-featured contract management via its contract lifecycle management software. This contract management solution helps manage all phases of contract management, from intake and authoring to execution, reporting, and archiving. Contract Logix’s CLM software is a “no-code” solution that can be easily configured for the specific needs of your organization and is easily scalable as your business grows. In addition, the Contract Logix solution supports and integrates with your existing financial, HR, ERP, CRM, and IT platforms. Choose Contract Logix when you want to automate and streamline your contract management process – and ensure that no contract ever drops between the cracks.
Contact Contract Logix today to learn more about contract management services and schedule a free demo.