Let’s imagine that you are a start-up business that just secured a great deal with a reputable supplier on competitive terms. While everything initially seems promising, several months later you realise the supplier’s services are not up to scratch. They miss key deadlines and cause delays, resulting in serious problems and losses for your business. As you had become so busy running your business without keeping track of things, you failed to realise performance had slipped. Without having a process in place to manage your contracts effectively, your business suffers from significant damage.
A contract lifecycle management process can help manage and avoid this risky scenario, by creating a smooth system for managing your contracts efficiently from start to finish.
In this guide, we explore what contract lifecycle management is, its benefits and some key tips to get you started. For tailored advice on contract lifecycle management, contact our commercial solicitors.
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What does contract lifecycle management mean?
Contract lifecycle management is the systematic management of contracts at all stages from initial negotiation to execution, monitoring, and finally termination and renewal. It is a process to ensure your contracts are organised, prevent disputes, and your business is protected from risk.
Contract lifecycle management generally includes various key stages:
- Contract award: This is when your business secures new agreements with clients, suppliers, or partners. For example, a client may instruct you on a new project and ask for a contract to govern its terms.
- Negotiation of contract terms: This stage involves finalising the contract terms to reach an agreement which is commercially viable for all parties involved. For instance, it will typically involve you negotiating pricing, delivery terms, and quality standards. Legal teams may get involved, offering key legal advice to help manage contract risks.
- Contract approval and execution: This stage involves formalising contract terms and obtaining necessary approvals internally at your business, such as director sign off. Following this, the business will sign the contract and it will become legally binding.
- Document management: This stage involves carefully organising and maintaining your contracts. For instance, you may keep a digital folder with all contract documents, including any amendments and correspondence.
- Performance monitoring: Performance monitoring is about ensuring compliance with contract terms and addressing any issues that come up promptly. For example, where you monitor the supplier’s performance with your contract objectives to ensure they deliver their obligations on time and as promised.
- Contract review and renewal: This involves assessing your contracts for renewal or renegotiation. You may, for instance, review your supplier contracts annually to evaluate performance and negotiate better terms.
- Contract termination: This is the process of ending contracts, when necessary, for instance where a contract comes to an end of its term, or you wish to terminate a contract with a supplier who consistently fails to meet deadlines.
What are the benefits of effective contract lifecycle management?
As a start-up or small business, you may enter a range of contracts. For instance, contracts with third-party suppliers who are delivering services to your business, in addition to contracts with your own customers or clients.
For a business of your nature, the benefits of contract lifecycle management can be significant, including:
- Cost savings, as streamlining your contractual processes will help reduce business costs otherwise spent on contract administration.
- Improved efficiency where smooth contract journeys mean your team have more time to focus on other business activities.
- Minimising risk and helping avoid litigation, by proactively monitoring contracts to check for any problem issues you can work to resolve.
- Better customer satisfaction and results, where a proactive approach to contract management means you can offer a stronger service and conclude contracts quicker.
A company’s process for creating, negotiating, and managing contracts can significantly impact its financial position and overall success. By implementing an effective contract lifecycle system, your business will be well positioned to navigate its contracts with confidence.
What steps can your business take to implement contract lifecycle management?
Internal management and diary write-ups are essential for start-ups and small businesses to effectively manage their contracts throughout their lifecycle.
Internal management is about setting up a system to oversee all contract-related activities. It involves assigning specific roles to team members for different stages of the contract lifecycle. This clear division of responsibility can help ensure that all contractual obligations are met capably.
Diary write-ups are essentially detailed records of all contract activities. They can help you log important dates and events throughout the contract's life, such as start and end dates, milestones, deadlines, renewals, and termination dates. Keeping an organised diary can help your business set reminders for important contract events, ensuring nothing is missed.
These practices will help keep your house in order and check that nothing is overlooked.
Here are some practical tips to implement these steps into a seamless contract lifecycle management system:
- Store your documents centrally: Your business should make sure you keep all your business contracts secure and in a centralised location, be it digital or physical. You may want to start with a well-organised spreadsheet or folder to store contract documents and information, which can move over into a more sophisticated software-based solution as your business grows.
- Track key contract details: You should keep a note of any key contract details such as start and end dates, your obligations, and information about your points of contact at the counterparty. You can set calendar reminders for key deadlines or when deliverables are due to your clients. This will help make sure you stay on track.
- Allocate contractual responsibility: It is best practice to designate an individual or team to have responsibility for managing each contract. They should make sure they track your company’s performance, ensure compliance with the contract terms, and manage the process of contract termination or renewals where necessary. Over time, as your business grows, you can consider training your wider team members in contract lifecycle management to help them administer contracts effectively – for instance, sales team members responsible for signing up new business customers.
- Keep records: You should ensure that you keep robust records of your contract activities. For instance, correspondence with your clients, actions you have taken, and deadlines you have met. For example, if a big product delivery deadline has been met, ensure you keep a record of it and the date the action was completed as proof of delivery.
By following these steps, you can create a strong and effective contract lifecycle management system within your small business.
How a law firm can support your contract lifecycle management process?
As a start-up or small business, knowing where to start with a contract lifecycle management process can be challenging, particularly with little contractual experience.
A law firm can help you here, adding value by helping you get started with the process. For instance, a commercial contracts lawyer can draft tailored contract templates to help streamline your contracting process and guide you on efficient contract administration and record-keeping processes to reduce risk.
Implementing these key contract lifecycle management tools will help your business stay organised right from the outset, so you are well positioned for future growth.
