Understanding the Stages of the Contract Life Cycle

Understanding the Stages of the Contract Life Cycle

Written By
Joy Cunanan
Updated on
September 13, 2022
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0
minutes

If you want to grow your company, you need a contract management software. 

But we’re getting way ahead of ourselves, so let’s start from the basics. 

Contracts create legally binding relationships and obligations between parties. Parties must monitor and comply with their obligations; otherwise, they run the risk of contractual breach and financial loss. 

Contract management describes the process of the creation, execution, and analysis of a contract to reach the maximum efficiency of a business. 

To truly appreciate contract management, companies must master the contract lifecycle, which starts from parties expressing their desire to enter into a contract up until the eventual contract renewal. 

A good indicator of corporate growth is the increasing number and complexity of contracts. However, if your company does not have a system in place to manage these contracts, it can result in messy and often costly complications. 

Let’s go through the stages of the contract lifecycle one by one and all the ways a full-service contract management software can revolutionize the way you do business.

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Stage 1: Contract Requests

The birth of a contract starts with the expression of the will of the parties and what they wish to get out of the contract. One party initiates the creation of the contract and requests relevant information from the other party, such as the:

  1. Identities of the parties entering into the contract; 
  2. Object of the contract, which pertains to the product or services offered by one party; 
  3. Consideration or what the other party has to do or give in return;
  4. Modes of amending or renewing the contract; 
  5. Milestones; and
  6. Relevant dates (e.g. start and end dates).

Stage 2: Contract Authoring

After completing each party’s requests on what the contract should contain, the stage of contract authoring begins. Parties lay down the terms and conditions of their agreement in writing, stipulate clauses that must be observed, and finalize other relevant information such as dates of compliance. While it varies in different jurisdictions, a contract must generally contain the consent and legal capacity of the two parties, an offer and its acceptance, and sufficient consideration — all of which must not be contrary to law.

Lexagle makes this otherwise arduous process quick and straightforward with our Template Repository and Clause Library. With our contract management software, contact creation is as easy as picking and choosing what stipulations to put in your contract from a wide array of pre-made choices. You can even make your own templates for future use with our Template Builder and run agreements through our Lexagle AI™ Contract Review to ensure uniformity and consistency. 

Stage 3: Contract Negotiations

Parties narrow down their desired terms and conditions during contract negotiations. They would not seek to reach equally favorable terms to make the most out of a potential business relationship, taking into consideration the amount of risk they each have to take when entering the agreement. It goes without saying that contract negotiation is a very vital stage in the contract life cycle, and prolonged discussions can lead to an overall delay in contract creation and consequently, business operations. There is a further risk of a setback if the parties communicate on different platforms and fail to have a consistent repository of their agreed-upon terms. 

This back-and-forth must be in a secure platform where confidential information is protected from fraudulent interferences. Lexagle built Encrypted Chatrooms precisely for this purpose, allowing users to keep their collaborations and exchanges private and safe from possible data breaches.

Stage 4: Contract Approvals

After negotiations, the contract is revised into a second draft that the parties will review once again. The length of the approval process might vary depending on the chain of command but a general approval period, milestones, requirements, unique contract terms, and other commitments must be put in place. Parties should keep an up-to-date and easily-accessible record of changes that have been made to the contract to maintain a healthy contract approval cycle. 

Prioritizing efficiency amid bureaucracy, Lexagle’s contract management software has a built-in Workflow Designer to craft specific sequences of approvals for different contracts, and a Task and Workflow Management Tool powered by our proprietary AI that automates redlining to identify and track changes in every version of every document.

Stage 5: Contract Signatures

Authorized representatives can now sign the contract following approvals. As the world transitions rapidly to automated and cloud-based workflows, contract lifecycle management (CLM) software that provides reliable electronic signature functionality can speed up this stage, reducing the friction involved in using manual “wet signatures.”

Using electronic signatures will help your company cut down on costs, since you no longer have to print, physically sign and scan a document. You will also save more time because it requires only a single click. Not only that, but you can take comfort in the security that electronic signatures provide - you can track signatures, verify its source and securely sign documents yourself wherever you are. This time, you and your team can fully work remotely with no caveats. 

[Using electronic signatures will help your company cut down on printing costs, save more time because it requires only a few clicks as opposed to printing, physically signing and scanning a document, track signatures and verify its source, securely sign documents wherever you are and promote fully remote work with no caveats.] 

Our Signing  Room™ offers unlimited digitally certified e-signatures and a counterparty verification feature to ensure that all your agreements are enforceable. 

Stage 6: Contract Obligations

After the contract is signed, each party formally accepts its role and all commitments specified in the agreement. Businesses should keep track of job assignments, task escalations, milestones, approvals, and costs, among others, to effectively manage contract obligations. 

A centralized, one-stop CLM software for managing contract responsibilities can prevent contract breaches and other potentially expensive outcomes. Having a system that reminds stakeholders of any pending tasks and upcoming deadlines ensures that no stones are left unturned despite your company’s growing number of active contracts. 

This is where Lexagle’s Document Management, EasyShare, and Vault come in handy. You can now search for one keyword relating to a contract obligation and our system will search across all stored documents that will match your query. Sharing agreements is as easy as pressing one button, too.

Stage 7: Contract Compliance

Effective management of contract compliance reduces late fees, litigation costs, and bottlenecks while building a solid foundation for future contracts. This stage also involves regular reviews of current contracts which can often be overlooked in the absence of an established system that a contract management software provides. Your company can avoid any tension that may arise in the event of non-compliance to commitments set out in your agreements. 

Lexagle has this covered with our Clause and Obligations Tracker. You’ll never miss out on compliance with contract commitments and potential renewals of agreements ever again because our software keeps track of your company’s to-do list for every agreement. 

Stage 8: Contract Renewals

Depending on the type of contract, the final phase of the lifecycle can change. When the relationship between the parties is mutually beneficial and they wish to continue doing business with one another, the contract may be renewed. 

Terms and conditions can also be revisited and amended during this stage, and re-negotiations may take place. If you have your workflow automated and organized in a single contract management software, it becomes much more convenient to revise and track changes in the original contract and pave the way for an amended contract reflecting new clauses. 

It’s best to take it a step further by choosing a contract management software that provides valuable data for every contract like Lexagle’s Contract Analytics and Management View™ feature. You can manage both value and risk accordingly with these helpful insights. 

After taking care of your business relationships and religiously performing your contractual obligations with the help of a contract management software like Lexagle, you increase your likelihood to have current corporate contracts renewed year after year. Since your workflow is also automated and simplified, your team gains even more time to focus on activating more contracts and generating more contracts. 

Ready to take your business to next-level efficiency and carve out more time for closing sales? Leave the administrative tasks to us and instead focus on further increasing your revenue. Book a demo with Lexagle today!

Understanding the Stages of the Contract Life Cycle
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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