Contract lifecycle management best practices help organizations reduce risk, improve compliance, and get more value from every agreement.
Key Takeaways
- Standardize and automate contract management processes to reduce errors, speed up contract reviews, and lower administrative costs.
- Track contract performance and risk metrics continuously to protect your organization and improve vendor outcomes.
- Centralize contracts and assign clear ownership so teams stay aligned and avoid delays or compliance gaps.
In 2024, nearly 80% of organizations outsourced some services, such as IT, cybersecurity, HR, or software development. How well your organization manages contracts directly impacts your short-term and long-term objectives, not to mention your bottom line.
Contract lifecycles govern all vendor relationships, determining the quality, cost, and scope of the services your business receives. What contract lifecycle management best practices make the biggest difference?
The Benefits of Following Contract Lifecycle Management Best Practices
Contract management professionals face growing demands on their time and attention. Many general counsel teams report that they lack sufficient staff to keep up with increasing workloads, yet their organizations are hesitant to expand headcount. Following contract lifecycle management best practices can help address rising labor costs and documentation challenges by improving efficiency and reducing manual work.
Contract Compliance and Risk Protection
Contract compliance is also connected to risk mitigation, cybersecurity, and vendor management. Making sure third-party providers follow the agreed-upon terms when delivering services safeguards your organization’s systems and reputation.
Strategic Value and Business Growth
There are considerable economic benefits to approaching contract management strategically, such as extracting more value from agreements. As organizational data continually streamlines the process, negotiations progress faster, boosting productivity and letting your company take better advantage of emerging opportunities.
How To Improve Your Contract Lifecycle Management Process
The famous 80/20 rule holds that 80% of business outcomes come from 20% of the work. This principle also applies to the contract lifecycle management process. By setting priorities for the ways your personnel use their time, you lower costs and improve returns on investment. Small efficiency improvements can add up to large impacts.
1. Standardize Contract Formatting and Development
On average, in-house legal departments spend up to 60% of their time drafting contracts. Working from a carefully reviewed, standardized outline can significantly reduce the workload of in-house lawyers, potentially cutting hours from the review process. General Counsel can focus on more critical tasks instead of repeatedly checking boilerplate language.
It’s true that the final details of most business agreements need to be customized, but the underlying foundation is usually the same. Standardized documents can fit the broad strokes of employment agreements, purchase agreements, vendor contracts, service level agreements, and similar legal forms.
In addition to implementing pre-approved contract templates, your organization can also create a library for expert-reviewed contract clauses. This “drag-and-drop” approach to agreements balances flexibility and efficiency without sacrificing accuracy.
2. Make CLM a Continuous Program
Even enterprises can make the mistake of thinking that contract management ends when the agreement is finalized and signed. In reality, the early phases of vendor risk management and contract negotiations are just the beginning. Effective CLM looks at vendor and client relationships with a long-term lens.
Ongoing management of contracts helps you reduce risks and improve outcomes. Your organization can catch issues earlier and keep vendor performance levels high. A proactive approach also reveals failures or friction on your end, giving you more time to implement corrective actions before clients react negatively.
3. Outline Key Deliverables and Keep Them Visible
One of the most important parts of CLM involves ensuring that both parties live up to their end of the agreement. Whether a contract is with clients or suppliers, there are always important obligations and requirements to keep in mind:
- Project completion milestones
- The scope of the project
- A detailed description of products or services
- Order amounts and delivery dates
- Unique specifications
- Applicable regulations and industry standards
Contract compliance is easier when you keep a high-level summary of key deliverables available at a glance. Include a report or checklist with the contract in your internal records for easy reference. This way, your team can quickly compare expected service levels with the current reality.
4. Continually Monitor Program Metrics
Key performance indicators play a vital role in managing the contract lifecycle. With vendors, tracking KPIs allows you to flag problems more quickly and consistently. On the flip side, metrics also reveal how well your internal CLM processes are working.
Some important CLM metrics include:
- Contract Turnaround Time: How much time does it take your team to go from the initial contract request to the first draft, final draft, and signature?
- Contract Volume: How many new and total contracts does your business manage? Do the agreements involve customers or suppliers?
- Contract Value: How much average or total revenue are customer contracts worth? Is the time you spend on contract reviews appropriate for the value extracted?
- Error Rate: What percentage of contracts are found to contain errors? How much did those mistakes cost your organization?
- Deviation From Standard Terms: How often do agreements require customized terms and additional attention from your legal department?
- Renewal Rate: For customer contracts, how often do clients choose to renew your company’s services? Internally, what percentage of vendor relationships meet your renewal standards?
Your organization’s data is a goldmine. Use it wisely to continuously streamline your program, improve results, and eliminate obstacles.
5. Integrate Risk Management and Contract Lifecycle Management
Outsourcing always carries risks, especially where regulatory compliance is concerned. Key risk indicators for contract management look at how well business agreements meet your organization’s governance, risk, and compliance needs:
- Are you properly vetting vendor contracts when it comes to high-risk processes?
- What percentage of contracts are renewed automatically, without proper reviews for ongoing compliance?
- Do contracts include “what if” language that details what happens in the event of a security breach or compliance failure?
- What percentage of agreements experience vendor performance failures?
Legal battles are expensive, and so are regulatory violations related to GDPR, SEC rules, employment agreements, and antitrust litigation. It costs much less to draft the appropriate language into contracts than to face lengthy court cases and disputes.
6. Choose the Right KPIs and KRIs
The goal of analytics, audits, and reporting is to identify issues quickly so you can resolve them. Too much information can distract from this objective.
Instead of casting an overly broad net, target the program metrics that tell you what you need to know. Create a plan for KPIs and KRIs in advance.
The right metrics match up with your organization’s goals, priorities, and operations. You’re looking for data that makes a noticeable difference in growth, efficiency, productivity, or risk mitigation.
7. Establish Dedicated Roles for Contract Lifecycle Management
Contracts are as important for enterprises as the circulatory system is to the human body. Like arteries, they protect, support, and empower your operations. But healthy CLM also needs resources and skillful oversight.
To succeed, your program must have qualified roles and clearly defined responsibilities. It’s not enough for the legal, compliance, operations, HR, and sales departments to handle their own due diligence. You need a team to manage the process at an organizational level, catching larger issues and improving workflows across department lines.
8. Use a CLM Automation Platform Instead of Manual Processes
Contract management is one area where doing things by hand is worse for your program, not better. Put simply, enterprises have too many agreements for personnel to manage in depth realistically. There are too many factors to juggle simultaneously, from legal concerns and regulatory needs to third-party cybersecurity and ROI.
CLM platforms can capture data in real time and surface the metrics that matter most to your organization. Instead of waiting for annual contract reviews, your team can flag problems and correct negative trends immediately. AI-powered analytics can drive shorter contract lifecycles and corrective actions that are more effective.
Automation can make an enormous difference. Automatic reminders help teams avoid renewal failures. Workflows can direct documents efficiently through each stage of the lifecycle.
9. Look for Bottlenecks
CLM best practices can have a major impact when you start by targeting obstacles and bottlenecks. At many organizations, there are specific areas that slow down contract creation, reviews, or renewals.
For example, without standardized guidelines or clearly assigned roles, documents can bounce back and forth. Correcting these underlying problems can unleash team capabilities.
10. Address Issues Early
Don’t assume that all instances of vendor contract noncompliance are intentional. In many cases, missed specs are the result of human error or confusion. A quick email may be all that’s required to clarify your expectations.
By addressing these failings early and respectfully, your organization can preserve high-quality supplier relationships without overlooking mistakes. Bring discrepancies to the vendor’s attention right away instead of hoping the problem goes away on its own.
11. Centralize Agreements
Another way CLM platforms can help with management is by enabling you to centralize documentation securely. Many business agreements require coordination between multiple departments. Teams have to be able to collaborate smoothly.
A centralized approach makes sure all stakeholders are working with the correct version of documents. This speeds up the review process and reduces the time needed for digital signatures.
Implement Contract Lifecycle Management Best Practices Cost-Effectively
Contract lifecycle management best practices take time to implement, but they deliver clear and long-lasting improvements. The benefits become even more impactful when supported by a compliance platform instead of manual management.
Compyl is a cutting-edge contract management solution designed to strengthen and streamline your CLM program. With Compyl, you can centralize documentation, automate workflows, and map contract processes to compliance frameworks seamlessly. Real-time tracking helps you monitor the right metrics and manage contract compliance in line with your company’s priorities.
With Compyl’s AI-driven insights and automated workflows, your team can reduce manual work, respond to risks faster, and make smarter decisions backed by real-time contract data. Request a demo today to see how Compyl can support your CLM strategy.
