Design and Build an Effective Contract Lifecycle Management Process

Configure your approach to meet your needs and maturity level.

Analyst Perspective

Contract lifecycle management (CLM) systems (and therefore CLM processes) continue to evolve. Vendors in the space are constantly modifying their features and functionality, and the industry's players are rapidly changing due to vendors entering, merging, and leaving. Artificial intelligence is the latest innovation being leveraged by the CLM providers, making the systems more sophisticated and easier to use.

Overall, CLM still requires human participation – more than you might think. We humans have to track down the contracts, identify the process we want to follow, draft use cases, identify requirements, and run the system. In addition, validating or spot-checking the work of the artificial intelligence with a human in the loop ensures things run smoothly. (Even with artificial intelligence, the systems won't run entirely by themselves yet).

For the CLM system to be effective, a lot of work must occur before implementation (problem statement, desired process, requirements, use cases, negotiations). We also need to understand the limitations of the tool since it won't solve all of our problems. For example, the best CLM system on the market won't completely fix our process and noncompliance issues. Let's recognize CLM tools for what they are: great assistants. They are not a cure-all for whatever ails you.

Wherever you are in your CLM journey – trying to locate all your contracts, defining your CLM process, or investigating the deployment of robust CLM system – this blueprint will serve as a GPS as you navigate through the labyrinth of work and decisions to arrive at your first or final destination.

Phil Bode
Principal Research Advisor
Contract Review & Vendor Management
Info-Tech Research Group

Donna Glidden
Principal Research Advisor
Contract Review & Vendor Management
Info-Tech Research Group

Executive Summary

Info-Tech Insight
CLM is more than finding a tool or system to help you manage the contracting process. It is important to start at the beginning and take your time on the journey. The road is fraught with pitfalls, which can lead to false starts and failures. Treat your journey as a project and employ best practices as you navigate through the project, just as you would any other project. Avoid the temptation to rush and you will be rewarded in the end.

¹ "Keep It Simple–" World Commerce and Contracting, 2023

² World Commerce and Contracting, 2022

Executive Summary

Your challenge

Organizations have embraced the contracting process and CLM, but overall, they lack the maturity needed in these areas to yield significant benefits.

The Current State of Information Technology and Knowledge Management*

^* "Keep It Simple–" World Commerce and Contracting, 2023

Executive Summary

Common obstacles

Organizations face a myriad of challenges and obstacles when trying to deal with contract management and CLM. Identifying the challenges and obstacles early in the process is key to successfully modifying contracting policies, processes, and procedures.

In a typical mid-size organization, contract-related data sits in 24 different systems.¹

The biggest priority for contracting and legal groups is increasing strategic value; the biggest barrier is operational workload.¹

Three common contract management and CLM challenges are:

• Building consensus
• Obtaining budget
• Change management²

¹ "Keep It Simple–" World Commerce and Contracting, 2023

² World Commerce and Contracting, 2022

Executive Summary

Info-Tech's approach

CLM requires a flexible approach based on the organization's goals, culture, maturity level, scope, and other factors. Info-Tech's framework helps you navigate through the various stages at your own pace and based on your needs. It can be used as a cycle, starting with location.

Executive Summary

Info-Tech's approach

It also can be used to focus on one aspect of the cycle, without regard for the others.

Info-Tech's methodology for CLM

Insight Summary

Insight 1
The CLM process does not operate in a vacuum – other processes work with the CLM process. For example, the request for proposal, project management, and negotiation processes impact the CLM process. While this blueprint focuses on the CLM process, don't overlook these and other tangential or integral subprocesses throughout your CLM journey.

Insight 2
A CLM tool will not solve your process, approval, and personnel issues. Make sure you understand your current process, your desired-state process, and your requirements before looking for a CLM tool. The CLM tool should work with your process and meet your use-case needs as well. A CLM system is not a magic wand.

Insight 3
When evaluating CLM providers, evaluate them and their solutions against your requirements and use cases, not against each other. Take time to understand your requirements and use cases thoroughly. Vendor evaluations must be done against these items to ensure you select a solution that will work in your environment (or if need be, you walk away because it won't work in your environment). Comparing one vendor against another can lead to an unsatisfactory result, even though that option was the best available.

Insight 4
Knowing the location of your contracts (and what you call a contract) is a foundational element for having a sound CLM process and procuring/using a CLM tool. Don't forget the basics. A CLM process and a CLM tool can help going forward, but to get the most out of your current situation, you need to know where your contracts are and what you define as a contract. It's not as easy as it sounds. Work through these elements to ensure a solid foundation before modifying your CLM process or implementing a CLM tool.

Blueprint benefits

Phase 1 – Location

Locate all contracts

Phase 1
1.1 Create a Contract Location Plan
1.2 Update or Create a Contract Location Policy
1.3 Implement the Contract Location Plan
1.4 Validate Contract Location Policy Compliance

Phase 2
2.1 Finalize Requirements
2.2 Obtain Contract
2.3 Review Contract
2.4 Negotiate Contract
2.5 Gain Approval
2.6 Execute Contract
2.7 Capture Contract Details
2.8 Manage & Monitor Contract
2.9 Capture Lessons Learned
2.10 Determine Contract Disposition
2.11 Follow Retention Policy

Phase 3
3.1 Determine Requirements
3.2 Identify Vendors
3.3 Select Vendor
3.4 Implement System

This phase will walk you through the following activity:

This phase helps you organize and develop a plan to locate your contract documents and move them to a central location. The primary outcome from this phase is a Contract Location Plan.

This phase involves the following participants:

• The CLM team (representatives from Legal, IT & PMO, Procurement, Vendor Management, and others as needed)
• Applicable stakeholders and executives

Phase 1 – Location

Determine whether Phase 1 applies to you

Many organizations have fundamental issues with their contract management. Some examples include:

• No central location for contract storage exists.
• Finding a contract document is a difficult and frustrating experience.
• Contracts are scattered throughout the organization in various storage locations and media such as email, SharePoint, network drives, and local hard drives.
• People are protective of "their" contracts and don't want to share.

If any of these describe your organization, the first step to improve your CLM is to get organized.

This phase focuses on helping you develop and implement contract-related plans and policies. Throughout this phase, guidance will be provided in the form of a framework, but your actual circumstances and needs will dictate how you operate within that framework. It is not intended to be a one-size-fits-all model or a lift-and-shift approach to getting organized. However, the content provides basic concepts and sufficient details for you to 1) evaluate their applicability to your project and 2) make any modifications necessary to fit your situation.

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Identify the team lead and scope of the project

This phase is a project broken into steps. As with any project, a solid plan should be created. Review the items in this step to create the basic structure of your project plan. Adapt the wording and concepts to fit your culture and environment.

First, identify the person who will lead the project. The person selected should not be a figurehead. If there is an oversight committee (and typically, there is), make sure the project leader is a part of that committee. In addition, the project leader should have:

• Executive support and sponsorship.
• Authority to act and make decisions within the approved framework.
• The time, experience, and knowledge appropriate for the project.

It wouldn't hurt if the project leader were enthusiastic about the project too.

Next, identify the project's basic scope by contract type and time. Some considerations are listed below:

• Will the scope include all contracts; all contracts for a branch office, department, agency, division, etc.; or all contracts by type (e.g. all purchase agreements for IT)?
• Will it include all buy-side agreements, all sales-side agreements, or both?
• Will it include active contracts, terminated contracts, or a combination limited by time (e.g. all active contracts and any contracts terminated within the last three years)?

Info-Tech Insight
Based on your organizational culture, you may want to create a project charter to go along with your project plan.

1.1 > 1.2 > 1.3 >1.4

Step 1.1 – Create a Contract Location Plan

Identify the team members

After determining the project's scope, recruit the team members or personnel who will work on the project. Some may work on narrow parts of the scope, while others may work on the entire scope. Overall, make sure the team is made up of individuals who:

• Have enough time to devote to the project.
• Have the appropriate skills, experience, and knowledge.
• Have the proper executive and management support and sponsorship.

Each person should understand how they will contribute to the project: their role, responsibilities, and time commitment. To maximize the team's chances for success, communicate these items before a member agrees to join the project.

Info-Tech Insight
Consider using a modified Owner, Informed, Contributor (OIC) or Responsible, Accountable, Consulted, Informed (RACI) chart as well as diagrams, flowcharts, and other communication devices in addition to the project plan (and charter).

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Locate your document retention policy

Locate and review your internal document retention policy. If you don't have one, create one! The document retention policy will provide answers to the following questions (at a minimum), which will feed into your Contract Location Plan, handling of the documents as you gather them, and other decisions along the way:

• Do you keep old drafts?
• If so, how far back?
• If so, for how long?
• For electronic documents (clickwrap, downloaded, and e-signature), do you keep:
• Only the electronic version of the executed document?
• A hard copy printout of the fully executed electronic document?
• For physical documents that contain a "wet ink" signature, do you keep:
• Only the physical version of the executed document?
• Only an electronic version of the executed document?
• A physical version and an electronic version of the executed document?

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Create or review electronic file naming conventions

As a team, it is crucial to start making downstream decisions early in the process. The goal is to address as many issues as possible in advance so that the team is not stopping every time a new issue arises. The work should flow smoothly once the plan is implemented, eliminating 1) potential rework, 2) touching a document multiple times, and 3) slowdowns due to unnecessary oversights.

If your documents are already in electronic format or you will be storing them in an electronic format eventually, create or review your initial naming convention for the files. This may be subject to change as you encounter new items, but you should be able to reduce the number of outliers with a bit of brainstorming and work. Make sure you update this list as required during implementation of the plan. The objective is to create a consistent naming format for contract files that also provides helpful information in the file name.

Examples of useful information include:

• The vendor's name.
• The document's effective date.
• The department/line of business/agency/etc. associated with that document based on impact, function, or budget.
• The type of document (e.g. agreement, amendment, order form, statement of work).
• The name of the product/service being provided under the document.
• A unique contract number.

Sample: ABC 02012023 IT Software License for KoolStuff - 00234

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Determine temporary storage sites for physical and electronic documents

The next decision involves the temporary location for your work product. As you locate contracts, where will you store them? You may need a combination of physical and virtual locations.

For physical storage, a conference room, office, or other secure location may be suitable. Sometimes it can be hard to find a dedicated space for the duration of the project though. However, you'll want to store all the physical documents in one place and lock the door at night; this will ensure that any sorting or other work in process is not disturbed and the sensitive information in those documents is secure.

For virtual storage, the task should be easier than physical storage, but the same concerns apply. Identify a place with sufficient storage capacity, and make sure the drive (or portion of the drive) can be secured to keep people not on the team from intruding on the project accidentally.

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Identify the permanent location for your physical files

After identifying your temporary storage sites, go through the same exercise for the permanent location for your files. This may (or may not) be the same as the temporary locations.

Start with your physical documents. If they will be stored onsite, the location should be secure based on your standards. Oftentimes, organizations will use fireproof or fire-resistant locking file cabinets, locked rooms, or other storage options to protect the files. Offsite storage is an option as well, but this tends to be cumbersome unless it is for backup purposes.

Make sure you have sufficient space to meet your storage needs now and in the future. As more organizations move away from physical documents, you may need less space in the future. Conversely, if you won't be migrating to electronic storage, you may need more physical space in the future. (Note: If you live in a paper environment, having an electronic version of the document as a backup is a good idea.)

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Identify the permanent location for your electronic files

For electronic storage, determine whether that will be in a CLM tool, a contract management database, a network drive, another centralized location, or a combination. Whether you are uploading the contract documents into a tool or storing them on a network/cloud drive, create a directory or folder structure. For example:

• By organization or department/agency/line of business
• Organization level – all contracts
• Department or line of business level – all IT contracts, all HR contracts, etc.
• Subdepartment level – all Applications contracts, all Telecom contracts, etc.
• By contract type
• Software licenses
• SaaS
• Hardware
• Services
• By vendor

Make sure you have sufficient space and security measures for the selected storage location. If you are using a third-party database or tool, investigate the fees associated with adding documents to the system to avoid invoicing surprises; some vendors charge per document stored.

1.1 > 1.2 > 1.3 > 1.4

Step 1.1 – Create a Contract Location Plan

Determine what you will do with each document initially

Unfortunately, the decisions are about to get a little harder. Once you begin implementing your plan, you'll be handling all your agreements (hopefully!). At that point, you'll have to know what you are doing with them. Ordinarily, the goal should be to touch them once and move on, but you may need or want a phased approach.

Determine how deep you want to go and whether you can go that deep given your personnel and other resources for the project. When you locate contract documents, what will you do with them?

• Will you perform an initial pass at this point and create a document map, returning later to gather more information or implement the second phase of your plan?
• Will you seize control of the documents at this point or later?
• If you take the documents now, will you leave a copy behind?
• If it is a physical document, will you create an electronic version of it now or later?
• Will you create an abstract of basic information (e.g. type of agreement, vendor name, effective date, term, termination notice required, fees) now or later? (If you will be creating an abstract, create the form prior to implementing the Contract Location Plan.)

1.1 > 1.2 > 1.3 > 1.4