What is Contract Management & How to Optimise CLM Processes

Contract management is an essential function that governs how legally binding agreements are created, executed, monitored, and renewed. Yet, many organisations still rely on manual contract management, leading to inefficiencies, compliance risks, and missed opportunities.

Recent studies show that:

• Poor contract management can result in revenue losses of up to 9.2%
• Contracts-related tasks represent at least half of the daily work for corporate counsels
• Contract lifecycle management is expected to be the area where GenAI can be most impactful for procurement professionals over the next 12 months.

This guide explores the fundamentals of contract lifecycle management (CLM), the challenges of using manual CLM processes, and how your organisation can optimise its contract management processes through automation and applying best practices to benefit its legal and procurement teams.

What Is Contract Management?

Contract management is the process of overseeing legally binding agreements from creation to execution, monitoring, and renewal.

It ensures that all parties adhere to their contractual obligations while minimising risks and maximising value. Effective contract management aligns agreements with business goals, enhances compliance, and improves operational efficiency.

Traditionally, contract management has been a labour-intensive process, requiring extensive manual tracking, navigating fragmented systems and high levels of administrative work. By using an optimised and automated approach, supported by CLM software, your organisations can restore visibility into agreements, take back control of contract processes, and safeguard compliance against legal and regulatory risk.

The Seven Stages of Contract Lifecycle Management & Traditional Challenges

Contract lifecycle management for each agreement consists of seven high-level stages:

1. Inception: Identifying Contract Requirements and Stakeholders

At this stage, your organisation must determine what it needs from a contract and who should be involved. Without a structured process, requirements can be unclear, and key stakeholders may be overlooked. This can result in vague or deficient contract scopes and inefficient approvals, causing delays and misunderstandings before the contract even begins.

2. Contract Negotiation: Drafting and Agreeing on Terms

Manual negotiation processes often lead to extended back-and-forth exchanges, lost email threads, and version control issues. A lack of standardised contract templates increases the risk of misalignment between parties, while legal bottlenecks can slow down business-critical agreements.

3. Execution: Signing and Finalising Agreements

If execution is managed manually, contract documents may be misplaced or incomplete. If your business relies on physical signatures, it can experience long turnaround times, while a lack of centralised tracking makes it difficult to confirm final approvals and ensure all parties have access to the latest version.

4. Start-Up: Extracting and Documenting Contract Metadata

Without contract automation, businesses struggle to capture and record key contract terms, dates, and obligations efficiently. Manually logging contract details into spreadsheets or disparate systems increases the risk of errors, leading to compliance gaps and missed obligations.

5. Monitoring: Tracking Contract Compliance, Obligations, and Performance

Contract obligations and key milestones can easily be overlooked when managed through fragmented systems. Without real-time tracking, organisations lack visibility into performance, which can lead to penalties, unfulfilled obligations, or disputes with vendors and partners.

6. Contract Renewals: Reviewing Agreements and Renegotiating Terms

When contract renewals are handled manually, organisations risk missing critical deadlines, leading to unintended auto-renewals or missed opportunities for renegotiation. Without a structured renewal strategy, businesses may continue with unfavourable contract terms that could have been optimised.

7. Closeout: Archiving Contracts and Maintaining Compliance Records

Finalising and archiving contracts manually can be inconsistent and disorganised. Compliance records may be incomplete, making audits difficult. Without a central repository, retrieving past agreements for reference or regulatory purposes can be time-consuming and unreliable.

How Contract Management Software Enhances Efficiency

Legal and procurement teams face increasing pressure to manage contracts efficiently while mitigating risk and ensuring compliance. Contract management software transforms the way your organisation handles agreements by automating key processes and improving efficiency across the contract lifecycle.

Restoring Visibility

• A centralised repository ensures all contracts are stored, tracked, and easily accessible in real-time.
• Advanced search and AI Summaries provide instant insights into contract performance, key milestones, and risk exposure.
• Automated alerts and workflows notify teams of critical deadlines, ensuring no contract is overlooked or mismanaged.

Taking Back Control

• Standardised and best-practice workflows ensure consistency in contract approvals, negotiation, and execution.
• Role-based access controls enable the right teams to have appropriate permissions while reducing security risks.
• Integration with procurement, finance, and legal tools via API ensures seamless collaboration and compliance.

Safeguarding Compliance

• Automated contract approval workflows provide visibility into approval bottlenecks, allow for automatic escalation if required, and ensure that the right stakeholders review contracts at the right time
• Automated compliance workflows mitigate the risk of penalties and contractual breaches and can include the vendor directly.
• Complete, defensible audit trails provide total visibility into contract modifications and approvals, simplifying regulatory audits.
  

How to optimise contract management processes

Contract management does not operate in isolation. It is a crucial part of a broader Vendor and Contract Lifecycle Management (VCLM) strategy.

Businesses that integrate contract management into a VCLM approach gain more control, efficiency, and compliance by linking contract processes with vendor performance, risk assessment, and procurement strategies.

Why a VCLM Approach Matters

• Improved Visibility: Contracts are closely tied to vendor relationships, and integrating contract management with vendor management ensures a full view of vendor risks, performance, and obligations.
• Better Risk Management: By assessing vendor risk alongside contractual obligations, organisations can proactively mitigate supplier-related risks.
• Stronger Compliance Safeguards: A holistic VCLM strategy ensures that regulatory and contractual compliance are managed consistently across vendor and contract lifecycles.
• Optimised Cost and Value Realisation: Aligning vendor negotiations with contract renewals ensures businesses extract maximum value from agreements.
• Streamlined Collaboration: Procurement, legal, and finance teams benefit from an integrated system that ensures accountability and data consistency.

A well-structured VCLM approach ensures that contract management is not just about documentation but becomes an active part of optimising vendor relationships and business outcomes.

Contract Management Best Practices

Implementing effective contract management requires proactive planning and structured processes. Legal and procurement teams must focus on practical steps to improve efficiency, reduce risk, and drive better contract outcomes.

For Legal Teams

• Ensure Contract Clarity from the Outset: Define key contract terms, obligations, and milestones clearly to avoid ambiguity.
• Establish a Regular Review Process: Schedule periodic contract reviews to identify risks, upcoming renewals, and potential renegotiation opportunities.
• Train Teams on Compliance and Legal Obligations: Ensure internal teams are educated on contract requirements, regulatory changes, and their roles in contract execution.
• Document All Negotiations and Changes: Maintain a clear record of contract modifications and approvals to ensure transparency and reduce legal disputes.
• Create a Contingency Plan for Key Contracts: Identify critical contracts and prepare action plans in case of supplier failures, regulatory shifts, or legal disputes.
• Build a single source of truth: Ensure all contracts and supporting documentation are stored in a centralised repository with role-based access controls.
• Standardise Contract Templates: Develop a legal-approved library of clauses and contract formats to minimise drafting errors and negotiation inefficiencies.
• Proactively Mitigate Risks: Regularly review contractual obligations, indemnities, and liability clauses to reduce exposure to legal disputes.
• Complete Regulatory Compliance Checks: Implement an automated system to track jurisdictional regulations and ensure contracts remain up to date with evolving laws.

For Procurement Teams

• Define Clear Approval Workflows: Establish structured approval processes to eliminate bottlenecks and reduce negotiation times.
• Benchmark Contract Terms Against Market Standards: Regularly compare contract pricing, terms, and conditions to ensure competitive agreements.
• Streamline the Renewal and Termination Process: Set review dates well in advance of contract expirations to avoid missed renegotiation opportunities or unnecessary renewals.
• Improve Internal Collaboration: Facilitate clear communication between procurement, finance, and legal teams to align contract objectives with broader business goals.
• Monitor Vendor Performance: Use performance scorecards to assess vendor reliability, delivery timelines, and adherence to service level agreements (SLAs).
• Prioritise Contract Visibility Across Departments: Ensure procurement, finance, and legal teams have real-time access to contract data to facilitate informed decision-making.
• Use Automated Alerts for Key Contract Dates: Set up notifications for upcoming renewals, expirations, and renegotiation opportunities to avoid costly lapses.

By adopting these best practices, supported by contract management software, your organisation can ensure long-term success and maximise contract outcomes. Integrating contract management software with vendor and contract lifecycle management means your business can streamline workflows, mitigate risk, and maximise the value of its agreements.

For a more detailed insight into best practices, speak with one of our experts today.