Contract Lifecycle Management: A Complete Guide to the 5 Stages

Managing commercial contracts is becoming an increasingly complex activity. The volume and variations involved can be overwhelming. Left unmanaged, contracts often fail to achieve their objectives of managing costs and limiting legal and compliance risk.

What Is Contract Lifecycle Management (CLM)?

Contract Lifecycle Management (CLM) is the end-to-end process of managing an organization's contracts from initial request and creation through negotiation, execution, ongoing administration, and eventual renewal or termination.

A well-implemented CLM process delivers three core benefits:

• Cost Management: Ensures negotiated terms are honored and identifies savings opportunities
• Risk Mitigation: Reduces legal, compliance, and operational risks through systematic oversight
• Operational Efficiency: Streamlines workflows, reduces manual effort, and accelerates contract cycles

Key Insight: Organizations can unlock the full potential of their contracts only through active management. Manual tracking via spreadsheets is no longer viable for medium to large enterprises seeking optimal results.

The 5 Stages of the Contract Lifecycle

Each organization has unique procedures, but the contract lifecycle can be distilled into five essential stages. Understanding each stage is critical for implementing effective contract management practices.

Interested in how Analytics can provide value across contract lifecycle management? Read Procurement Analytics Demystified.

Stage 1: Contract Creation and Authoring

Contract Creation is  the initial phase where contract documents are drafted based on business requirements for engaging with suppliers or partners.

What Triggers Contract Creation?

Contract creation typically begins with one of the following requests:

• New contract for a new supplier relationship

• Amendment to existing contract terms

• Renewal of an expiring agreement

• Cancellation or termination request

Best Practices for Contract Authoring

1. Use standardized templates — Pre-approved templates accelerate drafting and ensure consistency

2. Implement a clause library — Maintain internally agreed terminology and legal language

3. Define clear requirements — Document business needs, scope, and objectives upfront

4. Involve stakeholders early — Engage legal, procurement, and business units from the start

Pro Tip: Organizations using standardized contract templates typically reduce drafting time significantly compared to creating contracts from scratch.

Stage 2: Contract Collaboration and Negotiation

Contract Collaboration and Negotiation is the phase in which parties discuss, revise, and agree on the commercial and legal terms before finalizing the contract.

Complex negotiations take time and effort, and situations change, so detailed records should be kept of all discussions.

How Should Organizations Approach Contract Negotiations?

Effective contract negotiation requires a structured approach:

Key Negotiation Considerations

• Commercial terms: Pricing, payment schedules, volume commitments, service levels

• Legal terms: Liability limitations, indemnification, intellectual property rights, termination clauses

• Risk allocation: Insurance requirements, force majeure provisions, dispute resolution mechanisms

Stage 3: Contract Award and Execution

Contract Award and Execution is the formal approval and signing phase, where all parties commit to the agreed terms, either through physical or digital signatures.

What Is Required for Contract Execution?

These rules are typically set out in a delegation of authority. Contract commitments need to be communicated to all users to avoid issues and conflict. Most enterprises maintain formal rules specifying who may approve contracts based on:

• Contract value thresholds

• Risk classification

• Contract type or category

Geographic or business unit considerations

Contract Execution Checklist

• All negotiated terms were accurately reflected in the final document
• Appropriate signatories identified per delegation of authority
• Legal review completed and approved
• Signatures obtained (wet ink or e-signature)
• Executed contract distributed to all relevant stakeholders
• Contract entered into the central repository

Stage 4: Contract Administration

Contract Administration is the ongoing management phase where parties fulfill their rights and obligations throughout the contract term.

What Does Contract Administration Include?

Effective contract administration encompasses:

1. Performance Monitoring

   • Track supplier delivery against agreed service levels

   • Monitor quality metrics and KPIs

   • Document performance issues and resolutions

2. Compliance Management

   • Ensure adherence to contractual obligations

   • Track regulatory and statutory requirements

   • Manage certifications and insurance renewals

3. Financial Oversight

   • Verify invoicing accuracy against contract terms

   • Track spend against committed volumes

   • Monitor price adjustment mechanisms

4. Relationship Management

   • Conduct regular business reviews

   • Address disputes promptly

   • Manage change requests and amendments

Stage 5: Contract Close-Out or Renewal

The final phase is where contracts are either renewed, renegotiated, or terminated upon reaching their expiry date.

What Options Exist at Contract Expiry?

Close-Out Best Practices

1. Notify all stakeholders of contract status and decisions

2. Document lessons learned for future contract improvements

3. Ensure continuing obligations are tracked (e.g., warranties, data retention, environmental remediation)

4. Archive contract records per retention policies

5. Conduct final reconciliation of financial obligations

Contract management systems  

Lack of online access and visibility into contract terms and obligations are two main challenges for users. Most organizations struggle to manage their contracts database effectively without using technology.

Best practice in contract management requires the application of software tools or a CLM packaged solution that provides both efficiencies and visibility while minimizing risk.

The IACCM identifies five best practices in contract management facilitated by the use of technology:

1. Use a central repository for all contracts for best access
2. Use standardized templates for consistency and ease of use
3. Standardise the negotiation process
4. Build in compliance at every step of the process
5. Measure performance and track costs.
   
   

Key features of contract management software

There are hundreds of contract management software solutions (CMS) suppliers in the market, each offering a wide range of benefits and features. It is essential to select the right solution with only the functionality you need at a price you can afford.  Some of the most valuable features are:

• Document management: a central repository for current active contracts, templates, contracts history
• Contract search: Indexed search facility to find terms within a contract
• Contract drafting: using a pre-approved clause library, digital signatures, and industry-specific templates
• Alerts and notifications: advice on milestones, including escalation, renewal, and expiry dates
• Compliance: version control and audit trail; tracking adherence to regulatory and statutory requirements and any deviations
• Reporting: customized reports on supplier performance and contract status on a visual dashboard

Trends in contract management

Innovations and technology are turning contract management from a process into a source of added business value. Here are key trends that are impacting contract management.

Increasing focus on collaboration

A contract is an agreement between one or more parties. A mutual commitment to the ongoing success of the relationship during the contract term is a must. Early stakeholder engagement has been identified as a success factor.

Automation and data analysis  

Cloud-based solutions now offer sophisticated analysis tools to evaluate supplier performance, track regulatory compliance and provide calendar management. Artificial intelligence (AI) can sift through similar contracts from the past, identify patterns and proactively recommend suitable clauses and standard definitions for new or revised contracts.

Reducing risk and governance

In contract management, governance is about legal and policy compliance, engaging in fair transactions, and being honest and transparent in contract negotiations. Failure to follow these steps is a high-risk behavior that can impact profitability and reputation.

There is no doubt that contract management is a time-consuming but vital activity in every organization. Automating major parts of the process can avoid loss of documents and data, provide improved access, and limit errors, providing reliable and efficient service to the business.

Read the 10 Challenges in Contract Management and how to overcome them

Photo by Philippe D. on Unsplash