Contracts are complex. They can create value if executed well, and risk if they aren’t. The secret to a successful contract? Creating a process first.
But what should this process actually look like, and what are the different stages of a contract lifecycle? Let’s find out.
What are the contract lifecycle stages?
1. Contract request
Before a contract can be created and managed, it first needs to be requested. This is the first stage of a contract lifecycle.
Within a traditional workflow, this typically involves a member of the sales team (or another department) completing a contract request form or emailing a member of the legal team to request that a new document be created.
It’s also possible to skip this stage of the contract lifecycle altogether by automating your workflows.
When you integrate other business platforms with Juro, contracts can be created automatically when certain projects, deals, and transactions progress to a certain stage. This eliminates the need to manually request contracts, as they’re generated on demand already.
2. Contract creation
The next contract phase is contract creation (aka contract generation). This is the stage whereby legal or business teams draft a contract that covers all of the relevant terms, clauses, and conditions for the agreement. It's also known as contract authoring.
Unfortunately, the least efficient way of doing this is also the most popular. In this contract lifecycle phase, individuals typically draft a contract’s contents in a Word document. This is done either from scratch or by using a template and inserting the specific details manually.
Rather than inputting the contract data manually, users of these tools can auto-populate their contracts using smartfields and integrations with other business platforms, like Salesforce, Greenhouse or Workday.
3. Internal review and collaboration
Once the first draft of the contract is complete, it can then be reviewed internally by the relevant stakeholders. Who these individuals are will depend entirely on the type of business contract, who it affects, and the contract value. This is called the contract review stage of the contract lifecycle.
During this phase, those responsible for reviewing the contract will read through it carefully and request any changes or make suggestions as to how the contract could be improved. Like the earlier contract lifecycle stages, how these amendments are requested will depend on the nature of your contract workflow.
In a traditional contract lifecycle, a copy of the Word document with the contract in it will be saved and emailed over to the relevant parties.
From there, each stakeholder typically creates a new version of the contract, which they redline and annotate with their comments. Once done, they will save and email the Word file back to the contract owner, who will need to compile each version and the changes contained within them.
Tracking these changes can be a nightmare, and it’s common for communication to break down at this stage of the contract’s lifecycle. Without proper care and attention, this can lead to costly mistakes and plenty of time wasted on contract administration.
In more sophisticated contract workflows, legal and business teams use contract tools to review and collaborate on contract drafts at this stage.
Solutions like Juro enable users to add comments, suggestions, and redlines together in one dynamic document. This creates a single source of truth for these changes by enabling collaboration to happen within one version and platform.
4. Contract negotiation
But of course, it isn’t just the internal parties that need to agree to the contract’s terms. Counterparties do too. That’s where the fourth contract phase comes in: negotiation.
Contract negotiation involves discussing the contract’s terms with the stakeholders on the other side of the transaction. The standard terms agreed internally will be shared with the counterparty, usually via email and in a Word document, and redlined once again.
During this phase, you’ll often find that the counterparty will reject certain clauses and propose more favorable ones.
Since negotiation is a deliberative process, you can expect multiple versions of a negotiated contract to move back and forth over email before the contract terms are eventually finalized. This can create delay and friction without the right tools and processes in place.
Fortunately, improving the negotiation process for fast-growing businesses can be achieved in the same way that improving the internal contract review process can - by implementing the right redlining software or contract automation tool.
Once a contract has been negotiated and each party is satisfied with the final version, the contract then needs to be approved by senior stakeholders.
Even if these individuals weren’t involved in the creation and negotiation process, the contract could still require their sign-off. The contract approval phase of the contract lifecycle is also important for clarity, as it ensures that contracts aren’t mistakenly pushed through to signing without the necessary say-so.
Requesting and receiving this approval often happens in one of two ways: by requesting and receiving written approval from the relevant stakeholders via email, or through approval workflows. Contract approval workflows accelerate legal review by automating the approval process.
Once approved by both parties, it’s time to get contracts over the line by getting them signed. This stage of the contract management lifecycle can be achieved either using wet ink signatures or with an eSignature.
Traditionally, this stage of the contract lifecycle process would involve using wet ink and physical paper contracts, meaning that contract parties had to be in the same room to finalize contracts.
Today, it’s much easier to get business contracts signed. Electronic signing is usually completed using an eSignature tool like DocuSign or Adobe Sign, or a more comprehensive digital contracting solution like Juro.
7. Tracking and compliance
But what happens to contracts post-signature? One of the biggest mistakes in contract management is assuming that the contract lifecycle ends once a contract has been signed. Businesses that do this tend to file contracts away across shared drives and never look at them again.
By contrast, businesses that do recognize contract tracking as one of the different contract lifecycle stages can leverage the insights made available within contracts to save both time and money.
8. Contract renewal
The final stage of the contract management lifecycle is contract renewal: the process whereby existing contracts are either renewed at the end of the contract’s duration - automatically or manually.
Contract renewal essentially means either canceling contracts that are up for auto-renewal or choosing to renew an existing contract if you wish to continue business relations. For more info check out this detailed guide to contract renewal.
Regardless of what you choose, contract reminder software can be an effective way to keep on top of upcoming deadlines and track auto-renewals for large volumes of contracts.
How to manage the stages of a contract lifecycle
As we’ve just discussed, contracts enter various different phases as they progress through the contract lifecycle. Each stage, without the right tools and processes, can create plenty of contract admin for your in-house legal and business teams to contend with.
Fortunately, reducing this contract admin can be as simple as adopting the right contract lifecycle management software. CLM software enables legal and business teams to automate these processes and streamline the contract lifecycle for faster and more efficient way to manage legal agreements.
Want to find out how contract tools can transform your contract lifecycle and reduce time spent on contract admin by up to 75%? Fill out the form below.