A very critical component of effective vendor management is to ensure you have a full Contract Lifecycle Management Process. The challenges companies face in managing the risk’s associated of working with their vendors and other third parties make it absolutely necessary that organizations embrace effective Contract Lifecycle Management.
So, what are the goals of the Contract Lifecycle Management? Before we visit this, lets define Contract Lifecycle Management. CLM is the management of an organization’s contracts from initiation, to authoring, negotiation through execution and then ongoing performance & compliance management to contract renewals or expiration. As you can see, this is a lengthy process with many moving parts so without an effective and disciplined approach in place it is easy for risk factors to go unchecked and problems to arise. Below is an image representing CLM from our partners at Gatekeeper.
The goals of the Contract Lifecycle Management are ensuring you address the following:
- Speed to Market
- Internal Controls
- Risk Mitigation
- Performance and Compliance Management
- Continuity Planning
Below are more details on each of these important goals.
Speed to Market
Most companies exist in a very competitive and challenging domestic and global marketplace. Being able to support innovation and deliver on your mission in a timely manner is essential to your continued success. One of the most effective ways to ensure your speed to market is aligned to operate efficiently is to put in place contract authoring, negotiation and execution processes that remove barriers to getting new business relationships with vendors in place quickly.
It is vital to ensuring your contracts reflect your organization’s best interest, mitigate risk and ensure regulatory compliance, you need to have CLM processes that include all relevant internal stakeholders with the reviews and controls in place to ensure the appropriate subject matter experts our involved at each stage of CLM. From due diligence, to business terms to legal consultation having these important CLM controls in place lead to effective contracting, risk mitigation and ongoing performance management.
To ensure you mitigate and balance the risk in your contracted relationships, having an optimized CLM process is an important place to start. Having legal and risk management professionals involved with business owners from pre-contract due diligence to contract authorizing and execution ensures you will have all of the necessary clauses required to clearly detail your and the other parties’ responsibilities under the agreement. Risk management is spans across the entire relationship with a vendor and effective CLM is one of the primary tools you have to mitigate risk.
Performance and Compliance Management
One of the primary benefits of effective contract lifecycle management is having service level agreements detailing the required performance and delivery of service in the contract. Ensuring these clauses and supporting language are in place will go a long way to managing effective and productive relationships with vendors.
Additionally, you can address regulatory compliance requirements within your contracts and ensure the work you and your vendors are doing meets the compliance standards you are required to operate within.
An effective CLM process will support continuity planning with your vendors. Having the right balance of renewal and termination language built into your contracts provides your organization the mechanism and flexibility needed to hold your vendors accountable while enabling you to renew or exit relationships based on the current market forces you encounter.
As example, the extreme circumstances created by our current pandemic have forced organizations to review their existing contracts to see what their options are to deal with service disruptions and failures occurring with their vendors. How many of us had heard of force majeure before Covid 19?
A force majeure clause is a contractual provision which excuses one or both parties’ performance obligations when circumstances arise which are beyond the parties’ control and make performance of the contract impractical or impossible. This is just one of the many important things effective contracting can do for your organization.
To wrap this up, the goals of Contract Lifecycle Management align very much with many operational best practice’s organizations need to employ. Effective CLM is an imperative function for any organization committed to excellence and success.
As you begin your contract lifecycle management journey or need help assessing your existing contracting process, here are the contract management services we provide. We are here to help!
Author: Paul Schrantz
Job Title: Director of Business Development & Client Success
Organization: Vendor Centric