What does Contract Lifecycle mean?
Contract lifecycle is a term used frequently in the contract management profession to describe the stages of existence of a contract, from conception to completion. This concept has garnered greater attention in recent years as businesses and academia have come to recognize that proper management of the contract lifecycle can increase revenues, decrease costs, and provide other benefits to the organization.
There is no universal agreement as to the precise stages of the contract lifecycle, because there can be variations in the contracting process by industry. Notwithstanding these differences, the following listing provides a good generalization of the contract lifecycle:
- Prepare to negotiate – generally, one or both parties suggest a potential business relationship. Both parties should first determine their needs, goals, and strategy.
- Prepare contract draft – one of the parties prepares a draft agreement from which the parties will work.
- Contract negotiation – the parties negotiate the terms of the agreement, hopefully reaching a final agreement. If a final agreement is reached, both sides must obtain the appropriate approvals.
- Contract execution – the appropriate people formally sign the final version of the contract.
- Track contract and manage performance – the contract should be stored in a central repository. This allows the company to ensure that the terms of the contract are complied with and all obligations met. The company can also track special provisions, such as auto-renewal clauses, benchmarking provisions, and audits.
- Close/Renew/Analyze – when the contract has been completed by time, performance, or both, it should be designated as completed. The company can consider renewal or renegotiation and the process begins again. Some contracts auto-renew unless appropriate steps are taken. This is also an appropriate time for final analysis as to whether the company’s goals were met.
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