Five Stages of Contract Management
An important part of analyzing contract lifecycle management (CLM) workflows is breaking that lifecycle down into recognizable steps. To identify broad trends, the entire process needs to be separated into definitive stages, starting with generation and following a distinct progression of activities to completion. Once those steps have been distinguished, they can be broken down and studied individually to look for potential improvement.
At the end of 2020, DocuSign conducted a broad survey of contracting professionals to collect data for the State of Contract Management report. One of the key takeaways from that research is a concrete understanding of the five crucial stages in a contract’s lifecycle, including the people, processes and tools involved. In this post, we’ll look at a snapshot of the contract management process steps, including data about how contracts are managed today and looking forward at how technology can streamline contracts in the future.
To start a contract’s lifecycle, the first draft of the document has to be created. Almost no organizations are starting new contracts from scratch, but this can still be a lengthy process. While 40% of respondents have evolved to utilize an integration with Salesforce to create new contracts, the most common tool for contract generation is still Microsoft Word, either in the cloud (62%) or offline (50%).
It’s encouraging that there’s some growth to reduce the number of tools involved in contract generation, but it also seems clear that adoption to the next generation of tools is only partial. Our survey showed that plenty of today’s organizations are using more than one tool to create new agreements. Reluctance to move away from traditional, disconnected technology has resulted in lengthy contract generation periods and additional room for error.
After a contract is generated, all parties involved need to negotiate back and forth until final terms are agreed. For respondents in our survey, this stage in the process is time-intensive, with only one in six respondents able to complete contract negotiation in nine hours or less. Almost half of our respondents spend 20 or more hours negotiating a contract and 71% will generate at least three new versions of a document before it is completed.
To save time negotiating, respondents preferred online collaboration tools to manual, paper-based processes. Collaborative cloud document tools were identified as the preferred collaboration tools by 31% of survey respondents, with email closely behind at 27%. Offline Word documents (12%) and paper agreements (6%) were among the least preferred options.
To share contracts internally and externally, today’s contracting professionals are using a wide range of tools. While the most popular routing tools are email (69%) and cloud storage systems (60%), some significant number of today’s contracting workers are still relying on outdated systems like postal mail (29%) and fax (18%). All of these contract sharing methods have the same primary flaw: they take the contract and the users out of the CLM system.
When contract routing relies on more than one solution, it opens the door for several new problems, like reduced visibility or lost documents. It also makes it easy to accidentally share the contract with the wrong party, which 32% of our respondents have done.
When it’s time to finalize a contract by collecting signatures, today’s contracting professionals have largely matured to utilize modern tools. Around two-thirds of our respondents have integrated e-signature software or a CLM tool with defined workflows. However, around one fifth of respondents are still sending contracts for approval via email attachment or hard copy. These manual processes run into serious problems at scale. With around a quarter of teams reporting that at least 5 unique people are involved in the contract approval process, the delays and inefficiencies of these exchanges can add up quickly.
When it comes to workflow obstacles, a range of different departmental approvals (legal, pricing, procurement) and signature collection delay around 30-40% of organizations. These approvals are the biggest hurdles for today’s contracting workflows. The more disjointed approvals are from a central CLM platform, the more likely it is for delays and errors to occur.
When a contract is finalized, cloud storage is popular with today’s organizations. Around two-thirds of respondents use cloud storage—either exclusively or in conjunction with on-premises servers—to manage completed contracts. Only 8% of organizations in our survey reported relying on paper file cabinets to store agreements. However, even with a majority of organizations storing contracts in the cloud, 43% of respondents report being unable to locate a stored contract.
Among participants who had not yet moved to the cloud, 53% plan to do so and 16% are not yet sure of their plans. Making these contracts easy to find is also critical to management workflows since more two-thirds of respondents need to locate archived contracts on a daily or weekly basis.
Overall, the average organization in our survey required around 29 hours of staff time to generate, negotiate and locate a contract. At the scale of 500 contracts in a year, that works out to 7 full-time employees worth of labor. It’s easy to see how improvement at any stage would result in significant efficiency gains when the contract process is repeated that frequently.
If you want to learn more about how modern CLM tools can take advantage of new technology to improve each of these five steps, download the State of Contract Management report.