Understanding the contract life cycle is essential for efficient management, which directly impacts the health of the business as a whole. With the fierce competition in the market and the high volume of contracts, many companies fail to give this action the attention it deserves. However, many documents end up being renewed beyond the deadline, while others even end up getting lost and forgotten in cabinets.
The function of the contract in a commercial transaction is to administratively and legally support a negotiation made between companies, establishing obligations and rights for both parties.
Having this tool is vital for companies to have support when dealing with customers and suppliers in their routine activities, which is why its management is of utmost importance.
Contract lifecycle management encompasses numerous activities, and you will have the opportunity to check out each of them in this post!
5 phases for efficient contract lifecycle management
Phase 1 – Pre-hiring
At this stage, the objective is to define the object of the contract according to the company's demand. In other words, a department understands that it needs to hire labor or product from a specific client and, in this way, the contract begins.
At this stage, we need to define what will be contracted, what will be delivered, how it will be delivered, where, how much, etc. These are the technical requirements of what will be contracted.
Still in the pre-contracting process, we need to define the administrative requirements necessary to authorize the contract, such as certificates to be delivered by suppliers, among others.
This phase is where a draft contract emerges.
Phase 2 – Hiring
This is a very important phase, as it is where the contract is negotiated and formalized. The draft generated previously is analyzed by those responsible, which may result in changes to clauses in the document. It is worth remembering that several drafts may be made until the ideal format is achieved.
It is essential that every detail is validated to ensure the best progress of the document for both parties. Once finalized, the contract must be signed by the contractor and the contractor.
This phase ends when the alliance between the parties is formalized.
Phase 3 – Pre-execution
The pre-execution phase covers the time between the signing of the contract and the completion of the activity. During this phase, the company plans the technical and administrative execution of the contract.
When we talk about the technical aspect, we must evaluate the activities necessary to start executing the contract, such as preparing the site, what equipment will be needed, etc. In addition to the administrative aspects, we have the contract management part itself, storing the data in a centralized manner, with access permission for managers who need to consult and record some type of event.
The payment flow must be directed to the finance team. In addition, delivery schedules and acceptance terms must be defined.
This step is completed when we notify the departments involved about the schedule and release for execution.
Phase 4 – Execution
Generally, the execution phase is the longest phase of the contract, as this is when the agreement itself takes place, with the deliveries of what was agreed.
At this point, it is very important that administrative activities take place to monitor the progress of the actions, aiming to guarantee what was stipulated.
Control the schedule, inspections, measurements, payments and other functions provided for in the contract. This is the time to check if there is anything missing that needs to be added and if there is a need for extensions, renewals or even termination of the agreement.
Phase 5 – Closing
When the contract's effective date expires and it is not renewed, it is time to analyze whether all planned actions were carried out and whether records were documented.
The contract can only be terminated if all activities have been completed.
It is important to check the events of the phases so that no details are missed. One tip is to standardize the way you analyze each of the stages, so that they have the same efficiency when it comes to management.
It is extremely important to know these five phases of contract cycle management to do it efficiently.
However, sometimes this is not enough, as some companies end up getting lost in the countless contracts they have archived. Therefore, having a tool that optimizes all management should be a priority.
Take advantage and get to know our CLM (Contract Lifecycle Management) tool, which manages the entire contract lifecycle automatically and centrally. To learn more, click ahere!
And if you want to know details about the importance of having a CLM solution, check out our post “Contract management: sustainability and performance for your company".
Does your company already have a CLM solution? Tell us in the comments!
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