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The Importance of the Contract Request Stage of the Contract Lifecycle

A team of workers putting together a contract request

Contracts are one of a business’s most important tools today. Gartner estimates that between 60% and 80% of business-to-business transactions are governed by contracts. Common as they are, contracts are costly for businesses to create. That’s why understanding the contract lifecycle and finding ways to make it more efficient is so important for businesses today. 

This article will take a close look at the very first stage of the contract management lifecycle: the contract request stage. The contract request stage is often overlooked, but it’s one of the most important stages of the contract process — and it sets the tone for the rest of the process. 

This article will also discuss some of the common pitfalls of the contract request stage and explore ways to avoid those pitfalls. It will also discuss contract creation and all of the challenges associated with that stage. Keep reading to learn more about improving your business’s contract lifecycle management and how Ironclad can help.

‌Reducing the expense of contracts‌

The Global Contract Management Association, or IACCM, estimates that businesses today are spending 38% more to create each new contract than they spent just six years ago. In total, the cost of drafting, negotiating, and finalizing a simple contract stands at about $6,900. The average cost of what IACCM calls a “mid-complexity” contract is $21,300 — and the most complex contracts can be upwards of hundreds of thousands of dollars.

These enormous costs can all be reduced by improving the efficiency of the contract process, starting with the very first stage of the process.

Throughout the stages of the contract lifecycle, multiple people in the organization are needed to approve details and finalize changes. Whenever the process hits a snag, a domino effect takes place, slowing down the whole schedule and making approvals and regulatory compliance far more difficult. In turn, the costs of finalizing the contract increase.

IACCM estimates that an average contract entails about 2.5 hours of legal work. That’s on top of 18 hours of contract management time, 12 hours of project management time, 2 hours of finance time, and about 6 hours with the compliance department. Obviously, the costs will differ depending on whether your business employs in-house teams or chooses to work with outside consultants. For many businesses, the choice has been to cut down on outside legal advice and build up an in-house department. But most enterprises could cut their costs further by reducing the time spent on contracts.

The best place to start making changes is the contract request stage, which sets the whole process in motion.

What is the contract request stage?

‌The contract request stage is sometimes also called the pre-award stage. In general terms, this is the stage before the two parties have really done any negotiation. At this stage, your business is considering creating a contract and assessing the needs and motivations behind the possible contract.

Some things to consider include:

  • What do you hope to get out of this contract?
  • What are your goals? Is this a contract to ensure payment for services?
  • Is this a non-disclosure agreement?

‌Obviously, there are many different kinds of contracts. Your aim in this stage is to define your goals as narrowly as possible so that your team can create the right contract for your purposes. 

Once you have the parameters clearly defined, it’s time to talk to the other party about creating a contract. It’s also time to talk to your legal department about drafting an agreement.

What are the pitfalls of the contract request stage?

‌There are a number of potential challenges that may come up in the contract request stage. Here are a few of them.

Unclear goals‌

When businesses enter into a contract, it’s important to have clear goals and expectations — and it’s crucial that both parties in the contract are on the same page. If this is a contract for goods or services, it’s vital that both parties share the same expectations for what those goods or services will be and what the payment will be. If this is an employment contract, it is equally important that both parties have the same understanding of the roles and duties that the job entails.

A contract that does not have clear objectives at the outset is difficult to draft, negotiate, and finalize. That’s why the first stage of the contract lifecycle is so important — it sets the tone for the whole process. At this stage, clear, direct communication is of the utmost importance.

Fortunately, a high-quality Contract Lifecycle Management platform, like Ironclad, can surmount all the problems posed by unclear goals and miscommunication. Many people may find that communicating through a platform instead of face to face makes it easier to spell out exactly what they want and expect. A good CLM will make it easy to save comments and view them all in one place so that the parties involved in the contract can easily understand each other without lengthy meetings or calls.

‌Winging it‌

Many businesses do not have an established protocol for handling contract requests: Who is supposed to make the request? Is there a template for issuing the request? What kinds of information should be included in the contract request, and what kind of information should be kept out of it?

These are all the kinds of questions that should be answered well in advance of this stage. Ideally, businesses should have a clear system for issuing contract requests. Unfortunately, most of the time this is not the case. The result is that many team members simply wing it, improvising as they go along.

This greatly complicates things when it comes time for the Legal department to start drawing up the actual contract. That’s because improvising during the contract request stage often means that the right information doesn’t get collected, or the right questions don’t get asked. 

As a result, Legal ends up spending much more time drawing up the contract than would normally be needed. The process of going back, double-checking information, and contacting the other party with more questions not only slows down the contract but also increases the cost of the whole procedure.

How can you improve this? Using a top-of-the-line contract lifecycle management (CLM) platform like Ironclad streamlines every stage of the contract lifecycle. Instead of winging it, team members will be able to follow clear steps and achieve goals quickly. 

Confusing intake process

‌The intake process is a crucial part of the contract request stage. Once you’ve determined what kind of contract you need, and what the goals of that contract are, it’s time to prepare for contract creation.

In many businesses, that means contacting the Legal department and asking them to write up a new vendor contract, or a sales agreement, or a non-disclosure agreement. A similar process is used to submit contracts that come in through your business partners.

In many businesses, the intake process is still handled by email—or even by paper. Most of the time, that makes for a slow process with extensive back and forth communication that slows things down unnecessarily. It also tends to create tension between the different departments in your enterprise as there’s miscommunication. Sales may get frustrated with Legal for asking so many questions instead of just drafting the contract. Legal may become irritated with Sales for failing to provide crucial information upfront. 

There’s also the very real potential for emails (or paper forms) to get lost, forcing you to start the whole process all over again.

Benefits of a Contract Lifecycle Management platform

The good news is that you can bypass all of this miscommunication, skip the email and the paperwork, and speed the whole process up by working with a contract lifecycle management platform.

A good CLM will make it possible to capture all the information you need to create a contract upfront. Instead of emailing back and forth all day, the CLM will prompt your team members to answer questions at the outset. The system will also require that people turn in the right documentation for the contract so that Legal won’t have to waste time chasing down your team members to ask for documentation.

The CLM will bring some much-needed transparency to the process, making it possible for everyone involved in the project to check on its status whenever they want. Everyone involved will be able to check on the approval process as well — which goes a long way towards building and maintaining goodwill between the departments. It also speeds up the whole process, by eliminating the need for frequent check-ins and updates.

Final Thoughts

Contracts are an increasingly important aspect of the business world, and that doesn’t seem likely to change any time soon. What you can change, however, is the approach your business takes to creating contracts. You can dramatically improve the efficiency of the process by introducing CLM technology, saving time and money along the way.

Ironclad is a leading contract lifecycle management platform, with clients that include L’Oréal and Mastercard. The Ironclad platform makes it easy to manage your contract lifecycle from the contract request stage all the way through to the final signatures.

Request a trial to learn how Ironclad can take your business to the next level.

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