Contract Lifecycles in Information Technology (IT)
In the technology industry, where products and services move and adapt at breakneck speed, innovation is critical. To keep up with the pace of business and stay ahead of the competition, information technology or IT companies must always strive to become more flexible and robust.
Commercial models in the technology business, on the other hand, are extremely complex. Hardware and software sales are often coupled with complicated “as-a-service” subscription offers, which are managed through channel partners and systems integrators. As a result, there’s a need for proper contract management which can be achieved through contract lifecycle management, commonly called CLM.
These developments mean that IT companies need to be moving faster, maximizing value across all commercial activities and keeping a close eye on customer commitments and fulfillment, and data privacy. However, each of these imperatives comes with its own set of risks. In the IT and software services industry, these risks are amplified by the global, digital nature of the industry.
As a general rule, the duration of a contract should be determined in relation to and in compliance with the business. Contracts are frequently delayed, misplaced, or not finished as a result of increased complexities in the information technology sector and strained lines of communication between many parties during onboarding, training, and implementation. Compliance requirements with diverse data protection regimes add a layer of complexity to the challenges faced by IT businesses.
These issues arise mostly as a result of the use of manual or paper-based procedures for contracting and contract management, resulting in teams taking up to 5-10 days to complete a single contract lifecycle from draft to signature.
Smart CLM solutions allow IT firms to automate contracts and respond to changing compliance requirements by leveraging smart contract lifecycle management.
What is Contract Lifecycle Management?
The adoption of a set of smart automation platforms aimed at assisting the achievement of a contract’s goal, compliance with obligations, and risk minimization or mitigation is known as Contract Lifecycle Management or CLM.
According to a report, in 2020, the global contract lifecycle management software market was estimated to be worth USD 1.50 billion. In the projected period of 2022-2027, the market is expected to grow at a CAGR of 16.9%, reaching USD 3.84 billion by 2026.
CLM entails a series of processes that take into account each stage of a contract’s lifespan:
- Contract Request: The legal or sales team places a request for a contract
- Contract Creation: Contracts are drafted instantly using custom templates
- Contract Negotiation: Stakeholders negotiate contracts online
- Contract Execution: eSignatures are used to remotely sign contracts
- Contract Storage: Contracts are tagged & stored in a central repository
- Contract Performance & Tracking: Contract intelligence tools track contract performance and create actionable insights
- Contract Renewal: Contracts are renewed after custom alerts are sent to notify stakeholders regarding contract expiry
Smart contract management and its automated processes may assist firms to develop an audit trail for compliance and managing the risks connected with the pharmaceutical industry, as well as decrease the costs and man-hours required in contracting.
Types of Contracts in IT and SaaS Sectors
Smart contract management solutions offer custom templates for legal and sales teams at information technology companies to quickly draft boilerplate agreements in bulk. Here are a few of the most common agreements used by businesses in the IT and software sector:
Fixed Price Contracts
The buyer and service provider agree on a predetermined price for the services in question using fixed-price contracts, often known as lump sum contracts. Because the project’s time and expenditures may exceed the fixed price, this sort of contract is low-risk for the buyer but high-risk for the seller.
As a result, a fixed-price contract should include a specific scope of work that explains exactly what the buyer can expect in exchange for the agreed-upon fee. The seller must execute the task or deliver the items as agreed when the contract is signed, or risk being in breach of contract.
For outsourcing and turnkey procurement, fixed-price contracts are typically utilized on a deliverables basis.
Cost Reimbursable Contracts
When the scope of a project is unknown or liable to change, a cost-reimbursable contract should be considered. This document, also known as a cost disbursable, is also useful when a project’s risk is considerable. The vendor offers work for a set length of time or project, then increases the bill to make a profit once the work is completed.
In this type of contract, the amount of profit is frequently determined by performance indicators specified in the contract itself. The disadvantage of this sort of contract is that the buyer bears the risk because he or she is responsible for all charges. The total contract cost will not be determined until the job is completed.
For this reason, few businesses opt to use a cost-reimbursable contract.
Unit Price Contract
This contract, often known as an hourly rate contract, combines fixed price and cost contract characteristics. For each hour spent on the project, a unit pricing contract pays a set hourly fee. It is frequently used by freelancers.
Time and Materials Contract
This contract is used when labor is the main deliverable and typically provides the seller an hourly rate.
Service-Level Agreements (SLAs)
A service-level agreement (SLA) is a contract between a client and a service provider. The service provider and the service user agree on specific characteristics of the service, such as quality, availability, and responsibility. The most prevalent feature of an SLA is that the services should be delivered to the customer according to the terms of the contract.
What are the Benefits of Contract Life Management for IT Businesses?
Contract Lifecycle Management for IT and software services allows businesses to streamline all contracting procedures, mitigate risks, and create a streamlined compliance management framework
Here’s how the IT sector can overcome data security and digital trust challenges using smart CLM:
- Ensure that all IT-related compliance standards, such as those for privacy and data breach legislation like the General Data Protection Regulation (GDPR), and cyber-security, are met throughout the contract’s life cycle
- Introduce pre-approved clause and template libraries to help consumers, re-sellers, data centers, and IT support and implementation partners write error-free contracts
- All contracts and SLAs can be written, stored, e-signed, and managed through a searchable and secure repository
- Improved contract visibility to achieve punctual delivery and budgetary objectives
- Automated alerts to interested stakeholders track the expiration and renewal of IT product licenses
- Keep track of all changes to a contract’s version history for future reference and auditing
- Automate the contract approval process with intelligent approval matrices that include various if-then scenarios based on variables like contract value, contract type, and reviewer and approver hierarchy
- Establish transparency and fact-based decision-making using smart contract analytics and performance tracking
The Need for Contract Lifecycle Management in IT
The IT industry faces strict compliance requirements to prevent privacy and data breaches, as well as cyber-security infractions. This is a natural result of digitization trends that IT companies must adapt to using smart compliance solutions.
Lack of insight into Service Level Agreements (SLAs), which frequently leads to poor customer service in B2B settings, is another significant challenge. This is especially true due to increased competition and lower entry barriers for SaaS-based companies.
The Internet of Things (IoT) has also increased the need to stay on top of the latest security threats and comply with new regulations
In such a setting, smart contract automation is quickly becoming indispensable for the information technology industry’s top enterprises.
Automate & Expedite Service Contracts Instantly with SignDesk’s Smart CLM
With SignDesk’s end-to-end contract management solutions – CONTR.ACT – business teams can draft contracts and negotiate provisions in real-time.
CONTR.ACT also offers simple eSignature and eStamping connections for quickly and securely completing contracts, and AI-powered contract analytics to help make businesses smarter.
Manage all business contracts online and enable a smooth workflow process while cutting TAT by more than 50% with SignDesk’s smart CLM. Book a free demo now to learn more.
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