- March 4, 2024
- 15 min read
- Bethany Mullinix
Introduction
Contract lifecycle management (CLM) is like building a house. It requires a detailed plan and a seasoned team with a variety of skills. It’s usually completed in phases. But the entire structure could be in jeopardy if you don’t build it on a solid foundation.
The pre-negotiation phase is the foundation that lays the groundwork for the entire contract management process. It determines the trajectory of contract negotiations, the agreed-upon terms, and even the deal’s success or failure.
A poorly executed pre-negotiation phase can create both short- and long-term issues. It could drain an organization’s resources, waste valuable time, and result in less-than-ideal agreements. Ultimately, it could even entangle an organization in disputes and tarnish business reputation.
What’s involved in a successful pre-negotiation contract phase, and how is it executed? Read on for details.
What Does the Pre-negotiation Phase of Contract Management Entail?
The pre-negotiation phase of the contract lifecycle – often referred to as the preliminary or preparatory stage – is one of the first steps in successful contract negotiations. It ensures that an organization’s tech, teams, and workflows are ready for the process.
This early, pre-signature phase of contract setup is deal-agnostic — meaning that the technology and workflows used should apply to any contract, regardless of its purpose. This is often a priority phase for legal teams responsible for creating the first version of the contract and managing its revisions.
Application administrators (who manage the software tools and systems) and contract requesters (who initiate the need for a contract based on business requirements) usually manage the pre-negotiation phase.
Together, they’ll oversee this phase’s three basic elements:
- Application administration – Configuring and maintaining the contract management software to streamline negotiations
- Contract requesting – Managing the communications between departments and the legal or procurement team
- Contract creation – Drafting the initial contract terms and conditions, typically guided by legal experts to ensure compliance with regulations and organizational policies
Common Pre-negotiation Struggles for Enterprises
Information and communication gaps between departments often create challenges within the pre-negotiation phase. Here are a few we see most commonly:
- Inefficiencies in contract requests – often stemming from unclear project specifications – can lead to delays.
- Unclear roles and responsibilities can lead to unfulfilled tasks or duplicated efforts.
- Technology that doesn’t meet contract management needs and expectations can adversely impact application administration.
- And misaligned process timelines – for example, when there’s not enough time to conduct a thorough legal review – can create significant bumps in the even smoothest pre-negotiation paths.
Failing to Prepare Well for Contract Negotiations
If your pre-negotiation process isn’t well planned – or if it’s skipped altogether – engaging in contract negotiations could be like playing a game without knowing the rules. Chances are, the outcome won’t be favorable.
Preparation is key to securing satisfactory contract terms and building lasting partnerships. Without it, misunderstandings, conflicts, delays, and less-than-ideal deals become more likely. You could even face strained partner relationships and a damaged business reputation.
Establishing clear communication channels, refining request processes, and investing in user-friendly contract management tools can create an effective pre-negotiation phase and set the stage for a positive outcome in negotiations.
Why Should You Automate Pre-negotiation Tasks?
One of the best ways to avoid the challenges mentioned above is to automate pre-negotiation tasks. It eliminates much of the mundane and time-consuming manual work, letting your team focus on strategic negotiations instead of drowning in paperwork.
Contract automation also reduces the chance of inaccuracies, ensuring you don’t lose crucial details in the shuffle.
But the real magic for automation at the pre-negotiation level is scalability. As your organization grows, automated systems effortlessly handle increased contract volumes without missing a step.
Creating the Ideal Pre-negotiation Process
Crafting an optimal pre-negotiation process through automation involves strategic steps that align with organizational and team dynamics. Through the following calibrated steps, automation becomes the backbone of a pre-negotiation process that you tune to your organization’s and team’s unique needs.
- Centralize your contract repository and creation process – Start here for a unified hub of efficiency. Implementing a common contract data model with templates sets the stage for consistency by reducing redundancy and ensuring a standardized approach.
- Use data from past contracts to optimize your negotiating position – Analyze this data to refine strategies and improve your position for future negotiations. Data-driven approaches transform historical experiences into valuable foresight.
- Define authority — Determine and clearly define who’s responsible for contract authoring and approving updates, changes, and final versions. This streamlines decision-making and ensures accountability.
- Set goals for the enterprise and individual teams – These benchmarks provide a shared vision, enhancing cohesion and performance tracking.
- Determine policies and guidelines for navigating diverse scenarios, deal structures, and contract types – This creates a roadmap, guiding teams through complexities with clarity and consistency.
How Contract AI Supports the Pre-negotiation Phase
Many contract management platforms include features that support the pre-negotiation phase of the contract lifecycle. However, those powered by AI can streamline this phase. Here’s what to look for:
- Data automation and adding power to your processes with data analytics. With robust analytics in place, you increase decision support, identify patterns more easily, and see opportunities more clearly.
- AI-driven first-draft creation using generative AI and standardized templates, ensuring efficient and accurate document initiation.
- Data extraction capabilities to enhance the platform’s ability to capture and organize critical information from contracts.
- Contract performance tracking and advanced analytics to offer insights into historical data, aiding in strategic decision-making.
- Ability to digitize contracts and organize them into a searchable database that streamlines accessibility and retrieval.
- Automated workflows to facilitate seamless collaboration and reduce the need for manual work within routine processes.
Read more about AI capabilities for CLM throughout the full lifecycle.
Seeing the Full CLM Picture
Successful contract negotiations begin with a well-planned pre-negotiation phase that covers application administration, clear contract requesting, and meticulous contract creation. Automating pre-negotiation with AI-driven CLM software can streamline your workflows and use data to identify trends and uncover opportunities.
There is so much involved in the lifecycle of a contract beyond the pre-negotiation phase. We know how important it is to look at your business holistically – why not your contracts too?
Luckily, we outlined the entire process for you and how each phase works together, including where generative AI steps in to play a role. Get a copy of the report here. You’ll be mastering CLM in no time!
Additional Resources
What is Contract Lifecycle Management? Looking Inside CLM
What is Contract Negotiation? Examples, Goals & Best Practices
Applying Application Administration to the Contract Lifecycle
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