Now that artificial intelligence has taken over internet discussion it seems like Contract Lifecycle Management (CLM) technology was last year’s news. However, the market is nowhere near saturation and there are some really good reasons why you (as a corporate) would want to implement technology to improve the management of your contract lifecycle.
There is a quite a range when it comes to CLM tools. The ones that tend to get a lot of airtime are the enterprise solutions that are all-encompassing and allow users carry out almost all parts of the contract lifecycle within that solution. On the other end of the scale, a CLM tool could be created by integrating a few different tools together into a kind of CLM Lite (e.g. Document Automation tool + Workflow tool + Document Storage + eSignature tool). Where you sit on this scale is likely to be dependent on the size of your company, your budget, appetite for change, and ability to obtain appropriate resource).
Regardless of which you go for here are are a few of the key benefits of implementing a CLM tool:
Access to Contractual Information
Most organisations are looking for CLM technology because the business doesn’t have a good understanding of the contracts they are party to – and the obligations that sit within them. More often than not, the contracts haven’t been structured in a way that they can be searched for easily and they haven’t been placed in one place (a “single source of truth”). If contracts are scattered then it isn’t easy to understand things like:
- How many contracts there are in total?
- How many of those contracts are still in force?
- How many of those contracts are due for renewal in the next quarter?
- What obligations does the company have for those contracts in force?
Having this sort of information to hand in an easy and simple way will mean you are able to make better business decisions. It gives a greater understanding of contractual risk which allows better decision-making in the event of unexpected shocks like the pandemic, LIBOR, statutory change, etc. It means you understand where all your contracts are, potentially which ones are affected and which ones aren’t, as well as having the ability to make a wording change that makes sure all further agreements account for that risk.
Versioning
While this is only a small part of the overall process it is probably one thing that saves a lot of time searching for agreements. Usually there are a lot of different drafts in any negotiation – a lot of redlining between the parties before the agreement is signed. If the company is using document storage like Sharepoint the chances are there are going to be a number of different versions of the same agreement. It may not be clear which is the latest signed one.
Imagine a situation where you’re a lawyer having to go back to a previous negotiation (that you weren’t part of) and the person negotiating it has since left the company. You’ll need to rake through a number of different documents to find the ‘live’ one. Most CLM tools have versioning so that you are only ever going to one document (that reflects all the changes made) and it is clear which is the signed version.
Approvals and Workflow
The contract lifecycle is different for different organisations – there is no one size fits all that has an automated process that fits all companies perfectly. The lifecycle will undoubtedly include processes around approvals and reviews that are unique to that company. For this you should imagine an original process that includes issues such as:
- Lack of understanding by staff about who approves and when
- Approval matrix provided to staff but it’s complex and they don’t understand it
- Lack of understanding by senior staff on where a contract sits in its lifecycle (at what stage is it? who is it currently with?)
- No audit trail for approvals that have been given (ie relying on email correspondence as evidence that probably isn’t visible to everyone involved)
CLM tools have the flexibility to create approval workflows that allow the right people to approve the relevant agreement at the right time. On top of that audit trails will be transparent and visible for those that need to see them – and it ultimately allows full oversight over where contracts are in the cycle and who they are sat with.
Document Generation
Another key benefit is the ability to generate legal documents from templates. Each document generated will be the most up to date version of that agreement. Changes to that template will then take effect immediately – providing the instant ability to adapt to changes in legislation, for example.
The questionnaire to generate the document negates the need to fill out the agreement manually (ie add data into the square bracketed placers and add/remove text based on footnotes). The automation allows for that manual work to be done via the logic and layout of the questionnaire.
Self-Serve Agreements
Further to document generation – there is also a big benefit in allowing non-legal members of the organisation to produce agreements themselves without legal needing to get involved in the first draft. Thus saving the Legal team’s capacity and empowering non-legal users (e.g. Sales or Procurement) to draft their own agreements (under controlled conditions!).
Non-Disclosure Agreements are a good example of this where non-legal users can create them easily and even execute them without the legal function getting involved. Workflows can be added to make sure that approvals are required when conditions are met though – providing a safety net for the Legal team.
Integrations
Data is the new gold they say. Connecting it with a CLM tool provides a lot of value both in terms of being able to access data from another source within the organisation provides easier access to information at the point of need and mitigates data errors on drafting.
It also makes the overall tool more secure (e.g. SSO) and provides the ability to electronically sign agreements.
Mitigation of Risk
One aspect that shouldn’t be underestimated is the ability to mitigate risk within your organisation. Here are a few examples:
- Documents are generated based on an approved template limits people’s ability to draft agreements offline
- If workflows are set up correctly then it should minimise any leakage in the contract lifecycle (e.g. sent to people to approve in error)
- Most CLM tools provide some audit trail for document changes
- It is usually easy to understand where a given contract is in the lifecycle and who is the blocker
- Integrations reduce the risk of data errors in contracts (e.g. company details)
Hopefully this gives you an understanding of the key benefits of implementing CLM tools. There are undoubtedly more (please reach out to me if you think I should add more into this article) but I’ve limited it to just these ones. Feel free to reach out if you have any questions about the above.
Marc May
Founder, The Legal Technologist
Photo by Andrea Piacquadio
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