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CONTRACT LIFECYCLE MANAGEMENT

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Contract Lifecycle Management in a Post-Covid World 

Contract lifecycle management is the process by which organizations create, execute, manage and analyse their contracts. As organizations seek to reduce costs and improve operational efficiency, they are increasingly seeking innovative approaches to (i) automation of key contract lifecycle processes using software and AI solutions, (ii) contract generation and improving collaboration among key stakeholders, (iii) improving contract workflows to boost efficiency, and (iv) generating analytics to reduce organizational risks.

It is impossible to consider trends in contract lifecycle management without considering the effects that Covid-19 is having on the legal industry as a whole. Simply put, Covid-19 has completely upended traditional ways of doing business, starting with disruption of what we have traditionally defined as the workplace. With the impact of Covid-19 expected to last many months, if not years, it will clearly affect how contract management is handled.

The effects of Covid-19 are amplifying and accelerating existing trends and pressures on the legal industry. For example, law departments and law firms have been under pressure for some time to rein in legal fees and to innovate to create efficiencies. This acceleration can only be expected to continue, as revenue declines at both corporations and law firms put further pressure on the bottom line.

Below are some important contract management trends to watch in 2020 and beyond as a result of the profound impact from the Covid-19 pandemic.

One expected effect is that companies will continue to rely upon, and expand their use of, alternative legal services providers (ALSPs) to handle routine contractual matters. These providers, whose service offerings include contract abstraction and summarization, M&A due diligence, contract lifecycle management (CLM), and contract drafting and negotiation, among others, have already seen consistent increases in year-over-year growth due to the cost savings and other efficiencies provided by these companies. Companies’ reliance on such providers will continue to grow and become increasingly important as budgets continue to shrink.

Furthermore, such providers have been handling increasingly more complex work. This trend is expected to continue. For example, in the past ALSPs might have been able to handle only routine contract abstraction work, populating data to contract management systems, and negotiation of simple contracts, such as NDAs. Increasingly, ALSPs are moving up the food chain and handling more complex work, such as M&A due diligence. This requires ALSPs to deliver more nuanced legal analysis on projects. Subject-matter experts are needed to ensure that concepts are interpreted in the correct way across documents and across review teams. ALSPs have responded by adding high-powered lawyers to their leadership teams, adding specialists to their consultant roster, building affiliated law firms or partnering with external law firms.

As companies look for efficiencies, they may not yet be ready to outsource an entire workflow that they feel is too complicated or too risky. ALSPs will continue to drive value by enabling companies to break up workstreams into smaller components, which can then be divided among the most efficient resources and technology. Among work allocated to ALSPs, often only a portion of the work is taken over by the ALSP immediately. More complex portions can be transitioned over time. Similarly, those portions of a workflow that can benefit from being technology enabled can be transitioned over time. Others portions of the workflow may be handled by company resources or law firms.

Thinking of workflows in this way and moving individual components to the most efficient provider or technology available, allows significantly more complex workstreams to be handled at a greatly reduced cost. For example, the decision of whether or not to outsource a contracting workstream traditionally hinged on whether the contract type was complicated and/or high risk, in which case the whole contract type was considered not susceptible to an alternative delivery model. But ALSPs are now building and managing workflows for even the most sensitive contracting workflows, breaking out tasks to be handled by company resources, technology, and resources at the ALSP. Unbundling tasks in this way allows companies to use the right level of resource for the right task on a project, given complexity, risk and cost of service.

Quarantine conditions have also expanded the acceptance of working from home, or more generally, have caused a wholesale relook at the concept of working remotely. One of the concerns many companies have had with working with ALSPs is that working with them is often done remotely, and in many cases is handled offshore. As fears of remote work within organizations have been assuaged, it is fair to assume that such fears will also be reduced when it comes to working remotely with ALSP vendors, whether onshore or offshore. In effect, legal work is being decoupled from office space, which can only accelerate the trend to use of ALSPs.

A further effect of Covid-19 is that companies will be taking a careful look at their contracts to ensure they are adequately protected in the current legal and societal framework. For example, the virus has caused companies to take a deep dive into otherwise routine contractual provisions, such as force majeure provisions, to ensure they provide adequate protection. While in the past such provisions were often overlooked, the current environment makes the language in such provisions critical. Additionally, other provisions governing service delivery in adverse conditions, such as commonly seen in supply and logistics agreements, may now be looked at in other industries. In effect, Covid-19 will have the effect of causing companies to more carefully look at their contracts to find gaps in protection, and then to undertake remediation efforts to close these gaps. These remediation efforts are similar to efforts undertaken to deal with GDPR and other changes in government regulations, and will likely be handled internally by companies, by ALSPs, and by law firms.

Given the decoupling of work from traditional office space, the use of traditional wet signature on contracts may be coming to an end as well – being replaced by e-signatures. In a remote working environment, contract execution by hand has become increasingly more difficult. E-signature technology, which is well-established at this point, will become more and more dominant in a post-Covid-19 world.

Beyond e-signature, interest in contract lifecycle management technology continues to grow, and this interest will be amplified as companies look to find cost savings across their businesses to recover from the effects of Covid-19. There are many different technologies to choose from and companies can become bogged down in the decision-making process. Key sought-after results include getting contracts done more quickly, at a lower cost, in a more consistent way, with more control over risk decisions and less involvement from senior personnel who can spend their time on more strategic work. Most of this technology is well-proven and has been around for a long time. Examples include smart intake forms, automated document generation, and system-based approval processes. Companies that haven’t yet started to transition to a modern contracting workflow can quickly find benefits from use of technology, provided they can clearly define their requirements and avoid purchasing over-complex technology.

Incremental improvements after these initial benefits may be more difficult to achieve, and often involve artificial intelligence (AI) based solutions. Some AI can recognize and abstract key clauses from agreements. Other AI compares key clauses against contract templates and playbooks. Systems like these open new doors to provide “self-service” options for a business to automate approvals if there is no nonstandard language in a draft, while flagging and highlighting noncompliant clauses and presenting alternative preapproved language for “one-click” correction. These types of self-service contracts are likely to become more important in a post-Covid-19 world, as employees continue to work remotely and legal and procurement departments become decentralized.

ALSPs have already begun to integrate these technologies into their service offerings, and this trend will continue. In other cases, ALSPs serve as innovation labs for their clients, finding, testing and comparing new technologies. In either case, ALSPs can provide structure to a technology selection process, validating functionality and return on investment to ensure the right tool is selected based on the specifics of a client’s needs.

Historically companies faced challenges integrating different technology solutions, resulting in a difficult choice between a “best-in-breed” solution to a given contracting challenge, or an enterprise solution addressing all contracting needs. Given the gaps between these systems, ALSPs or company resources were required to fill in the gaps between the systems, in many cases being required to manually transfer data between systems. More recently, companies are able to integrate different technologies through solutions that allow for the easy sharing of data (e.g., platforms that provide integration out of the box, or “API Integrators” where different applications are easily connected with basic configuration). Robotic process automation is also increasingly being used to complete repetitive tasks in contract workflows and can be used to fill the gaps between systems when technical integration is not possible. ALSPs are leading this effort by incorporating these tools into their service offerings to provide more complete technology solutions – boosted by their process excellence and substantive expertise.

It is these types of complete solutions that ALSPs are building and managing that will allow their clients to continue to meet the contracting challenges of a post-Covid world. Solutions that require efficient resources, cross-functional subject-matter expertise, processes that are agile, scalable and standardized, and that use integrated technology. Covid-19 appears to be a catalyst that will accelerate existing trends in the legal contracting industry, including reliance on ALSPs with the right cross-functional expertise.

By David M. Klein, Vice President and General Counsel, and Chase D’Agostino, AVP of Corporate Solutions and Strategic Growth, at QuisLex, a leading alternative legal services provider