GLOBAL-WIDE: An Introduction to Contract Lifecycle Management

Contracting for Success: Blaze Your CLM Trail 

Legal and contract teams are key partners in helping business teams to adapt, succeed and create value. Just as a plane must change altitude to avoid turbulence, businesses must rapidly adjust in order to achieve their goals. The current risk landscape and economic climate require businesses to build resilience and engage in proactive risk management, and contracts play a critical role in guarding assets and protecting revenue. Legal and contracting teams must be equipped to make timely decisions and efficiently manage risks and rewards to assist the business with commercial decisions.

Contract life cycle management software is one of the first things that comes to mind when modernizing or considering a change to contracting processes. Before deciding to acquire or license CLM software to manage agreements, take stock of your current contracting processes and infrastructure to identify your critical needs, define what you are looking for in a CLM system and determine the return on investment you and your stakeholders expect. This will help assess your objectives and define your success criteria for CLM implementation. You may also realise that your organisation may not be ready for a CLM transformation and that reengineering a few steps of your existing processes or right-sourcing portions of your workforce will be sufficient to achieve a successful outcome.

This article provides a few steps your organisation can take to either prepare for a CLM implementation or to improve your current state and get the best out of your current processes and resources.

Review and refine contracting processes 

The first step in the contracting process is intake. How your department receives requests to create contracts will dictate the speed and momentum of negotiation and set the time to signature, performance and reward or remuneration. Ignore intake at your peril.

How do you get contract creation requests from other departments and employees? Do you get sufficient information and clarity of requirements to start the process, or must you trade calls and email messages with requestors to get started? It is possible to spend an excessive amount of time going back and forth with a requestor to get all the information necessary to draft a contract. If you do not handle the intake process correctly, it can lead to errors and omissions that elevate risk without providing any opportunity for reward or remuneration.

If you don’t have them, create intake forms by contract type and make them available to all of your stakeholders. Intake forms set the stage for proper data collection, data quality and storage methods. Collect sufficient data on the parties to add to customer relationship management applications to track relationships. Identify the risks and set clear goals and objectives for sell and buy-side agreements to fashion compliant clauses that minimise risk and set proper parameters for negotiation.

Review your workflows closely to identify the stakeholders involved in the process and check if agreements have proper escalation protocols for reviewers and approvers. Are they too complex, requiring change management review for minutiae? If changes must have an approver, be sure to review whether such requests are efficiently routed and returned after approval. Are reviewers aware of precisely what they need to approve? Some contracts may not need review and approval if precise language is used. Analyse what your existing contracts are telling you, such as the number of times a contract term has been approved, and if the term is still a risk requiring escalation as opposed to becoming a standard position.

Signature processes, including electronic signatures, should require all relevant details to be present in order to enforce the contract. The process should ensure that the contract parties sign the contract version they agreed to, in their appropriate capacity and within their respective authority and that all necessary parties sign and date the contract. It is important to define the ownership of executed copies, identify the location for storing such contracts, create file-naming conventions and define methods for storing relevant approvals. All of this will ensure that you have a full contract record and can find the contracts when needed. Understanding which data points from executed contracts are relevant for various stakeholders will help you create your contract terms repository or define how you can effectively set up your reporting data fields on a CLM system, making this data invaluable for ongoing contract management efforts.

Consider all processes in the life cycle of a contract and ensure all are auditable. Establish clear contracting policies with proper documentation required, starting with intake, and develop a system of internal controls to monitor contracting activities to ensure all agreements are appropriately authorised and executed. Finally, conduct regular internal and external audits of contracting activities to maintain compliance with applicable policies and procedures.

Review contracting infrastructure 

Once you create and maintain intake forms to capture client requirements for different agreement types or deals, it becomes easier to match the criteria to standard clauses compiled into a playbook or series of playbooks. If there is sufficient volume for certain contract types, develop templates from a playbook of approved clauses. Standardising terms and setting up templates allow the contracting team to better manage and negotiate contract risks without the need for unnecessary escalation.

Contract processes and playbooks of standard clauses by agreement type provide an organisation with sufficient content to generate help desk information for contract originators and requestors and FAQ pages that can accelerate contract creation, negotiation and signature. Track playbook clauses and record their success or failure through negotiation, variation, performance and litigation. The tracking process leads to a feedback mechanism that can be used to renegotiate clauses and adjust templates in order to make more commercially successful agreements.

Where are my contracts? 

Contracts should be protected just as carefully as any other corporate asset. Store them in a secure central repository, back them up and limit who can access them by role or stakeholder. Within a central repository, all contracts must be searchable. Optical character resolution turns image files into searchable text. Use standard naming conventions; apply document tags to identify contract types; and link any relevant files to understand or interpret contract creation or monitor performance.

At the least, a contract repository should have features to record contract metadata to enable data analysis and the tracking and reporting of metrics. Advanced storage and connectivity features will allow you to integrate critical applications like CRM, enterprise resource planning and financial systems. Sophisticated contract processes can include a mechanism for extracting and monitoring contract obligations to mitigate disputes and litigation. Using detailed metadata, you can turn a static repository of signed contracts into an active medium for contract creation and negotiation.

Track, report and analyse contracts for success

Every organisation has different needs and metrics to track and report on contract performance depending on the goals and objectives of the business and identified risks. Start gathering the data that measures and supports the contracting process. Track contract compliance throughout performance and indicate adherence or departure from contract specifications and clauses. Create policies for periodic review and reporting of contract analytics. This data can be a treasure trove for business intelligence, but it is important to ensure that capturing it is done consistently and in alignment with business needs and goals.

Organisations should also monitor risk as a part of their contracting strategy. Although numerous metrics report successful outcomes, many businesses must deal with the threats that develop in the contracting process. Critical areas include amendments, late payments, insurance, performance guarantees, dispute resolution, delay rights, business continuity, force majeure and so on.

Review and incorporate feedback into contract life cycles

Monitor and review executed contracts throughout their performance. It is also helpful to keep an eye on the parties to all agreements for status changes, such as acquisitions, bankruptcies and other conditions that may impact performance or risk a breach of contract.

Post-signature processes should include surveys and feedback from negotiating team members, deal team members and benchmarking data. Use this information to improve contract creation and negotiation processes by learning what works, what doesn’t and why.

Much of the information gathered post-signature and during contract performance amounts to knowledge management. You can learn and replicate what factors lead to successful contracts and relationships.

This article primarily focused on how organisations can look inward to optimise offline and online processes to improve contracting before acquiring a CLM tool. Alternative legal service providers with CLM experience can also bring a fresh perspective and their best practices to help with your CLM journey. ALSPs can use the practical experience gained over decades from the clients they have helped through similar situations and risk landscapes. Subject matter experts can lend expertise and knowledge to the creation of intake forms, clause libraries, templates and playbooks. They can also help define criteria for choosing a CLM tool based on the business needs and maturity of your contracting process and the types of agreements and clauses you have in place.