Legalweek 2020 offered an opportunity to present to attendees about a topic I am passionate about: Contract lifecycle management (CLM). I co-presented with Lauryn Haake, managing director in the legal technology practice within the Advisory business at HBR Consulting, who has a great deal of expertise to offer on the subject. Lauryn and I talked about the benefits of CLM and provided some advice on how to implement and use CLM to yield the best results. The following are some of the important points we touched on.
Why implement CLM?
CLM goes beyond simple solutions focused on creating or storing contracts and helps organizations with the end-to-end management of contracts, including rules-based automated workflows, integration with common administrative tools, and business intelligence functionality. One of the most important functions of a CLM system is reducing contract risk. This risk can lead to many consequences, from regulatory penalties to reputational damage and almost any negative business impact one can imagine. Causes of these problems include unintended contract expiration or renewal, use of unapproved legal contract language, or inconsistencies in the approval process. CLM helps companies address these sources of risk in order to avoid the negative consequences.
Planning for a CLM system
There are some strategic considerations to keep in mind when preparing to evaluate CLM providers and solutions. First, be aware of your team’s and organization’s limitations.
- Risk appetite: There is no single, correct level of risk that every company should live with. The acceptable amount of risk is different for each company because the sources and consequences of risk differ across industries, lines of business, jurisdictions, etc. Legal department leaders should already have a good sense of how risk-averse their organizations are and in what areas they are particularly keen to keep risk low. This is helpful in designing and prioritizing plans to limit risk with CLM.
- Resource availability: How many people are available to participate in the selection and implementation of a solution and how much time do they have to devote to the effort? What is the project budget, both for initial ramp-up and ongoing costs? Knowing the answers to these questions up front will help you select a vendor that can support not only your contracting processes but also the level of financial and time investment the organization can realistically promise.
Throughout the planning stages, and later when making decisions about implementation, be sure to take the long view and plan for the future growth of your organization. When developing a taxonomy and defining policies, for instance, build in enough flexibility that you can expand how they are used as the department’s contracting needs broaden.
Making a selection
When you’re ready to consider specific solutions, be sure to include the right stakeholders. I suggest establishing an oversight committee made up of members who understand the company’s contracting process and how workflows differ for various contract types, departments, etc. This group should thoroughly map out the company’s contract workflow so that the team will be ready to evaluate whether the vendors under consideration can fully support it and be ready when implementation time comes.
This group should also construct a clause library from which contracts will be built. I recommend selecting a CLM solution that constructs contracts using a native Word integration for ease of use and to encourage strong user adoption with minimal training. It is also best if to choose a technology that includes fallback clause configuration and comprehensive audit trails.
There are several advantages to doing so. Among other benefits, clause libraries allow organizations to:
- Confirm legally compliant contract language
- Expedite negotiations and reduce variation with fallback clause configuration
- Gain transparency throughout contract authoring via version history audit trails
- Change clauses across multiple contracts at once
Support for complex processes
When talking with corporate professionals who are evaluating CLM offerings, I strongly recommend looking carefully at obligation management capabilities. The consequences of failing to meet contractual obligations vary from contract to contract but are often substantial. These can include non-compliance with laws or regulations, missed deadlines, legal action, and many others. Obligation management helps avoid these issues by automating monitoring and prompting the right team members to take the necessary actions.
It is important to choose a configurable and sophisticated solution that supports complex rules and can scale with the organization as its processes evolve. This starts with capturing each contract’s metadata at creation and enabling the construction of workflows that reflect your organization’s specific needs and priorities at any important milestones in the contract’s duration.
By implementing top-tier technology designed specifically to help companies manage their contracts from creation and throughout their lifecycles, organizations can reduce their risk considerably and run more efficiently. Read more about contract lifecycle management and about CLM Matrix from Wolters Kluwer’s ELM Solutions.