A Paradigm Shift in Contract Life Cycle Management (CLM) Part 2
February 22, 2021
Our last blog took a closer look at the key principles of advanced CLM contract approval flows.
To achieve high performance and shorten time-to-value for your contracts, standardization is key. The guiding principles for standardization include contract assembly, templates and clauses. In this blog, we will take a closer look at each of these components.
Fueled by technology, contract authoring has evolved from writing contracts to assembling contracts. There is tremendous opportunity to revitalize a process that has not historically utilized tools to collaborate and bring value-realization considerations in the contract authoring process. This has replaced the approach of simply reacting to value leakage later in the contract lifecycle.
Adoption is a key element when it comes to contract assembly. A structured program drives the effective usage of the platform towards realizing value of the effort expended in setting up the program. An effective customer journey is driven by standardization and guided compliance. Wizards use questionnaires to simplify selection of major elements like contract terms and clauses while driving compliance and standards for authoring. The three main elements of contract assembly tend to be templates, clause libraries and questionnaires.
Templates drive the authoring process during contract assembly. A contract template captures terms (such as important dates or contact information) of parties involved as metadata while the user answers questions through various sections of the contract wizard. It is important to ensure that guidance is provided in the form of tips or access to operating processes via playbooks to assist with the accurate responses and clause selection. Connection to approved clauses is critical in reducing overall risk associated with contracts. As we touched upon in our previous blog, we can drive selective review of the contracts based on the kind of clauses selected. For example, using Data Privacy / GDPR can add the specific clauses available in the library and these additions will require review by the compliance team only if Data Privacy needs to be addressed. Templates accelerate the time it takes to get a standard draft ready for review by the third party by reducing approvals and reviews that may be needed with non-standard language.
A template rationalization process should be considered to get stock of the inventory of contracts that need to be addressed. You can then analyze the contract templates that are being utilized to author for the procurement categories that can be optimized. As an example, there may be multiple versions of MSAs within the organization for the same procurement category (e.g. IT). These can be harmonized into one MSA. One way to accomplish this task can be utilizing conditionality in questionnaires within the platform wizard. Users can be guided though the authoring journey to utilize these features. Standard operating procedures should be put in place that address the policies and compliance requirements for the firm. The procedures should create a global template that addresses the workflow for a centralized approach to handling contract authoring.
Clause management is an important driver for optimization within contract authoring process. Clauses are the building blocks that can be assembled based on various requirements of the relationship and services being sought for the main structure of the contracts.
These clauses are usually created and reviewed by a legal team. Clauses in most organizations grow organically and reside in multiple places, and in most cases, within multiple versions of templates. This may also lead to multiple versions of the same clause existing across various templates. Some of the main challenges our customers face with contract authoring are control and visibility of the clauses. Customers are apprehensive of the risks they continue to take, not knowing if the standard clauses approved by the legal team are being utilized to assemble contracts. Building a centralized clause library to address this challenge takes time and effort.
The first step to centralizing these clauses is establishing a clause library which is usually created by the legal team in a central location. It is important to note that the usage of this clause library in a template may not require legal knowledge as long as your templates are optimized to use the default clauses based on the type of contract. In addition, a playbook to guide the contract authors on fall back clause usage and additional scenarios allows for an efficient way to provide a guided clause usage experience with compliance. Your platform can connect the templates and clauses and the contract wizard can drive clause selection for the users during authoring.
Clause management today extends well beyond the clause library into visibility and compliance that drives behavior towards standardization. Metadata can be captured as you build the clause repository. This data can be used to monitor clause usage by reporting on which templates and how often the clauses are utilized. A workflow can be defined at the clause-level to ensure a review of the clauses for any updates that are made to them. The access to these functions can be restricted to the legal team to ensure standards are maintained. Notifications can drive the update of the clauses and also keep an audit trail of the clause updates.
The link between the clauses in the central location and localized templates allow for multiple efficiencies during the contract authoring cycle. The modifications made centrally in the clauses within the library can be propagated to the templates. The impact of the updates can be visualized by reviewing how pervasive the clause usage is across various templates.
To learn more about how The Shelby Group can help you with your CLM journey, contact us at info@theshelbygroup.com .
Mo Fakhar
Director, Advanced Platform Practice