Sailaja Meesaraganda is vice president of client solutions at QuisLex. Views are the author’s own.
In today’s dynamic business climate, organizations must be able to adjust rapidly to any number of issues to achieve their goals.
The competitive landscape and economic outlook require businesses to build resilience and manage risk – and contracts play a critical role in that.
The legal team is a partner in helping business teams adapt as they make commercial decisions.
For the legal team, contract life cycle management software is one of the first things it thinks of when looking at modernizing the contracting processes.
But before deciding to use a CLM platform to manage agreements, team members involved in contracting should start by taking stock of their workflow and infrastructure to identify critical needs, define what is essential in a CLM system and determine the expected return on investment.
As team members scrutinize their processes, they should review the following key areas of contracting to either prepare for a CLM implementation or improve their workflow for greater ROI.
How requests to create contracts are received and whether all the necessary information is provided at the start will determine the speed of negotiation and set the time to signature, which in turn affects performance, reward and remuneration milestones. Incorrect or inefficient intake can lead to errors and omissions that elevate risk.
Set the stage for proper data collection, data quality and storage methods by making intake forms available to all stakeholders. Collect sufficient data on the parties to add to customer relationship management applications to track collaboration. Identify risks and set objectives for sell- and buy-side agreements to fashion compliant clauses that minimize risk and establish proper parameters for negotiation.
Review workflows to identify the stakeholders involved and check if agreements have proper escalation protocols for reviewers and approvers. Determine what types of changes require review and, if changes must have an approver, whether such requests are efficiently routed and returned after approval.
Signature processes, including e-signatures, should require all relevant details for the contract to be properly enforceable. The process should ensure the contract parties sign the agreed-upon version in their appropriate capacity and within their respective authority and that all necessary parties sign and date the contract.
Define the ownership of executed copies. Identify the location for storing such contracts. Create file-naming conventions. And determine methods for storing approvals so that a full contract record can be found when needed.
To help define and set up reporting data fields on a CLM system and create a contract terms repository, it’s important for the contract team to understand which data points within executed contracts are relevant. The resulting data fields and repository will help make the data that’s collected invaluable for ongoing contract management efforts.
Consider all processes in the life cycle of a contract and confirm all are auditable. Establish clear policies and the required documentation, starting with intake, and develop a system of internal controls to monitor contracting activities to ensure all agreements are appropriately authorized and executed.
Finally, conduct regular internal and external audits of contracting activities to maintain compliance with applicable policies and procedures.
Once intake forms are established, it becomes easier to match the criteria for agreements to standard clauses compiled into a playbook or series of playbooks.
If certain contracts generate sufficient volume, develop templates from a playbook. Standardized terms enable better management and negotiation of contract risks without unnecessary escalation.
Contract processes and playbooks of standard clauses by agreement type provide an organization with sufficient content to generate help desk information for contract originators and requestors and FAQ pages to accelerate contract creation, negotiation and signature.
Track playbook clauses, and record their success or failure through negotiation, variation, performance and litigation. This process generates feedback useful for renegotiating clauses and adjusting templates for more commercially successful agreements.
Contracts should be protected as carefully as other corporate assets.
Store them in a secure central repository; back them up; and limit who can access them by role or stakeholder. Within this central repository, all contracts must be searchable.
Use OCR to turn image files into accessible text. Use standard naming conventions; apply document tags for contract types; and link relevant files to track contract creation or monitor performance.
At a minimum, a contract repository should capture contract metadata to enable data analysis and metrics reporting. Advanced storage and connectivity features allow for integration of 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. Detailed metadata can turn a static repository of signed contracts into an active medium for contract creation and negotiation.
4. Tracking, reporting and analysis
Every organization has different needs and metrics to track and report on contract performance depending on the goals of the business. Start gathering 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 that capturing is consistent and aligns with business objectives.
Organizations should also monitor risk. Although numerous metrics report successful outcomes, many businesses must deal with threats that develop in the contracting process. Critical areas include amendments, late payments, insurance, performance guarantees, dispute resolution, delay rights, business continuity and force majeure and so on.
5. Review and incorporate feedback
Monitor executed contracts. Status changes such as acquisitions, bankruptcies and other conditions among parties 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, which can help you learn and replicate the factors leading to successful contracts and relationships.
In assessing objectives and defining success criteria for CLM implementation, some organizations may realize they are not ready for it. Instead, reengineering existing processes or right-sourcing portions of the current workforce may be sufficient to improve outcomes.