“Contracts are the lifeline of the company, so it’s no wonder it is an ongoing cycle.”
Chapter 2, What is CLM?
The term contract lifecycle management (CLM) is a hotly discussed topic in legal operations and legal technology circles. It is important to dissect the concept and understand what precisely I am referring to, especially in trying to tackle and improve the contracting lifecycle.
Most often, when I hear CLM, people are referring to the technology or the system that is implemented in order to make contracting go smoother. The lifecycle, however, is actually a series of processes and steps. [Cf. Post 256 (Zach Abramowitz & Bryon Bratcher noting confusion around CLM and defining it similar to Bassli as a complex process that requires design and discipline)]. When people consider CLM, they should talk about the entire lifecycle of a contract, from the very first stages before it is initiated by the business owner, to once it is designed and continuously managed all the way through when it is stored.
In this chapter, I will review the lifecycle and the various phases that make up the lifecycle.
Figure 2.1 [lead graphic above] shows the contracting lifecycle as an ongoing cycle. There is a reason for that.
On the one hand, the legal team feels like there is a continuing barrage of contracts coming into their department. The volume seems to grow endlessly, and the complexity evolves as the corporation develops and grows. Contracting never seems to stop; it is, of course, the lifeline of the company, so it’s no wonder it is an ongoing cycle.
The good news about having a cycle is, every time you do something repeatedly, improvements should occur, and there are opportunities to identify changes to make the entire cycle go faster. The business is interested in speed. They expect the legal team to handle the complexity and the legal issues, but, at the end of the day, they require speed. Anything that can be done to increase the velocity of the agreement cycle will be much appreciated by the business and will certainly shed light on the law department functioning as a true business partner to the company.
In the very first stage of the lifecycle, we have to consider all of the activity that is actually happening pre-contracting. The reason it is important to focus on this stage of the contracting lifecycle is because the legal team, typically, has a highly significant role at this stage, before the contract is generated and before the contract is requested by the business.
For example, the request-for-proposal process is one that requires Legal to chime in on the template that is attached to the RFP or somehow attaching the standard or preferred terms for the company. So, the legal team does not have the opportunity to influence the path of the contracting process before the process actually begins. At this phase, it is important to consider if the RFP terms provided in the proposal template are the correct terms that will help speed up negotiation, or if the terms are potentially too onerous and will thus slow things down.
The documents used as part of the RFP process are often one and done, so to speak, and forgotten. What this means is, while the legal team may opine initially on what the template looks like, it is often a stale document that is used repeatedly by the sales organizations or the procurement professionals without the necessary review from the legal team on an ongoing basis. So, this becomes an area to keep an eye on as a way to influence the contracting workflows from before a contract is initiated.
When most of us think about contracts, the legal team appreciates that it actually starts to feel real once the business requests a contract. The request stage is critical, because many legal teams are used to getting requests that are simply incomplete. This creates a significant amount of churn and wasted time as attorneys seek to get additional (and often unnecessary) information from the requesters in order to understand what kind of contract is needed. Often, an email is received that is forwarded to the legal team with very little context, and with nothing attached, potentially just a couple of sentences.
In fact, the request phase is a great area of opportunity when seeking to increase a company’s deal-making velocity. If a request were to come in with all the detail necessary for the legal professionals to begin drafting or piecing together the contract based only on the information available in that first email, there is a very good chance that hours or days would be eliminated from the entire process. In reality, it is often very difficult to begin to prepare a contract or locate the necessary template (if templates exist) just from that initial request.
Good contracting lifecycle improvements always start with the request stage being clearly defined in a way that guides the business through a useful request process. This request phase can be improved on in many ways, one of which is automation, but I’ll get to that later. For now, let’s review some of the tips for making that request more useful to enable the legal team to immediately to begin work. Assuming there is no automated intake process for these requests to come from the business to the legal department, many steps can be taken to improve it even if on a manual basis. …
The intake form should contain the key and basic pieces of information that will enable the legal team to start drafting the contract without seeking more information. If it is developed in a way that still requires the attorneys or legal professionals to seek inputs before they can get started, then something critical is missing from the form, so let’s make this a test:
- Create the form.
- Start using it.
- And track the number of times you still have to seek more inputs.
That’s the key lesson. Your aim is that proper mix of information to seek that will not upset the business users because it’s too tedious, while at the same time be enough information that will actually enable the legal professional to begin work immediately. …
[More on Create, Negotiate, Approve, Sign, Store, Manage]
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Good post-execution obligation management of contracts requires that a central repository be effective and efficient in how people retrieve the information they seek. Modern repositories also do an excellent job reminding business owners of obligations and are almost an intelligent assistant to the business to ensure that key obligations are not missed.
This phase of the contracting lifecycle is actually ongoing until the contract has expired, and often certain obligations even continue beyond expiration, making this a critical phase of the CLM for business continuity and compliance.
Chapter 3, Legal Review Policy
More often than not, law department lawyers find themselves in a reactive role when they review the contracts sent to them by the business. Somehow, the business owners determine what Legal should and shouldn’t review. Yet the attorneys are in the best place to make that determination. So, why don’t more legal teams take a proactive role in defining what should land on their plates?
Eventually, the sheer volume of commercial contracting work leads legal teams to be more restrictive and prescriptive about how they spend their time. But often, they arrive at this step only because they reach a breaking point and cannot keep up with demand. Or they are sick of being called a bottleneck and reach a “the business should be handling some of this themselves!” conclusion, after handling insignificant contracting matters or reviewing contract terms that are clearly within the wheelhouse of the person who sent the request to Legal.
Enough is enough. Reacting to every request for contracting help is not an effective strategy—in fact, it is not a strategy at all. It is time for Legal to take back control over their inbox and start creating a policy for the business to follow. But how do you tackle a policy like that?
It all starts with writing down what Legal must review. It is basically a rule that business owners must get Legal involved in certain transactions. Of course, this begs an obvious question: what happens to the other contracts that Legal does not review?
Well, the first step toward recovery is accepting smart risks, which is something lawyers have to do regularly, but for some reason putting it down in writing is challenging. It feels like lawyers are giving away control and opening up some sort of free-for-all. Actually, it is not a free-for-all, but it certainly allows for the business to handle some contracts without Legal’s input. That is precisely the goal: getting Legal out of the way when there isn’t significant risk to consider or mitigate. …
Defining the Policy
Determine if the policy comprises a list of what the business may handle without legal involvement versus what the business may not handle without legal support. Meaning, are you trying to give as much freedom as possible? Or empower the business with only specific scenarios where they can contract without Legal’s involvement? While at first glance it may seem highly tolerant of risk and very empowering to have a short and finite list of contracts that require legal support, it can have the opposite effect. (Presuming that Legal doesn’t need to be contacted for contracts outside that list.) So, it really comes down to the content and how tolerant the legal team is, regardless of initial perceptions. Figures 3.1 provide[s a] sample perspective[ ] on how to tier and delegate risk mitigation.
[Outlining the eight steps necessary to create a legal policy; Create, Negotiate, Approve, Sign, Store, Manage; discussing the creation and deployment of a plan to communicate the policy]
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Change management and communications are not natural skills for many lawyers. If the attorneys are unsure how to handle that aspect, asking for help on this part of the policy launch is a great way to bring others into the loop and expand engagement with others across the legal team.
Chapter 4, Templates
Creating templates is probably the easiest place to start for legal teams looking to streamline their contracting work. It is easiest because it fits squarely inside the skillset of the attorneys. We know the words that need to go into contracts; we know lots of words. Therein lies much of the problem. Contracts are complicated and generally not user friendly. It is no wonder a bad template is often the source of contracting woes. Of course, it matters whose hands the template falls into for negotiations, but the reality is that a simple, easy-to-read and reasonable template (meaning the terms are within market normal ranges of what is commonly acceptable by both parties) will go a long way to making the contracting process more efficient.
But like so many other aspects of contracting optimization, just how much can be accomplished with templates depends on several factors. Most notably, not all contracts should be templatized.
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There is no better forcing function to finally decide on the appropriate limit of liability than when everyone has an opportunity to voice their perspectives, but with the understood goal that a decision must be made. So, even a rarely used template is a useful document as a reference guide that defines the preferred terms for the company.
Templates serve two main purposes in expediting the contracting process:
- They speed up the initial production of the starting contract.
- They enable the business to handle certain contracts independent of the legal team.
Depending on how they are used, template formation, where they are stored, and how they are retrieved will vary, and there is no one right way. Every legal team will have the approach to templates that fits their culture, resources, and processes. Before beginning the actual work of drafting template terms, take an inventory of the types of contracts that the department regularly deals with. Create a simple view with categories of contract types. Figure 4.1 demonstrates a sample of a high-level breakdown of common agreement types for a high-tech company.
[Discussion of templates for legal teams, clause Libraries, use of AI with sample contracts, and business-facing templates]
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When the C-suite understands that Legal is not a gatekeeper for all contracts, it is very helpful to set that tone from the top down.
Often, Legal feels it must protect the business from itself and thus over-functions on every aspect of contracting. But with the right leadership, the business can be empowered and accountable for when some contracts either slip through the cracks or simply aren’t negotiated in an ideal way. This has to be acceptable to all the leaders of the company, or else Legal will be involved in every contract—something no one wants!
Read Part III (271).