5 Signs Your Firm Needs to Invest in Contract Lifecycle Management
Within the past decade, focus on contract lifecycle management has become increasingly important. Due to the advent of complex financial instruments with a high dependency on nuanced financial and legal terms, many legacy contract structures run the risk of unenforceability. While firms pay considerable attention to negotiating the best terms in legal contracts, they must also focus resources on managing contract data in order to enforce contract terms and to ensure proper action is taken to renew or to terminate legal agreements.
According to the International Association of Contract and Commercial Management (IACCM), ineffective contract management can cost the average firm up to 9.2% in annual revenue. Considering this great revenue impact, firms should invest in a coherent, firm-wide contract lifecycle management approach for managing contract data from creation, to execution, to renewal.
By implementing contract data management best practices, your firm will take the right actions to increase contract process efficiency, improve contract data quality control, and mitigate contract risk exposure.
Here are five signs that your company needs to invest in a contract lifecycle management strategy:
- Your firm lacks a searchable repository for digitized contracts.
- Contract digitization and storage is mission critical for effective contract management. Firms must be keenly aware of existing relationships, contract terms (including expiration dates), and contract compliance. Without a searchable repository, firms will lack visibility into its obligations and will miss out on the efficiencies to be gained by leveraging executed contracts.
- Your firm does not have a standard set of approved contract templates and contract clauses across all lines of business.
- To support efficient contract drafting, firms must ensure contract templates are created, maintained, and stored in a centralized repository for all frequently negotiated agreement types. Moreover, the centralized repository should also store pre-approved and standardized legal clause data. By managing template and clause data, your firm will empower negotiators to create new contracts in a timely and controlled fashion. Firms without a uniform template and clause strategy are missing out on contract drafting process efficiencies and are susceptible to the use of unapproved contract clause language.
- Your firm does not leverage data recognition and extraction technology for storage of contract clause data.
- Setting up a searchable contract repository is half of a firm’s battle. Firms must also ensure the contract clause data of all legacy and future contracts is available to meet regulatory and compliance requirements. In most cases, digitized contracts will be in an unstructured PDF format.
- While firms can implement manual processes to extract contract data and to input into a database, firms should realize cost savings and efficiencies by implementing technologies—most notably natural language processing (NLP)—to recognize, extract, and store contract clause data.
- Your firm has limited contract analytics and reporting capabilities.
- Effective contract management relies on the continuous measurement, improvement, and reporting of key performance indicators (KPIs). Firms without contract analytics and reporting capabilities will not have a clear view into process and contract health. Your contract and reporting analytics capabilities should enable your legal team to identify process bottlenecks in drafting and approving contracts. Standard CLM KPIs (e.g., time to execution or signature, counterparty credit utilization and exposure) provide the transparency needed to be strategic with how and when you are updating contract terms. Moreover, contract reporting satisfies your risk and compliance team’s requirements for measuring and ensuring proper risk management.
- Your firm has limited controls on contract data access and usage.
- Enabling contract analytics and reporting capabilities can only be successful if proper security controls are in place to limit contract data access and usage to specific users. Your contract data should be accessible to users on a “need to know” basis in order to protect your intellectual property and to remain in compliance with data residency laws and cross-border restrictions. Your firm must enable a scalable data security framework that allows for complete visibility into contract data access and usage.
Ultimately, if any of these five signs are present at your firm, then it is time to invest in a coherent, firm-wide contract lifecycle management strategy. Your contract data is a critical asset, which when managed appropriately, can be leveraged to drive contract lifecycle process efficiencies and to mitigate contract risk exposure.
As Gartner puts it: “CLM is no longer a nice-to-have capability.” Your firm’s priority must be to effectively manage contract data, as the negative revenue impact of ineffective contract management is too great to ignore.