(And no, a file cabinet is NOT a CLM solution.)
Contracts are the lifeblood of all business relationships. That’s why organizations need the ability to govern contracts and contract data holistically from a common solution framework to get the best understanding of the obligations that bind the entire company. As such, siloed approaches for looking at contracts are officially out of touch. Step away from the file cabinet.
Contracts are borderless across procurement, HR, sales, IT, finance. That being said, they clearly have to be considered from an enterprise perspective in order to address the wider risks that are being experienced throughout the organization. In a nutshell, that explains the increased interest in contract management.
The nature of business is contracts.
Consumer strength continues to grow; Suppliers are more integral to the success of organizations; Both buy- and sell-side contracts are demonstrating more frequent negotiations, increased complexity related to post-award claims, and an overall higher focus on compliance and regulatory requirements. In light of those realities, the following key areas demonstrate the increasing complexity of modern business, and why adopting a cloud Contract Lifecycle Management (CLM) solution has become an enterprise imperative:
1. Larger numbers of contract stakeholders. Today, employees, customers, suppliers, and the community, shareholders, and other investors are all involved in the contract process. The top challenge is that everyone involved is looking at different parts of a contract that are essential for their signoff, but continue to struggle by not having one common platform to manage them all. In many instances, the contract reviewer doesn’t have the time or ability to analyze and understand the wider commercial context and the associated risks with contracts that can be attributed to the lack of an integrated CLM process.
2. A wider variety of contract types and terms governing the business. From an NDA to MSA to SLA, the clauses and terms going into a contract can be a complex array of requirements. At times, requirements may need to be altered due to changes in the business or conditions that call for those changes from a variety of different stakeholders in the organization, but who may not have access to the contract management system. Some of these changes may be universal to all contracts, such as a change in the legal name of a business. Other changes may only impact specific parts of a business, such as new regulations for a specific industry or region and that impact only certain suppliers or customers. Without a centralized approach, how can you know which contracts are affected?
3. Legal requirements from different jurisdictions. The increasingly global nature of business makes knowing what jurisdiction a contract falls under — i.e., state, national, supranational (EU), international (UN) — critical. Having this information and the ability to centralize the creation and management of the contract provides a basis for understanding the context of the contract and its potential impact on the business, such as contract language that may be different between common law versus civil law jurisdictions. Understanding these different legal structures forms the basis for how legal proceedings are interpreted and how contracts should be written.
4. Corporate events driving the need for more GC and/or legal oversight. CLM features have to be aligned with business needs for more efficient management and use of the General Counsel’s (GC) or legal department’s time and resources for managing / assisting in the management of clause libraries and templates. This is particularly true in times of corporate change that require mass alterations to contracts, such as times of very high merger and acquisition activity. While this may a positive for the stock market, managing change from a contractual standpoint increases the need to have a centralized or center-led approach to managing contracts, with GCs having the ability to control oversight with nuances and changes in legal language.
5. Increase of regulatory requirements. Almost everywhere you turn, Global Risk & Compliance (GRC) management is a topic of the day. Trying to manage regulatory changes that impact contracts requires a centralized view and oversight combined the need for flexibility. Growing complexity in the administration of contracts for organizations that are heavily regulated or have worldwide affiliates requires contracts to be managed in a dynamic way. Moreover, changes in regulatory requirements are often impacted by jurisdiction, where laws specific to those jurisdictions can greatly shape how business is conducted (Brexit, NAFTA, GDPR, anyone?). These changes force organizations to take a closer look at how they draft language and the frequency for incorporating those changes into their contracts based on the ongoing changes in regulations.
6. Analytics as a driver. The need to improve insights into contracts is expanding. In concert with the development of Big Data, information created or collected around contracts demands a centralized process for being able to understand trends and nuances of all the contracts across the organization. Analytics within contract structures are also demanding Contract Lifecycle Management platforms demonstrate the nuances such analytics are based on:
- Types of contracts, clause velocity, clause usage.
- Total cost optimization through clause driven optimization (indemnification, SLA, audit)
- Contract clauses, clause disputes or analytics for obligations management
- Contract scope & goals tracking / remediation
- Predictive analytics related trends on clauses, suppliers, approval cycles
7. Increased adoption of the cloud. The ability to more easily scale and improve distribution and increased security measures, such as SOC 2, HIPAA, SSAE 16 or ISAE 3402, is what makes cloud-based contract management the most viable option for those looking to implement a CLM solution. Growth in cloud approaches to contract management in comparison to hard copy or installed instances of CLM may be more resilient ways to avoid risk. Moreover, from a technology standpoint, there are several benefits that users obtain from technology providers focused on SaaS due considerations such as: better time to benefit, reduced impact of upgrades, managed security, tighter integration, and improved scalability.
If your organization is still using shared drives, spreadsheets, aging on-premise contract software and disparate suite solutions to try and manage contracts, it’s time to seriously explore moving to a more robust contract management approach. Learn why so many leading companies rely on our modular Contract Management on the Determine Cloud Platform – schedule a personalized, no-obligation demonstration.