CLM 101: Understanding the Basics and Benefits
- Information governance
- 3 Mins
Contract management has been giving the legal industry headaches for years. Many legal teams struggle with managing or analyzing contracts effectively – partly because of the volume to sort through but also because of the lack of proper processes in place backed by the right technology. While going through contracts will lead to better classification habits, this can also help teams pinpoint inefficient or litigious clauses, draft better templates, determine if obligations can be prepaid at lower rates, reduce storage needs, remain compliant under new regulations, and quantify many types of organizational risk. Enter contract lifecycle management (CLM), an underutilized tool on the market for years. By understanding the value of CLM tools, legal teams can start to better manage their contracts and learn how to tell a story with data derived from their contracts. This is turn assists with the greater initiative of demonstrating legal’s value to the entire enterprise.
What is CLM?
Contract deadlines and obligations vary depending on several factors. This includes the nature of the agreement, client preferences, regulatory oversight, and more. Lifecycle management, review, and obligation tracking can be overwhelming – especially when dealing with a high volume of commercial contracts. CLM tools provide a way to optimize the creation, execution, storage, and ongoing management of contracts. This technology can apply from the request phase through negotiations to reporting. It can also be used to collect and coherently organize and code already existing contracts. Implementing CLM workflows and technology into practice allows legal teams to be more thoughtful and proactive with managing the entire tenure of their contracts.
More teams are starting to turn to consulting firms to evaluate, implement, and integrate tools into operations. New CLM solutions on the market offer more advanced capabilities powered by AI allowing for data extraction, clause suggestions during authoring, obligation management, and risk analysis.
Adoption Rate and Benefits
With the overwhelming need to use a consistent standard for storing and managing legal documentation, it is surprising that CLM tools have not yet gained widespread adoption. While investment and use has definitely grown over the past few years, there are still adoption gaps – especially when it comes to understanding expanded value opportunities. This can likely be attributed to not knowing where to start, lack of understanding potential ROI, and overall absence of education on advanced capabilities or data insights these solutions can offer. Coupling CLM tools with expert review helps legal teams achieve a robust contract management program. Exploring these partnerships is one way for organizations to lessen the fear surrounding CLM integration and enhance widespread education on this topic.
Here are five key benefits that CLM tools can offer legal teams:
- Organization: The most obvious benefit is the ability to have an adaptable database of record with improved access to up-to-date and properly attributed contracts. Having such a system in place eliminates contract backlogs, makes it much easier to retrieve agreements, and reduces storage.
- Speed: In addition to streamlining contract retrieval, CLM tools speed up new contract drafting and ongoing management. This is due to the ability to automate simple drafting tasks and the advanced AI tech that can quickly illuminate important issues during negotiation or risk analysis. Automation also gives the legal team time back to focus on higher level contracting tasks such as negotiation and regulatory reporting.
- Consistency: Having better organized contracts helps determine where automation and standardized agreements can apply, which in turn makes drafting new contracts and obligation tracking much simpler. This also improves defensibility.
- Agility: When using CLM tools to draft templates or create model clauses, it is easier for teams to pivot when departures are needed. For example, if a standard clause proves to be litigious it will be easier to pinpoint the problem and make quick changes to the template. Additionally, when a new regulation comes into force teams can react faster and determine which agreements are affected and what needs to be amended going forward to remain compliant.
- Risk: Some CLM tools can analyze past agreements and rank risk when negotiating a new deal. This is extremely beneficial to the client and helps teams quantify various types of organizational risk that exist.
All of the above benefits feed into better and more efficient work product at lower costs. As with most new legal tools, the upfront costs can seem steep but having a repeatable trusted process leads to unmatched ROI that leadership can get behind with the right metrics to illustrate cost effectiveness.
With more contracting tools, consulting firms, and legal operations professionals entering the market and advocating for CLM, legal teams will begin to have a more sophisticated understanding of this technology. Fair predictions in this space include more partnerships with consulting firms that can advise and help with implementation; smaller initial investments that allow for use case testing before creating more robust CLM programs; greater focus on security as threat actors continue to explore new ways to carry out attacks; and the elevated need to have candid discussions with leadership about where CLM fits into the legal tech budget and whether current budgets are realistic. While this all may affect adoption rates in the short-term, increasing tech education will help legal teams understand potential value drivers and use cases available.
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The contents of this article are intended to convey general information only and not to provide legal advice or opinions.