In the past few years, the advent of contract lifecycle management software (CLM Tools) and legal technology or ‘legal tech’ is rapidly changing the whole world of contract management.
For decades companies and market analysts have been struggling with ignorance in the field of contract automation. The focus has been almost exclusively on procurement solutions as if sales contracts don’t exist or are irrelevant.
Do you recognize any of the above? I do: been there, done that (fighting), and now helping you and other companies.
At the end of this post, I will briefly stop at some trends in both legal tech, and CLM tools. Before we can understand what’s next, it’s best to understand what’s in the past and what’s now.
The Old Way of Working
Traditionally, proposals and contracts were typewritten and reviewed in hardcopy. Contracts would be marked up with changes in (red) pencil or pen before being sent back to the other party. And all proposals and contracts and ancillary documents were stored in file archives, often never to be looked in again.
Negotiations, therefore, took much longer as did making necessary changes to contract documents.
All this increased the cost of contracting and reduced achievable contract value over time.
Many companies still haven’t automated the contract management process at all, and are sticking to good ol’ Microsoft Word and Excel and Outlook – with all their flaws and errors – as their contracting tools.
Businesses that have automated contract management use a combination of digital tools throughout the contract lifecycle.
However, a single focus on contracting as an administrative task has led them to develop or buy contract automation solutions that do not fit business requirements.
Or business departments wanting to automate are in a continuous fight with IT – and sometimes also the legal departments – that propose solutions that don’t help the people working in the business on proposals and contracts.
CLM software and legal tech
People refer to contract lifecycle management software as ‘legal tech’ and vice versa. But is this correct? As we will see in this article, the two are linked but two separate assets you may have a need for both in your company.
So what exactly is the difference between the two? And how can the tools help suppliers in high-tech, high-value and high-risk industries, selling and contracting complex products and services through multi-party supply chains?
Let’s start with looking at how legal tech and CLM tools can help you adding value to your business.
Claim your free tailored CLM benchmarking report and strategy session to see where your company is on the journey to optimal contract lifecycle management performance.
Legal Tech
As for all the other new ‘tech’ industries today ‘legal tech’ is the fashionable for ‘legal technology’. And it has been around longer than that this new term was coined.
Essentially legal tech means the use of technology and software to provide and support legal services. The goal is to improve overall efficiency and enable lawyers, law firms, in-house counsels, businesses, and organizations to work more effectively in the increasingly demanding legal environment.
Today, legal tech start-ups are also focusing on developing online software that reduces or even eliminates the need for you to consult a lawyer. Or their service consists of linking you to lawyers through online marketplaces or matching websites. Based on models like Fiverr or Upwork.
Legal tech is used for:
- legal research
- practice management and optimization
- case management
- legal contract management for managing the flows of contracts held between a company and its clients/a legal department and other divisions in a corporation
- matter and case management
- document storage
- document and legal writing automation
- billing
- accounting
- electronic discovery
- document automation
- marketplaces to connect clients with lawyers
- client relationship management (CRM) tools
- do-it-yourself tools for consumers and businesses to complete legal matters by themselves (will writing)
- data and contract analytics
- digital signatures
- and more.
Legal professionals use legal tech for:
- Corporate agreements
- Non-disclosure agreements
- Deeds of trust
- Rental lease agreements
- Service agreements
- Litigation documents
Traditional legal tools versus today’s legal tech
For legal document and contract management, there are two roads legal professionals can choose from:
- Continue working manually, relying on traditional tools used by legal professionals like Microsoft Word, Excel, Outlook, or similar software, paperwork to manage legal documents. This is outdated, prone to errors, and can be very inefficient, especially if you need to manage multiple different documents.
- Working digitally, using digital platforms and software that automate the process of managing legal documents, agreements, and contracts. Automating document creation, storage, and management in central repositories that can be securely accessed anytime, anywhere by pre-authorized users. The risk of errors is lowered and administrative costs can dramatically be reduced, while users can do much more work in a much shorter time.
So legal tech is digital technology primarily used by legal professionals and digital platforms or software-related legal documents and agreements.
Commercial agreements can also be managed with legal tech. However, this type of agreement – which is more a ‘business’ agreement’ in which many more disciplines than only legal are involved – may be better served with ‘customer lifecycle management software’ as described below.
Legal Tech Used in the Legal Contract Lifecycle
The legal tech contract lifecycle for legal professionals looks very much likes this:
Each phase has its own tools or point solutions. The following list shows the most important tools that are available in legal tech:
- Intake: portals, intake forms
- Draft: document automation, approvals
- Negotiate: contract reviews, document storage, Word extensions, screen sharing, negotiation platforms
- Sign: approvals, e-signatures
- Manage: extraction, contract management, obligation management
- General: search, workflows, matter tracking, dashboards, analytics and heatmaps
Some companies have a CLM tool integrating with legal tech point solutions.
The biggest difference between the two as I see it is that in the legal lifecycle you find many tools that are point solutions that only do one stage or phase. They just do one thing very well. Unlike CLM tools that cover the whole spectrum.
Contract Lifecycle Management Software
Contract lifecycle software offer end-to-end capabilities that cover full lifecycles, integrating all phases and stages. Per activity they may not be offering the best there is compared to point solutions and may be less flexible.
So how do the end-to-end solutions look and what are the benefits of having a CLM tool?
Contract Lifecycle Management systems (CLM tools) deal with managing contracts from creation to expiration and is aimed at reaching the biggest cost savings and highest efficiency.
The 5 stages of the contract lifecycle process
The lifecycle of a contract is vey similar to that of legal tech but takes it one or two steps further.
You can add sub-phases and stages in each phase, but to keep it simple I have chosen to limit the lifecycle to 5 main stages.
CLM functionality for the Prepare & Propose and Draft & Negotiate phases
The usual combination of functionality used throughout the first Prepare & Propose and Draft & Contract phases of the contract lifecycle are the following:
Phase/Task
Traditional
Today
Benefits
Create Proposal or Contract
Word processing software (Microsoft Word)
Pre-approved cluase libraries, question-driven boilerplate generation (choice of law etc.) and automated template documents (e.g. use of plural when more parties)
Forward requests to the correct individual.
By using a template, you will make sure your proposals and contracts our consistent and without errors.
You also reduce administrative overhead.
Approvals Proposal or Contract
Email, teleconference, validation sheet (Word, Excel)
Redlining for reviewing, automated mark-ups showing all insertions, deletions, and movements of text between the original/current draft and subsequent draft/drafting comments (aka blacklines, delta views)
Fast approval time is important to get proposal and agreements ou quickly.
The faster approved, the sooner you can deliver, and the better their experience with your service.
Negotiation
Word processing software, Excel sheets, email
Develop a specific automated process for negotiating contracts and enabling non-lawyers to create proposals and specify the contract conditions with customers.
Cost-effectiveness
Keeping the contract negotiation process is kept short and moving forward without wasting time and resources.
Signature Proposal or Contract
Party signs a hardcopy printed signature page, scan it as a pdf and send it by email to the other party
Using electronic signature software, document signed in the CLM system and distributed automatically
Ensuring that contracts can be signed off on efficiently less time needed to complete your proposal and contracts.
Functionality for the Execute & Manage phases
In the Execute & Manage , Change & Renew and Close-out & Exit phases it is more about obligation tracking.
Phase/Task
Traditional
Today
Benefits
Contract Storage
Largely a manual process: storing or upload contracts in a network folder (typically copying and pasting data to summarise a contract in a third party tool), time-consuming and commensurately expensive.
All contracts and related documents in one place. The contract is already in the contract management system and offers analytics, etc.
Reduce the chance of you losing any important information and documents.
Multiple users or departments have 24/7 access to the information they need when working on a case (in office or remotely).
Tracking Obligations
Manually entering data and tracking of milestones, obligations and compliance in Word, Excel
Redlining for reviewing, automated mark-ups showing all insertions, deletions, and movements of text between the original/current draft and subsequent draft/drafting comments (aka blacklines, delta views)
iManage Work, NetDocuments
Renew or Exit
Largely manual and, unless the contract provides for automatic termination/renewal, depends on a party communicating a desire to terminate or renew an agreement
Renewals are done automatically, same technology is used as when creating a proposal or contract (see above)
Getting an alert before the contract expiry date, for example, helps to renew contracts at the right time to avoid any unexpected loss or negative consequences.
Applying Legal Tech and CLM Tools to Your Contracting Processes
If you are a medium to large firm:
- producing large and complex contracts consisting of multiple documents, with scores of milestones, obligations, and other commitments,
- or if you are working with multiple parties to produce products and services and related contracts
- or if you have to oversee hundreds of clients or customers,
using cost-effective legal tech and CLM solutions to manage contracts is a necessity.
“Procurement, sales, and legal teams are always pressured by the business to speed up contract development and execution. Without a CLM solution, contract negotiators struggle to execute contracts within the expectations of the business.”
Gartner Market Guide for Contract Lifecycle Management, December 2018
The legal tech benefits with high impact are:
- Easy to use portals
- Simple intake forms
- Word extensions
For CLM tools the highest impact comes from:
- Central repository (documents stored in one easy and 24/7 accessible location)
- Document automation (proposal and contract templates)
- E-signatures
- Contract and compliance management
- Issue tracking
Considerations for Using Legal Tech and CLM Tools
Size of proposals and contracts
In industries selling complex products, you will probably have a few large and many small contracts. Your small recurring contracts are relatively easier to automate from the start. This is for instance a domain where you can use templates.
Your smaller contracts are easier to automate in all phases of the contract lifecycle because they:
- often show more consistency between them
- have lower values
- are probably less risky
- are easier processed.
Your larger contracts, however, will be more of a challenge since:
- often more internal and external stakeholders are involved
- most of the time they will be highly customized.
Nobody likes change
Asking people to start working differently is challenging. And if not managed properly leads to failed projects which could cost you a lot of money. Especially this is the case in environments with highly educated people who have been used to a lot of autonomy and who have been quite happy with the tools they have been working with. Like Word, Excel, mail, and Sharepoint.
So you need to approach this as you would do with any transformation project. Showing the users what the gains are in the future and how that will weigh up against the pains they will certainly be feeling at the beginning.
Also, think about what other tools the users are using today with which new systems will compete with and whether those need to be cancelled.
The gains can go up to 10% of contract value if you implement tools alongside upgrading your contract lifecycle management processes in the correct way. But you need your most important assets, your people who will have to use the new tool, to buy in. If the pains do not weigh up against the gains, reconsider, since you cannot afford to damage your business value.
Flexibility of the tool
You would like a solution that is complete and will solve not only all issues today, but also everything in the future. It doesn’t exist. The world continuously changes. And so does your company and the priorities you have.
What you need are tools that are easily adaptable and configurable. Not by the solution provider, nor even by your IT people, no by yourself, somebody in your business who you have dedicated to act as ‘webmaster’ of your tool, or even the end users themselves.
Security issues
There are still many IT departments that are not keen on putting confidential data in cloud-based tools. Even if nowadays on-premise systems and servers can never reach the security levels anymore that are now offered in the cloud.
Reporting
CLM tools can provide customized reports on contract performance and status on a visual dashboard.
Return On Investment of Using Contract Lifecycle Management Software
The return on investment of investing in contract lifecycle management can be viewed from three perspectives:
1 Reducing Costs
- Eliminate redundant entry of information
- Less resources needed, so reduced overhead
- Higher efficiencies in contract lifecycle processes
- Reducing penalties
2. Mitigating risks
- Accurate, compliangt-by-default contracts
- Up-to-date, pre-approved proposal contract templates reducing errors
- More consistency of proposals and contracts and processes across the organization for due diligence and pro-actively managing risks
- Increased compliance
3. Enhancing revenues
- Not missing deadlines, critical dates for renewals, extensions, or option exercises
- Timely performing pricing updates and revisions
- Being underpaid for products or services
- Timely payment collection
4. Other benefits
- Reduced contract negotiation time
- Higher speed in the production of accurate proposals and contracts
- Improve enterprise-wide visibility of contracts and related information – team members have access to the information they need
- Better collaboration between all stakeholders in the contract lifecycle.
Continuous monitoring makes sure that there is no unrealized performance value or revenue leakage in contracts 500. For instance, a company’s commitment to its customers may be hindered by its vendor missing deadlines. Such missed performance opportunities can result in a 10% to 20% increase in indirect costs.
Artificial Intelligence in Legal Tech and CLM Tools?
The question is not if many basic contract-related tasks will be replaced by technology, but when.
In the world of legal tech and CLM tools, artificial intelligence (AI) is the new hype. Especially, for legal contract management and in legal tech AI is becoming more and more prominent.
However, artificial intelligence can only do so much in contract lifecycle management which fundamentally is a process challenge and AI cannot add much in this area. Moreover, today’s AI capabilities are of limited help.
Also, many of us are still far away from using new concepts as ‘smart contracts’ and the blockchain. Especially in aerospace & defense, maritime, information services industries.
As soon as this becomes more prominent I will certainly write an article on this.
Conclusion
Legal tech and contract management software are important business assets that can provide a remarkable return on investment and help you improve contract value.