The Latest Technology for Law Department Management

Names

• Contract Databases
• Contract Management Systems
• Enterprise Contract Management Systems
• Contract Lifecycle Management Systems

Description and Primary functions

Few companies manage their contracts and contract processes well. Contract management systems can help to bring order and efficiency to this critical area.

Contract management systems range from simple database systems that allow companies to find their contracts and track basic information (such as contract expiration dates and deadlines) to contract lifecycle management (CLM) systems that attempt to automate the entire contract lifecycle, from the initial contract request through contract creation, signing, filing, and post-contract reporting. Some systems are primarily intended to support the procurement function, and others the sales contracting function, but increasingly these systems are being designed to handle all types of contracts.

While a simple database and tickler system may be adequate for companies with only a small number of contracts to deal with, more fully featured CLM systems add significant features and functions to help manage what, for many companies, is an increasingly complex and critical area. With more systems being offered as a hosted service (SaaS), the advantages of CLM systems are increasingly available even to smaller companies and law departments.

A Definition of a CLM System

An integrated system that applies business rules to manage contracts of the enterprise on a worldwide basis, from request through negotiation to filing in a central repository, and that allows people and systems within the organization to access, analyze, and act on contract-related information to improve efficiency, consistency, reporting, and control.

What are some of the benefits you should expect from a CLM system?

• Streamline contracting process and improve contract cycle time

• Reduce overhead associated with contracts
• Improve consistency of contracts and contract processes across the organization
• Better control of risk and revenue recognition issues, including Section 404 controls
• Improve corporate-wide visibility of contracts and related information – people have access to the information they need
• Eliminate redundant entry of information
• Allow procurement, sales, and legal staff to concentrate on value-added work rather than administrative tasks
• Better understanding of contractual commitments (e.g., SLAs)
• Improved amendment and renewal processing
• Increased visibility into cross-sale/up-sale opportunities
• Allow more efficient integration of acquired companies’ contracts and related processes

Key Features – Aberdeen recommends[1] that enterprises assess CLM application capabilities in five primary areas:

1. Contract creation – ability to support collaborative contract negotiation, contract templates and clause libraries, approvals, workflows, [electronic signature,] and audit controls.

2. Contract repository – ability to establish a searchable repository of all contracts, clauses, and associated business information.

3. Contract management – ability to automate and control contract administrative processes, including compliance management, amendments, and renewals.

4. Reporting and analytics – ability to monitor and report on contract and operational performance as well as support risk and scenario-based assessments.

5. Integration and services – ability to integrate and interoperate with business applications, especially ERP and Microsoft Word, and to provide support services.

Key issues

• Many groups within a company need to access contracts or contract information. Make sure you involve the appropriate groups in the process of selecting and implementing a system.
• In many companies with a high volume of contract activity the law department is not the primary user of contract management systems and does not have overall responsibility for contract management. It may be a procurement department or a dedicated contracts department supporting the sales function. Those departments may include lawyers, or the law department may play more of a supporting role on an as-needed basis.
• Be careful that you don’t choose a solution that substantially increases administrative burdens by requiring users to input detailed contract information. Some systems can actually create more work rather than less.
• There is currently a lot of innovation and consolidation taking place in the industry. This should be taken into account in system and vendor selection.
• More systems are being offered as a subscription service (SaaS)
• You will need to figure out what to do with your existing (legacy) contracts. How will you get them into a new system? Some vendors offer this as an additional service.
• “Additional emphasis should be placed on application architecture and usability, both of which will influence deployment, adoption, and total cost of ownership (TCO) performance. Enterprises must also thoroughly assess solution provider’s customer references and financial viability. Such diligence is particularly important considering the establishment of the CLM solution marketplace and continued market consolidation.” [2]

Alternatives

• Many of the individual functions of contract management can be handled using standard Microsoft tools (e.g., Word, Outlook, Excel, Access) or other stand-alone products to accomplish the functions of a contract management system. This is what most law departments are doing today. The problem with this approach is that where you are dealing with any volume of contracts it generally means inefficient, fragmented processes and an inability to efficiently locate information.
• Many matter management systems can be used to store electronic copies of contracts and provide notifications of deadlines, expiration, renewals, etc. Although they may lack all the features of a full CLM system, there can be advantages to consolidating contract information in the same system you use to manage other matters.
• Home-grown solutions. For example, some document management systems (e.g., Interwoven, SharePoint) can be used as the basis for a contract management system. However, with any home-grown system you are responsible for designing, supporting, and maintaining the system, and you will not be able to take advantage of a vendor’s expertise and experience working with many other companies.

Costs –

• Costs of implementing a contract management system can range from no up-front investment (if you are able to use a system or systems you already have) to more than $1 million for a full-featured CLM system.
• Using an existing matter management system as a contract repository and tickler system will probably not involve any incremental investment.
• Home-grown systems using existing software may not involve any up-front software investment, but will require time and expertise to design and maintain the system.
• SaaS CLM systems avoid some of the up-front costs and start at about $50 per user per month.
• Implementing an installed software CLM system can involve a substantial up-front software license fee, ongoing software maintenance fees, plus implementation fees and charges to input legacy contracts. Total initial investment can easily reach $1 million, with ongoing fees of more than $100,000 per year.
• Don’t forget to factor in costs for getting legacy contracts into a new system. For companies with thousands of contracts these costs can be substantial.

Some systems (such as Corporate Legal Standard and Pontus Global) now include a labor component using less costly resources that could make those systems more affordable on a total-cost basis.