Avoid the CLM Horror Story
June 20, 2022
Want to hear a scary story? It’s a cautionary tale.
The tale begins many years ago, early in my career, working as a paralegal. Back then, contract management meant filing the document in a drawer and forgetting about it until renewal. We didn’t proactively monitor contracts. When the customer reminded us that renewal was coming, we had to start hunting for the executed contract. Finding it took too much time. Instead, we guessed the renewal terms by tracking down the last draft version on our hard drive; this remained standard practice until ‘the great contract fire drill’ of my career.
When our SOX compliance team needed to furnish material to our auditors concerning liability caps, I was responsible for locating executed contracts with relevant provisions. It took hours and included searching file cabinets, looking for the key clauses, making copies, refiling, and so on. Even after two weeks, I hadn’t found current executed versions of many of our contracts.
I resorted to rifling through desk drawers (found some), scouring the copy room (found some more), and rummaging through the storage room (tracked down a few more) but still couldn’t locate 20% of our contracts. After a month of trying to produce documents and repeatedly answering “I don’t know” to the auditor’s questions, we failed the audit. It remains among the most painful experiences of my career.
In the wake of the pandemic, many legal professionals have lived this sort of contract nightmare. For them, it started when business-as-usual came to a screeching halt. While their colleagues worked frantically to switch to the work-from-home paradigm, legal professionals faced a tsunami of contract-related work. Was a global pandemic an act of God in force majeure clauses? What terms lurked in a company’s contracts that provided relief or imposed heightened obligations? What were the specifics of termination clauses? Clawbacks? Payment terms? Renewals?
Across countless law departments, opening the proverbial file cabinet became an urgent matter as businesses tried to determine contractual risks and obligations in this new climate. Even as the world adapts to a new work normal, the focus on contracts remains as intense as ever. Russia’s invasion of Ukraine implicates terms related to sanctions and other consequences of the conflict. Also, Inflation is doing more than just driving up prices; in many cases, it has triggered escalation clauses that directly impact a company’s bottom line. The importance of contract management now goes far beyond SOX compliance. Now, contract management is a central concern across a business. Like never before, executive teams need – and are demanding – their legal teams provide a real-time understanding of the business impact of countless clauses buried in hundreds, and even thousands, of contracts.
Business leaders have good reason to fret. Contract breaches and non-compliance with contract-related regulations open the door to an array of risks – litigation, enforcement actions, damage to a company’s brand, and even share price. These are the scenarios that have kept CEOs and GCs up at night.
The statistics from Elevate’s CLM technology partners are staggering. Companies are losing upwards of 9% of their revenue due to contract compliance issues. Those sorts of losses would be tough to stomach in any environment. In today’s market, they can be catastrophic – not just for businesses. The human toll of poor contract management is real and immense. I have to point out the wave of layoffs seen in recent months.
The pandemic spurred many in-house teams to look at processes and technology, like CLM, to get their arms around the risk and obligation issues they face. Companies with CLM in place at the start of the pandemic were well-positioned. Companies that didn’t suffered. Unsurprisingly, the contract lifecycle management (“CLM”) industry has seen a significant uptick and has begun to transform contracting at countless companies. Gone are the days of walking around the office for wet-ink signatures and using file cabinets as repositories. eSignature and digital storage are now must-haves.
Customers seek contract solutions for an array of reasons. For some, it is contracting cycle times. Others need real-time visibility into a contract’s status or want to leverage contract clause libraries. However, most companies are seeking CLM software for insight into the document.
It’s surprising, however, that many companies don’t have basic visibility into contracts.
Within the last 12 months, I have spoken to countless organisations looking to “just” set up a searchable repository. In the CLM game, a contract repository is minimum functionality. It’s an obvious need when trying to search through thousands of documents. Organisations have been so overwhelmed with requests for contract data that a simple searchable repository sounds like the holy grail. The repository is an essential part of CLM. But the gold is being able to create meaningful reports from that contract intelligence.
Current CLM technology allows us to take that searchable repository to the next level. AI enables you to sift through document clauses and proactively report on obligations; this is the game-changer for organisations. Not only can you ensure that your entity is meeting a contract’s performance obligations, but you can also detect when your vendors and suppliers are not. You can maximise revenue by recovering financial compensation for unfulfilled obligations or unclaimed credits.
And while revenue is often the most important thing, I encourage customers to consider using contract intelligence. Once you have handled your risk and obligation reporting, you can start looking at high-risk clauses and leverage insights for better contract negotiation outcomes. Maturing your contracting processes and technology is an investment that can save you thousands of dollars. Ensuring your organisation performs before one of your savvy buyers, already using CLM, can ever bring it to your attention is priceless. There is a positive revenue impact when you recognise that your suppliers aren’t performing. Plus, there is a human capital savings when those firefighters on your team can focus on the most impactful contracting work, escaping time-consuming administrative activities.
If you already have a CLM in place, fantastic! You are ahead of the game. If you have yet to start overhauling your contracting operations, don’t fret! It’s not too late to join the CLM revolution. Figuring out where to start may seem daunting. Elevate can help. We have helped numerous law departments with the crucial first step: creating a CLM strategy for your organisation.
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