May 06, 2022

contracts Consulting contracts consulting contracts lifecycle management

The attached article describes how Contract Lifecycle Management (CLM) providers will inevitably expand to become more enterprise systems that are more generic (a la document management). Also, eventually, systems such as Enterprise Resource Planning (ERP) will contain and fulfil contract management functionality.

I don’t believe this will happen – at least not successfully.

Contract Management is a speciality. Even though ‘everyone contracts,’ it will be a long time until everyone (outside legal and procurement) understands all the nuances of contract negotiation and the analytic frameworks necessary to manage contractual obligations. Many are involved with contracting, but few have it as a ‘day job.’ The expertise required by individuals (and software) to ensure effective contracting will be unique for quite a while, if not always.

For example, what criteria should one use to determine the appropriate provision in contract negotiation? Some software can suggest alternatives from a pre-defined playbook. However, factors that determine the eventual inclusion of a particular provision can include who the counterparty is, the mission criticality of a contract, any new regulatory changes that may impact the provision, the speed by which a contract needs to be signed, and the economic value of the agreement, among others. These decisions require unique expertise and specific software functionality that cannot be generic.

There is a difference between ‘best of breed’ and ‘integrated.’ The former is a speciality system; the latter is a more high-level workflow system that may not have speciality functionality. If you have a ‘best of breed, integrated’ system, the speciality system (CLM) is integrated with ERP through workflow and data exchange, but the system retains its speciality functionality.

This scenario argues not to expand the CLM into an enterprise system but instead for an enterprise system to integrate with the CLM. Perhaps at some point, ERP vendors will acquire CLM systems and keep the specific functionality of CLM but have a more standard user interface and single sign-on.