Why you need a Contract Lifecycle Management system to be effective at Contract Management
Why you need a Contract Lifecycle Management System
Contract Lifecycle Management (CLM) systems are a must-have for effective Contract Management.
I know many of you might say "you need to have a good process in place in the first place" to implement Contract Management and you're kinda right but kinda wrong.
You're right in that building an understanding of Contract Management (check out our Contract Management for Beginners Course here), the types of activities you need to undertake and why you need to manage your Contracts is key.
But what I've found is that without an effective CLM your processes are built around inefficiencies.
There is no way you would want to build a process outside of the CLM to ensure "you were doing Contract Management" without implementing it.
The reason for this is that the CLM system you implement is probably going to make all of the manual processes redundant and how you review, approve and sign is likely to change.
There are various degrees of change. if you're still in a "wet ink" environment for your contracts then this will apply to you most of all.
Let's go into some granular detail about why you need a CLM system in your Business.
Contract and Document Management
I've seen some disasters throughout my career as a Procurement and Contract Management Pro.
My time in the UK Civil Service was a harrowing experience of traditional ways of working that do not correlate with the 21st century.
I kid you not, there were probably 300-400 meters of secure lockers full of brown enveloped contractual documents each with their corresponding minutes. Not to mention the archival storage that took up massive amounts of space in a warehouse.
This wasn't just a plague within the Civil Service as I navigated large Defence Primes who had this issue too.
I thought it was unbelievable that they weren't willing to spend a few thousand pounds a month (seriously, that is all it would cost) to implement even the most basic of CLM systems to store these documents.
With a CLM system, all of your contract documents, so this might be a Framework Agreement, a Master Services Agreement or an End User Licence Agreement (EULA) would be stored in the CLM and any accompanying documents such as the Order Form, Insurance Certificates and any other document your Business deems to be important enough to be stored.
Multiple Users can review the documents at the same time, you can search files by typing rather than getting on your hands and knees or scouring your computer files/SharePoint and you can extract data from them.
For me, the most important function is the audit trail of the files. This is a simple way to ensure your signed contract documents have a home and that if you have an internal audit, external audit or have to comply with some client flow downs around this, you've got the proof at your fingertips anywhere in the world.
That's game-changing.
Contract Reviews
Your CLM System may be the place where you review your Contracts! Hooray.
This is going to bring you so much happiness if you are a Contract Manager or Lawyer responsible for Contract Reviews.
So often, Contract Reviews are carried out by reading a word doc, redlining that word document and normally having another document to document risks, potential changes or any information worth highlighting to anyone in the Business.
Some CLMs will use your Contract Playbook to analyse the Contracts that you are reviewing to ensure that they are compliant either with you doing the manual review or relying on the CLM to conduct an initial review.
Some use A.I and this is only getting better with more time and more data.
Your Contract Playbook is important as this usually links to some kind of risk profile that the CLM can generate for you. This means you can get a score or indication of the exposure of the Contract to your Business.
This is great in that you don't need to manually create a risk exposure and others in your Business can check in real-time to see it in a simple and digestible way. This is going to make the entire approvals and communication with the stakeholder piece far more manageable and impactful.
Post-Signature Contract Management
In the Post-Signature stage of Contract Management, there's a lot that your Business should be doing to extract value out of the contract especially if you want to realise those savings you "claimed" to have gotten at the pre-signature stage.
I consider there to be roughly 5 elements to Contract Management:
Contract Administration
Performance Management
Compliance with Legislation
Supplier Relationship Management
Contract Administration involves a lot of manual work which might be involved contract amendments, obligations management, deliverable acceptance etc.
This list could go on and the work here is vital to your Business and without the CLM system in place you're likely tracking a lot of this manually in excel or wherever makes sense to you.
Performance Management is a tough one to track manually.
Getting email reports of Supplier performance metrics across indirect and direct categories isn't a good way to do this. Leaning on the CLM system to integrate with your Supply Chain to track this is a far better way.
I think you get it.
Time saved at the Contract Management stage is vital and it allows you to focus on relationships both in and outside of your Business.
Are you converted?
I could go on to talk about integrations with e-signatures, renewal cycles and their management and data management but I think at this stage you either get it or you don't.
I want to hear your thoughts on this in the comments below especially if you’ve recently implemented a new CLM.