Contract Lifecycle Management: The soft middle has been saved
Contract Lifecycle Management: The soft middle
The prime place in your contracting portfolio where value is lost and gained
Many a business case for contracting transformation, CLM technology or contract management cites the considerable amount of value leakage or potential gain across the various processes or stages of the lifecycle. And it’s very true that there are opportunities and risks from end-to-end. However, I’d like to share a different perspective on this – a common theme we’ve seen is that the type of contracts matters as much, if not more than where you are in the cycle you focus. Typically companies separate their contracting into high, medium and low complexity. Typically, the “high” gets lots of attention, the “low” has multiple solutions for it, but that soft “middle” is where companies can fall down.
High complexity contract and contract management lifecycle issues are often seen as the “serious” concerns, getting all the attention and effort needed to make them right. From an overall health analogy, these are the serious events that all the doctor and hospital care needed. If a company is installing an enterprise ERP with a price tag in the millions or going through some M&A, all the top shelf support is focused there – just like in real like you would bring in the specialists for some medical concern. The company view this as an event and resource accordingly. As in all things though, there is a range of complexity. At the high end, this could be a sizeable dispute with a vendor or new closing an underperforming service line. These things tend to get the attention they need from a company’s contracting and related functions.
At the other end, “low” complexity contracts are simple things in the contracting world that can be removed, pushed to self-service or automated. These may include NDAs, basic purchasing, document retention, reminder systems, and obligation management. Good practice, just like going for a walk every day, you’ll certainly notice if you are NOT doing it but it’s unlikely to make a step change. Don’t get me wrong – automation in contracting is great. But if you only use it on something of low value – like NDAs – you may not see a massive benefit. It’s going for a walk, but only ever around your block. Yes – fresh air is nice and better than NOT going for a walk, but you really won’t notice the impact too much on the scale. To achieve real benefits, you need to make some real changes in how you handle the middle.
So what is in the middle? These could be clinical trial agreements in the life sciences world, distribution agreements, reseller agreements, master services agreements, certain loan agreements, amongst other examples. A lot of this depends on the industry you are in, but everyone can define it. They are usually probably over 10-25 pages long (just terms), make up the bulk of your actual number of contracts and contracting time, often need some negotiation and are subject to more approvals. This is true “business as usual” contracting and, as such, where waste often occurs. Over-engineering of approvals linger, too many hands touch them and the same issues are argued over time and time again. This is where contracting teams get overrun and spend so much time just getting the contracts over the line they never get a chance to really ask “why are we doing this?”, “why do we start off with this position which we know will be rejected?”, or “why does it need so many approvals?”
Going back to the analogy, this is where you are too busy with life that you don’t get on the treadmill for 30 minutes, or ask for chips instead of a salad, but know that those are the changes needed to see real health changes.
I’m not a personal trainer – far from it – but I do know a few things of what to do with contracts. So here are a few quick hit suggestions on how to attack that soft middle. And beware – these are fundamental changes that lead to value:
- Optimise your contracts
Simplifying and making it more “plain English” as opposed to legalese are table stakes now. Those seeing major impacts are looking at their standards and positions and objectively (good use case for AI) analysing what they are signing up to. This may include modifying their positions to be more customer or partner friendly, or reducing negotiation time to be more efficient. Overly simplified version of this is payment terms. If your standard is “net 30” but you really accept “net 45” 80% of the time, then just jump to that from the get go. Now imagine that with all the carve-outs in you have in the limitation of liability clause. If you go to what the market really is on that, you will save a lot of time.
- Push it to the business
Crazy idea here, but lawyers aren’t the only people who can read and understand contracts. Granted, legalese can be a challenge, but if you go through an optimisation of your contracts, set up clear rules about what can and cannot be negotiated and give a little training, you’ll find that most people can use self-service on a variety of contract types. Trust me – its ok. Non-lawyers can read too and even follow instructions.
- More automation
If you don’t trust the “non-lawyers” to read, then why not try a machine or a least a machine to help the business. Intelligent clause libraries and contract assembly tools are out there and some are really good, highly intuitive and work. Sadly, many companies use them just for the low complexity work, which is lot like using your smart phone just to make calls or your treadmill as a clothes hanger. It may be harder, take more time to setup and need monitoring, but deeper use of technology in the contract creation and overall lifecycle being done and being done well can see real changes for those that embrace it.
So this year, let’s make some real deeper changes to contracting. Time is of the essence and as nice as a leisurely walk is, it’s time to start running.