Role of CLM software in a Contract Lifecycle Management

In this modern era of technology, most of the professional and work-related processes are automated. Contract life cycle management (CLM) is no exception as many companies have already automated or are in process of automating their CLM process. Firstly, it is crucial to understand steps involved in CLM which makes it easy to understand automation of CLM process with assistance of CLM software or tool.

Steps involved in CLM:

Business or professional purpose:?A business or professional purpose for a underlying transaction is basis to create requirement of a contract drafting or vetting. Knowing such business or professional purpose is critical for drafting professional to make a start for contract drafting, without that knowledge drafting professional cannot figure out which contracts need to be drafted for a particular transaction.

Contract drafting/vetting: Once it is decided which contract needs to be drafted, then comes the requirement for contract drafting or vetting. Contract drafting means drafting of a contract from scratch and giving legal and business terms a fine shape in the form (ready for execution) of a contract balancing legal, economic and business interests of parties involved. Contract vetting means customizing an existing contract template for creating a contract form (ready for execution) suitable to a particular transaction. ?

Negotiation and execution process: Be it contract drafting or vetting, drafting professional will develop and share a first draft to counterparty, if counterparty is fine with first draft and then the parties will execute the contract. If counterparty proposes any changes to first draft, then parties will negotiate by exchanging updated versions of draft of contract in subsequent rounds until the time parties come to a consensus on the form (ready for execution) of finalized draft of contract.

Once a contract is finalized then it will be ready for execution. Before executing a contract, proof reading and comparing final version with previous version is crucial to ensure contract is properly drafted covering legal, economic and business terms and there are no deviations or changes from finalized contract form.

Once proof reading and comparison is completed, then the final draft is ready for execution and to get signed by the parties. Following execution (completion of signature process) of contract, the parties will be bound by the terms and conditions of the contract for the term of or beyond the term of the contract.

Storage of contracts

Post execution of a contract, parties will individually need to maintain and store a record of executed contract for reference for following reasons:

a)???To perform due diligence on contract to assess rights, obligations and duties of a party

b)???To learn expiry date of contract

c)????Upon expiry of a contract, to decide to renew or not to renew contract; or to replace expired contract with a fresh contract on same terms and conditions or different set of terms and conditions

d)???To use such contract as evidence in case of any contractual dispute with respect to such contract

e)???For any other related purpose.

Role of CLM tool in Contract life cycle management

Integration of CLM tool into Contract life cycle management will enable companies to process contracts in electronic and digital mode instead of paper-based process.

First step in CLM (tooled based, especially in advanced CLM tool) process is creation of a unique and dedicated contract number in CLM tool. This unique contract number will enable a party to learn details and progress of underlying contract starting from contract creation, drafting, negotiation, execution, and storage of contracts.

Once unique contract number is generated, a template will be manually created (if needed) or selected from templates library integrated in the CLM tool. Following template creation or selection, the same will be uploaded under that unique contract number (in actual form or modified form as per transaction requirements) – It will be treated as a first draft.

In advanced CLM tool there will be specific functionality to perform contract drafting or vetting in a word document integrated in the CLM tool.

Another unique feature with CLM tool is that communicating with different stakeholders involved in contract drafting/vetting and negotiation process will be easy as there will be dedicated buttons in CLM tool to facilitate communicating with or sending contracts (draft or executed) to a designated recipient. For illustration purpose, if a party intends to send a contract draft for counterparty review, then such party can send the draft to counterparty by using button dedicated to send draft to counterparty.

With this feature, mode of communication with different stakeholders involved in CLM process is easy as entire chain of communication can be viewed from time to time in history of communication channel. ?Communication functionality will play a significant role in negotiation process to get inputs from different stakeholders within or outside the organization and it will also make things easy and clear to all involved stakeholders as well.

Once negotiation of a contract is completed and finalized draft is ready for execution, CLM tool will have a dedicated signature process to facilitate parties to process execution of contracts with assistance of e-signature functionality integrated in the CLM tool.

Post execution of a contract:

Metadata (i.e names of parties, effective date, expiration date, name and type of agreement, etc.,) will be populated under unique contract number based on components provided in the layout of CLM tool.

Different companies may have different requirements; accordingly, companies will customize CLM layout as per their requirements – Companies may have single layout or multiple layouts (i.e separate layouts for corporate agreements, commercial agreements etc.,).

The beauty of such layout is one can access from basic information related to contracts to highly complicated risks and liabilities involved in a particular contract.

Reports:

One of best features of CLM tool is that it will enable companies to generate different reports to:

a) Rectify any errors in metadata

b) Check status of contracts term to know status of contracts as expired, due for renewal, active, etc.,

c) Perform due diligence to identify risks and liabilities involved in a contract

d) Pull even outdated and long back executed contracts with ease.

Special feature of CLM tool is contract templates and clauses library. Contract template library will be house for all standard templates of a company. Clause library is a database of different clauses which are customized as per standard requirements of a company.

The beauty of such library is that one can pull any template or a specific clause in a fraction of moment with user friendly functionality of CLM tool. For example, a drafting professional requires indemnity clause to integrate into a contract, then such professional just need to go to clause library and select relevant clause and insert the same into draft.

To conclude, CLM tool is a must for companies with good volume of contracts on daily basis, to keep a track of contracts (executed, unexecuted, active, expired, and at negotiation stage) in a digital mode as it will be easy for companies and lawyers to generate or view data of a contract or a set of contracts executed with a single or multiple counterparties with a few clicks. CLM tool will make process of entire contract lifecycle management effective and simple.?