Agile contract governance: Addressing the major challenges with technology – Part 2

How can Agile Contract Governance challenges be more effectively addressed?

In Part 1 of this 2-part blog, we outlined the challenges faced by different stakeholders across the contract spectrum, setting up the need for a holistic approach to data and information management as a prerequisite for agile contract governance. The blog ended with an overview of existing solutions — and their drawbacks. What follows is a look at how leveraging a truly agile CLM solution can result in wide-ranging and lasting business impacts.

Contract nirvana

What stakeholders are really looking for is a contract lifecycle management solution on a platform that enables them to discover their contractual documents, automatically extract key contractual metadata, and have the ability to search and take action on their contractual assets, and expose the contractual information and a searchable rendition of the contractual image in other enterprise software applications.

The organization can now leverage this new CLM asset across all business units:

Financial Services

Comply with the rapidly changing and the complexities of internal and external regulatory demands (Dodd-Frank, Basel III, Sarbanes/Oxley, FCA and AntiBribery, to name a few).

Mergers and Acquisitions

Accelerate the “time to results,” allowing C-level executives to make informed decisions on the opportunities and mitigate any risks.

Sales

Provide a single view of all contractual information resulting in improved customer/supply relations, increased renewals and new revenue.

Procurement

Reduce costs by cancelling or renegotiating contracts. Ensure contract compliance with corporate standards. Proactively manage and adhere to hard and soft contractual obligations.

IT/Operations

Provide the ability to track and manage the tabular information found in contracts, bill of materials, software and hardware line items that can be easily transposed into a spreadsheet. Consolidating and cleansing contractual data into a single repository accessible by the business users will dramatically
reduce costs.

Organizations need to be agile to meet these demands, positioned to provide answers to complex questions so that informed decisions can be quickly made. Having the ability to proactively manage the contract corpus enables the business to respond and react expediently and consistently.

How to address challenges to discovery & classification

A contract management solution (also called Contract Lifecycle Management / CLM) with a contract discovery component is designed to help locate contracts, create a searchable rendition and an index to search against, and — ideally — an abstract containing contractual metadata, such as governing law, jurisdiction, indemnity clause, etc.

How to address the challenges to leveraging discovered and classified data

Policy-driven contract information

Using the discovery capabilities in a contract management solution, users will generally complete a full review of a sample batch of contracts to establish a learning set to initialize contract discovery analytics, which is the catalyst for the system / extraction policies.

The user is then empowered to define policy groups, search across their contract corpus, selectively add contractual paragraphs and sections, and define sentence rules to identify and extract from specific contract documents. This extracted metadata will then flow back to the contract discovery program to enrich the contract abstract.

As the regulatory landscape changes, the organization can very easily adjust and respond to new requirements; for example, those companies which have grown through an acquisition or need to undertake a divestment of a division or product. Having the ability to swiftly and dynamically respond to the issues raised by these events is very compelling with regard to “time to results” and, more importantly, in mitigating any risk.

Non-standard clause detection

Many organizations have well-defined contract templates and clause templates to use within the initial drafting process. Many of the clauses, however, are rarely accepted without changes, sometimes significant ones. This raises many challenges within organizations. How can they effectively discover the clauses that have been negotiated frequently or that differ significantly from the approved corporate template? In addition, how can the legal department know what 3rd-party clauses have been accepted previously so that they can quickly ascertain and review any newly proposed clauses?

A contract management solution with contract discovery analytics should provide functionality around non-standard clause detection to meet both of those challenges (and others that arise). With the operational users defining only the standard clauses, it is able to detect, group and present any non-standard clauses for review. This dramatically reduces the contract review and approval times for new or renewal contracts, and also enables a real-life clause library and risk matrices to be generated.

Advanced policy groups

Contract negotiations generally include many changes to clauses, insertions of new clauses, and/or removal of such. This can lead to unforeseen risk or commitments being placed into contracts without being detected. This manifests when a combination of clauses alters the meaning of the actual
contract as an entity.

To reduce the need for a full contract review, non-standard clause detection technology within a CLM solution should provide the ability to identify clause groups within contracts and linked addendums, taking all the items as a group and applying the clause group detection logic.

This is especially important when dealing with 3rd-party paper contracts for which the resources to review all clauses and then fully understand the interlinked items would be significant and costly.

Contract discovery analytics functionality should include the ability to define advanced policies that can detect clause groups and immediately present this to review for conformation. Once enabled, the advanced policy can be deployed across all data sets, reducing time to review for the initial location and ongoing review. If the CLM solution includes linked item detection, the amendments can be tied together and processed as a group to the main contract, thus detecting and providing early warnings on changes made well into the contract’s lifecycle that could introduce risk or financial penalties.

Proactive contract template management

Another major issue organizations are struggling with today is the proliferation of contract templates and the lack of control associated with these templates. New contract types, short form contracts, amendments or variations are continually being created. Quickly being able to recognize and classify those items can be a daunting challenge.

Contract templates work in a similar way to the policy groups. The business user can define template policies and then apply these to the contract corpus. The user can quickly and easily see those contracts that match the policy, which template they matched, and how closely they matched.

CLM solution technology helps companies achieve agile contract governance and provides the contractual information required by senior management to make informed decisions based on complex contract scenarios.

The business user is empowered to create policies by simply selecting sections and/or paragraphs from contracts and adding these to the policy. Contract discovery analytics then finds conceptually similar contracts.

Conclusions

Contracts, their embedded data and associated documents are critical to every part of an organization. To stay competitive, an agile and proactive solution is required, enabling those responsible for managing the contracts to intuitively and dynamically leverage the full contract repository as required.

The resultant data set is then available for decision makers and stakeholders within the business to make more informed decisions.