Contract lifecycle management is key for any business - Georgina Powling

No matter what the type of business and no matter how big or small, almost all of its revenue and spend will be subject to some form of contract. Contracts govern a business’s relationships with its suppliers, customers and staff. Yet each stage of a contract lifecycle, whether being created, renewed, negotiated, executed and managed, is an opportunity for leakage in terms of costs or revenue. This can be through poor management post-execution but also through speed to contract.

Georgina Powling is a Partner, Addleshaw Goddard

When a contract lifecycle takes longer than necessary, the business will suffer due to lost profits or savings, poor customer and supplier relationships, and wasted time and sometimes excessive legal spend. Independent research has suggested businesses can lose up to nine per cent of their revenue each year through poor contract lifecycle management (CLM). An increasing number of technological solutions are being offered, with the global CLM software market estimated to be worth $3.3 billion by 2027. But how useful are they?

The bad news is that, despite the compelling marketing, there is no “turn-key” solution. Successful CLM system implementation requires upfront work to understand how the 'lifecycle' works and defining the target operating model: what do you want to achieve? This starts with basic data collection and contract identification. This might sound obvious, but for larger companies discovering how many contracts the firm has may pose a challenge in itself.

Implementation also should not be run by the finance and tech teams as another Enterprise Resource Planning (ERP) solution. Contract solutions require “lawyer-led design”. The legal viewpoint must be incorporated from the start to advise on the risk profile and process flows for the system (who can use it and when).

Getting all the precedent documents right is crucial: the nature of a CLM system means inconsistencies or errors from the outset have the potential to be multiplied 100-fold across the business post-launch, so reviews and re-drafting of out-of-date or inconsistent agreements is vital before any data is uploaded to a CLM system. Templates will need significant modification to fit in the system clause libraries with fall-back drafting pre-prepared to support negotiation and self-service. This work should not be underestimated and will place significants demand on busy in-house teams.

The second requirement is full stakeholder engagement. Contracts are business documents and not just the domain of the legal team. Implementation (especially if the resulting solution allows for self-service by the business) must be a full, 360-degree process, incorporating the finance function and any technical advisers who will be the “users”. It is critical to get full buy-in to the project to maximise user adoption and implement change, otherwise the system becomes a very expensive white elephant.

Technology is often a key part of the process and investment, which is why there is no shortage of providers offering automated software and “contracts as a service”. But it should follow and not lead the solution design and we see many clients who have bought CLM solutions which are not fit for purpose. Whilst there are huge potential benefits, these will only accrue if investment in lawyer-led design and full stakeholder engagement is there at the very start. Once this has been done, there are tremendous opportunities for speed to contract, reduced legal spend and informative data capture.

Georgina Powling is a Partner, Addleshaw Goddard