Building success into your CLM adoption

Contract management software has become the most commonly used legal technology among in-house legal departments, with nearly two-thirds (65%) now utilizing it, according to a report from the Association of Corporate Counsel.

In-house legal professionals also rate contract management technology, often called contract lifecycle management (CLM) software, as the most effective legal tech tool, the survey report found. 

The other three categories of legal software used by more than half of legal departments are legal research (61%), e-billing (55%) and document repository (54%). The 2023 Legal Technology Report is based on responses from 252 in-house counsel and legal operations professionals from 22 countries.

Increased use

The 65% of legal departments using contract management software is a 14 percentage points increase from when the ACC conducted a similar survey two years ago, the largest such bump among the various legal tech tools.

The uptick in utilization has come as there are a growing number of CLM software offerings in the market, with an array of companies generating millions of dollars in new investment to further develop and scale their products.

Many of these tech tools incorporate cutting-edge AI into their products, including generative AI, helping users achieve additional efficiency gains and generate improved contracting insights.

The relative effectiveness of CLM software compared to other tech tools, as evidenced in the ACC report, is also likely helping to boost usage rates. 

Overall, 52% of professionals said they found contract management to be among the most effective software, a 5 percentage point increase from two years ago. 

Even though respondents were able to select up to four options for the most effective technology, no other type of tool was listed by at least 40% of survey participants.

Reasons given for CLM software’s effectiveness included that it helps streamline the contract review process and makes contracting more consistent.

“It allows for superior efficiency and confidence of the legal department’s ‘one version of truth’ when it comes to contracts utilized across the organization,” one survey respondent wrote.

Another respondent said they appreciated that the software allows multiple colleagues to collaborate on the same document, and it houses all the executed agreements. 

The survey found that 63% of legal chiefs and 51% of other in-house counsel listed contract management software as one of the most effective tools compared to 48% of legal operations professionals.

For legal ops professionals, e-billing (69%) and matter management (55%) were more frequently listed as among the most effective technologies.

Roughly three in four respondents overall (76%) hope to leverage CLM technology more effectively moving forward.

Meanwhile, of the respondents whose organizations are planning to or considering purchasing new technology in the next year, 46% said they would invest in contract management technology. 

While the CLM figure was the highest among the different tools listed, it was down 10 percentage points from two years ago. This may be the result of an uptick in purchases in the past two years.

Additionally, 31% percent of respondents said they planned to purchase matter management technology and 23% document repository technology. No other tech tool eclipsed 20%.

E-discovery software company Exterro partnered with ACC on the survey. 

The in-house legal team at National Life Group bolstered its budget for a contract lifecycle management system by making it a joint project with the IT department, a tactic that helped lead it to a successful implementation, the company’s legal operations manager said in an In-House Connect webcast.

“IT has the bigger budget, so by collaborating with them, my budget got a lot bigger,” said Lindsay Staples, National Life Group’s senior manager of legal operations and paralegal services. “That was a really big benefit.”

The experience of National Life Group, a financial services company with specialties in life insurance and annuities, is a good illustration of how CLM must be thought of as a technology that impacts the entire organization, not just the legal team, said Evangelos Apostolou, general counsel at Sirion, a legal technology company, because contracts are central to virtually every function in the business.  

“CLM happens at the enterprise level or it doesn't happen,” he said. 

Sales, supply management, finance, governance and compliance are the other big CLM users in a typical organization, he said. 

National Life Group’s legal team includes 12 attorneys who specialize in contracts. The company processes almost 600 of them a year, most of them on third-party paper involving technology vendors. 

The legal department already had a matter management system and could track contract turnaround times but it wanted visibility into what was happening during the typical 90 days it took to get a contract to signature.

“We had no idea where in the workflow that turnaround time was,” said Staples. “We were hearing the lawyers take too long but we lacked visibility into where the bottlenecks were.

A CLM solution was seen as giving them that visibility and also helping with post-signature contract management to stem value leakage.  

Balancing act

The team reached out to the CIO to be part of the effort from the beginning, with a plan to get other function areas involved later, once implementation began, said Staples “We have a very innovative CIO,” she said. 

Were she to do it over, she suggested, she might consider bringing some people from other function areas in earlier so they’re more prepared to use the system the way it’s intended to be used, but when, and how much, to bring in other people remains a tough question to answer.

“There’s an argument for not involving other stakeholders too early, because that could create as many problems as it solves, but leaving it until too late is also a problem,” said Apostolou. “So, it’s a balancing act. It depends on having a sense of your own organization. Collaboration is not a nice-to-happen; it has to happen.”

Working with IT, Staples put out a request for proposal and narrowed the review to five vendors. This was back a few years ago, when CLM companies were just starting to add AI capabilities.

Staples’ team had two must-haves in any CLM solution they chose: AI on the front end and a robust contact management piece on the back end — that is, post-signature. 

Staples’ team wanted the AI to help it create a contract playbook, which it didn’t have at the time. “We had a Word doc that had some provisions in it that we liked,” she said. 

Having a playbook clause library was key for the company’s general counsel and one of the arguments he made to justify the cost with the executive team. 

“Using AI in CLM to identify common clauses is a huge risk mitigator,” Staples said. “That was a great business case for our general counsel.”

Once implementation began, Staples brought in what she calls change heroes — attorneys she could count on to use the system as it’s intended and help pave the way for others to use it. 

“We have one change hero who uses the redlining function well,” she said. “Some think AI is the devil. That makes usage harder to push through.”

It's also a good idea to bring in some naysayers early, because they can help identify problem areas that would keep people from using the system as intended and get those addressed early in the implementation process, said Lucy Bassli, founder of InnoLaw Group, a consultancy. 

“You need naysayers on your list of change heroes to test how hard it will be,” she said. 

There’s also an argument to be made to bring in people from other function areas during implementation, while the system is still being piloted, even if their use of the system will be less than that of other teams, because they still need to be invested in the outcome, Staples said.

“We didn’t engage with the rest of the enterprise about it,” she said. “We thought we could just bring them along. But that’s much harder, because they’re not in it all the time — one template. It doesn’t matter to them. We should have done much more communication with the rest.”

Now about three years into implementation, the legal team is benefiting from it, especially the redlining function. But it’s only now starting to get useful data from the post-signature management piece, because it’s taken this long to get the amount of data that can deliver insights. “Now we can make some little tweaks,” Staples said. 

You can expect implementation to take at least nine months, and realistically much longer than that, said Apostolou, because the system must be integrated with the entire enterprise. But, on the positive side,  the benefits will accrue as you go along and increase over time. 

Bottom line: Selecting the system is the easy part. Matching what the users want with the right system is just a small part of the challenge. The much bigger challenge is the change-management piece that involves getting people to use it the way it’s intended to be used. If you don’t get broad buy-in, the system won’t do what it’s capable of doing and won’t provide the benefits you’re paying for. 

“Change management is 99% of the success,” said Bassli. “Requirements gathering and alignment of features is 1%.”

Start on the buy side to implement a contract lifecycle management (CLM) platform because procurement contracts are the easiest to routinize and your organization tends to have more control over the terms, Mike Russell, head of global legal operations for Expedia Group, said in a webcast. 

Russell joined the online travel company three years ago and spent the first 18 months getting a handle on the company’s processes before implementing the CLM. 

“It was clear the low hanging fruit was on U.S.-based, English [language] buy-side contracts,” he said in the webcast, hosted by legal operations consulting company Elevate. “We’re procuring all kinds of goods or services across the enterprise, and in technology, there are a lot of contracts for services and licensing and the like, along with facilities and related things. So, we were able to boil that down to not a few, but about 18 workflows for different types of contracts.”

Getting many of the company’s buy-side contracts to fit into 18 templates wasn’t easy, he said. “It’s an awful lot to bite off.” 

But after about nine months, his team was able to work with the platform vendor and an implementation consultant to unwind all of the playbooks and attorney and procurement knowledge that goes into the contracts and develop the templates and workflows. 

The process has been functional for only four months so it’s too soon to quantify the impact it’s had. But on a qualitative basis, Russell said, he’s been getting good feedback from across the enterprise.  

“We can say people have enjoyed adopting the platform,” he said. “They like interfacing with it and doing everything within the platform.”

People who’ve used the platform are the ones who are helping to push its wider use, he said. 

“If anything, it’s been that cheerleader effect, where one person tells another person who tells another person,” Russell said. “When they see something come through an email, [they’ll ask], ‘Why aren’t you doing this in the CLM? Did you hear about the new CLM?’ So, we’ve seen word spreading like wildfire, getting inquiries from other teams: ‘I heard about this new platform; how soon can we use it?’”

There have been two other benefits of adopting the platform, Russell said. 

First, it’s given the company a faster process for getting non-disclosure agreements signed. “It was reasonably self-service before, but we changed the way we do it,” he said.

Among other things, it now has pre-signing and clickwrap capabilities. “So, there’s zero routing of anything, even e-signatures,” he said. With clickwrap, signers log on to the platform to click a button to make their approval official, eliminating the need for routing.  

Second, a disclosure form that used to accompany each contract to meet Sarbanes-Oxley (SOX) reporting requirements is now taken care of as part of the platform workflow, eliminating the need for that form to be routed for signature. 

“One of my favorite meetings before we went live was with the head of internal audit,” Russell said. “We communicated how we were eliminating a formal manual form that used to have to accompany every single deal that went around for review and approval and that was now replaced by the platform. So, for him to be able to say we don’t need that any more for SOX controls was music to everybody’s ears.”

Sell-side contracts

Russell’s team is now starting to consolidate sell-side contracts, a more complex process because of the greater variations of contracts the company uses for what it sells.

But the process has been made easier by each business unit already having a person embedded in the legal department. That’s given the implementing team an inside view of the details that go into building the contractual templates and workflows.

Even so, the team is looking at just a handful of templates to put on the platform to start rather than the 18 they created on the buy side. 

“By understanding the complexities, volumes and uniqueness of deals of what we’re working with, we were able to choose our first supply partner and we’re going live with them before the end of the year,” he said. “We were able to take something that had three levels of complexity and take the lowest complexity one, which was just a few templates with similar but different workflows, and we’re [getting] them grouped into a tool.”

More people need to be involved on the sell side, too, so that’s added to the complexity, he said. 

“It’s been an interesting learning experience trying to create this matrix of people that need to be involved,” he said. “We’ve looped in a legal resource, the data privacy resource and whatever additional review might be required.”

When Kyocera AVX General Counsel Mauri Aven was preparing internal clients for a shift to automation in the way their company manages contracts, she highlighted how the new approach would make their lives easier. But when it came time to pull the trigger on the switch, she made it mandatory. 

“I stopped taking agreement requests via email,” Aven said in a Zycus webcast. 

Before Aven led the switch to a contract lifecycle management (CLM) software system, the global electronic component manufacturing company managed contracts manually.

Someone in the company would send her a request by email to have an attorney review a draft agreement. The attorney would usually ask for more information from the requestor before reviewing it, then get input from other people who worked in the company if that was needed, and then email suggested changes to the requestor, who in turn would send it to the other party.

It could take months for the contract to get back to the attorney, who would then go through old emails to get refreshed on the context before signing off on it. 

“Continuing to manage contracts via email … was untenable,” said Aven. 

9% improvement

Inefficiently managed contracts typically cost companies 9% of annual revenue, according to data from World Commerce & Contracting, a nonprofit standard-setting group. 

The losses stem from the amount of time attorneys spend on administrative and other manual tasks associated with drafting and reviewing contracts, poor compliance with deadlines and other terms after contracts are put into effect, and missed opportunities for up-selling and other valued-added activities that companies can realize by conducting AI-assisted metadata analysis of contract terms.

Kyocera AVX realized efficiencies right away by using AI to analyze force majeure clauses in all of the company’s contracts, including its legacy contracts, Aven said.  

“In the past, when force majeure events would come up, we’d have to manually review each agreement,” she said. “It would take a long time assessing and triaging what agreements we needed to look at and address first. But with the AI system, you push a button and can say which agreements have a 30-day notice period, which ones have a two-week notice period, for a force majeure notification.”

Aven said she’s hoping to extract more efficiencies by doing things like milestone tracking, which will help her keep track of when contractual obligations are met. That can enable a general counsel to renegotiate terms before they expire, take advantage of early-bird discount rates and avoid compliance penalties, among other things.

Phased approach

The company is taking a phased approach to implementation by getting the CLM system up and running in the company’s U.S. operations before rolling it out in its operations in Europe and Asia. 

“If we waited to roll it out when we felt we had designed a perfect system, everywhere and all at once, it would take too long,” she said. “The system would be outdated by the time it was done.”

To get buy-in, she began touting the new system’s benefits once she had selected the vendor and the process was underway to convert the company’s legacy contracts and workflow to the form it was needed for automation. 

“We hyped the new system early and often,” she said. “We advertised some of the features we thought people would be excited about internally to build some excitement.”

For example, she played up the self-service approach people would be able to take to execute non-disclosure agreements.  

“If someone was needing an NDA, they would put in the other party’s information, answer a few questions and the system would automatically generate an NDA ready for signature by both parties,” Aven said. 

As the conversion to the new system was being finalized, she worked with the company’s contracts manager to provide training and step in with help for anyone who was having trouble using it.

“We held live training sessions and added the recorded training sessions to our internal intranet,” she said. “Our contracts manager created training cheat sheets so someone could quickly ascertain how to do specific tasks such as request and approve an agreement. She also made herself available to walk people through a task any time anyone was having trouble.”

Behind the scenes, the new system was being pre-loaded with the company’s standard contract clauses and its legacy contracts were being tagged with metadata so their terms would be searchable in the same way as the new digital contacts. 

Getting everything ready to be included in the system was a useful process, she said, because it forced the company to look hard at how it was managing its contracts and whether the workflow it was using made sense.

“Many people have worked here for several years or decades and many things were done without formal documented procedures,” she said. “They were just based on the ways they were always done, so this forced us to document procedures and workflows, examine and update them and make them more efficient across the company. Not only was this necessary to start using a contract management system, but was helpful for effectively training new hires.”

In the end, the company had a robust, user-friendly system, but Aven didn’t leave adoption up to chance.  

“Once someone used the system, they were good to go from that point forward,” she said. “But we also made it mandatory. I made everyone use the system.”

Most legal teams have a contract repository but if yours doesn’t, make that first on your to-do list if you’re engaging in a cost-out initiative to help your organization save money and increase efficiency, in-house contract specialists say. 

Research shows organizations typically lose around 12% of the value of their contracts annually by missing expiration dates and performance milestones, or failing to adjust prices or miss other negotiating opportunities, Parker Eliot, a senior implementation manager for ContractWorks, said in a webcast hosted by Corporate Counsel Business Journal. “Obviously this means lost revenue and higher cost for the business,” he said. 

As in-house attorney, you can say you have a repository if you have contracts consolidated in a folder on your desktop, but ideally you want an automated system in which the key data in each contract is tagged and made searchable and you’re alerted to when performance milestones and expiration dates are nearing, said the speakers.    

With that kind of system, you can exercise the kind of post-execution management that helps you stop leakage and reduce time spent on secondary tasks, like searching, sorting and monitoring contracts, and also enables you to create a function that lets people outside the legal team access information embedded in the contracts or even handle much of the negotiations themselves.  

“People can get their answers quicker so the legal team isn’t constantly being pulled away from strategic work with business partners,” said Sumi Trombley, a senior advisor at UpLevel Ops. 

Once you have a repository, other good steps as part of a cost-out initiative are cleaning your data and devising a way to track baseline statistics. 

“Look through your contracts and make sure you have your fully executed versions and, to the extent there are duplicates, eliminate those,” said Bridgette Housley, senior corporate counsel at Nkarta, a bio-tech. “Then you can track baseline metrics: how many contracts are there, what types are there.”

If you can design your metrics to show the amount of value the legal team brings to the table, you can show the broader organization why the team doesn’t need to be thought of as just a cost center, said Stasha Jain, general counsel of Onit, a workflow management software company. 

“Show value back to your leadership,” said Jain. “Did you know we do 100 contracts a month? Did you realize my small team handles this volume? Or show over time how your volume is increasing – how many contracts, over what time period, and maybe how much revenue: my department handled x millions of dollars in revenue.”

It’s a good practice to design the metrics with an eye toward what’s important to the broader business, said Trombley.

“It’s all well and good to say, ‘I do 400 contracts a month,’ but if they’re concerned about how much revenue is coming in the door in these contracts, or why they’re not getting paid, you can deliver these reports to address these concerns in an easily digestible fashion,” she said.

You might also track the number of reviews contracts go through when they’re being negotiated, because that shows how much work goes into each contract, said Housley. 

Negotiations for a master service agreement, for example, will tend to be far more involved than something like a confidential disclosure agreement, and that distinction is important in making others aware of what the legal team is doing to increase contract value. 

“It’s one thing to say I did 100 contracts this month, but [it’s another to say] I did 400 reviews,” said Housley. “One contract for a master service agreement or a license agreement could go through multiple rounds of review in a month, so I tend to use reviews as the metric to make a case for resourcing rather than just agreements.”

Metrics can also pinpoint bottlenecks in the contracting process, an especially important insight if there’s a perception that the legal team tends to hold things up.  

“The legal team didn’t take a month,” said Housley. “It responded in three days. The vendor took three weeks. There’s the gap. I think that’s a really compelling metric to have.”

The metrics can also help the team see what processes can be replaced with a self-service component by revealing the questions legal gets asked on a regular basis. 

“Start with these frequently asked questions,” said Trombley. “What’s the address for this subsidiary? Where do I find this policy? A lot of that comes in the door to the legal team and becomes a matter for the team. Now you have the data to see you have 15 questions a week coming in about this; maybe you can create some self-service around it. Eliminate that piece and people can get their answers quicker so the legal team isn’t constantly being pulled away from strategic matters with business partners.”

Self-service can even be used in the negotiating stage of contracting to the extent you can put guardrails around allowable provisions so business partners know what risk level the organization is willing to take on matters.  

“We’ve created a checklist for the business,” said Jain. “What happens if you want to get out of this agreement? Do you have a way to terminate early? Are you satisfied with the pricing? Do you need service level agreements of any kind?”

Bottom line: The legal team’s contribution to a cost-out initiative can be most effective when it’s built around the contracting process and the post-execution management of the contracts. Technology can play a role in that but the team's processes are crucial as well for stemming value leakage from inefficient negotiations and managing the contracts over time. 

Companies are doing a better job preventing value erosion in their contracts but for many organizations the process is still too inefficient to prevent losses, an analysis by World Commerce & Contracting and Deloitte finds. 

Contract value erosion was 9.2% on average in 2014, when it was first looked at, considered a shocking amount at the time, says WCC, a nonprofit. 

Losses are 8.6% on average today, still relatively high given the resources companies have poured into contract lifecycle management software and other ways to improve efficiency, says the report, The ROI of Contracting Excellence.  

“Many … will feel that advances in technology should have provided a greater level of return,” the report says. 

Contract value erosion takes many forms. It can be the imposition of penalty costs from a missed deadline or missed performance benchmark, or high renewal costs by letting a contract expire or lost savings through late payments. It can be unnecessarily high resource costs in preparing contracts by involving lawyers on a matter that could be prepared by a non-lawyer.  

Investment in efficiency

Almost 80% of companies have invested in some type of contracting software in the last five years, and just within the last year almost 42% of companies have. But software can only solve part of the problem, the report says.  

For one thing, contract data is typically spread throughout two dozen areas of an organization, making it difficult for people involved in the creation, negotiation or management of a contract to have visibility into factors that can minimize loss. 

“The team developing a proposal for a new sales opportunity may have no access to existing performance data related to that customer,” the report says. “Information such as timeliness of payment or propensity for disagreements should be critical to assessments of risk and decisions over contract terms. This lack of data means that each new opportunity may be priced as though it is the first time it has been done, missing out on economies of learning.”

The complexity of contract language is a problem, too. Although companies have made progress in simplifying contract language, especially in consumer-facing contracts, overly legalistic language remains a barrier.

“Some 90% of business people find [contracts] difficult or impossible to understand,” the report says. “Many organizations are still having their contracts written by the equivalent of Latin speakers for an audience of English … native language speakers.”

System problems

Most value erosion doesn’t come from the details in individual contracts; it comes from inefficiencies built into the contracting process itself. 

The report recommends segmenting contracts by complexity. Simple contracts that involve little or no negotiating should be handled one way and those that involve complex negotiations another. 

Digital self-service capabilities, along with the use of clause libraries, are some of the ways to manage simple contracts efficiently, although right now most self-service capabilities are limited to non-disclosure agreements. 

For more complex contracts, it helps to have the right people with the right training involved. 

“Work is allocated to individuals without the necessary training or knowledge,” in organizations struggling with contracting efficiencies, the report says. “High-performing organizations have a clear understanding of the skills and knowledge required to develop, agree and manage their contracts portfolio.”

Each organization is different, but in general, healthcare, technology and logistics companies tend to be ahead of the game on contracting, and for many of these companies, value erosion is closer to 3% than the 8.6% erosion the analysis finds on average. 

On the other end of the spectrum, law firms, retail companies and oil companies tend to have the most inefficient processes, putting their losses closer to 20%.

“Contracts will always suffer some level of value erosion,” the report says. “Unexpected disruptions, early termination, changes in requirements are some of the unavoidable and often unpredictable events that impact anticipated revenue, costs or savings.”

Given that contract data is spread over two dozen systems typically and about a quarter of employees at an organization play some role in the process, the key to limiting that erosion to closer to 3% is to look at contracting as a process and make workflow and system changes. That’s as important as the particulars of individual contracts, the report makes clear.