The legal industry still suffers from its artisanal legacy, a century of history where individual lawyers negotiated contracts and kept a file for their client. Those contractual silos are a heritage that has echoes today in the various disconnected systems and repositories found sprinkled across large enterprises. The cost to companies is … chaos. What are our entitlements? What are our obligations? Is this even the most recent agreement with this counterparty? Has it been amended by a new contract in a different system? Why isn’t it signed by the counterparty!? Why is this one in Portuguese!!
Where did we go wrong?
The industry had a choice – focus on the efficient creation of new agreements or focus on understanding the positions taken in existing agreements. The narrative at the time was that the money was in pre-signature optimization because sales teams were applying pressure to reduce cycle times. As a result, the industry was motivated to solve the contracts creation problem first, leaving us with traditional contract lifecycle management (CLM) tools.
Unfortunately, that left a steadily growing issue in the realm of executed agreements. In an ideal state, you would know what’s in your existing contracts corpus and use that information to inform the creation of new agreements. As it stands, there has been an incredible investment in position standardization, yet it’s still incredibly hard to tell how successful the movement has been because there is no visibility into the resulting contracts!
What happens when you understand your existing agreements?
Simply put, you contract more quickly and with more favorable results. That may sound too good to be true, so let’s take a closer look. The prevailing issue with cycle times isn’t the drafting or redlining process on your end. For revenue-generating contracts, slowdowns generally occur once the ball is in the customer’s court, which turns out to be more than 80% of the time. According to Forrester Research, it takes 3.4 weeks to create and approve the average contract..
However, you can reduce the amount of time contracts sit with your counterparty by first understanding what positions have been agreed to before. If every renewal starts from the same template agreement, you’ll continue to repeat your time loss from all your previous negotiations. Even the templates themselves aren’t necessarily to blame. They’re built off of playbooks crafted more by assumptions about your prior results than real data.
With quality data you can create playbooks that represent the terms you’re actually agreeing to. You never get that one position? Learn from your results and remove it. You get another position 100% of the time? You can probably ask for more there. Does a certain business unit or region have a problem with a particular section? You can see that in your executed contracts and spend your time tackling the problems that cause your teams the most pain. You’ve already covered this ground before. Take control of that information and watch as your team contracts smarter and faster.
So, how do you start?
Begin with what you know. The data exists somewhere buried in your emails, desktop files or heavily manual contracts repositories. Clean, sort and structure those agreements into the data you need to identify and tackle the chaos that our history has left behind.
One great place to start is by building a contract system of record. To learn more about CSORs and how they add value to your existing systems, including your CLM, watch this webinar on How to Tame the Wild World of Contracts.