What is Contract Repository Management?
Contract repository management refers to the protocols by which an organization takes information about its contracts and imports, scans, sorts and stores this data in a searchable database. In the past, this process was mostly achieved by shuffling around paper files from drawers and cabinets; hence the term "repository," which is a place where things are kept or stored. However, with the growing use of contract management software, the term has come to apply to online storage of contracts as well.
Contracts are one of the most important tools a business has. They both represent projected revenue and expenses, and guide the actions of all the people involved in a deal. While most businesses wouldn’t dream of not storing invoice and expense report data in some kind of manageable way , many organizations still manage their contracts in untidy electronic file folders or piles of paper.
This can be a huge mistake. At the very least, it can waste valuable time for everyone involved, as they struggle to find what they need when they need it, and essentially re-create knowledge every time a deal is made. However, keeping contracts in an unmanageable place can lead to a number of compliance and legal problems.
In its history of innovation and thought leadership, the Association of Corporate Counsel has argued that maintaining a contract repository should be a priority for legal departments. These repositories "enable companies to actually comply with contract terms," warns the organization in its "Contracts Management Toolkit." "Missing contract documents or inconsistent tracking can lead to missed deadlines, deadlines, or worse, violations of contractual terms."
Key Components of an Optimal Contract Repository System
To ensure that you select the right contract repository system for your organization, it is imperative that you evaluate the key features that are required for a successful contract repository. While each organization’s contract repository needs may differ according to their unique requirements, certain features are critical to the success of each contract repository. The ability to search for and retrieve a contract is one of the most important factors. A search feature that allows users to sort by date created, by type of contract, by amount of dollar value, or by counterparty would allow users to quickly and easily locate a particular contract. It also provides an easy and efficient way to extract data from the contract repository system and run reports to identify specific data about multiple contracts. A clearly defined and organized structure needs to be created to house the contracts. A file folder structure may work for some organizations, while others may prefer a tree structure that allows contracts to be housed under ever-increasing hierarchical categories and sub-categories. Regardless of the structure that you choose, an organization structure needs to be put in place so that contracts are not "orphaned" and lost within the system. Making contracts easily available to those who need access is vital to successful contract repository management. To manage contracts effectively, they not only need to be easy to find, but also easy to access. A contract repository system will not be used unless its use and accessibility requirements are minimal. Additionally, the contract repository system should allow for the preservation of contract privileges, both when the contracts are originally uploaded to the system and as people come and go in the business. Just as your contracts need to be searchable, organized and available to the right people, the security of your contracts is critical. Contracts contain sensitive information, such as price and payment terms, and providing access to unauthorized users can have serious repercussions. The contract repository should allow you to limit privileges on the basis of user permissions, such that only certain users have access to certain contracts.
Advantages of Centralized Contract Repository Management
A centralized location, whether physical or virtual, allows for increased efficiency of those that interact with the contracts. Individuals that need to review, approve, negotiate, amend or deal with a contract should be able to easily and quickly find the contract in the central repository. If the contract is not there, it may have been abandoned, not approved, negotiated elsewhere (whether it’s version 2, 3, etc.) or you’re working with the version 1 that existed before you became a party to the agreement. A pristine, easy-to-search repository with version control can provide many efficiencies for individuals who may be involved on the buy side or sell side of any type of contract. For in-house lawyers, it can be very expensive to assume that you know what all the company’s contracts say. Instead, it’s clear that one person cannot be responsible for every contract within an organization, thus, there needs to be a central repository for how all of the organization’s contracts are organized so that they can be efficiently searched and retrieved.
If all the contracts are in one central location and searchable, it makes it easier to look for information required for compliance purposes. Compliance can sometimes require specific information across multiple agreements such as "sales revenue under $2 million" in order to determine if certain contractual obligations have been met. If all of your contracts are in one place, they become data points that you can easily search across, rather than you having to remember which of your hundreds of supplier or distributor contracts contain a no-cause termination provision, etc.
A centralized repository allows for the identification of risk, such as unanticipated contract renewal dates. It also allows you to easily identify versions of contracts that you are no longer using or that are out-of-date but you think you still might have in force due to the way that it is labeled and saved. Having the library in a central, consistently-named drive folder usually results in all contracts being saved there. Having a knowledge of the in-force contracts allows you to optimize your portfolio of contracts, meaning that you can renegotiate or terminate contracts you do not like, are out-of-date or have failed to perform as expected. The knowledge and ability to re-negotiate or terminate weak contracts provides stronger leverage for more useful agreements.
Selecting the Best Contract Management Software
When it comes to selecting the right contract repository software that would be the best fit for your organization, it’s imperative to take the time to analyze your current system and your future needs. Many factors are required in a thorough discovery, and that includes having a deep understanding of the current challenges for successful contract management.
Based on this understanding, you can begin to compare contract management systems based on a set of criteria that might make or break their adoption within the business. Some of these include: Contract management software is meant to make the lives of managers and the legal departments easier, so adopting a solution that is user-friendly is essential to get buy-in across the business. Once your team appreciates how easy it can be to search the archived contracts and find the information they need, adoption will happen naturally.
Scalability is key to any software solution, but it’s especially important to contract management systems, where storage space and performance can become issues very quickly. You want to ensure that the solution you select can grow with your needs, now and in the future.
It’s also important that your contract management system can be integrated with other aspects of your business. A contract management system often sits in between the sales function (order processing), the legal function, and finance (billing). In many cases, this means that you want the ability to have a bidirectional integration with your ERP (Enterprise Resource Planning) system that encompasses order processing, invoice creation, etc. And you need your CLM system to easily integrate with CRM systems that are used across the organization to prevent duplicates from being created in both systems.
For any company that enters into regular contracts and needs a document repository to keep track of these agreements and obligations, a good contract management system is essential. Before you go down the path of contract repository management, taking the time to analyze your organizational needs, future growth patterns, and integration requirements is crucial to long-term success.
Essential Practices for Organizing Contract Repositories
A well-organized contract repository can be a key component of your overall commercial legal operations strategy. Many general counsels seem to agree. About one-third of the general counsels that responded to the 2011 Corporate Counsel Worldwide Survey, published by ALM, said "’centralised repository’ to manage contracts" was on their priority list. That is, compared to only approximately one in six a year earlier. There are a number of ways to categorize or tag your contracts. For example, segregating them into year, department, geography, type of goods and services, territory, regions or even revenue are all popular ways that company’s set up their contract repositories. You may engage in profiling for rating your contracts, such as criticality, risk, or value. As we also discussed in Mobile Contracting: Making Your Deal Anywhere, with advancements in technology, the ability to do such profiling by using measuring tools is becoming a reality. Separately, some companies may wish to distinguish between the types of agreement, such as confidentiality, distributor, outsourcing, consulting, channel partner, preferred vendor, customer, employment, authority granted, service level, sales agency, general supply, particular sale, barters, non-disclosure, templates, letter of intent and memoranda of understanding, software license, joint venture or other hybrid agreements , among others. It is important to identify what is appropriate for your company. You may even wish to create profile measures for all of your contract types. Another way to categorize your contracts may be to identify and label the parties engaged in a particular contract, such as affiliates, branches, committees, partners, subsidiaries, consortia, joint ventures, consortiums, consulting groups and joint development efforts groups, among others. These categories are typically more difficult to determine, however, given the numerous permutations that the same company may have regarding its company name and/or its divisions and subsideraries names. Accordingly, those attempting to organize their contract databases by their counterparties may find that decisions are difficult to apply consistently. One approach to consider is to categorize your agreements by a combination of date, name and/or type, even though it would require more data entry up-front, particularly if there is a breadth of counterparties. However, it would be worth considering as it may serve to minimize future issues down the road related to how to categorize your agreements and perhaps even allow the organization to take better advantage of vendor leverage positions, when possible. Compare this with a simplified system of measurement that may not be consistent or may require numerous ad hoc modifications to apply particular cases that do not readily fit into the categorizations you have created. The choice remains with you, however, your judgment will be required in deciding what categories to adopt for your contractual data management.
Common Issues and Solutions
The challenge many organizations have is that most contracts are not created from a master template. This is a problem because these exceptions do not conform to the strict controls that are set up in the CLM system. One way to address this is to implement a process that allows key people in the organization to convert those exceptions to a "trusted" template. For many organizations, this is a new way of working and will require support and training for both the owner of the contract and the creator. For example, if there is a business unit that insists on not using your contract template, rather than forcing them to use your template, migrate that business unit’s contract format into your CLM system as a "trusted template" that you can then use to migrate the paper or word document version of the contract into your contract repository.
Another challenge is user adoption. Change is hard and your user community will be resistant to new processes, new system, new tools. Your implementation partner can help you with this. In addition to trainings, knowledge transfer, and documentation, your implementation partner can help you with identifying change champions in each area of the organization. A change champion is someone who is vested in change and acceptance of the new systems. When you are having trouble with a specific department or area, reach out to the change champions. They usually have a better understanding of the challenges being experienced and possible solutions to those challenges. When they go to bat for you, it is even more effective than the program manager or project manager doing it.
Another challenge you may face is integration with third-party tools. Getting integrated with third-party tools can be a pain if you relied on spreadsheets for your integration. In most cases, clients still want their sales orders to be transferred from their ERP system before signing contracts. Once the contracts are signed, the agreement is in effect and the order shipped. In some cases, the sales order may need to go through an exception process. If you have a CLM system that can automate the workflow, this won’t be an issue but if it’s a spreadsheet, it may be difficult to enforce exception routing outside the spreadsheet.
Many companies have multiple databases where contracts may be stored, in most cases, inside their ERP. When they transition to a CLM system like Contract Logix, you will be required to migrate the data out all contracts and agreements from these multiple systems. You need to look at how to convert contractual language to your default template that can be used with CLM systems. There are vendors who can do this migration for you and it’s worth the investment. There are also consultants and CLM systems that will do a portion of the mapping work for you. You need to refer to the diagram below to check if the CLM vendor is helping you with this and what you need to do to get full contract data migration between different systems.
Emerging Trends in Contract Repository Management
The U.S. legal sector is the second largest industry in the U.S., behind healthcare. For many years, e-Discovery technology has transformed the way that attorneys serve clients, and some of the same transformations are coming to contracts management, from contract creation to negotiations to the repository. As organizations look for a competitive advantage, they are turning to Contract Management Solutions (CMS) to harness the power of analytics and artificial intelligence (AI) to refine and improve contract management. For best-in-class-legal and procurement professionals, these are the future trends of Contract Repository Management.
Think of contracts like a blockchain of things…an immutable chain of components. Contracts begin as an agreement, evolve according to the business, but their main goal is always to clearly document the agreed upon terms. Business rules help contract managers maximize their resources and minimize risk. However, business rules are very often manual, not machine-readable, and don’t allow for the scale that would be required to squeeze all of the good stuff from your contracts. A contract repository that is supported by AI and machine learning (ML) will allow organizations to analyze, manage, and distill insights from content through machine-readable business rules. AI/ML integration in contract management platforms ensure greater efficiency and accuracy and long-term value for the bottom line.
Today, organizations are often finding that contract managers are inundated with information, contracts , and data; this has resulted in the push for more and better training and support investment for contract managers. Next, contract managers want advanced search capabilities at their fingertips to let them do their jobs well. Further, contract managers need fine-grained permission control is necessary to safeguard contracts as sensitive information. Finally, organizations want a fully deployed mobile experience, so contract managers can get access to vital information anywhere and everywhere. CEOs are jumping into contract repository management; they want better access to business intelligence for insights about negotiations and compliance. CXOs want custom dashboards, better budget tracking, and collaboration/support tools for people around the globe. CXOs want contracts that keep pace with innovation, including a legal digital workplace, AI-powered contract analysis and negotiation, use of blockchain to secure and validate contracts, and integration with third-party solutions. Legal offers CXOs a lot of insight into the company’s legal and business risks while also delivering the ROI they are looking for.
Automation is the process wherein a contract’s data and information is collected, correlated, or otherwise organized through technologies. Automation supports mass data and information extraction and collection, and centralizes contract documents. It allows for the management of entire contract lifecycles in a scalable way. Organizations are finding that a contract lifecycle automation solution is required to follow contracts from the time it begins to the time it is eventually killed, so decision-makers can get ahead.