Contract lifecycle management is a very intricate process that requires attention to detail and a substantial understanding of the risks involved. We like to think of the activity as a combination of two sequential processes – pre-signature contract management and post-signature contract management. Today, we take a closer look at these processes to explain why corporate legal teams should own CLM.
Contracts essentially exist to define business relationships between parties and allocate risks between them. During the drafting of a contract, there may occur shortcomings like lack of enforceable contract process controls or use of non-standard contract language, terms and conditions. Miswording or omissions during this stage can later cause major budgetary mishaps or serious conflicts. With their advantage of being able to see the clearer picture, legal professionals are more adept at assessing business risks that are innate to drafting of legal agreements.
Negotiations require that the risks inherent to the business relationship are competently addressed during the process. Active involvement of the legal department in such matters help in allocating risks to the contracting parties by inclusion of appropriate clauses for the same. Standard practices of having the final draft of the contract reviewed by the office of the General Counsel stand relevant even today.
Contracts should be reviewed periodically to check if any changes are required, or if they should be ceased. Contracts that need to adapt to constantly changing regulations place greater importance on contract governance. The team administering contracts needs to alert the involving parties on any new compliance requirements that arise. Stakeholders need to be involved in the process wherever appropriate. Problem resolution processes need to be defined and designated to ensure trivial problems do not step up. For complying with the governing regulations or satisfying contractual commitments, it’s the legal team that stands out as most skilled when obligations are to be extracted out of complexly written contracts.
To mitigate impending risks, organizations need to establish and enforce business rules around the contract process across the enterprise to consistently produce quality, unambiguous and enforceable contracts. When legal teams own CLM, there is maximum visibility into contract terms, deliverables, commitments and liabilities at all levels and for all parties.