Out-of-the-box CLM solutions often meet corporate counsel’s needs more efficiently than building a custom CLM solution on an Enterprise Content Management (ECM) platform. What ECM platforms offer that the CLM vendors miss is Information Governance. Information Governance is an accountability framework to ensure proper handling of both documents and information within an organization to meet corporate and regulatory needs. One would imagine that this would be of particular interest to corporate counsel. Let’s follow the CLM life cycle with Information Governance in mind.
Draft – Draft is when an organization creates a new contract. Drafting is usually done from a contract template or previous copy. Each type of contract – employment, vendor, franchisee, etc. – would have its own template. These templates could include clause support, where individual paragraphs or entire sections are represented by different attributes of a contract. For instance, an employment contract for Florida may have different clauses than one for California.
Drafting, or authoring, can be done manually or automatically. With manual drafting, the user would select, or be sent a workflow task with, a template for the new contract. In automatic drafting, a tool is used to select the appropriate contract template and clauses for that individual contract. This tool can be a wizard which requires manual entry of data, or a button that generates the new contract based on a data file.
Review – Review is when an organization receives an external contract. Typically an organization will have a stated policy that all contracts must go through a review process before acceptance. This corporate policy is one that should identified by Information Governance. The first step in review is ingesting the contract into the system and entering relevant data to the index. From this point the contract follows the normal path.
Negotiate – Negotiate is the process of give and take on a contract to reach an agreement. Contracts and changes to contracts are reviewed or created by both parties. This includes red line or markups and annotations. This process can be performed independently using copies of the document that are downloaded or sent via email. The second party may be able to access a CLM directly to change the contract. The actual negotiation process can be performed in real-time over the phone or on-line through a single instance of the solution. The negotiation process ends when both parties reach an agreement to approve the contract.
Approve – Approving a contract is a separate part of the negotiation process. The individuals that negotiate a contract are not necessarily the same individuals that approve a contract. Much of the negotiation process may deal with terms and conditions of a contract that may not require involvement of the person that will approve, or sign, the contract. For example, an executive may not read every line of a contract but instead rely on corporate counsel.
Approval typically ends with a signature either in “wet ink” or electronic form. Different laws and requirements govern the use of electronic signatures. Internal electronic signatures are typically a matter of corporate policy. In the U.S., external electronic signatures are governed by the Electronic Signatures in Global and National Commerce Act (ESIGN), the Uniform Electronic Transactions Act for each state, and the Federal Trade Commission. Which electronic signature is used for each type of contract is part of Information Governance. It is this signed, “wet ink” or electronic, contract that falls under the control of Information Governance.
Administer – Administer addresses the contract life cycle from signed accepted document until the contract expires. Usually this step addresses tracking contract expiration or contract renewals. Administration of contracts is now starting to track obligations, both date and event based. For example, ensuring that an updated inspection certificate has been received or that pricing changes reflect purchase levels met according to the contract.
Renew – Renew addresses the issue of continuing the terms of an existing contract. Contracts can take many forms but some representative options are expiring, auto renewal and evergreen. An expiring contract has a defined end and in order to renew, a new contract is needed. An auto renewal contract has a contract period defined, for instance one year, with a predefined number of review periods. For example, an annual contract with 3-years of auto renewal. The final example is an evergreen contract. An evergreen contract renews automatically after a predetermined period and requires termination to stop the contract.
A component of contract renewal is contract amendment, or making changes to a contract. While contract amendments are typically made as a contract nears its renewal timeframe, the actual amendment may be submitted much earlier during the administer phase.
Retention – Retention of contracts occur once a contract expires or becomes superseded. Retention is the concept of maintaining contracts for a predetermined period of time, usually tied to a regulatory requirement. Retention looks to minimize any potential risk of not having access to the contract that may come about from regulatory audits or potential litigation. Retention is a key concept in Information Governance.
Audit – Audit looks at individual contracts and their history through the organization. At a minimum, the audit process should capture who created the contract, who approved the contract, and who renewed the contract. Other items that may be of interest to most corporate counsel are who edited the contract, and who reviewed the contract. These same questions may be asked of the templates or individual clauses stored in the system. For example, who reviewed and approved a specific clause. The audit process covers all aspects of a contract’s life.
Analytics – Analytics looks at the contracts as both a collection and as individual documents. In its simplest form, analytics takes the role of reporting and custom reporting. A CLM solution needs to be able to identify which contracts are due to expire or are up for renewal. It should also be able to report on workflow processes reporting on queues and task durations. Analytics can go further and report on the contract level. For contracts, this means tracking the value of contracts.
Like any other content solution, Information Governance addresses many functions of contract life cycle. This goes beyond roles, groups, and workflows. CLM solutions offered by traditional vendors, unlike those developed on ECM platforms; often miss critical Information Governance concepts like document retention policies. Information governance is not just part of an ECM solution but any solution that touches corporate documents and information.