Do we need digital contract management? Part 1 of 2
Research shows that without digital technologies, our ability to handle contracting processes has been diminishing in recent years. Today, many CM experts see contracts as the primary cause of disputes, but the growing complexity of the contracting process creates a larger problem with information management in general. So, how can digital technology help us untangle this dilemma?
Effective leadership teams are well aware of their long-standing responsibility to efficiently handle information management, process compliance, document retention, disaster recovery, and business continuity. However, the scope of information management has now expanded to include unstructured data as well as structured data, including details and metadata from corporate acquisitions, digital archiving, and contract authoring.
According to a report from the Information Governance Initiative,1 the amount of digital information in the world will double every two years. The challenge is therefore twofold: companies must address both the volume of data being created and the myriad of forms it takes.
Contracts house valuable data needed for companies to remain compliant with regulations and prevent or respond to legal disputes. But the number of contracts, their complexity, and the volume of data associated with them have grown beyond what companies can manage without the assistance of technology.
Disputes: Are contracts really the problem?
In 2019, IACCM surveyed 750 organizations and found that contract management tools and systems are the number one focus area for improvement. As Tim Cummins, President of IACCM wrote, “…technology is an enabler of these improvements.”2
According to the 2018 Litigation Trends Annual Survey from Norton Rose Fulbright,3 87% of businesses surveyed expect the number of litigations and legal disputes to remain the same or increase. Across industries, the number one or two reason given for disputes is “contracts.”
Research by Norton Rose Fulbright (Figure 1) below shows contracts are prominent in dispute-related involvements. The authors of the referenced article containing Figure 13 believe our CM environment is becoming increasingly “litigious” and this results in the rising costs of outside counsel. In other words, not going digital in your CM practices will cost you more time and likely more money if you are still using manual contracting processes versus digital.
Figure 1. Research results from Norton Rose Fulbright US LLPⒸ 2018.
… but can digital contract management really improve CM performance?
The first objective of digital contract management is to increase contract management’s visibility into the company’s contractual assets. Traditionally, this process might have involved taking contracts to an external third party, such as a legal process outsourcing (LPO) firm, to manually extract the designated fields and enter them onto a spreadsheet or a designated system. But, this approach is expensive and may need to be repeated if the requirements change or if additional metadata is required.
Companies need a digital platform for data extraction that enables them to discover their contractual documents and automatically extract key contractual metadata. This may require a searchable template contract within a software application or searchable index or database. With that in place, the organization can leverage their contractual discovery capabilities across all functions to meet the needs and objectives of each function so that:
- Financial services can comply with complex and rapidly changing regulatory demands such as Dodd-Frank, Basel III, Sarbanes/Oxley, FCA and AntiBribery;
- Mergers and acquisitions can accelerate time-to-results by allowing C-level executives to make informed decisions about immediate opportunities while mitigating any risks;
- Sales can provide a single view of all contractual information for the sake of improving customer relations, renewal rates, and revenue generation.
- Procurement functions can reduce costs by cancelling, standardizing, or renegotiating contracts; ensure contract compliance with corporate standards; and proactively manage and adhere to both “hard” and “soft” contractual obligations;
- IT operations can track and manage the tabular information found in contracts, bills of materials, and software and hardware line items; and could cleanse contractual data and consolidate it into a single repository accessible by all business users.
Part two of this blog looks at how contract management technology helps companies achieve more agility in their contract governance, and provides the information required by senior management to make optimal decisions based on complex scenarios.
This 2-part article originally appeared in IACCM Contracting Excellence Journal.