Part 2: Confusing Contracts with Contract Management
When embarking on a contract management process, it might seem logical to start with the contract itself. However, starting with these thick documents full of dense legal language and nuance can be a trap. Companies lose sight of the fact that an effective contract management strategy deals mainly with the data nuggets buried within those legal paragraphs: business-useful information that must be distributed in the organization. Too often these companies begin the implementation process by handing a stack of contracts over to their contract management provider, forgetting that though contracts may contain gold, someone has to mine and process them before they’re useful. The utility of a contract management solution is a function of how business information from those contracts is extracted, summarized, analyzed, distributed and queried by the people who actually have to administer and monitor the contracts after they’ve been signed. Maximizing that utility means transforming contract language into concise, easy to understand pieces of information that can be accessed by decision makers, and fed into reporting systems and workflows, without fear of misinterpretation. This often means transforming paragraphs of legal language into one or two “yes or no” flags, rather than an exhaustive list of data elements that cover every legal nuance in the contract.
Putting the contract creation process aside for now, the idea behind contract management is to take all that legalese, simplify it, summarize it so that it’s useful for the rest of the business. You shouldn’t have to be a lawyer to make sense of it. This is a process issue, rather than an IT issue, subject to judgments that can make a huge difference in the cost and ultimate value of the system. This puts a premium on the expertise an experienced CM consultant can provide. Blackwood also believes that just as companies should match their requirements collection with business goals in order to prevent “scope creep”, they must weigh the cost of analyzing and keying in any possible data element within a contract against the business value it delivers. It might look good on paper, but if there is no clear downstream value the people entering the data will know it’s not being used, and they’ll stop entering it – so what’s the purpose?
Distilling a contract into CM-suitable data elements can be a collaborative effort – a company’s legal department working with its decision-makers to interpret contracts and identify applicable data elements. But it’s also valuable to have an experienced CM vendor playing a consultative role, keeping focus on ensuring that business activities – not the contract itself – dictate the information being extracted for use in the CM system.