Non-standard Standard Terms

Each year, the International Association for Contract & Commercial Management (IACCM) conducts a survey of negotiated contract terms. For 2007, the top 10 negotiated terms (according to participants from in-house legal, contract management and procurement groups in 800 organisations) were:

1. Limitation of Liability
2. Indemnification
3. Price / Charge / Price Changes
4. Intellectual Property
5. Termination (cause / convenience)
6. Warranty
7. Service Levels
8. Payment
9. Delivery / Acceptance
10. Confidential Information / Data Protection

Now, the above list seems reasonable enough to me. But I am curious about the reliability of the underlying data, as it would be very difficult for each participant to maintain accurate records on the number of negotiated terms across their portfolio of contracts. To achieve this, they would need a system in place that tracks:

• What constitutes "standard wording" for every clause (or at least for the main ones) in each contract type
  
• The total number of contracts the organisation has executed
• Those clauses in each executed contract that deviate from the standard wording

There are contract creation and management systems that can track the above information. But, I'd be amazed if any organisation has managed to define and systematise its contracting processes to the extent necessary to track such detailed information across its entire contract portfolio.

That said, the IACCM is to be applauded for leading the effort to define, measure and improve organisational contracting processes.

The Problem with February 29th

I don't like February 29th. It creates too many problems.

My great aunt was born on a leap day, and I can never remember when I'm supposed to wish her a happy birthday. 28 February risks prompting a reaction of "What, I look that old?" On the other hand, waiting until 1 March creates the potential for an "I can't believe you forgot!" Finally, there's always the chance that she's a hardcore leapling - only wanting to celebrate when there is a 29th.

Leap days can also create contracting headaches. For example, you've been asked to turn around a new agreement by yesterday. You grab an old document and start editing it. You correctly enter "29 February 2008" as the start date. Then, knowing it's a one year agreement, you inadvertently put "29 February 2009" as the end date. In all the rush, you miss the fact that you have entered a non-existent date. You better pray that the parties remain friends.

What we really need is a replacement for the Gregorian calendar (or a smarter way to draft contracts).

What the heck's a CLM?

My first exposure to the concept of a CLM was when I started work straight out of law school. I was involved in a due diligence and I received an email from a partner telling me to collate another set of contracts (of which there were thousands) in time for the next morning. I meant to forward the email to my fellow grads telling them what a !@#$%^&* the partner was. Unfortunately, I hit "Reply" instead.

Times have changed, and these days CLM is just as likely to refer to Contract Lifecycle Management software (or simply Contract Management software). But what is Contract Lifecycle Management? While there's no single definition, it encompases an organisation's entire contracting process, including:

• Creation
• Negotiation
• Approval
• Execution
• Storage
• Commitment Management
• Renewal

Interestingly, according to the IACCM's Contract Management Software: Market Sizing And Status Report, "[a]doption of contract management software has been slow, even though studies have consistently reported the benefits achieved by those companies and organizations that have implemented."

The reason? A lack of defined processes. In most organisations "contract management remains one of the last undefined areas of activity... As a result, successful contract management software projects require a commitment to process definition which raises tough political questions regarding ownership, authority and accountability."

So, where does that leave us? Basically, when done properly, automating the contracting process provides great business benefits in the form of better control, workload reduction, risk management and cost/revenue improvements. However it needs a powerful executive sponsor to make it work.