When I speak to legal teams about their experiences deploying an enterprise contract management platform, one of the most commonly cited benefits is also one of the most basic: fewer contract templates.
In a webinar earlier this year, one Icertis customer noted how his company was able to cut down the number of sourcing agreement templates his company used by 71% after gaining greater contract visibility with the Icertis Contract Management (ICM) platform.
Why are fewer contract templates a good thing? To start with, if you have too many contract templates floating around, they cease to be templates! Contract reviewers must read the contract just as carefully as a contract they’ve never seen before, because the fact is, they might not have seen it among the hundreds of templates within the repository. This slows down deals and exposes companies to risk.
Does this sound like your organization? Are you trying to achieve both speed and consistency through better use of your template repository? If you are contemplating a contract template rationalization exercise, here are some tips to keep in mind as you undertake this initiative.
1. Identify, capture and categorize all templates across the enterprise.
Too often, contract templates are hidden across an enterprise in three-ring binders, hard drives, email inboxes and filing cabinets.
Therefore, the first step in rationalizing your template library is to consolidate all of your templates into a single repository in your Contract Lifecycle Management (CLM) platform. Be sure to scour shared drives and SharePoint sites. Also, think of that salesperson who has been maverick contracting; s/he has a library of templates that consistently are in use and that haven’t been reviewed by the legal team in years! Consider sponsoring “Contract Template Amnesty Week” where everyone, including maverick contractors, sends contract templates in use to one central location for review.
Once you’ve done the hard work of identifying all of the templates in use, you’ll need to categorize them. Categorizing must reflect business realities and goals. Some organizations will group contracts based on contract types; others will focus on geographies, business units or subsidiaries. AI capabilities are now available to automate the extraction of contract metadata at scale to make this work far faster and more accurate.
2. Make the templates as simple as possible.
Once you have narrowed down the universe of templates, also consider simplifying the language in them.
A major issue with “templates that aren’t really templates” is that they are often far more complicated than they need to be. Clauses and conditions might be added to a contract to address the needs of a single deal, then get left in the “template” indefinitely. This adds a lot of complication to contracts requiring legal expertise to untangle.
There has been a lot of talk in the contracting world about finding ways to make contracts more understandable. The idea is that if a contract is easier to understand, they’ll be faster to execute and carry less risk for the parties—since the parties know exactly what they’re agreeing to. GE Aviation made waves with its efforts to deploy plain language contracts—contracts that use language a high schooler can understand. Another innovation in simplifying contracts can be found in visual contracting; for instance, Airbus has been doing some amazing things with visual contracts for their NDAs, which make the documents more approachable for suppliers.
Template simplification falls squarely in line with these other efforts. By simply removing all unnecessary language, you will make typical contracts shorter and easier for everyone to understand.
3. Set a schedule to review templates regularly; use data to monitor template use and deviation in standard clauses.
An enterprise must exercise discipline in reviewing its contract templates regularly to ensure regulatory compliance, consistency and utilization. Has there been a regulatory change requiring an update to the templates? Are certain clauses obsolete but retained in the templates? (I often hear jokes about contracts still including Y2K clauses!) Consider using contract management software to help you identify deviations from your standard clauses. Based on that data, it might be time to revise the contract template to reflect this new standard.
How Customers Have Used ICM to Take Control of their Templates
The ICM platform gives enterprises a single source of truth for contracts. They can analyze what templates are being used and where redundancies in a contract library exist (you don’t need 30 different versions on an NDA!) Legal teams can then go about designing simplified templates and deploy them across the enterprise via a cloud-based template library.
When clauses do need to be added to a template, clause libraries are available so that language, too, can remain standardized.
The software can also make it easier for users to find the template that’s right for them.
HERE Technologies—the world leader in mapping software—was able to reduce sourcing templates by 71% (from 60 to 17). Additionally, through a simple questionnaire embedded in the platform, legal enabled users to find the right template when spinning up a contract.
“An individual can log in to the system, answer a couple of questions about what they’re trying to source for the company–whether it is a service, or whether it’s a product—and by just answering a few questions the right template is generated for them,” according to Simon Anolick, Director of Legal and IP at HERE.
Contract template management is more art than science. The good news is that contract management software can help. A simplified contract template library is just scratching the surface of the power an enterprise contract management platform can deliver to a legal department. Nonetheless, it is a quick win for legal teams deploying contract management software, and one that delivers real value to the business.
By reducing the number of contract templates in circulation and ensuring that those templates contain the minimum amount of language necessary, legal departments can accelerate business, protect against risk and optimize contracting not just for themselves but for business users as well.