Contracting Lifecycle Management or “CLM” systems seem to be everywhere – every legal tech vendor hall, every trade show, everywhere I turn. Don’t get me wrong. I love seeing that contracts are finally getting the right level of attention in the legal ops and legal tech communities! I have been preaching that contracting is ‘where it’s at’ for years – literally years! Ok, maybe claiming that contracts are sexy is a bit much, but I do love contracts and see tons of opportunity to innovate and delight the business. Every company has contracts. To make money, companies need to execute contracts. As companies grow, those contracts grow in number and complexity, and the legal team is often the one tasked with figuring out how to get them done faster. While everyone has them, not everyone loves them. In fact most companies struggle to keep up with their contracting volumes.
The contracting process is actually a business one, but because the contract is a legal document, the legal department tends to take it over and manage it. Usually, the business is more than happy to know that “the lawyers” are taking care of the contracts. As with eDiscovery years past, contracting seems to be the sweetheart of this year’s legal tech scene. Investments in CLM confirm that interest is reaching a fever pitch. Of the top ten legal tech investments of 2019, 3 were in CLM-related technologies.*
So what is CLM really? Most broadly, CLM is exactly what it stands for – the lifecycle of a contract. Practically though, it is associated with the technology that enables the lifecycle, in which case CMS or Contract Management System is a much more accurate term, but used less frequently for some reason. This distinction becomes important and that is why I will use CMS going forward when addressing the technology and CLM when addressing the process (or lifecycle). So, CLM = contracting process, and CMS = technology solution, an infrastructure that enables the CLM.
Taking a step back, the lifecycle of a contract is quite simple and relatable across all contract types. I like to use this visual:
In the best and highest use of the legal team’s resources, attorneys and other para professionals in the legal department should be spending time only on the Create & Negotiate phases of the lifecycle (assuming that the Approve phases is handled by other stakeholders such as finance, procurement, sales, etc.). As legal teams discover that other phases are not being handled effectively, and most importantly, contracts can’t be found or managed, they begin to look for ways to enable the other functions that must be performed. Enter technology! (Let’s ignore the battle cry of “people and process first, then technology!” for now, and assume legal departments are ready for CMS.)
What worries me about all of the CLM buzz is a complete lack of clarity on which phases of the lifecycle they are solving for, to which most would reply “We do the whole thing.” When I hear that, I get very nervous. The vast majority of CMS on the market now are very young, and I find it impossible for them to already be good at every stage. It is a simple matter of investment and resources. Typically, they are stronger in certain phases than in others. Or maybe they are great at providing a simple generic workflow across all the phases, without any deep functionality in any one of the phases. In either case, it is about being clear.
Also, there are other contract-enabling solutions being thrown into this big bucket of CLM, which are certainly part of the CLM, but are not CMS. For example, several solutions are excelling at extraction of key terms and mapping alignment of terms between documents. Those are analytical solutions that don’t quite fit into the category of a CMS. Another example, falls somewhat in the Negotiate phase. Almost every CMS offers a platform on which to negotiate the contract (exchange drafts between parties in lieu of e-mail), but none of them automate the actual review (editing the document per the legal team’s risk tolerances and preferred terms). There are a specialized very few number of providers that provide AI-driven automated review of contracts. That is what they specialize in. Again, clearly part of the CLM, but not a CMS.
I suggest that every provider in the CLM ecosystem highlight which phase of the lifecycle they are focusing on. The best way to do that is to relate to the pain point of the customer. For the sake of the overwhelmed customers, the tech seller must help create clarity and differentiation. No one wants to oversell and leave a customer dissatisfied, but it happens all the time. Buying legal tech is complicated, and most legal departments still don’t have dedicated resources to help make the selection. It is critical that legal tech providers, such as CMS companies, educate their potential customers and are honest about where their solution is most valuable. Rather than simply selling, the CMS providers and the whole CLM industry will be more successful if more time is spent solving customers’ problems and educating them about which phase of the lifecycle they are focused on.