Surging demand for contract lifecycle management (CLM) is evident as 2020 saw a 40% increase in inquiry volume, according to Gartner’s Critical Capabilities for Contract Lifecycle Management report. Given the present growth rate, market analysts speculate the global market for CLM software is on track to reach $845 million USD in 2022 and $3 billion in 2032.
It’s an important trend, and one that corporate leaders should consider before they are outpaced by their competitors. This article explores the underlying causes for the rising need for CLM, what is contract lifecycle management software, and how this type of technology can streamline business operations like never before.
The 2020s: A Time of Rapid Business Acceleration
The alignment of certain market forces can be credited to the ascending interest in CLM, notably:
- The coronavirus pandemic: When COVID-19 struck, businesses were forced to adapt quickly. The outbreak caused the sharpest rise in contract nonperformance since World War II, prompting companies to think more pensively as to how they might future-proof their operations. Employing new technology has allowed business winners to alter their service capabilities and find innovative ways to do more with less. For instance, the use of artificial intelligence (AI) contract review technology to assess risk and enforce company standards—while just one part of the contract lifecycle—can reduce time spent reviewing contracts by 90% and cut the total time-to-execution by more than a third. The time saved can then be used to research best contracting practices, analyze data to reveal the most favorable terms, and negotiate with vendors to extract greater value out of every contract.
- Increasing complexity of contracts: Contract complexity includes both qualitative complexity (when contracts are drafted using excess legalese or ambiguous language) and quantitative complexity (when the contract is so long that important information cannot be extracted as needed). For example, Amazon’s service contract appears to be 14 pages at first glance, but in reality, it consists of 14 nested reference items that correspond to 82 separate clauses—each with their own sets of nested terms and definitions. Increasingly, businesses are taking steps to decrease contract complexity, including the use of templates, implementation of CLM best practices, and creating standard legal playbooks of pre-approved contract terms.
- Need for cost reduction: Contract costs vary considerably. The cost of finalizing a simple contract, for example, can cost a business anywhere from $3,800 to $6,900. A more complex contract might range from $49,000 to over $100,000. Bringing the average cost of contracting down to the top performers’ level could reduce economic loss by some $3 billion per million transactions. Unsurprisingly, top performers also close contracts 50% faster, so there is obvious benefit in accelerating the sales cycle. One study revealed that 57% of B2B buyers have abandoned a deal due to slow, inefficient checkout processes.
- Globalization: The number of global exports increased 33-fold since the 1950s. Acceleration of exportation began in the 1970s as economies opened up to scale and free trade became a reality. Modern changes in transportation and the supply chain require greater transparency and risk management to avoid lapses in production and delivery. Where companies could once get by on standard clauses and provisions, the competitive nature of subcontracting entails better contract flexibility and lifecycle management.
What is Contract Lifecycle Management Software?
CLM software covers the entire process from start to finish, though many platforms integrate at various points to provide more robust support. As it turns out, it’s sometimes more advantageous to invest in a highly specialized solution that addresses a particular business’s most impactful pain points than it is to limp by with software that attempts to cover everything.
CLM software typically covers the following processes:
- Creation: Technology allows contracts to be created from templates and libraries of standardized pre-approved clauses, enabling legal teams to focus on the details and not the basics.
- Review: Besides contract creation efficiency, the review cycle is where companies stand to benefit the most. In the construction industry, errors, omissions, and poor punctuation cost 20-30% of the total contract value. And IT provider contract errors can waste millions or billions of dollars as well. Award-winning technology like LexCheck can fully redline a contract within five minutes, providing lawyer-caliber markups to prevent common missteps, ensure compliance to company standards, or add context-based recommendations to aid negotiations.
- Negotiation: Using a unified workspace, multiple parties can track changes and receive notifications to see who is reviewing a contract. AI can help negotiators by analyzing risk and extracting clauses to provide context.
- Signing: Virtual e-signature platforms have drastically reduced the time to close while also cutting back on the amount of paper, postage, and storage capacity necessary to enforce contracts. Most contracts are now stored in the cloud and executed in real-time.
- Tracking: Once a contract has been signed, technology can be used to track key deadlines and deliverables, with analytical data capturing the efficiency of each contract. Through these insights, businesses can begin to re-negotiate and draft new contracts that can open up revenue opportunities.
- Renewing: A survey by World Commerce and Contracting found that poor contract management caused by renewal or renegotiation failures costs organizations up to 9% of their annual revenue. Automation and reminder technology ensure that no contract renewal opportunity goes to waste.
A Path Toward Better Contract Lifecycle Management
While various CLM software can help businesses get documents signed and remind them when renewal dates are approaching, implementing a specialized solution like LexCheck optimizes the work of lawyers. LexCheck works alongside existing CLM software to accelerate the contract review and negotiation phase—saving legal teams and businesses enormous amounts of money, reducing burnout, and yielding stronger contracts that conform to standardized terms and negotiation positions.
To get started, businesses can simply email a contract draft to the system, which then fully redlines it in less than 5 minutes thanks to its proprietary AI and automation technology. Drafts can then be escalated to appropriate parties when necessary, ensuring all terms and conditions are included. In a time when complexity is the norm, convenience is key. And LexCheck is an accessible option for any legal department looking to improve its CLM process.