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Sales and legal professionals can find it difficult to manage clauses. Manual contract management tools such as spreadsheets, emails, and disjointed software tools have proven ineffective in creating optimal contract documents and clauses — a vulnerability that rarely results in quick approvals.
Using contract clauses can help support standards and reduce contract risk throughout the contract life cycle. When used correctly, they can have a positive impact on your contract management process.
What are contract clauses?
A contract clause can be defined as a detailed provision in a contract or legal agreement that provides context and understanding of a critical point in the agreement. By establishing certain contract conditions and parameters, contractual clauses offer significant benefits to parties and persons involved. A contractual clause sets out various circumstances, factors, and/or rights that serve as a framework for all parties involved.
Typical types of contract clauses
The most common contract clauses include wording relating to the following aspects:
- Contract period
- Fulfilment of commitments
- Level of performance agreements
- Contract interpretation and drafting
- Rights of the parties
- Remedies or compensation for non-compliance by one or more parties
What is a contract clause collection?
A contract clause collection is simply the collection within the contract management application, in which all clauses that are used to create contracts are stored. In this library, you can find:
- Clause types - Definitions for each type of clause, together with an attribution to the type of contract to which it may relate.
- Actual clauses - the list of the above clauses that you will use to draw up contracts.
- Bundle of clauses - Clauses organized according to the common types of contracts to which they are usually added.
- Amended clauses - clauses that appear in a specific document. If these clauses need to be updated during negotiations, you can do so without changing the root clause in the library.
- Alternative clauses - these are clauses that were defined as a pre-approved replacement for existing clauses. In this way, anyone working on the contract can exchange the current clauses for alternatives if necessary.
- subclauses - these are different but interrelated master clause objects. All master clauses can have one or more sub-clauses, but the contract clause library allows you to assign and manage all sub-clauses.
Contract management software can be helpful in the negotiation phase of the contract life cycle as it allows you to change clauses as needed and reconcile them with specific forms and documents. This is how you practice risk management by detecting hazards as soon as they occur. In addition, the CLM software keeps you up to date on which contracts are currently being negotiated and which contracts are being changed during the entire contract life cycle.
Why a collection of contract clauses improves efficiency
When you use the features of a contract clause library, your organization's business results will improve. A clause library simplifies contract creation and negotiation by providing you with a collection of pre-approved clauses, organized systematically by clause type. This makes managing the contract life cycle easier and more efficient during these phases of the contract life cycle.
Once a clause library is filled with all sorts of clauses that your company is willing to agree to — or that you are allowed to publish by your lawyers — you can start referring to clauses in your contracts rather than adding them in long form. You can then search and retrieve all contracts that contain a specific clause with a simple search. That's impossible if your clauses are buried in the archive.
A clause library in contract management software has several advantages, especially when it is integrated with the functions for contract compilation and contract life cycle management:
You can access your clause library anytime and anywhere. It's a lot easier than rummaging through previous files to find a final copy or draft of a standard contract. And if searching for a contract takes as much time as drafting a new one, what prevents you from resorting to your instincts and instinctive wording? A clause library can be an important tool to prevent your contractual rights from being eroded.
A central repository for all pre-approved clauses: You can classify or categorize clauses based on their purpose, such as payment terms or termination rights. You can store all intellectual property rights clauses in one place and all payment terms elsewhere. This speaks for your initial investment and administration, which is a lengthy and expensive process. It also speaks for the payback period compared to the time-consuming management of precedent files or the flood of potential problem clauses lawyers face.
Other benefits of integrating a contract clause library into your contract management software include:
- Reducing the time spent manually searching for a clause and then copying and pasting it into a contract.
- The need to have extensive legal knowledge.
- Centralizing control over the creation of clauses, templates, rules, and logic.
- A production of correctly formatted documents in the right order.
- Seamlessly complement any contract with data that is already in the system.
- Automatic transfer of changes to clauses to all templates that contain the corresponding clause.
- Exclusive authorization for employees with security access who can view, create or change documents.
