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Can Law Firms Tap Latent Market for Corporate Contract Management?

I often wonder why more corporations do not deploy enterprise contract management systems.  These systems manage the entire contracting process, including negotiation, drafting, execution, and rights management.  Already in 2004, I suggested (blog post) contract management was a big opportunity. The opportunity remains large.

The Corporate Executive Board CEB’s [Corporate Exectuive Board] Legal, Risk and Compliance group blog post Contract Management Technology: Ten Core Functionalities (7 Jan 2014) focuses on system features.  I was struck, however, by its introduction:

“While system costs and budget constraints were impediments, many more [members] told us that a lack of knowledge about technology options and concerns regarding access and implementation underscored their reluctance.

Whether building a bulletproof business case for budget or discovering available system functionalities,  the critical  first step is understanding your organization’s unique contract management needs and selecting a system which responds to those needs without extensive customizations and prolonged implementation.” [Emphasis added.]

Large law firms can capitalize on this gap in corporate performance.  Sure, they have  Big 4 and consulting competitors.  But Big Law has unique access to general counsels, who often are veto-holding stakeholders in contracting.

Partners will, of course have questions.  Can we bill for this?  Is it really legal advice? Do we know anything about systematic management of contracts?

Smart law firms would ask these and other questions and then find answers so they could develop new business.  While this effort may start closer to consulting than to legal work, it will likely surface a reasonable number of contracts that actually do require high-end and probably even hourly billable counsel.  Moreover, for clients who want better value from firms, this seems a good way to add it.

If companies – whether aided by their outside counsel or BigLaw competitors – adopt systematic contract management, will they be able to do less law?  Or if not less law, enhance revenue and compliance?

What am I missing?  Why does the gap persist?

  1. Gillian Walton

    I believe the risks of not managing the contract far out weigh the potential of being in breech. In my experience there have been many occurrences where lawyers quickly agree to a contract without consulting their internal departments in order to win the business. Internal departments may not have the systems or technology in place to conform with what has been agreed and therefore are lumbered with the problem. The solution then requires extra budget which may have been avoided.

    More often the contract doesn’t move from the lawyers desk.

    “System-ising” contact management will keep the lawyer in control and build good relationships with the client therefore creating the potential to win more business. Surely that’s not an overhead, isn’t it business?

    This is where someone with process improvement and business analysis skills can help the law firm establish their requirements and look for the most suitable solution, allowing the lawyer to continue with their work for the client.

  2. Tim Cummins

    It seems we have been writing on this topic for a similar period and equally wondering why the momentum is not increasing. And I also just blogged on this – so you may find is interesting.

    In my experience, most law firms and lawyers still see contracting in a transactional context and primarily as a tool for control and compliance. While this view prevails, they will fail to grasp the real advantages and business case for automation.

    In addition, when they realize how many stakeholders are impacted by a holistic CM application, most GCs choose to step away from any implication that they ‘own’ the application or the process.

  3. David Holme

    Exigent acquired Manthan Legal late last year. the principal attraction was their iCLM software and development capability. Since then I have met with numerous GCs and some law firms to discuss/implement these solutions. The appetite amongst GCs is high law firms less so. I have always been baffled by law firms reluctance to be in this space but it is has become clear that most law firms simply don’t know how to use technology much less sell it. Probably the other main barrier is getting CAPEX approval; contract compliance is probably lower down the pecking order and less sexy in most corporates so often loses out if budgets are stretched.

  4. Liam Brown

    Ron, great blog. This is simply hard execution: selecting and implementing CLM technology; defining systems of work such as play books, alternative negotiating positions, escalations, and roles and responsibilities; changing behaviors of the lawyers and the business, (often in a global company); hiring, training and retaining lawyers with the right skills and experience for the work, in the right place, onshore and offshore – this is all hard work. It requires knowledge of contracts document assembly, decision-support and workflow technology and best practices; time and patience; project management expertise; understanding of the company and its culture; and did I mention time and patience? In Growth is Dead, Bruce MacEwen described how Proctor & Gamble’s Lafley managed to grow P&G faster than it’s market by partnering with innovations from small, entrepreneurial companies, moving the company’s attitude from resistance to innovations “not invented here” to enthusiasm for those “proudly found elsewhere”. I’m working with a few law firm CIOs and corporate legal dept COOs who are working with our consulting and legal services teams, and our contract lifecycle technology partners, to implement CLM solutions like the ones you have discussed. But make no mistake, it’s hard work.

  5. Noah Waisberg - DiligenceEngine

    One spot we’ve seen some interaction between Biglaw and contract management is in transactional due diligence.

    A major part of nearly all M&A deals is reviewing the target’s contracts to figure out the impact of the proposed transaction on them. Typically, junior lawyers read contracts for transaction-relevant information and put their findings into summary charts. Some do this with the help of contract review software like ours. Information they find (e.g., a critical contract is terminable on change of control) gets passed up to more senior members of the deal team, who figure out what to do with it. This process tends to be expensive and time-consuming, and juniors sometimes make mistakes at it (which can be bad).

    A critical problem with contract management (and a big impediment to setting up a contract management system) is getting details from legacy contracts into the contract management system. Typically, junior company personnel or outsourced workers read contracts for specified-information and put their findings into the equivalent of summary charts in the contract management system. Here again, they sometimes do this work with the help of contract review software. This process can also be costly and long if the company has a lot of already-existing contracts.

    These are fairly similar exercises, and show an obvious area for law firms to get involved in contract management. Some of this is already happening. We know a company who had a Biglaw firm prepare contract management system-useable information in conjunction with a transactional due diligence exercise. And we know another company that saved a lot on their Biglaw bill for a large transaction by already having detailed and accurate contract summaries that the Biglaw firm was able to rely on.

    Contract review and summarization is a big and regular task for most Biglaw corporate departments. However, LPOs appear to increasingly be offering services here (and some have a lot of practice at this work from their contract management experience). So, contract management is both an opportunity and a threat for Biglaw. Firms could protect their turf against LPOs doing this work and also seize new work. Or they could lose most due diligence contract review work to LPOs. Process and technology can help both firms and LPOs do higher quality and more efficient work here. Places that put effort into improving could make big gains. And places that don’t could lose even some existing work.

  6. Ken Adams

    In general, law firms handle the contracts process very inefficiently. That’s due to a number of factors, aside from an addiction to dysfunctional language. For one thing, compared with company law departments, law firms generally draft a broad and unpredictable range of contracts; that’s not conducive to economies of scale. There’s also the balkanized management structure. And the billable hour works against the sort of centralized initiative required for an efficient contracts process. So even though the contract-management needs of a company are very different from that of a law firm, law firms seem unlikely candidates to help companies with contract management.

    And more generally, companies apparently use law firms mostly for bespoke work. Commoditized handling of high-volume contracts is very different from that.

  7. Bill Lipner

    [Bill Lipner edits the PinHawk Legal Administrator Daily. He featured this comment in the 8 Jan 2014 Daily. I have taken the liberty to insert here. I have also inserted a follow-up note that he sent me. Ron]

    “Contract Management in the Law Department

    Ron Friedman, writing at his Prism Legal blog, poses this question: ‘Can Law Firms Tap Latent Market for Corporate Contract Management?’.

    Contract management is a huge gap in most legal departments, where – at a minimum – the most routine contracts (NDA, standard licenses, non-competes…) can be ‘managed’ so that attorney effort is focused on high-value (bespoke) work. So why don’t law firms don’t offer services to fill this gap? Seems logical. Ron, I respectfully disagree.

    Contract management in large part, is application of a technology solution to a business problem. Law firms are not technology providers – at least, not given today’s typical law firm business model.

    The mechanisms to sell, install, and support a technology solution for a client, is a skill set that law firms would be challenged to acquire. I do believe there is an opportunity to leverage law-firm-internal-technology so that law firms offer higher value, lower cost services for bespoke contract management services. Its the non-routine work that law departments need help with.”

    In a follow-up note, Bill wrote: “Law firms could create partnerships with the CLM [contract lifecycle management] vendors, which could be quite fruitful in the context you have suggested.”

  8. John

    Hi Ron,

    Another of my pet favourite topics! Did you see the Riverview Law news the other day that is in a similar vein?

    We do some contract review/management already, offering clients services to review contracts and summarise them in an online contracts database – across various sectors, including real estate where tracking properties and assets is important but also as part of more general review exercises to identify weaknesses. There is scope to develop the services to add even more value as well.