Episode Transcript
[00:00:01] Speaker A: Contract lifecycle management overview, take one.
Hello. Thank you for joining us. This is what counts, a podcast created by Trailblazer Consulting. Here we highlight proven solutions developed through our experience working with companies across various industries, and we talk about how you can apply these solutions to your company. We share our experience solving information management challenges like creating and implementing your records retention schedule, creating an asset data hierarchy, or helping with email management. This is Lee, and in this episode, Moore and I will give you an overview of contract lifecycle management, otherwise known as CLM for short.
Do you like that? Take one. Not that this is going to be done in multiple versions or anything like that. It's just one of many. I'm sure we'll talk about contract lifecycle management.
[00:00:52] Speaker B: Absolutely. And I want to say to everybody, all of our listeners, that we have been talking about contract management, contract lifecycle management, CLM, since we started this podcast two years ago. It was on our original list of topics we wanted to cover, and every time we get close to it, we pull back a little. And right before the end of last year, we said, okay, it's time. We're ready to dive into this. And we thought, but we're not ready to do it in December. We need to do it starting in January. So we put a lot of thought into it. And the reason it's taken so long for us to be ready to start talking about it is this is a big topic and we want to give you enough information, the same as we've done with our other topics, enough information so you can follow a path, you can do some thinking on your own. You can do the legwork and make sense of the contract situation in your organization.
We are not in this take one version. We are not going to get deeply into every nuance of what happens when you go through an implementation, because there are, frankly, a lot of nuances, a lot of variables. But we will introduce them and we will give you some ways to further explore and find some insight. So how does that sound?
[00:02:23] Speaker A: It sounds good. It sounds kind of ominous, right? But I guess, do you want to start with if you're doing contracts management manually?
[00:02:36] Speaker B: I actually want to start with what is contract management and why did you call it contract lifecycle management? People may not have heard of that. So that's actually where I want to start. And that really may be all we get through on this episode. So when we say contract management, we are talking about the fact that in most businesses in the US, but probably outside the US, there are contracts in place that govern how almost everything happens.
So, for instance, you as a business might have office space leased. That lease is a contract, and it spells out your obligations and the landlord's obligations for how much are you going to pay, what kind of maintenance do they do? What happens if you want to leave early from your lease? What happens if you need more space? All of that gets spelled out in your lease agreement. And in bigger companies, if you only have two people like us, then somebody's got to do everything. Lee gets to do all of our contracts.
So. But in bigger companies, that might be a segregated responsibility. And you have a facilities manager who does nothing but look at office leases. Okay, great. That person has that under control.
Then you've got buying stuff from paperclips to pens to computers to material that goes into whatever you are producing out of your business, which could be license agreements for software, but it could be ingredients. If you own a bakery, it could be ingredients for making your famous cinnamon rolls. And you have a contract with a food supplier, a food supply company, because you want to be able to order in bulk, order ahead, have things come on a regular basis so you don't have to be going to the grocery store in order to make enough cinnamon rolls to fill your cabinet tomorrow, your display cabinet tomorrow.
That's a different kind of contract. And that contract has a direct impact on how much it costs to produce whatever your business is producing. How much then are you going to sell it for? Okay, cinnamon rolls. You're probably only selling them over the counter as people come in the door. But sometimes you might get a special order. You might get somebody who says, hey, I'm having an event. And we love your cinnamon rolls. We'd like to order seven dozen cinnamon rolls to be delivered on Friday morning at 10:00 and, oh, do you have coffee?
So that is a different kind of contract because then you have to increase your ingredient supply. You have to manage your workers and your workflow. You probably are going to get paid some of that up front and some of it after the fact. You need different things. So that kind of contract is with a customer.
In the case of a bakery, it's probably with a person. Maybe it's with a local business who's having an event or chamber of commerce or something. But take that to the next scale up. Now, you are, say, a renewable energy company, and you have land leases because you have to build wind farms somewhere.
Also, what if they're offshore? What kind of lease agreement do you have for offshore? Who is the lessor in that case? Is it the federal government. Is it a private organization that owns a portion of offshore outside of land?
That's complicated. That gets much more complicated. Just on that lease agreement side where we started with, hey, it's just one office and we need to know how much our rent is.
Your material supply, your supply chain into your production becomes much more complicated. You are waiting for the blades for your wind turbines. You are waiting for the data set up that helps you manage when the turbines are on and when they're off. You're waiting for the cleaning crews and the maintenance services and how do you have a contract with them? And then you've got a wind farm. Now how do you sell that power? And selling the power out of a wind farm is very complicated because you have to connect to the electric grid, you have to sell it to a utility, a commercial organization, a community, could be different customers and they all have different requirements. So now you still might be a relatively small company, 5100, even 1000 people. And you've got stuff happening in all these different places and every single piece of it has a contract underneath. And that is where you start to feel the real need for contract management because you have different people negotiating things.
You are creating obligations in every one of these agreements. You are creating an obligation back to the bakery flour mill. I will buy 50 pounds of flour every month. The mill is depending on that. They're depending on that. To have people working and grinding flour. You're impacted if there's a storm and they lose half their wheat crop. What's your backup plan? You've got the catering orders that you've saying, yes, we can do the catering. And people start to really love your cinnamon rolls and you get more and more catering orders. But now you have to increase your flour buy or you have to go find a new source for butter or whatever it is. All of these different contracts that are technically in different parts of your business, they really overlap. And a change to one necessitates sometimes a change in one of the other contracts. If you are trying to do that by managing a bunch of paper, literally paper contracts written out and signed, put into file cabinets, put into boxes, that is a very slow process. Whenever you make a change, somebody has to go find the paper, read it, look at the other one, read it and say, oh no, we have a problem.
Even if it's not physical paper, if it's electronic copies, pdf documents, still a person is picking those out of the folders that you put them in, maybe on Sharepoint or Google Drive or on a shared file server somewhere. Go to the right folder. Did it get in the right folder? Okay, we found this one. We got to pull this one out. Somebody's got to read it. Somebody's got to find the other ones that are impacted. How do we read those?
When we were working for a renewable energy company, they had a major utility that seemed on the brink of bankruptcy, and they had to go look at what were all the power purchase agreements that they had with that utility, and what was the impact of that going to be if they went bankrupt? Because that might negate the terms. It wouldn't necessarily negate the agreements, but they might be in a position then where the utility, backed by the courts, would be allowed to renegotiate the fees. While they were looking for that, trying to find all those agreements, a little town that they were selling power to also went bankrupt. Nobody had expected that.
And at the same time, there was an obligation hidden in a different agreement where they were supposed to be providing a very simple monthly report, but they forgot to provide it because they were busy figuring these other things out. And then that customer said, hey, you forgot to provide us the monthly report. We're canceling this contract. So stuff can come at you from all directions.
Being able to actively manage your contracts and the obligations that are represented in them and understand what's the impact of a change in any one contract or any part of your business on the rest of it. Requires access to the data in the contracts in a way that you can calculate, you can compare, you can do other analysis, not just somebody's got to go read that document. And I think in the overall shift that we've had in the past 20 years from documents to data, and we are still really in the throes of that shift. We are not through it yet. Contracts are a place where everybody really thinks about a contract one at a time. This is my contract with you to do this thing, and that's real. You have to fulfill those obligations, and you do focus on that contract when you create it. But nothing lives in a vacuum in modern business, in modern companies, and you need to be able to see across that collection. So that's what we're talking about when we say contract management. I know you're telling me, Lee, that we're over our time limit, but I'm going to spend two minutes on what does it mean to say contract lifecycle management?
Because contracts don't just exist at a point in time. They change over time. You might start with you're drafting, you're negotiating, you're redlining you're talking to the other party and figuring out what this is going to look like. And that drafting phase, sometimes called negotiations, sometimes called redlining, that has all sorts of functionality that you need around that. Who's going to review it? How does it get approved? How do you track what changes you asked for and what changes the other party asked for and what changes you agreed to? A person can do that, keep track of one at a time or two at a time or three at a time, but eventually you get to a point where it's too big and you can't manage that process manually. Then once you've executed it, you have a long period of time where whatever the subject of that contract was is going on. So you're renting the space, you're living in this office, you need electricity, you need a repair, there's a flood. And you have to refer back to the obligations and the clauses that are in your lease to say, what do we do now that this thing happened? If it's a delivery contract for something or in your supply chain and suddenly they stop delivering or they're late, and you've three days late in a row of fuel coming in means you're at least three days behind on your work because you needed it. You were just in time inventory management, and now you're behind and you got people and you got problems. So those obligations. And what recourse do you have to go back to that supplier and say, hey, it's not okay that you were three days late, and then you get to the end of the contract and it's a decision, is this a one time thing and you're going to end it, you terminate it? What are the termination requirements?
So in pipeline management, in some other infrastructure, you have obligations that have to do with putting this asset out of service. Do you actually have to dismantle it and remove it? Do you have to do some kind of remediation for any damage that was caused to the gland or to the groundwater or anything else? Hopefully you've avoided damage, but if there is any, what do you have to do there? So there's that sort of termination obligations, retirement obligations, close out obligations. Did everybody get paid everything they were supposed to get? Did everything get delivered or are you renewing it? And what do you do in the renewal? Is it just continue on the same way, or are there new terms and negotiations? And you circle back to that beginning negotiation stage. That's the contract lifecycle.
[00:14:31] Speaker A: Amendments are thrown in there, too.
[00:14:34] Speaker B: Amendments in that active stage, when you're living under the contract. Sometimes you want to change things and the original contract tells you if you're allowed to and how.
Exactly.
Now you see why we said this is take one, because that's a very high level description of all the things that could go into contract management.
And that's regardless of if you have any software in place, you have to do these things no matter what. So I'm going to stop there for today.
[00:15:08] Speaker A: Yeah, that was a good description for sure. I don't know if you took a breath at all because you just went through that and there's so much to say on this subject. That was good.
[00:15:18] Speaker B: All right. So we will be back another time for sure. And we will talk about, we're going to try and come up with a plan for what are we going to tackle next. But today you got, here's the problem.
[00:15:32] Speaker A: If you have any questions on the overview, please send us an email at info at trailblazer us.com or look us up on the web at www. Dot trailblazer us. Thank you for listening and please tune in to our next episode. Also, if you like this episode, please be a champion and share it with people in your social media network. As always, we appreciate you, the listeners. Special thanks goes to Jason Blake, who created our music.
[00:15:59] Speaker B: Thank you.
