Contract clause libraries: what are they and should you be thinking about using one?

contractA contract clause library is an online repository of pre-defined and approved legal clauses that can be inserted in to contracts authored by your own staff, or in some cases, in to third party contracts that you are reviewing.

Thinking about contract clauses as ‘objects’ can be an efficient way to view your overall enterprise Contract Management strategy.  Contract clause objects can make contract drafting more efficient in cases where a single clause is used in more than one contract template (like a Termination clause, or Payment Terms for instance) or where you need to ensure that the latest version of clause is used in a particular contract or agreement.

There are several key attributes to a contract clause library:

  1. It should provide a central electronic repository for all clause objects
  2. The clause object should be governed by document management functions, like: version control (having the comfort that the clause selected will always be the last and final version), access-control and user security.
  3. It should allow the clauses to be classified in to Independent or Dependent clause types, or by groups:  warranty clauses, legal jurisdiction, payment terms, etc
  4. It should support Digital Signature approvals to certify that particular clauses have been approved for use by legal or other internal stakeholder groups.

Clause tracking
When formulating your strategy around contract authoring, ensure that this is done in the wider context of the contract lifecycle.  

Some Contract Lifecycle Mangement solutions, like Dolphin Contract Manager, will allow clauses to be tracked as they are inserted in to contracts by tagging clause metadata.  This means that a report can be produced instantly showing all contracts that contain certain legal clauses. 

Consider the case of the large retail company in the United Kingdom, who in 2006, was subject to a hostile takeover.  When the acquiring party requested a report outlining all supplier contracts that included ‘change of ownership’ clauses – triggering the termination of the contract in the event of a change in ownership of the company – the company had to hire a team of para-legal experts to manually review each supplier contract at great expense.

Or, think of the Dutch subsidiary of a global insurance company, who provides white-label insurance products to third parties to sell as their own products.  When the Dutch government changed the definition of the term ‘disabled’, a definition that was expressly used by the insurance company in some of its insurance product agreements, the insurance company had to identify all contracts that made use of the ‘disability’ clause and then reissue new contracts to all affected policy holders.

Efficient contracting
If a standard clause is used in more than one contract template, then using a pre-defined and signed-off clause object that can be saved once, in a single location and linked to the appropriate contract templates must be a more secure and less risky option than having to maintain multiple contract templats with duplicate clause objects.  If the wording of a clause needs to be changed, a simple search to locate the clause document, re-edit and save is all that is required to ensure that all new contracts that make use of that particular clause will be updated.

Self-service contract authoring
Since a contract clause library provides an online repository of pre-defined and approved legal clauses and conditions, then in some cases, it may be appropriate for non-contract specialists in the business (like a salesperson, or Purchasing Manager, for instance) to draft a first version of a contract using pre-defined clauses and objects.  Indeed, some argue that using document automation technologies can significantly enhance the efficiency of the contract authoring process, but also reduce the risk of staff using inappropriate or out-of-date language.  Document Automation technologies are typically used in two user interfaces:

  • Microsoft Word®– where the contract author manually selects the appropriate clause to insert in to the contract document.  This is often the preferred working interface for legal specialists.
  • Web-based questionnaire – where the appropriate clause is inserted into a contract document in response to a business facing question; like ‘will the legal jurisdiction be the United States of America or Canada?’

Building a clause library may involve considerable effort initially, especially for over-worked and under-resourced In-House legal teams, but if contract-related work is the cause of the workload, perhaps the implementation of a contract clause library and Contract Lifecycle Management system would go some way to making an In-House lawyer’s life a little easier?

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3 Responses to Contract clause libraries: what are they and should you be thinking about using one?

  1. matt says:

    This blog’s great!! Thanks :).

  2. Hi Matt – Glad you like it.

  3. […] current active contracts in to a contract management system and make use of functions like contract clause libraries to streamline contract […]

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