So you want to better manage your organization’s contracts and are ready to invest in technology to support those efforts. But what kind of technology do you need? Is a contract lifecycle management (CLM) system the right investment or can you meet your needs with a document management system?

The answer is… It depends.

The choice of technology solutions depends on a variety of factors, such as the volume of contracts in your organization, the types of contracts and their complexity, the parties who need to be involved, the other department or enterprise systems with which the new system should integrate, and other issues. There is no one-size-fits-all answer. Once you determine the general type of system you want, there are a variety of products with differences that may make one more suitable to your organization’s needs than another. For these reasons, it can be useful to seek the guidance of a knowledgeable consultant before making an investment. But to start you thinking about the possibilities, here is a basic overview of some of the functions and differences in CLM and document management systems.

CLM Systems

Contract lifecycle management systems are specifically designed to do just that – manage contracts throughout their lifecycle. They are targeted solely to that function and manage contracts throughout the organization. Most include tools to manage each of these phases:

Concept: Those with access to the CLM system, whether from the law department, the procurement department, or business units, can initiate a contract request.

Drafting: CLM systems facilitate the drafting of contracts using libraries of customized templates and clauses, typically pre-approved by the law department.

Negotiation: CLM systems track negotiations, including draft agreements, for reference and audit purposes. The system can track changes and versions of a contract and can flag exceptions to standard terms. CLM systems can also automate the approval process using pre-established criteria, sending notifications to the appropriate parties.

Execution: CLM systems document and track contract execution.

Storage and management: Finally, CLM systems provide a central database of contracts, amendments, and renewals. Many provide monitoring tools to proactively track the performance of obligations and provide notifications when terms are met or on key dates. They can monitor legal covenants and requirements. Some also can automatically track revenue recognition.

CLM systems can be integrated with other systems such as customer relationship management (CRM) systems and enterprise resource planning (ERP) systems.

Document Management Systems 

Not every organization needs all the functionalities of a contract management system. Document management systems streamline document creation, leverage existing work product, facilitate document collaboration, and provide a central repository for document storage. Thus, they can be used to manage some stages of contract management within the law department, in particular, drafting, including tracking revision history, and storage. They do not include functions for tracking negotiation and execution of agreements, nor do they automate contract management such as obligations management, renewals, or compliance, although they provide the information needed to perform those tasks.

Document management systems typically manage the following stages:

Create/capture: Document management systems facilitate the creation and storage of documents in multiple formats (Microsoft Office, Adobe, etc.). They allow for the re-use of existing knowledge since they can include “best of breed” documents, templates, or other helpful information, thus can be useful in contract drafting.

Manage/version control: Document management systems include mechanisms for controlling versions of documents and also control access and security, tracking physical files or allowing check-in and check-out of digital files. Because they log transactions, they provide an audit trail of versions. Document management systems use metadata from documents to create document profiles including information such as document type, date, author, and more – information that can later be used for managing obligations and compliance.

Deliver: Document management systems provide a collaborative workspace for publishing and team review, which can be used to facilitate the approvals process, for example. They provide for full-text indexing and offer offline, remote access.    

Retain/archive: Document management systems offer a central storage repository, but can also be integrated with enterprise applications such as corporate record management systems.

In sum, CLM systems are specifically targeted for the management of an organization’s contracts. They facilitate each phase of contract management, automating much of the process. Document management systems are not ideal for enterprise-wide contract management but can be useful for some aspects of contract management within the law department, where they can serve multiple functions. They can be integrated with matter management systems and knowledge management systems, facilitating drafting of a variety of law department documents in a collaborative environment. Because of this broad functionality, document management systems do not offer the functions specifically tailored to contracts that can be found in CLM systems, such as automated approvals or obligations management and the related automated notices. They can, however, be tailored to assist in contract management within the law department. Specifically, they can facilitate contracts drafting using templates and prior examples, track revisions, provide a central, collaborative space facilitating approvals, and collect profile information that can be used for subsequent contract management.

Now the choice is up to you.