- June 27, 2024
- 8 min read
- Sirion
Introduction
Imagine going through your day without spending hours writing the exact same language from the day before into another contract.
That’s a pipe dream, right?
Wrong.
Establishing a contract clause library is one of the most effective ways to speed up the contracting process and make sure you’re using the best language to protect your business and reduce value leakage. Plus, it saves you the headache that comes with repeating the same tasks day after day.
But setting up, maintaining, and getting the most out of a clause library looks a little different these days, thanks to Gen AI.
Keep reading to see what a clause library is, why you need one, and how to leverage AI to start building yours.
What is a Contract Clause Library?
A clause library is a collection of legal-approved, carefully written contract clauses that get stored within your contract repository.
Your library will typically contain the most common and important contract clauses that your enterprise uses throughout your contract management processes. These can include clauses related to confidentiality, force majeure, indemnification, and termination. However, you can always adjust what clauses you add based on your specific business needs.
What are the Important Contract Clauses?
The effectiveness of a contract clause library depends on the inclusion of key clauses that address various aspects of business relationships. Here are some essential clauses that should be part of your library:
- Confidentiality Clauses: Protect sensitive information shared between parties, ensuring that proprietary data remains secure and is not disclosed to unauthorized individuals.
- Force Majeure Clauses: Address unforeseen events or circumstances that prevent parties from fulfilling their contractual obligations, offering protection against uncontrollable disruptions.
- Indemnification Clauses: Define the responsibility for covering losses or damages that may arise due to a party’s actions or omissions, providing financial protection in case of disputes.
- Termination Clauses: Outline the conditions under which a contract can be ended prematurely, specifying the process and consequences of contract termination.
Including these clauses in your library ensures that your contracts are well-rounded, consistent, and aligned with organizational standards.
Five Reasons You Need a Clause Library
Think about how much effort goes into drafting business contracts from scratch. Clause libraries offer a host of benefits for enterprise legal teams, streamlining contracting processes and driving efficiency.
1. Faster Contract Drafting
Once you have key contract clauses saved in a single location, you can easily add them to new contracts or amendments. Since you have legal-approved terms ready, you’ll save a lot of time first drafting your agreements.
2. Reduced Contract Risk
Every contract clause you add to your library should be pre-approved by legal and other internal terms so they align with your business standards. The approved clauses already address potential language deviations and omissions, so you can author contracts with less risk of human error or ambiguity.
3. Heightened Consistency
Creating contracts from scratch allows for too much variability in language. By establishing a contract clause library, you maintain consistency across your contracting processes and prevent the inclusion of contradictory language in your agreements.
4. Improved Collaboration
Your clause library benefits your Sales, IT, Procurement, HR, and Finance teams as much as it does your Legal team. When teams across your enterprise leverage the library to streamline contracting processes, you improve the partnership of internal teams and create a more unified contracting experience.
5. Enhanced Compliance
Since the appropriate parties have already approved every clause in your library, you can confidently author new documents, knowing they’re in line with company and regulatory contract compliance standards. If those standards change, you can edit the clause within the library so it updates across every team leveraging the collection.
How to create a Contract Clause Library?
Review Your Current Clauses
Review your contract portfolio and collect all relevant clauses, ensuring each is accurate, up-to-date, and compliant with regulatory laws and business standards. When performing this review, remember that you’re looking for quality over quantity. It doesn’t matter if your clause library has over a hundred provisions in it. What matters is making sure each clause is well-written and aligns with your playbook.Organize Your Collected Clauses
Separate the clauses into categories and subcategories that work best for your enterprise and tag the clauses by context. This makes it easier for users to find the clauses they need to include in their contracts, especially non-legal team members who are saving legal time by creating their own first drafts. *AI Tip: An intelligent contract repository can help organize this for you and give you complete visibility into every agreement or clause, including the relationships between them.Assign Permission Controls
Establish roles for those who can see, make changes to, and approve clauses within the library. Create workflows that assign specific users to approval tasks and provide audit trails for any changes. In doing so, you establish a system that reduces the chances of any unauthorized or accidental edits of clauses that can cause problems down the line if those changes go unnoticed. *AI Tip: A CLM helps you collaborate across teams, assign specific permissions, and manage version control. Coordinate via native chat or easily tag team members in one place when any part of a contract needs reviewed.Establish an Update Schedule
Decide how often you’ll review the clause library to ensure that all the clauses are still compliant and accurate. This can be monthly, quarterly, or bi-annual — whatever works best for your enterprise. Remember, it’s not a bad idea to make updates earlier in the event of business or regulatory changes. It’s better to review and edit a clause before the next scheduled review than wait until the review period and realize you have to amend a few contracts with outdated language.Report on Library Usage
Monitor which clauses you use most and which have started appearing in your contracts more often. This can help legal teams focus their efforts on maintaining certain language and hint at areas that require improvement within your contracting processes. For example, if you notice that counterparties consistently require changes to an indemnity clause within your library, it may be worth revisiting that saved language for future contracts. You should also report on how effectively the library saves team members time and effort in the contracting process. This is particularly important information when building the business case to invest in your contracting processes and CLM solutions.Get Team Feedback
The people using the library each day will have unique insights to offer on how to improve it. Use surveys, meetings, or anonymous forums to gather their feedback and make improvements over time. The more user-friendly you make your clause library, the easier it becomes to drive change management and increase the library’s usage. While a clause library is an extremely useful tool on its own, one powered by generative AI takes things to a whole new level.How to make better use of the Contract Clause Library?
Maximizing the benefits of your contract clause library involves strategic utilization and ongoing management. Here are several ways to ensure you are getting the most out of your library:
- Leverage AI and Automation: Utilize AI tools to automate the process of clause selection and application. AI can suggest relevant clauses based on the context of the contract, learn from past contract data, and streamline the drafting process. This not only speeds up contract creation but also helps maintain consistency and compliance.
- Provide Training and Resources: Offer training sessions and resources to your team on how to effectively use the clause library. Educate users on how to search for and apply clauses correctly, and ensure they understand the benefits of using pre-approved language.
- Regularly Review and Update Clauses: Periodically review the clauses in your library to ensure they remain relevant and aligned with current business practices and regulatory requirements. Make necessary updates promptly to address changes in the legal landscape or organizational needs.
- Monitor and Analyze Usage: Keep track of how often and in what contexts different clauses are used. Analyzing this data can provide insights into common contracting issues, identify frequently requested changes, and highlight opportunities for further standardization or improvement.
- Encourage Feedback and Continuous Improvement: Foster a culture of continuous improvement by encouraging feedback from users. Regularly solicit their input on the usability of the library and make iterative improvements based on their suggestions to enhance its effectiveness.
By following these strategies, you can ensure that your contract clause library becomes a vital asset in optimizing your contract management processes, enhancing efficiency, and maintaining legal and regulatory compliance.
Role of GenAI in Contract Clause Library
Contract AI makes establishing and managing a clause library even easier by:
- Digitizing and Analyzing Legacy Contracts — AI ingests legacy contracts from any source, extracts metadata and clauses, and automatically groups and tags documents based on context within a single contract repository.
- Suggesting Legal-Approved Clauses — GenAI models learn your preferred stances and offer redlines and language edits to speed contract authoring and negotiation.
- Providing an Accessible Audit Trail for Edits — As you use AI to update your clause library, the platform builds a clear trail of communications and changes.
- Enabling Conversational Search — Ask plain-language questions and get AI-powered answers and dashboards to go deeper into your contract data.
Delivering Contract Intelligence into Clause Usage — AI gives you insights into how teams use clauses (and how often) so you can adjust your playbook to optimize contracting processes.
Conclusion
Contract clause libraries greatly improve the speed and ease with which your team can draft compliant, enterprise-approved contracts. Incorporating a clause library in contract automation systems can significantly streamline your contracting processes, reduce errors, and ensure consistency across all agreements.
You can use Sirion’s AI-native CLM platform and Single Extraction Agent (SEA™) to establish a clause library that turns your contracts into interactive sources of business data.
Want to see how it works? Schedule a demo with our team.
Additional Resources
15 Types of Business Contracts and Using AI to Improve Them
What is Contract Automation? 7 Key Benefits
AI Contract Analysis: A Comprehensive Guide for Legal Teams
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