#21 Obligation identification: Surely, you MUST read the contract!?
There isn’t a shortcut to “the work?”
Friday, here we are team!
A busy week indeed between Oxfordshire, London and home. As I reflect, I wanted to share some key takeaways from both an Executive Roundtable & the WorldCC Cafe catch-up in London this week.
In this week’s newsletter:
📝 Obligation identification: the case for CLM but we must do the work.
📝 Social meet up, new date confirmed!
📝Obligation Identification - Technology vs “the work”
Recently, I spoke to a member about using Contract Lifecycle Management (CLM) for obligation tracking. It’s a no-brainer. When we zoom out, Contracts are the foundation of commercial relationships, defining the terms, conditions, and obligations each party must fulfil. CLM is the lens to bring you that data and overview fast.
Managing these obligations is essential to mitigate risks, maintain compliance, and ensure smooth business operations. However, tracking obligations across multiple contracts can be challenging, especially for companies handling a high volume or high complexity of agreements.
Manual processes and siloed systems can lead to missed deadlines, unfulfilled commitments, and legal disputes, resulting in financial and reputational damage. CLM software provides a centralised platform to manage contracts, offering tools for obligation management that help organisations track and fulfil commitments.
However, during a WorldCC Cafe catch-up this week, I had another conversation. A member explained how the CLM was picking out every possible clause that could be an obligation, every “shall,” “must,” “will,” etc. As it should.
That leaves the team with the same onerous task as before, and I wondered if this approach stops you from really understanding the context of the contract.
Surely, you must read the contract? There isn’t a shortcut to “the work?”
Now, for clarity, I am a CLM advocate. I was on the road all last year promoting CLM's mega-benefits across the EMEA region. There is a bigger picture than just obligation identification when it comes to CLM. Below are some further benefits, without even touching pre-award, negotiation, etc.
1/🧵 CLM software offers a range of features designed to support effective obligation management.⬇️
2/ Centralised Contract Repository 📂
A secure, cloud-based repository helps teams store, organise, and access contracts easily. With a single source of truth, everyone works from the most up-to-date version, reducing risks of errors or oversights.3/🔍 Advanced search capabilities allow teams to quickly find specific contracts, clauses, or obligations. No more manual searches or paperwork.
4/ Automated Obligation Tracking ⏰
Manually tracking obligations? Error-prone and time-consuming. CLM automates this process, giving you data insights in dashboard & report format.5/ 🚨 With automated alerts and notifications, teams are reminded of key milestones, deadlines, and deliverables—ensuring obligations are met on time.
6/ Assigning ownership & accountability for obligations? ✅
CLM ensures that everyone knows their roles, creating a clear chain of responsibility.7/ Collaboration & Workflow Management 🤝
Effective obligation management requires collaboration across teams. CLM facilitates seamless communication, task assignment, and progress tracking.8/ CLM also integrates with systems like ERP, CRM, and financial software to streamline workflows. Teams can now focus on strategic initiatives rather than admin tasks.
9/ Reporting & Analytics 📊
CLM provides real-time dashboards and customisable reports to assess obligation performance and risks.10/ By tracking KPIs such as on-time delivery and compliance levels, CLM helps teams identify areas for improvement and optimise processes.
11/ Best Practices for Implementing CLM 💡
Ensure the system is tailored to your needs, with clear workflows, access controls, and integration with other enterprise systems.12/ Data quality is key—make sure existing contract data is accurately migrated into your new CLM system for effective obligation management.
13/ Change management is crucial. Communicate the system’s benefits to stakeholders, provide training, and define roles to ensure smooth adoption.
14/ Defining Clear Processes & Responsibilities ⚙️
Document standardised workflows for every stage of the contract lifecycle, from creation to renewal.15/ Assign clear responsibilities for managing obligations. Legal ensures compliance, while finance monitors payment obligations, for example.
In short, and in the “bigger picture,” CLM software enables teams to manage obligations more effectively, increases accountability understanding, and improves communication channels. Users can present obligations in a live snap-shop/ dashboard format, saving time, reducing risks, and driving continuous improvement.
However, to my point about truly understanding the contract and the fact the list of obligations can be thousands plus. What are the steps to identifying obligations in your contracts?
Many of our members still do not have a CLM and cannot use one due to data privacy issues and where data sits when ingested by the CLM. When it comes to AI tools, 30% of organisations have implemented or are in the process of implementing a new tool for the purpose of meta-data extraction, clause extraction, and contract summarisation.
That still remains a relatively low number.
Therefore, I thought today I would share an overview guide to obligation identification, using my notes from WorldCC Tips and the Contracting Principles, coupled with my notes received from the member and our conversation.
You can take it as a simple base; then tweak and build your own guides internally.
1. Review the Entire Contract
Read the contract thoroughly, ensuring you understand its overall structure, key terms, and context. Pay close attention to sections that define rights, duties, and any specific clauses outlining obligations.
2. Identify the Contracting Parties
Clearly identify the parties involved in the contract. Obligations are typically imposed on and arise between the contracting parties, who are usually defined at the outset of the document.
Identify dependencies on the client or the client’s third party.
3. Locate Key Sections
Focus on specific sections of the contract where obligations are usually detailed. These may include:
Scope of Work/Services: Specifies the tasks or services one party agrees to undertake.
Payment Terms: Sets out financial obligations, including amounts, payment schedules, and methods.
Delivery Terms: Details when, how, and under what conditions goods or services should be delivered.
Acceptance: Ensure both parties understand the mechanism that confirms the product/service has been accepted. This includes triggering payment and further services/ SOW.
Performance Milestones and Deadlines: Lists key dates and stages for the fulfilment of obligations.
Warranties and Representations: Describes guarantees made by each party concerning the quality, legality, or nature of goods or services.
Confidentiality Clauses: Outlines obligations to protect sensitive or proprietary information.
Indemnity and Liability Clauses: Establishes responsibility for damages, loss, or claims arising from a breach or other issues.
Change Management: What is the defined process for change management within the contract? Who are the key personnel for approval
4. Interpret Express and Implied Terms
Identify both express terms (clearly stated obligations) and implied terms (those which, though not explicitly mentioned, are implied by law, such as under the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982).
They do not need to be driven by the law. Consider, terms also implied in fact, by custom, or as a result of past dealings.
5. Clarify Performance Obligations
Examine the standards required for performance. This includes the quality of work expected, timeframes for completion, and any specific methods of fulfilment.
Consider the KPIs agreed to be captured by both parties
Consider, how both parties will report on KPIs and performance. Are both parties aligned on the true definition of the KPI/ metric/ definition.
6. Examine Breach and Remedies Clauses
Identify what constitutes a breach of contract and the consequences of failing to perform. This may include the right to damages, termination of the contract, or specific performance.
Review the dispute resolution clauses, including any requirements for mediation, arbitration, or court jurisdiction.
7. Summarise Obligations
Once you’ve analysed the contract, summarise the obligations of each party. This ensures both parties have a clear understanding of their responsibilities under the agreement.
8. Seek Legal Advice (if necessary)
In the event of uncertainty or complexity, it may be prudent to seek legal advice from your in-house legal team or service. Particularly if there are ambiguous or contested terms that could give rise to disputes.
📝 Social: Cafe Catch-up London
Thank you to everybody who attended this week’s first coffee catch-up in London. The feedback has been fabulous. We will be back again for networking, contract management discussions and pastry.
We will be back again on the 6th November for our next London cafe catch-up. You can register below! On Monday, I will also be sharing all the other meet-ups we have planned across the UK and Europe! It’s a busy run-in until Christmas (I can’t believe I have just said that).
Thanks as ever for reading; if you found it useful, please be sure to share this article with colleagues & subscribe to Closing Contracts!
Have a great weekend! Nearly there!
🌍Matt Tizzard
🌍mtizzard@worldcc.com