On today’s episode Brad Wires from the Malbek Sales team chats with Pepe Toriello, Founder and CEO of Red de Firmas, about how to make the contract management process more efficient. Beginning with the most common problems, Pepe breaks down the contracting cycle and explains what pitfalls can occur at each step. Using examples from his experience as a legal consultant, he then explains how knowing your process and what you want from it is the important first step in creating efficiency. He highlights CLM features, like strong search functionality and AI as a springboard, as among the best ways to streamline the approval process. There are more than just approvals to make more efficient though, so he also shares which KPIs are important to pay attention to for monitoring efficiency and what insights they can bring about your contract process as a whole. So grab a glass of wine, and let's talk contracts!
Intro:
Welcome to the Contract Lens podcast brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders and practitioners about everything contracts and its ecosystem. On today's episode, we discuss how to make contract management more efficient. Joining us for this conversation is Pepe Toriello, founder and CEO of Red de Firmas, which helps legal departments and law firms transform their operations from paper to digital, to achieve efficiency gains. Pepe co-hosts the Contract Heroes podcast, as well as his own podcast, RDF Outlook. He is passionate about helping lawyers figure out how to work better and faster using the right software tools. So now it's time to relax, grab a glass of wine, and let's talk contracts.
Brad:
Hi, Pepe. Good afternoon, how are you?
Pepe:
Doing great, Brad. Thanks for having me here.
Brad:
Thank you so much for taking time to join our podcast today. I'm really looking forward to our conversation. Today, we're going to focus on really how to make the CLM or the contract lifecycle management process more efficient. And taking a look at not necessarily platform-wise, but really just the process of internal contract movement throughout its life cycle at an organization. I know that you're very well versed on this and I'm looking forward to your input on it.
Pepe:
Sure. Well, there are a lot of things that you have to take into consideration before moving into a CLM system, right? Because I think one of the most common errors made by corporation that wants to automate their processes is that they don't have their processes in place. What I mean is that the technology, some of the times is not the solution, but it's a way on how you can make all your processes work faster.
Pepe:
So, one of the first things, and I would say one of the biggest pitfalls for not successful implementation of a CLM, is when a company has not a defined process of the contract management. And, the whole process, as many of you may know, is that its different stages from the contract request, negotiation, signature, and then what happens, post signature. Right? So it is very important to have all of those processes well defined. What kind of information are you going to ask for all your internal clients? Which templates? Of course, that's another special thing because that's an order of the tools that are provided by most of the CLM platforms and you've got to have all your templates in place.
Pepe:
And usually that's another common problem that happens during an implementation is that they send the contract templates to the implementer and then they need to make changes. And then they make to edit this document and what happens is that if the templates were already uploading into the platform, then maybe the implementation is going to take more time and more money because you have to do and redo all the configurations that you already did with the previous template. So, there's a lot of things that we can talk about here. I don't know, Brad, if you want to go in any example in specific and I can share with you some stories.
Brad:
No, that's fantastic. Thank you, Pepe. And I think you're spot on. Really, if you look at the contract management life cycle and process as an organization, maybe they don't have any type of platform at this point and ask them question internally to say, "Well, how can we make this more efficient? How can we streamline it?" Right? Well, I think definitely a good contender would say, "Well, there's a lot of vendors out there that provide technology to be able to do this, to really set this up into the next level." So let's just kind of walk through that life cycle that you mentioned. And I'd like to start at the drafting stage, right? So, at the very beginning, right, as they say, it's a very fine place to start, but how do we really get our drafting or the creation of those contracts or maybe through templates, which you mentioned, how do we do that and what would we focus on?
Pepe:
Well, I got to say there are a lot of things that you got to take into consideration on the drafting of the contracts. First, the one that I told you is that you got to have the final versions of the templates when the implementation is going to start so you don't need to reconfigure all those templates inside the platform.
Pepe:
Then secondly, okay, you need to draft a template, right? So if you're inside an organization, let's say a big corporation and how it usually works is that any department, they call them internal clients in most of the cases, they need to submit a contract request, right? And depending on the type of contracts that they need, the legal team to draft is the information that they usually ask in order to draft that information. So it is also important to know which kind of information, contract requests need to provide to the contract team in order to draft the first version of the contract.
Pepe:
And this is also very important because, some of the times, how it works with companies that are used to do these manually is that they only send an email, right? Let's say you're their lawyer, Brad, "Hey, Brad. I need an NDA or I need a service agreement for this company." Okay. I will need the complete name of the company. I don't know, any kind of tax ID or any kind of information that is usually requested in order to draft that contract. So you get to know all these very important details, so that the whole process that started with the contract drafting could be more efficient and more streamlined, right? Because otherwise, if you didn't have a well-defined process, you are going to automate the process that is broken. And you don't want that, because if you do that, you are not going to be able to see all the benefits of using automation tools. And I think there can be a lot of examples of what can happens during the drafting of the contracts, but I would say that one of the most common ones.
Brad:
Oh, a hundred percent. And I agree, you're right. If you don't draft an accurate contract, you're not going to be able to locate it later in the system. And speaking of that, I know a lot of platforms out there are really focused on streamlining that has searching capability. Right? Kind of taking it to the kind of a commercial level. A lot of us... Okay, I'm guilty. I'm holding my hand up here.
Brad:
I like to shop on Amazon. I really do. I go to Best Buy and not that I buy them, but I like to look at the TVs. I like TV. I like to watch sports. And a lot of technology is out there. And one of the great ways to do that is to use filters, right, with content searching. So I have a big bucket list to shop on Amazon. Here's a thousand things. Now I only have 500 things and I use another filter and now I only have a hundred things, and that really helps. What are some of keys, maybe for some of these vendors that are working on CLMs today, or somebody that you looking at one, what should they be looking for in a search engine, in a CLS?
Pepe:
Search engines usually work like... Well, let's say the most powerful ones are the main search bar that is usually located on the home screen on any CLM platform. Usually these are powerful search tools, because you can even dig inside the contract content. Not only on the name of the contract, or the name of the vendor, or any kind of metadata that you are tracking inside your platform, you can go inside the contracts by using OCR tools. Let's say, if you want to look for, I don't know, maybe some wording of clause or any kind of information related to data privacy, or GDPR, or whatever, corruption, anti-corruption clauses, anything that you will like to look inside a contract, if a good search tool will be able to go inside the contracts.
Pepe:
Now, talking about the filters, why is that important? Because it's, most of the time, let's say, a big corporation, they usually get audit because they are a public company or because any vendor or client, they're asking them about some kind of information or maybe they are acquired by another company. Right? So it is very useful when you have this data inside the platform. Let's say one thing that you have to take into consideration regarding how you save a contract inside a CLM platform is that, there's a contract record where you can save all, let's say metadata or information for each of the contracts. So you don't have to open the PDF files and go clause by clause to see the commercial terms, or numbers, or whatever. And inside those contract records, you have the word documents or the PDF document.
Pepe:
So what happens is that in the contract records, when you have this information well detailed, then you can filter that information. Let's say, you can have in your contract record the vendor name, the term of the agreement, when dates of expiration, amounts, geography. So whenever you want to know, okay, how many clients, or how many vendors am I working with in the State of Florida versus how many vendors do I have in Georgia, or in Mexico, or whatever, right? So this kind of information will be like really useful. So anybody inside the contract team or internal clients can just go a little bit deeper and extract that information and then just download it and send it to the auditor. So that's some of the useful tools that you can use with a good search engine.
Brad:
That would really be paramount. If I was out there looking to streamline, my processes, and really get faster things. Once things are stored, a good orderly process and a great way to, that's very robust and how to find things, that really be at the top of my list. And I know also at some organizations where I've worked and I've been in sales for a long time. And for me, it's, once you get through the sales cycle, and now you're down to the part where you've actually been selected as the vendor of choice, time to get that order form out, and maybe the MSA. It's trying to them to get approvals internally, right? You need to get that document generated, you'd need to get things through the process, and that's really frustrating. How can a CLM platform really help an organization to streamline those approvals through that process?
Pepe:
I would say there are two ways. The first one is that you can build workflows for approval processes. Let's say, if you're in the sales department, right? Maybe in case that this agreement or this sale is over $10 million and for every $10 million commercial agreement or a both, you need the approval by the financial department, or by the CFO, or by the general counsel, or whatever. When people do that manually, what happens is that, well, I mean the most basic ways, they just print it and then just try to find where is the person that needs to sign that contract, and maybe they're on vacations, or maybe they left because they have a meeting somewhere else. So that can be a really bad bottleneck for any kind of process.
Pepe:
So when you build this kind of workflow approvals inside of CLM platform, what it's going to happen is that whenever any kind of approval are required, approval is triggered. If we have this streamlined inside a CLM platform, then the people that needs to approve that document or that commercial agreement will receive an email with a link so they can go inside the platform and approve it. So you can send it for signature or maybe to, just to start with the negotiations, or maybe in case that the sales team needs to offer larger credit, right? They also need an approval. So these kind of triggers can be streamlining inside a CLM platforms. So the people that have to approve, it's easier for them just to receive that. So you don't need somebody in the middle to send a document for approval.
Pepe:
Now, the other way that can be done, I would say that there's a trend in the market that is, that for a certain kind of agreements that even if you're on the sales side or in the buy side, let's say for in the procurement department, is that there are certain kinds of agreements that let's say, if you're in a bigger corporations, you don't have, you cannot move even a comma, or a dot, or a word, or anything. So it would be easier.
Pepe:
Let's say for any agreement that is under $10,000. So it is easier for the people in sales or any procurement just to draft the contract by themselves and send it for signature because you don't need the approval for the legal department, let's say for an NDA, right? Or any kind of very, let's say, fast contracts or documents, or however you want to call it, because that would free you a lot of time, you don't need that kind of approvals by anybody else for a certain kind of agreements. And if you provide a tool that can help them to do that into a self-service tool, then you will close the deal faster. You will free up space from the legal team and also from people inside the sales team that will, of course transform into savings of money.
Brad:
There's a big buzz word these days in contracts, and that is artificial intelligence, right? AI. So, and we're seeing it a lot in many, many different software applications, the Google, I think uses it and kind of behind the scenes, but in some CLMs, we're seeing it really being leveraged. How, in your opinion, can AI really help with streamlining the processes with in regards to efficiency, making those more and more efficient?
Pepe:
Well, there can be a lot of ways. There is a thing that you got to take into consideration that artificial intelligence is not smart by itself. You'll get to train it and a way that can be trained artificial intelligence tool is by a view upload, let's say tens of thousands of document inside that platform, and you have any kind of tool that is able to recognize different kinds of clauses, termination clauses, credits, liability, limitations, or these kind of clauses that can represent a higher risk for the company. You can use those kind of tools so you can search for those kind of clauses inside those thousands of documents. Something that will take you maybe years, if you try to do that manually. So as a lawyer, I got to say, and also talking with a lot of colleagues, the artificial intelligence, of course, it's going to help us in a lot of ways because it will help us to work faster, but maybe there are going to be some kind of things that we cannot just let the machine to do them by themselves.
Pepe:
Let's say, I think it's going to take a lot of time to let a suffering artificial intelligence decide whether a contract is ready for signature or not, because what happens, what can happen if there's a clause that might represent a higher risk to the company. If the artificial intelligence was not trained properly, of course the one that is going to be held liable is going to be the lawyer or the company. And you don't want that. But if you use artificial intelligence to let's say for searching clauses, or maybe when you want to upload, let's say legacy documents with platform, we already have 500,000 documents that we wish to import to the system. Okay. But which kind of metadata would you like to get to track? Okay. I want the amount of the contract, the name of the parties, I want the term of the agreement, whatever, if you want to include those kind of data inside the platform manually, it will take you a lot of time.
Pepe:
So also there are, some other artificial intelligence tool that can do that metadata extraction, which can help you to get that data in your screen. Because what happens a lot is that once the contracts are assigned, they just go to archives or in governance, and then you, they never opened them unless there's litigation or some kind of disagreement with the counter party. Using the CLM, you can take, and use, and analyze that data for any kind of purpose that you want such as reports, notification, et cetera.
Brad:
Yeah. Incredible. The use of AI can really, like you said, it could, depending on how many contracts you have in the system, it could take you years to go through them, right? To understand what potential risks that you might be having in your contracts. And the only way to make it more efficient would be the use of that AIP. A lot of people to, Pepe, you are talking about KPI and how it relates to contract management throughout that life cycle. Can you expand on that a little bit?
Pepe:
That's got to be from organization to organization because I mean, every company have their different KPIs. I would say, one of the most common ones or maybe they don't, right? If they didn't have a system in place or a process, they only, maybe they only need that any kind of contract request must be answered before 48 hours. That's a pretty basic ones, but it's one of the, one that is mostly used by a lot of companies. There are some others, let's say turnover time, which is very similar to this. And you can use CLM platforms to track this kind of time. Let me give you an example, the turnover time, right? This is very important, that maybe, because maybe this way you're going to, that's reminded the bonuses or any kind of incentive that you were giving either to your contract managers or to the internal clients.
Pepe:
But there are some times, this time, it doesn't depend entirely by the contract team or by the contract owner of that agreement. For example, let's say the contract manager received a contract request today, right? And they draft the contract and send it to the internal client tomorrow. And the internal client send it for review to the vendor that they're working on. What happens if the vendor doesn't answer in a week? Okay. If you'd have a system that is able to know who is in charge of the contract, in which time, that time will be computed inside the contract manager, and that's not fair. So you get to know, when are you going and how are you going to track that time? And also, let's say for signature, sometimes if you send a document for signatures, maybe you will sign it the same day, but the vendor takes two weeks.
Pepe:
So most of the time, how you track this time is like, it start when you receive the contract request and when you send it for signature and take the time that is not with your hands and stop it when you send it for signature, because it doesn't depend on the contract managers if it takes longer than they thought so. What other KPIs, let's say, if you have a CLM platform that is able to integrate with all other platform, let's say ERP, right? If you want it to integrate it with SAP, Oracle, Microsoft Dynamics, or whatever, and these ERPs are usually the platforms that issues the purchase orders or the invoices for each of the purchase orders. If you have a contract that is when you sign it, it says that you were going to sell a hundred million dollars for a certain kind of products. Whenever you get paid for any kind of invoice that you are issuing, of course, the value of the contract is decreasing because you're already getting the money or paying that money depending if you are in the seller or in the buyer side.
Pepe:
You want to know how much that contract is valued today, because these can also give you a little bit of leverage whenever you want to negotiate. Let's say that the vendor is not compliant with the deliveries or any kind of situation. And let's say that the contract was $10 million. If there's still $9 million that in place, of course, you're going to have more leverage to tell them, "Hey, you already, you haven't complied with your obligations and we have this termination clause." So just take that into consideration, it's not a threat, but you get a deliver better. I mean, there's a lot of other things like the example that I gave you, like how many sales are doing per states, there are a lot of reports and one of the funny things, I would say that most of the contract management teams, they still don't know what kind of information they would like to have as KPIs or just metrics. Do you have some reports?
Pepe:
So most of the times the implementers or the vendors of these kind of platforms have to tell them what kind of information they can keep an eye on with these kind of tools.
Brad:
You're right about that. And people, they don't know what they don't know. Right? So a talented implementer is going to be able to shed out those best practices and get them set up on the right path. So last question for me this afternoon, I know compliance is, obviously we're talking contracts here, and contracts lead us to be compliant and stay compliant. Is there an advantage to having some type of automation or a system in place and would it help an organization be more efficient to have something like that from a compliance perspective?
Pepe:
Okay. So I got to do a disclaimer right now because I'm not a compliance expert. So I may not give you a lot of examples, but yes, you can do that. Let's say we had a client that we help them with some tax compliance matters, right? So what these guys need was that they request to their vendors to upload some kind of tax documents that they need to have in place. Because some of the times when they receive an audit by the tax authorities, you got to have all these documents for all your service providers. So what happened is that you can make these automations and telling them, okay, your vendors have to upload these kind of documents every certain time. So whenever that time expires, they will receive a notification telling them that they got to upload that kind of documents so they can get paid.
Pepe:
That's a way on how you can make them comply with their obligations, right? Especially if you put them inside a contract. And now, some other compliance things that you can do is, especially for public companies that, all the Sarbanes-Oxley regulations that you need to do a lot of reports whenever some kind of triggers happen. So if you have, let's say the templates of the reports that you need to file, and those templates, you don't have to change that much information. And you can get that data that you need from your contract records or from inside a CLM. That's the way how you can help your compliance team to send all that information and avoid fines.
Pepe:
So the imagination is the limit, or sky's the limit. So, you can do a lot of stuff. So the only thing that you got to do as I told you at the beginning, it's, you got to know your processes. You got to know your times, who is in charge of delivering those kinds of reports, who needs to sign them. So if you have all that in place, that's half of the time that you would need into an implementation to be successful.
Brad:
It's always good to have a plan, right Pepe?
Pepe:
Of course, you can do it.
Brad:
Absolutely, hundred percent. Pepe, thank you so much for joining me today. And in our conversation, I think you did a great job and really covering how to make the contract lifecycle management more efficient in an organization. I think we can both agree that automation is a great option to do that. And also, I know that before we wrap up here, I know that you are very active in the industry organizations, can you give us a little bit of information on kind of what you're currently doing, what you're up to and how folks can get in touch with you?
Pepe:
Sure. So I have our technology consulting company for legal teams, either law firms or internal in-house companies. And we are based in Mexico City, it's called Red de Firmas, and we are also very active on LinkedIn. I'm also council member of the World Commerce & Contracting, so we discuss these kind of topics a lot of the times. So I think that the best way to get in touch with me is by LinkedIn, so you can look for me at Pepe Toriello. So, I will spell it for you. It's P-E-P-E then T-O-R-I-E double L-O. And please send me a text whenever you need any kind of help and I'll be glad to help.
Brad:
Well, absolutely. Well, I, for one learned a whole lot today. Thank you again. And you'll be seeing a connect message on LinkedIn from me very soon.
Pepe:
Thanks. See you, Brad.
Brad:
Have a great day. Take care.
Pepe:
You too.