Step By Step Guide: How to Create an Effective Contract Clause Library

Imagine working in an organization with multiple departments and teams that regularly enter into contracts with vendors, clients, and partners. Without standardization in areas like clauses and legal language, these departments operate in silos, creating contracts with no uniformity in structure and content.

This fragmentation exposes your organization to a plethora of potential issues, from risks of misunderstandings and legal disputes to non-compliance and missed opportunities.

Alongside delays in drafting processes, reviewing each of these contracts against acceptable provisions to ensure accuracy, clarity, and compliance can be a slow and nerve-racking task for you as an in-house counsel, especially when the organization is onboarding new deals at scale.

To curb this challenge, a contract clause library is your best ally.

Let's discover what a contract clause library entails, why it is a game changer, and how to implement one for maximum productivity.

What is a contract clause library?

A contract clause library is a collection of frequently occurring clauses, pre-drafted, vetted, and approved by the legal team for use in contractual agreements.

The idea behind a contract clause library is to empower legal professionals and teams involved in contracting processes with a resource for incorporating well-drafted language into their legal agreements at scale.

Within a contract clause library, you may find a variety of clauses covering different areas of contractual agreements, including (but not limited to) dispute resolution, intellectual property, force majeure, liability and indemnification, delivery of obligations, and warranties.

So, instead of drafting clauses from scratch every time you build a contract, you can dip into a clause library, find the right provision, insert it into your contract, and move on!

Also Read: How to Use an AI-Powered Clause Library to Your Team's Advantage

What makes a contract clause library a game-changer for legal teams?

Whether you're diving into a fresh contract, navigating negotiations, or updating terms for renewals, a contract clause library is a productivity hack that can make a real difference in your workflow. Here's why:

#1 No need to draft from scratch anymore

A contract clause library means you don't have to start each contract like a blank canvas. You've got a stash of ready-made, prevetted provisions. So, instead of reinventing the wheel, you pick the right parts and progress to the next task.

This saves you a ton of time and energy, allowing you to accomplish more contractual tasks with less physical and mental pressure.

Also read: 5 Most Negotiated Terms and Clauses in a Contract

#2 Legal risks remain at bay

A clause library mitigates legal risks by ensuring that legal and business teams have access to the right guardrail for every part of the contract. Manually drafting clauses for every contract constantly exposes you to risks of oversight errors or misrepresentation of legal language in contracts. 

But by using a robust clause library, every loophole is catered to, keeping you safe from omissions, ambiguities, and disputes.

“Over the past five or so years, one of the key responsibilities businesses are placing on in-house lawyers is spotting and managing risk. The business wants its in-house lawyers to be the ones who sniff through virtually every situation looking for risk (legal or otherwise). What this means is that in-house counsel need to be masters of the company’s business operations and strategy (both short and long term), because you cannot successfully spot and manage risk unless you understand how the company operates and where it wants to go.”

~Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Spotting, Analyzing, and Managing “Risk”

‍Also read: Legal Risk Management: From the Playbook of 11 GCs & Leaders

#3 Knowledge transfer becomes a breeze

With a contract clause library in place, sharing best practices and legal insights among team members becomes seamless.

Instead of sifting through mountains of documents, new team members can refer to the library for approved language and get up to speed faster.

#4 Teams collaborate better

A contract clause library serves as a collaborative hub for legal and non-legal teams. By centralizing approved clauses, everyone involved in the contracting process can work more cohesively. Team members can easily access and share clauses, ensuring everyone is on the same page. 

This collaborative approach enhances communication, minimizes misunderstandings, and promotes a unified and efficient workflow.

Also read: How to Collaborate During Contract Creation With MS Word

#5 Consistency and standardization are achieved

Maintaining consistency across contracts is a challenge when starting from scratch every time. A contract clause library eliminates this challenge by providing a repository of standardized clauses. 

This ensures that similar situations are addressed uniformly, reducing the risk of contradictory language or conflicting provisions.

What makes a robust contract clause library?

The nature of its contract clause library can be the difference between a CLM that offers the bare minimum and one that’s capable of driving real growth for your organization.

An effective clause library goes beyond offering a collection of frequently occurring clauses, incorporating mechanisms for easy access, efficient implementation, and systematic management.

So, what characteristics make a robust contract clause library?

#1 Comprehensive clause coverage

The contract clause library should contain a wide variety of clauses. It should encompass clauses relevant to all your typical contract types (e.g., NDAs, service agreements, purchase orders) and address common legal scenarios like confidentiality, termination, dispute resolution, and intellectual property.

Also, while covering major categories is crucial, offering a range of clauses within each category provides flexibility. For example, under "payment terms," having options for upfront payment, installments, and performance-based payments allows for tailoring contracts to very specific situations.

Also read: The Complete List Of Standard Clauses To Check Before Signing A Contract

#2 Easy access

A robust contract clause library prioritizes user experience by making clauses readily accessible and searchable. This means:

• Clear categorization and tagging: Clauses should be organized logically by contract type, legal topic, or other relevant criteria. This enables users to quickly access the specific clause they need. Additionally, tagging clauses with keywords further enhances searchability, enabling users to find clauses based on specific terms or concepts.

• Search functionality: A powerful search bar is essential for finding clauses based on keywords, phrases, or specific legal concepts. This functionality significantly reduces the time spent browsing the library and improves overall efficiency.

• Filtering tools: Users should be able to filter clauses based on various criteria, such as contract type, applicability, or date of last update. This allows for even more targeted searches and ensures that only relevant clauses are displayed.

• Version control: The library should track and display different versions of each clause, allowing users to see historical changes and identify the most up-to-date version. This ensures consistency and avoids the use of outdated or invalid clauses.

#3 Role-based access control

A robust contract clause library should incorporate role-based access control (RBAC) to ensure that every user can access and utilize the library within the confines of their designated permissions and responsibilities.

For example, there should be “Read-only” access for individuals who need to reference clauses during contract drafting but shouldn't edit their content.

Legal teams and other approved contributors can have edit access since they’re authorized to maintain and refine the library.

For critical clauses or those requiring legal review, the library should have built-in approval workflows. This ensures that only authorized stakeholders can approve the use of specific clauses, adding another layer of control and compliance.

Additionally, the library should maintain audit trails that track all actions taken on clauses, including who accessed them, what changes were made, and when. This enhances transparency and accountability, making identifying potential issues easier.

#4 Scalability

As organizations grow and evolve, so do their contractual needs. A robust contract clause library should be scalable to accommodate an increasing volume of contracts, users, and diverse business scenarios. 

This scalability ensures that the library can adapt to the changing demands of the organization without compromising performance or accessibility. 

Whether it's handling a more extensive user base, incorporating new contract types, or expanding into different markets, the library should be able to scale seamlessly to support the organization's growing needs. 

#5 Seamless integration with the broader CLM ecosystem

The clause library should seamlessly integrate with your existing CLM software. This allows users to easily search and insert clauses directly into contracts within the CLM system during drafting processes.

Industry-leading CLMs like SpotDraft have a robust repository pre-installed as part of our contract lifecycle management ecosystem. At SpotDraft, we understand the importance of a comprehensive clause library and have designed our platform to address all the features mentioned above.

In addition to these, SpotDraft  is also capable of the following:

• AI-driven clause suggestion: VerifAI, SpotDraft's AI contract review tool, intelligently flags potential risk areas within your contracts and suggests clauses you can incorporate, along with the rationale behind each suggestion.

• Automated workflows: SpotDraft offers a variety of automations for various contracting processes, including drafting, approvals, signing, reviews, and more. That way, you can move through the entire contract lifecycle with as little manual processes as possible.

• Real-time collaboration: SpotDraft offers a variety of functionalities that foster efficient collaboration among teams. You can create tasks for team members, leave comments, review changes to documents, control access to your libraries, and much more, all within one robust ecosystem.

“I have seen a demo of SpotDraft’s CLM technology and they should be on your short list of vendors to talk to about a contract management system.

~Sterling Miller, CEO and Senior Counsel for Hilgers Graben PLLC
Ten Things: “Cool Tech” For In-House Counsel (2022 Edition)

How to create an effective clause library

Creating an effective clause library isn't just about saving time and effort. It's about building a consistent and reliable foundation for your contracts. Here's a step-by-step roadmap to guide you:

#1. Gather and review existing clauses

• Scour existing resources:Dive into your organizational repository (past contracts, templates, legal department files) to discover relevant clauses. Be thorough, but remember, quality matters more than quantity.‍
• Scrutinize for accuracy and legality: Run each clause through a rigorous inspection process. Is it accurate, up-to-date, and aligned with your company policies? Does it stand the test of legal soundness? Only clauses that meet these criteria should make it into the library.
• ‍Identify your core building blocks: From the curated pool, select the clauses that are your workhorses – the ones you consistently rely on and that constantly deliver. These form the robust foundation of your library, representing the most valuable and frequently used provisions.

#2. Categorize and structure the compiled clauses

• Categorize for clarity: Organize your clauses into logical categories based on their function, like payment terms, confidentiality, or dispute resolution. This creates a user-friendly navigation system.
• Incorporate subcategories for precision: Consider implementing subcategories within each category for further refinement. For example, under "payment terms," you could have subcategories for different payment structures (e.g., upfront payments, installments) or invoice schedules.
• Assign tags to each clause: Tagging your clauses makes them easily discoverable through searches. However, ensure you don’t overcrowd your library with tags. A few well-chosen tags are more effective than a laundry list. Prioritize the most relevant keywords and functional labels.

#3. Implement access control and approval processes

• Define your roles: Implement a user access system, defining who can view, edit, and approve clauses based on their role and expertise. This ensures proper control and prevents unauthorized modifications.
• Incorporate approval workflows: Implement robust approval processes to ensure that any new clauses or modifications undergo a thorough review by legal, compliance, or relevant stakeholders before integration into the library.
• Set up a mechanism for version tracking and rollbacks: Maintain a detailed version history of each clause. This makes it possible to revert to older versions if needed and track the evolution of your library.

#4. Establish a schedule for updates

“If you think that you're doing everything perfectly, you're not going to grow. There's always an opportunity for self-improvement.”

~ Doug Luftman, ex-DGC, DocuSign
The Key to Success as an In-House Legal Counsel & Leader

• Conduct periodic reviews: Don't let your library gather dust. Set up recurring reviews—quarterly, biannually, or annually, depending on your needs—to assess the relevance of your clauses. Evaluate them against any legal changes, industry best practices, or evolving organizational policies.
• Be proactive with triggers: You don’t have to religiously wait for scheduled reviews to initiate updates. Events like changes in legislation, industry best practices, or internal company policies should prompt an immediate review of relevant clauses.

#5. Track usage and impact

• Monitor individual clause performance: Track which clauses are used most frequently and identify any underutilized or problematic ones. Collect feedback from relevant users to understand their experience with the library.
• Quantify the benefits: Analyze how the library impacts contract drafting time, consistency, compliance, and risk management. This data helps you understand its value and justify further investment.

We understand that creating an effective contract clause library can take significant time and energy. For many busy professionals, this can be enough reason to procrastinate.

But instead of pushing this down your calendar and exposing your organization to slow workflows and potential legal complications, you can collaborate with an external team of trusted legal experts to build your contract clause library from start to finish.

Lex is a service by SpotDraft that gives you on-demand access to a team of legal experts ready to tackle your routine legal tasks from end to end. This includes contract creation and negotiation, CLM advisory and implementation, process consulting, and more.

That way, you can cut down on the messy work while focusing on more strategic and value-driven aspects of your team’s responsibilities.

You can book a free consultation here.

Wrapping up

A robust contract clause library is, without a doubt, one of the most instrumental tools every contract-facing professional can have. It boosts the efficiency of drafting processes, fosters adequate knowledge transfer, ensures consistency of legal language, and encourages innovation. 

However, it is important to note that creating an effective clause library is a marathon, not a sprint. It takes in-depth analysis, effective collaboration with legal and business teams, as well as consistent improvement over time.

If you need help with building a contract clause library that can supercharge productivity for your organization, Lex by SpotDraft is just a click away! 

Ready for a free consultation? Click here to begin.