Legacy contracts often fall short in addressing the complexities and challenges of the modern business landscape. They lack provisions to adequately address issues related to data protection and cybersecurity, leaving parties vulnerable to potential risks and disputes.
To overcome the inadequacy of legacy contracts, you need to review and update existing agreements to align them with current legal requirements, industry practices, and technological advancements.
Or you could simply modernize your existing contracts with a CLM platform and save time and money!
In this post, we will delve into the strategies for successfully adopting modern contractual practices to eliminate the risks and inefficiency associated with legacy contracts.
What is a legacy contract?
A legacy contract refers to a contractual agreement that was created and executed long in the past but remains in effect or is still being used in the present.
These contracts may have been drafted and signed years or even decades ago, often before the advent of modern technologies, changing legal requirements, and evolving business practices.
Why legacy contracts are no longer effective in the modern business landscape
The inadequacy of legacy contracts can be attributed to several factors, including rigid structures, the inability to address emerging legal and regulatory frameworks and restrictive provisions such as non-compete clauses or exclusivity agreements. Moreover, finding the contract you need from a pile of legacy contracts is another challenging feat.
#1 No flexibility and adaptability to changing circumstances
Legacy contracts are often rigidly structured, with fixed terms and conditions that do not allow for modifications or adjustments as circumstances change.
This discrepancy can lead to misunderstandings, disputes, and costly litigation between parties involved in the contract. Inconsistent or ambiguous language in legacy contracts may also create loopholes or gaps in contractual obligations, making it difficult to enforce or interpret the agreement.
The lack of flexibility in legacy contracts can hinder organizations from seizing new opportunities, responding to emerging risks, or adapting to unforeseen challenges.
Modernizing contracts with a CLM platform enables parties to modify terms, adjust deliverables, and adapt to unexpected changes without derailing the entire agreement. This flexibility allows businesses to seize new opportunities, respond to market shifts, and navigate evolving customer demands more efficiently.
#2 Inability to address emerging legal and regulatory frameworks
Legal and regulatory landscapes continuously evolve, introducing new laws, standards, and compliance requirements. Legacy contracts may not adequately account for these changes, leaving organizations exposed to legal risks and non-compliance.
By failing to incorporate emerging legal and regulatory frameworks, legacy contracts can become outdated and insufficient in protecting the rights and interests of parties involved, causing financial losses and reputational damage, not to mention legal repercussions.
On the other hand, modern contracts can include clauses and provisions that explicitly consider evolving legal frameworks, industry standards, and compliance obligations. By doing so, you can reduce legal uncertainties and create a more secure operating environment.
#3 Impossible to locate clauses and provisions
Looking for the legacy contract you need is a herculean task itself. But then, looking for specific information and valuable data inside those contracts acts as a cherry on the cake.
There are no standardized formats, and the contracts are lousily organized, resulting in time-consuming manual review to locate relevant information, which, in turn, leads to inefficiencies and delays.
Plus, incomplete or inaccurate indexing makes it difficult to identify and retrieve specific contract terms or obligations. This lack of reliable indexing further exacerbates the difficulties in locating relevant information within legacy contracts.
CLM solutions alleviate these challenges by offering advanced search functionalities, standardized formats, and automated indexing capabilities, enabling you to efficiently locate and retrieve specific contract information.
#4 Difficulty in incorporating evolving business models and practices
Legacy contracts often contain restrictive provisions, such as non-compete clauses or exclusivity agreements, which can impede innovation and collaboration with other entities. These provisions may limit the ability of organizations to enter into strategic partnerships, explore new markets, or leverage emerging technologies.
Modern contracts can incorporate provisions that encourage innovation, intellectual property sharing, and collaborative efforts, enabling businesses to embark on joint ventures, strategic alliances, and partnerships with greater ease and confidence.
#5 No structural metadata about key contract elements
Legacy contracts often lack structured metadata, such as key dates, parties involved, contract types, or contract renewal terms. This can lead to oversight, missed deadlines, and potential breaches of contract terms.
Without consistent metadata, you cannot track contract obligations, monitor milestones, or generate accurate reports when you need them!
Manually updating and maintaining metadata across numerous legacy contracts is not only time-consuming but is also error-prone. Plus, this diverts your focus from more strategic activities.
CLM solutions provide a centralized repository with standardized metadata fields, ensuring consistency and easy access to vital contract information.
#6 Lack of insight into contract versions
Legacy agreements often lack comprehensive visibility into contract versions, leading to misinterpretations, disputes, or missed opportunities. Limited access to contract history and revisions makes it difficult to track changes or understand the context behind specific provisions.
That’s why you need to migrate your legacy contracts to a CLM system that can track version control and facilitate collaborative review and approval processes, ensuring that stakeholders have access to the most up-to-date contract terms.
“Another problem we face in contract management is version control - different departments may be using old templates and rolling contracts out manually. We want to implement a CLM solution to have better visibility into our contract pipeline, especially when our business is scaling in different countries.”
— Juliette Thirsk, Head of Legal at Peach Payments
Streamlining Legal at a FinTech Startup
Also read: How to Ensure Contract Version Control
3 Strategies for upgrading contractual practices
In order to overcome the limitations of legacy contracts and adapt to the dynamic business landscape, you need to adopt strategies for upgrading your contractual practices. These strategies focus on enhancing efficiency, flexibility, and adaptability in contract management processes.
#1 Conducting a comprehensive contract audit and analysis
Start by conducting a comprehensive contract audit and analysis. This involves a thorough review of existing contracts to identify areas that require improvement or updating.
- Review contract portfolio: Evaluate the entire contract portfolio to gain an understanding of the types of contracts, their terms, and their current relevance to the organization's objectives
- Identify outdated clauses and terms: Identify clauses and terms in contracts that are outdated, ambiguous, or no longer aligned with current legal requirements or industry practices
- Assess risks and compliance: Analyze contracts to assess potential risks and ensure compliance with evolving legal and regulatory frameworks
- Identify opportunities for standardization: Look for opportunities to standardize contract templates, language, and terms to improve consistency and efficiency in contract management
- Prioritize contracts for updating: Prioritize contracts based on their importance, potential risks, and strategic value to the organization
#2 Implementing agile contract frameworks to facilitate flexibility and adaptability
Legacy contracts often lack the necessary flexibility to accommodate changing business circumstances and evolving industry practices. Implementing agile contract frameworks can address these limitations.
- Modular contract design: Instead of relying on monolithic contracts, break down contracts into modular components or standalone clauses. This will enable you to easily update and replace specific clauses or provisions as needed, without requiring a complete renegotiation of the entire contract
- Scalable and adaptable terms: Incorporate flexible and scalable terms in contracts that can accommodate changing business needs, such as price adjustments, volume variations, or scope modifications. This allows contracts to adapt to evolving market conditions or business requirements
- Collaboration and negotiation platforms: Utilize digital collaboration and negotiation platforms to facilitate real-time communication and collaboration between parties involved in contract negotiations. These platforms enable faster decision-making, reduce communication delays, and promote efficient contract negotiations
#3 Utilizing technology and automation to streamline contract management
By leveraging technology and automation, you can streamline contract management, improve efficiency, reduce manual errors, and enhance overall contract performance. There are many tools you can use to digitize your contracting process.
a. Electronic document management
Transition from paper-based contracts to electronic document management systems. Digital contract repositories allow for easier search, retrieval, and sharing of contract documents, reducing manual effort and improving efficiency.
b. Reminder software and extensions
Contract reminder software can ensure that you stay ahead of your deadlines for renewals, approvals, or terminations of contracts. You can choose from Spreadsheets, Kanban Boards, Calendar apps, and more to set contract reminders for free.
c. CLM software
Implement a CLM solution to centralize contract storage, streamline contract creation and approval workflows, and improve visibility and access to contract information.
CLM systems provide features such as contract templates, automated reminders, contract version control, and electronic signatures, facilitating efficient contract management throughout the contract lifecycle.
"You can also leverage the AI-powered contract analytics CLM feature to extract valuable insights from contracts, identify patterns, and analyze risks.
These insights can help the legal team identify gaps in the system and work toward improving workflows and building solutions that would increase efficiency."
— Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
A robust CLM solution can automate the review process, flagging critical clauses, and helping organizations make informed decisions based on contract data. Moreover, you can automate repetitive tasks and workflows, such as contract approval processes or notifications for contract renewal or expiration dates.
Overcoming challenges and resistance to modernize legacy contracts
Modernizing legacy contracts can encounter challenges and resistance from various stakeholders within an organization. Here’s how you can ensure a smooth transition and successful adoption of modern contractual practices.
#1 Executive sponsorship and leadership support for successful adoption
Obtaining strong executive sponsorship and leadership support is vital for successful adoption of modern contractual practices. Leaders should articulate the vision and benefits of modernization, actively champion the initiative, and address any resistance or concerns that arise.
Here’s a free guide to making a case for modernizing your contracts with a CLM tool.
#2 Stakeholder engagement and involvement to foster ownership
Engaging key stakeholders throughout the modernization process is crucial for fostering buy-in and ownership. Involve representatives from legal, procurement, operations, and other relevant departments to ensure their perspectives are considered and to leverage their expertise. Solicit feedback, address concerns, and incorporate their input into the modernization strategy.
#3 Training and knowledge transfer for better understanding
“User acceptance is primarily the process to ensure the technology is presented – and works – in a way that people will use it, along with the training program on how to use the tool.”
— Sterling Miller, CEO of Hilgers Graben PLLC
Ten Things: Buying and Implementing Legal Tech
Provide comprehensive training and knowledge transfer programs to equip stakeholders with the necessary skills and understanding of modern contractual practices. This includes training on new contract management tools, processes, and methodologies. Offering ongoing support and resources can facilitate the adoption of new practices and technologies.
“As you start the process of implementation, consider developing a handful of “super users.” These are people you will train extensively on how to use the product with the plan that they will become champions of the new tool and encourage others to use it (and can answer questions and teach other users). Having a group of people who are excited about a new tool – including the GC – will drive adoption throughout the organization.”
— Sterling Miller, CEO of Hilgers Graben PLLC
Ten Things: Buying and Implementing Legal Tech
#4 Pilot programs and phased implementation to minimize disruption
Implementing modern contractual practices through pilot programs or phased implementation allows for testing, refinement, and learning from initial experiences. This approach minimizes disruption and allows stakeholders to gradually adapt to the changes, increasing the likelihood of successful adoption.
#5 Continuous improvement and feedback loops for insights and suggestions
Establish mechanisms for gathering feedback and continuously improving the modernized contractual practices. Encourage stakeholders to provide input, suggestions, and insights to refine and enhance the processes. Regularly assess the effectiveness of the modernization efforts and make adjustments as needed to ensure long-term success.
How does SpotDraft help modernize legacy contracts?
SpotDraft is a leading CLM platform that offers innovative solutions to help in-house legal teams modernize and streamline their legacy contracts.
By leveraging AI and machine learning, SpotDraft addresses the challenges associated with legacy contracts and facilitates their transformation into agile, efficient, and adaptable agreements.
#1 Contract analysis and review
SpotDraft's AI-powered contract analysis capabilities enable organizations to efficiently review and analyze their legacy contracts. The platform can automatically extract key terms, clauses, and obligations from the contracts, saving significant time and effort compared to manual review processes.
With SpotDraft's contract analysis features, you can quickly identify outdated or non-compliant clauses, ambiguous language, or missing provisions that need to be addressed during the modernization process.
#2 Contract automation and standardization
“SpotDraft allows any template with minor variations to be standardised with dropdowns wherein we get to choose when each variation is required to be inputted into the final template. Therefore, instead of creating multiple templates, we can have multiple variations inside one template and utilise the other templates for other types of templates.”
— Client Review on G2
SpotDraft enables the automation and standardization of contract creation and management processes. The platform offers customizable contract templates and clauses that can be tailored to align with current legal requirements and industry best practices.
#3 Collaboration and workflow management
“The reviewing of contracts with a proper version history and segregation of comments has been provided. Sending multiple email and losing a track of the last edits is being solved.”
— Surbhi G.,
Client Review on G2
SpotDraft provides collaboration features that streamline the contract review and approval workflow. Users can easily share contract drafts, track changes, and collaborate with internal and external stakeholders in real-time. This fosters effective communication and ensures smooth contract negotiation and execution, minimizing delays and bottlenecks.
#4 Data-driven insights and analytics
SpotDraft's analytics capabilities leverage AI algorithms to provide data-driven insights from contract data. Organizations can gain valuable insights into contract performance, identify trends, track key milestones, and monitor compliance with contractual obligations. These insights enable informed decision-making, risk mitigation, and optimization of contract management processes.
#5 Enhanced visibility and accessibility
“The key term extraction and a centralized repository for all of our contracts have made our contract tracking easier and hassle-free. The user interface is intuitive and user-friendly, allowing business users or collaborators to easily navigate through the platform and find the information needed.”
— Client Review on G2
SpotDraft provides a centralized repository for all contracts, making it easy to access, search, and retrieve contract documents. This improves visibility and accessibility, eliminating the challenges posed by physical or scattered document storage.
SpotDraft's intuitive user interface and powerful search capabilities allow users to locate specific contract terms, provisions, or clauses with ease, significantly enhancing efficiency in contract management.
Also read: The Basics of Contract Management Software
Take a leap from rigidity to adaptability; modernize legacy contracts
The inadequacy of legacy contracts in addressing the complexities of the modern business landscape is undeniable. They lack flexibility, fail to address emerging legal and regulatory frameworks, make it difficult to locate relevant information, impede innovation and collaboration, lack structured metadata, and provide limited visibility into contract versions.
However, by adopting modern contractual practices and leveraging technology, organizations can overcome these challenges and modernize their contracts effectively.
The modernization of contracts with SpotDraft not only saves time and money but also enables you to adapt to changing circumstances, seize new opportunities, and foster innovation and collaboration in today's dynamic business landscape.
Want to learn more? Request a demo!