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These days, clause libraries are all the rage in the world of contract automation, both among vendors as well as in law firms and legal departments. In their Automation Report, Capgemini and IACCM explicitly acknowledge this evolution, stating in relation to contract drafting software that “[…] more advanced systems on the market are doing more with contract clauses and are moving away from simply drafting a contract or filling out a template. They are getting into what many call “contract building”, which is the assembly of a contract, or contract document such as an SOW or project letter, etc.” One of the primary features on which Capgemini and IACCM compare software offering contract drafting functionalities is the existence of a clause library. [1]

Below, we take a look at the kinds of clause libraries out there and how your organisation can start using them.

Clause libraries: the what and the why

Clause libraries are repositories filled with standardised template clauses that have been pre-constructed and pre-approved (typically by general counsels in the legal department of a company and by partners in a law firm). Clause libraries typically also boast a wide range of additional features that can be built on top of this repository functionality, like version control, metadata, access rights and workflow approval, etc.

The benefits of clause libraries are numerous:

  • Save time. Reduce time spent manually searching for a clause and then copying and pasting that clause into a contract. Intelligent clauses can furthermore limit or outright eliminate time spent “cleaning up” a clause to be consistent with the rest of the contract in which it is being inserted.
  • Reduce risk. Non-standardised contract drafting is a lot more susceptible to drafting errors.
  • Optimize performance. Facilitate onboarding of new colleagues, improve knowledge management and deployment, and send a uniform and consistent image to clients and business partners on the look, feel and content of your contracts.

There are essentially two ways in which clause libraries manifest:

1. Home-made clause libraries

Since the main distinguishing factor of clause libraries is the repository component, which is very simple to recreate with off-the-shelf software, many organisations are already experimenting with creating their own clause libraries without the help of existing, specialised products.

Clauses in home-made clause libraries can – for example – be created by inserting separate clauses in short Microsoft Word files and structuring them using Windows Explorer in a shared drive, a PDF document that allows you to click through the relevant folders and files, or via popular enterprise file management tools like Sharepoint.

2. Software packages offering clause library functionalities

Specialised software offering clause library functionalities tend to offer much more sophisticated functionalities than simple storage in a repository.

One of the major challenges in using a clause library is finding the right content for the right project. Home-made clause libraries that work with Windows Explorer or Sharepoint obviously offer the search functionalities native to those programs, but they are not built for the task of contract creation. Attaching tags, categories, attributes, and other metadata that can help sort through legal domain, length, formality, obligation balance, etc. is therefore a significant advantage specialised software has on home-made clause libraries.

Other popular features of these clause libraries deal with its users and how they interact with the clauses.

  • Central storage. This allows any changes made to a clause to ripple through all the contracts that make use of that clause without manually updating each contract. This helps lawyers avoid the possibility of users inserting clauses that no longer comply with prevailing law or company policy.
  • Access rights. You may want to restrict certain users from using specific clauses, either because they should only be used by experts in the their particular domain or because you want to hide clauses from users who have no need of them, thus making it easier for them to find the right clause (e.g.: lawyers drafting finance-related agreements seldom have need for employment law clauses).

How clause libraries should streamline the drafting process itself

Where a clause library system can truly differentiate itself is in how it helps users insert clauses into a contract that is being created. Two approaches can be discerned. It should be noted that home-made clause libraries, unsurprisingly, tend to offer little in the way of either approach.

Streamlining layout – Clause libraries should be structured in such a way as to streamline the insertion of a clause into a contract and limit the amount of “clean-up work” a lawyer has to engage in as much as possible. One obvious way to automate this clean-up work is to have the styling of the document in which a clause is being inserted (which includes such things as font, font size, numbering and heading styles, indentation, paragraph spacing,…) immediately applied to that clause.

Streamlining content – A less obvious way in which clause libraries can assist in the creation of a contract is by also immediately streamlining such things as terminology and grammar. For example, say you insert a clause from your clause library into a contract that identifies the parties as “Supplier” and “Customer”. However, the clause itself assumes the parties are identified as “Service Provider” and “Client”, respectively. The terminology that should be adopted by that clause is the terminology used by the rest of the contract in which it is inserted. Rearranging this terminology and grammar takes additional lawyer time and review. The most robust clause libraries will be able work with intelligence embedded in its clauses to automatically adjust the terminology used by the clause to fit the choices made in the contract.

ClauseBase offers a clause library that features all of the most powerful functionalities set out above.

Want to know more about clause libraries? Check out the ultimate guide here!

[1] https://s3.eu-central-1.amazonaws.com/iaccmportal/resources/files/10162_iaccmcapgeminiautomationreport.pdf, page 5-6.