Every contract comprises a series of clauses that lay out the terms and conditions that will govern the behavior of all signatories.
When you only create contracts occasionally, you may not need to dedicate people and other resources to scrutinizing clauses. When you’re creating contracts, agreements, and other types of documents multiple times a day, the processes you use to ensure you’re using the right clauses are much more important.
In this guide, you’ll learn what a clause library is, the benefits it provides, and how you can get started with creating your clause library.
What is a clause library?
A clause library can be defined as a collection of clauses used in an organization that has been created and pre-approved for use in different types of documents.
These clause libraries contain standardized language that makes it easy for almost anyone that’s creating a document to get started. The document produced will have a certain baseline quality and be free from many issues that often occur when documents are drafted from scratch.
In addition to the relevant clauses, there are other aspects of the clause library that makes it useful for the people that are interacting with it.
How a clause library is structured
The following components of a clause library are, in many ways, the minimum requirements for an effective library. Of course, even if you have the aspects mentioned below, you may want to add more to your clause library based on your needs.
- The clause
The main thing is the text of the clause. This will have all the related terms and conditions that make up the clause. Put another way, this is the information that will be inserted into the document that’s being drafted with little or no changes.
- Related information or a description of the clause
The clause information lets the people using the clause library know what the clause is all about. This can include the kind of documents it has been used in previously, legal precedents, and references that the reader can use to get a better idea of the clause. This is often the most elaborate component of the clause library and usually gets modified on a regular basis for frequently used clauses.
- Alternative clauses
This section highlights variations of the clause that can be used or provides a new clause that can replace the current one altogether. It should reference the alternative clause so the user can find it instead of placing it in full within an alternative clauses section.
- Where the clause should be used
Not only does this section say what part of a document a clause should be used it also explains the type of documents it’s ideal for. For example, certain clauses may have the right language for an NDA agreement but not be a good fit for a lease agreement. This section will spell that out to prevent common mistakes.
- Clause groupings
This is a convenience that will save clause library users a lot of time. Whenever possible, group related clauses together so the reader can see all of their options at once. They can compare and contrast clauses and pick the right one for their needs.
Benefits of a clause library
There are countless benefits you can gain by creating and using a clause library – especially when you create documents often. Below, we’ll go through a few of them to make the wide range of benefits you can get even more apparent.
- Make drafting easier and faster
Sometimes, contracts cannot be created as a dynamic template or used in document automation because they’re one-off. They may also have components that won’t be reused in that specific way again.
Situations like this would require deep expertise to tackle but a clause library allows document drafters to bridge that gap. Someone could piece together a high-quality document by relying on clauses and then send it off for final review.
- Makes contracts more uniform
Since everyone is using clauses that have been drafted and approved, it’s easier to update or adjust the language that gets used in documents. All NDA agreements have the same clauses and legal language and all employment agreements do as well. This makes it easier to review documents and ensures your organization is being properly represented. When using a document automation platform like UsefulPDF, you’re able to quickly swap out clauses and ensure every document created going forward inherits it.
- Reduces liability
Another important benefit of clause libraries is their ability to reduce and cut down on potential liability issues.
Since people are using clauses that have already been vetted and approved, documents are unlikely to deviate from their intended purpose. You know that the clauses are sound and won’t jeopardize a deal or cause undue problems because a description is vague or the wording used can be interpreted in multiple ways.
Put another way, your contract management and creation team will be able to work more quickly and accurately while indirectly reducing risks because standard contract clauses are always available to them.
With that being said, special attention should be paid to the approved clauses to make sure they’re airtight. If they’re not, a single issue can be spread across countless documents.
- Cuts down on human errors
Human error consistently ranks at the top of the list when it comes to issues with spreadsheets, documents, contracts, and other types of legal forms. It could be a simple data entry error or something more tangible.
Without a clause library, every person tasked with drafting legal documents would be required to do extra data entry and consider the clauses that need to be used. That opens the door for more errors.
With a clause library, most of the heavy lifting has been done for the document drafter. They’ll just need to insert the relevant clauses in the right place. Accuracy is increased while compliance is taken care of.
Ways to set up a clause library
You can set up your clause library in any way that makes sense for your organization. Some people choose to use a series of tools that they’ve cobbled together while other organizations take advantage of purpose-built software.
There is no wrong or right way to go about it. What’s important is that it works for you. There are a few things your clause library should have:
- A way to organize information
- A system to reference other clauses
- Permissions and access management
- An easy way to update specific clauses and their metadata
Here are a few ways to accomplish that.
Using available tools
- Google Drive
Google Drive has a suite of tools that allow you to organize and set permissions for your clause library. Combining Docs and Sheets is a good sheet. It’s ideal for a smaller clause library because it can get difficult to group and sort clauses once the library grows.
While Dropbox allows you to easily organize information in folders, it becomes difficult to logically associate one clause with another if your clause library grows. Like Google Drive, it’s ideal for smaller clause libraries. It’s a good inexpensive choice if you’re just getting started.
- A shared folder
Shared folders are often used but they’re far from ideal when it comes to clause libraries. You don’t have granular controls over who can access clauses and people will often be able to make edits to clauses without a proper audit trail.
Software with purpose-built functionality
Once your clause library grows or you have complex needs, you may need to upgrade to a more robust solution. Clause library software will make it easier to create and share clauses internally and externally to speed up your contract management workflow. It’s often the most expensive option but it’s worth it for volume users due to the benefits and risk reduction it brings.
Clause libraries are useful tools for organizations that are constantly making contracts. They bring a lot of benefits to the table and depending on your needs, you can start for free.
Focus on standardizing clauses across the organization and mitigating the risk inherent in contracts.
From there, focus on speed and efficiency. Over time, your clause library will pay massive dividends. Let me know what you think in the comments and don’t forget to share.