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General Counsel - Contract Process or Risk Management?

on Wednesday, 04 October 2017. by Mark Little

How to balance productivity and risk management for General Counsel

General counsel must find ways to both manage contract risk and increase contracting productivity on a limited budget. General counsel are often flooded with contract requests. Sales people, business managers, and executives mutter about lawyers being the “business interruption team” while the general counsel tries to balance their competing objectives: fast contracts and careful risk management. No legal department wants to be the bottleneck for contracts.

Common contracting process mistakes in the legal department

How to increase legal department productivity without compromising legal risk management? The two most common answers are to buy expensive, complicated contract drafting/negotiation software or to surrender the production of “routine” contracts to the business people with an automated system. Both of these answers are wrong for most corporate counsel.

Contract drafting software does not change the essential nature of in house contract drafting. The primary benefit of these solutions is that they expose the drafting process to a wider group of colleagues. They also endeavor to provide an audit trail of who made what changes so that the legal team can track down whoever made unauthorized legal changes after the fact.

At the other end of the spectrum, legal teams concede the drafting process to highly automated systems. Business colleagues, such as sales people, enter some data about their deal, and the system spits out a completed document. Lawyers rationalize this concession to productivity over risk management by locking down the terms users can modify and the types of agreements they can access.

Unfortunately, the risk inherent in this approach is significant, because even small errors are replicated across a large pool of contracts. While one defect in a single contract might not be a material risk, in the aggregate the contract portfolio might have unacceptable risk. Moreover, any missing access control will allow a user to circumvent the careful controls put in place.

General counsel need a solution that materially improves productivity without compromising legal risk management. The optimal model in most cases is similar to the fourth principle of the lean process. General counsel need to “pull” contracts that are fully ready for their input. That same system should also help general counsel engage with their business colleagues more effectively during the entire contract lifecycle, not just during negotiation.

The contract request process

Step one is to have an effective system for business colleagues to submit contract requests. Email is completely inadequate. Email is unstructured, inconsistent, and uncontrollable. We need a system which standardizes contract requests from the field and routes them to the appropriate person.

The "appropriate person" is often not a member of the legal team. What general counsel need first and foremost is to know that the contract request is for a real opportunity which the business has vetted. It is useful to insert a review step between the initial request and the work assigned to the legal department. This approval step ensures that the legal department does not waste time on deals that will not or should not see the light of day.

We can take this approval process a step further. In addition to requesting new contracts, our contract management system can support requests for supplemental or additional documents during the entire contract lifecycle. Simply adding this step can significantly improve both the quality and quantity of the legal department’s work.

Finally, general counsel can decide when to “publish" the contract when it is executed. This publishing decision after contract execution constitutes a formal handover from the general counsel’s office to the contract management team. Unlike an email, however, the legal department and the contract management group will share a single system which allows them to collaborate over the entire contract lifecycle. The handover is now data: trackable and reportable.

General counsel and contract management

Contract management is a distinct profession with a well understood body of knowledge. Contract management is not the practice of law. That said, contracts have a life of their own which requires monitoring and nurturing. In many organizations the legal department simply throws an executed contract over the wall into the contract management department. The legal department may hear about it again when it is time to renew, amend, or terminate the contract. This approach to contract management misses revenue opportunities and causes unexpected risk to materialize.

A shared contract management system that focuses on the contracts which are fully executed promotes collaboration between the general counsel and the management team. Effectively managing the contract portfolio together allows both general counsel and contract managers to make a measurable impact on revenue and contract risk management. No one will remember that you drafted the force majeure clause just so, but everyone will remember that you identified an opportunity to decrease prices during the term of the purchasing contract.

General counsel need to balance productivity and risk management

Lawyers are rarely trained to see themselves as part of a larger process or team. It is tempting to think that the way to improve productivity is to change the way we are drafting. Drafting is our craft. Drafting is our value to the organization. General counsel harness years of business and legal experience to anticipate the unexpected, turning that insight into language which protects the organization. Lawyers should not surrender the drafting process nor should they purchase software that maintains an illusion of faster drafting.

Instead general counsel should balance productivity and risk management with software that allows them to focus on what they do best. Ensure that only fully developed deals get into the legal queue and stay involved with the contract management lifecycle to prevent problems and seize opportunities.

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