The legal department is a natural steward for an organization’s contracts, and it makes perfect sense for general counsel and their teams to take the lead in improving contracting processes across the enterprise. The best way to know where you need to go is to understand where you have been, so the first article in this three-part series provides a checklist of the questions to ask in order to get an accurate picture of how your company is currently handling contracts. The answers will help in-house leaders identify strengths and pain points and lay the groundwork for improvement.
Terms monitoring and obligation management
A contract’s life does not end upon signing, but proactive management of it often does. There is tremendous value, and risk, buried in your company’s existing contracts. Improving their management offers strategic and valuable returns that can save money and drive revenue that would otherwise go unrecognized.
- How do we set up notifications about contracts due to expire or renew?
- How many evergreen contracts do we have?
- What percentage of our evergreen contracts renew with no renegotiation?
- How do we set up notifications about major contract milestones or deadlines?
- Do we compare contract terms to what we actually pay suppliers or get paid by customers?
Contract request process
A major source of inefficiency for many legal departments is the volume of contract-related requests and a lack of process associated with those requests. They come in via email, phone calls and passing comments in the hall. The last thing a general counsel wants is for legal staff to spend more time administering contract requests than performing strategic legal work.
- Do we have centralized or decentralized contract operations?
- Do all contract requests come through one department or are they routed depending on contract type (legal, procurement, IT, etc.)?
- How are requests submitted?
- Do we have visibility into all outstanding requests and statuses?
- How much information are requestors required to provide with queries? Do they comply?
Contract creation process
There may be a great amount of efficiency improvements to be found in the way your legal department supports the creation of contracts across the company. In many organizations, the legal department gets involved in drafting every contract, even those that are generally pretty standard like MNDAs. In some companies, other departments are empowered to create contracts but sufficient controls are not in place to manage the risk that entails. Striking a balance and having the ability to effectively repurpose relevant existing work product can reap big rewards.
- How is the contract workload allocated within the legal department?
- Do we repurpose existing work product effectively?
- Do we provide any options for people to create their own contracts?
- What types of contracts can they create?
- Do we have a set of approved, standard clauses they can access?
- What types of contracts could be self-service?
Contract review and execution
Does your legal staff have adequate visibility and control over contracts being signed across your company? If not, the risk that outdated language makes its way into a contract is high. The legal team should have oversight of standard contract language to ensure compliance with the latest regulations and proper management of risk with business partners.
- How do we validate contracts for compliance with laws, regulations and corporate policies?
- How many people look at each contract before it is executed?
- Do we have a well-defined approval workflow?
- How do we route contracts to the approvers?
- Do we have a mechanism to identify high-risk language and escalate those contracts for higher-level review?
- How do we sign final contracts? Digital signature, sign & scan, etc.
Last, but certainly not least, in the evaluation of how contracts are managed is how they are stored. The legal department is often the first point of contact when someone in the organization needs a copy of a contract or when auditors come knocking. Knowing where contracts are and how to easily retrieve them offers tremendous value to internal legal operations and the enterprise as a whole.
- Where are our contracts stored?
- How far back does the archive go?
- Does the way we store contracts comply with our information governance policies?
- How many active contracts are we managing?
- How long would it take us to respond to an audit that requires us to produce contracts?
A very basic measure of how good a handle you have on your company’s contract processes is how difficult it is for you to find accurate answers to the questions on this checklist. Did you know where to go for answers or was that a task in and of itself? Is your legal staff the sole source of information or do others also have working knowledge of contracts? Getting a solid understanding of your current process will show you the way to making improvements, and the most logical place to start is your own department. To that end, the next part in this series will focus on how to make your legal department more efficient when it comes to the creation, negotiation and review of contracts. It will contain practical advice for making legal a star with sales and other departments that may currently see legal as a bottleneck in closing deals.