Have You Tapped the Full Potential of the ‘Contracts Continuum’?
August 21, 2023
For GCs facing constant pressure to deliver more commercial value to their organisations, an oft-overlooked opportunity lies in the day-to-day contracting process. By reducing contracting cycle times and increasing the predictability of contracting outcomes, law department leaders can make doing business easier while enabling greater use of their departmental resources for core advisory and compliance work.
For some GCs, this seems like an immense endeavour – the contracts function is complex and touches nearly every part of a business. How, then, can a law department revamp its contracts process to best produce timely, well-drafted contracts that simultaneously meet the business’s needs, comply with its policies, are cost-effective to execute, and don’t unduly tax an already stressed legal organisation? And how to do this amidst a GC’s competing priorities?
The answer begins with understanding that optimising contracting activities is not an all-or-nothing proposition. The path forward depends on the maturity of your contracting function, the heart of which entails standardisation and routinisation of the contracting process – or, to use our term, the contracts continuum. This continuum extends from dealing with unstructured contracts data to a thoughtful consideration of what types of negotiations to keep in-house or outsource. Across the entire continuum are independent opportunities for GCs to optimise their contracting function in ways that deliver substantial value to the corporation.
Consolidating Contracts and Migrating to Structured Data
Standardisation of the contracting process requires first understanding your organisation’s contracts data, either by implementing a contracts repository or, better yet, a more sophisticated Contracts Lifecycle Management (CLM) tool. This step ensures all contracts reside in a single place. More importantly, using a CLM system – well implemented – provides the opportunity to structure your contracts data by reviewing and extracting relevant data from your contracts, a critical step to unlocking standardisation opportunities and driving CLM adoption, because now the contracts can be quickly and easily accessed and interrogated. Examples include gaining a better understanding of the limitations of liability to which the company has agreed or where and under what circumstances has the company agreed to volume discounts. In addition, structuring of contractual data enables the automatic and regularised triggering of CLM system events such as the prospective reviews of evergreen renewals or to ensure the organisation takes full advantage of hard-fought price escalation rights.
Many companies shortchange this portion of the contracts continuum by assuming that merely deploying the software is enough. It isn’t. Instead, it results in a CLM system languishing unused due to the lack of a compelling value proposition to drive adoption. Ensuring your CLM is the ‘single source of truth’ for contracts and retiring legacy repositories create incentives that prompt users to interact with the system and become familiar with its functionality. This then creates opportunities to socialise additional CLM capabilities. (For a deeper discussion on the challenges of selecting and integrating new technology into a law organisation, see my colleague Erica White’s July post, ‘Understanding How Consultants Add Value in Legal Tech Implementations.’)
Outsourcing data migration to specialists is far superior to burdening already beleaguered legal staff with such work. As a post earlier this summer from my colleague Neetika Narula and me explained, AI tools in combination with ‘human in the loop’ quality control using expert lawyers provide a cost-effective approach to obtaining the comprehensive, structured data needed for adoption. Structured data serve myriad commercial and legal purposes – in addition, that data enables you to rationalise contracts clauses and templates and create contracting playbooks. These steps play a critical role in further optimising your contracts function.
Routinising the Process with Templates, Clause Libraries, and Playbooks
To rationalise your templates and standardise contractual clauses, first inventory your existing templates. Then, establish priorities based on commonality, strategic importance, frequency of use, and the potential for consolidation. You can then identify terms and clauses (plus variations) common across templates and terms that are contract- or deal-specific.
Once complete, you can consolidate or even rebuild master templates and then create a clause library that reflects company policy and preferences and includes alternative clauses. This step typically includes collaborating with subject matter experts (e.g., those well-versed in risk, data privacy, data security, IP, etc.). Starting from the bottom up and making sure templates and clauses correspond to the bill of materials and services being purchased or delivered help to streamline and accelerate negotiations by having them focus on concrete objectives rather than hypotheticals.
A crucial next step towards decreased cycle times and a mature contracts function is the creation and use of detailed contracting playbooks. In addition to guidance on using standard clauses, when and under what conditions to accept fallback positions, and when to seek higher approval, the best playbooks go beyond the ‘what’ and explain the ‘why’ so that your negotiators grasp when they can ‘give,’ how to explain a position to a counterparty, and what issues do not require escalation to busy senior counsel.
Together, the trifecta of structured data, streamlined templates, and strong playbooks drive decreased cycles times and the predictability that facilitates delegation to junior colleagues or to an external provider. GCs can then enable their teams to concentrate on the ‘core/mission critical’ activities that deliver maximum value and competitive advantage for the business. This includes assisting in the design, production, distribution, and sale of the organisation’s products and services and helping with business development, M&A, and core intellectual property issues.
Leveraging Outsourcing for Non-Strategic Work
The greatest opportunity to ensure in-house legal teams are focused on core/mission critical activity comes from outsourcing routinised contracts work that is necessary but non-strategic, such as the negotiation of direct and indirect procurement agreements (and even routine sales agreements and SOWs). Once you have created and updated templates, clause libraries, and playbooks for ‘run-the-business’ contracts activity, you can have confidence that outcomes will meet your needs and expectations no matter who manages the negotiation.
The greatest returns come from working with a single provider able to deliver contracts services at scale through offerings that integrate legal services that include lawyers with deep contracting subject-matter expertise with enabling technology (e.g., Elevate’s Manage Contracts) and cost-effective processes honed over years of experience. A provider with offerings across the entire contracts continuum understands how all the pieces fit together, and can provide integrated solutions that do more to routinise the process and improve predictability. Moreover, it can add value at each phase of the contracts continuum according to the maturity of each part of your contracts process.
While this article has been set out in a somewhat sequential fashion, it’s worth noting that we engage with organisations who enter the continuum at all different phases and at all levels of maturity, and we work closely with them to put in place the required routinisation to get the job done. For example, we are often engaged for negotiation support where a law department has yet to rationalise templates and create playbooks. In that situation, we work closely with our customers in the early phases of the engagement to put these critical structures in place. Alternatively, we might be engaged by a customer to support their template harmonisation efforts where they don’t have clauses already structured. In such situations, we embark on an exercise to create the proper clause mapping to help facilitate the construction of rationalised templates. Opportunities for optimisation of discrete components of the continuum abound and material improvements are possible without a complete overhaul of the entire contracts function.
Contracts often seem mundane. But GCs who take steps to mature their organisation’s contracts function can unlock tremendous unrealised value – not merely by reducing cycle times and increasing predictability, but also by maximising their law department’s ability to add business, competitive, and strategic value.
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