In the words of Harvard professors, Marco Iansiti and Karim R. Lakhani, the contract process now represents “a rush-hour gridlock trapping a Formula 1 race car”. The International Association for Contract & Commercial Management (IACCM) has found that 83% of businesses are dissatisfied with their organization’s contracting process. The time spent on reviewing paperwork sees hard-pressed in-house lawyers blamed for contract gridlock, and, in the worst cases, the death of deals.
The problem: Too many contracts – and they are growing
Trump: “These papers are just some of the many documents I’ve signed turning over complete and total control to my sons" pic.twitter.com/CGGrNckpRU
— CNN Politics (@CNNPolitics) January 11, 2017
The typical Fortune 1000 company maintains 20,000 to 40,000 active contracts. Even a simple standard non-disclosure agreement takes companies a week or longer to approve. Woodrow Jones, in the in-house legal team at Verizon, sums up the contracting chaos which led his team to a $12 million contract purge: “Contracting had been a challenge for years. Complexity had crept in, and costs increased with the complexity of the content and the length of the process”, he says.
7 Steps to End Contract Review Gridlock
Here we present ‘7 Steps to End Contract Gridlock’ based on those who have been there and changed their processes.
Step 1. Take a step back: (Or recognize your contract problem)
Lucy Endel Bassli, former Assistant General Counsel at Microsoft (now chief legal strategist at LawGeex) in a must-read paper on contracting for today’s lawyers, advises in-house teams to take stock of who is doing the legal work– reviewing, editing and negotiating contracts. This was the start of a major overhaul of contract review and approval times. Bassli advises “Someone needs to track how many contracts are done and how long they take.”
Over 3 weeks to approve a contract? #ACCAM17 Not at #Microsoft! We've dwindled most to <3 days! NDA's = 1 day! #legaltech
— Lucy Bassli 🦄 (@lucybassli) October 16, 2017
Microsoft began by asking the right questions. This simple starting point leads to honest discussions. Nancy Brooks, vice president and deputy general counsel at Discover Financial Services began her change program asking the simple question: “Is someone doing legal work outside the law department?” That simple question prompted Brooks to begin a two-year transformation of the company’s contract management processes, creating productivity improvements of 20 percent on a volume of 6,000 contracts in its first year of implementation.
Step 2. Carry out contract pest control
There may be high value, low volume contracts (think IPOs or big deals) which will rightly need manpower and lawyers to pour over them. However, in an age of automation, reviewing and approving everyday low-value contracts is not something lawyers need to waste expertise on (the top five most popular contracts run through LawGeex’s review automation each day are NDAs, service agreements, SaaS agreements, software Licenses and Purchase Order Contracts). In the words of one in-house counsel we spoke to, low value high volume contract approvals are “mice” and “rats” they want to get off their plates. This is allowing their team to focus on more strategic work.
Using more refined terminology, Avis Budget, led by General Counsel Michael Tucker, talks of “disaggregation” in their contract approval process. They have three tiers of contract: “Cream” high legal and financial exposure, with relatively low volume and frequency; “Core” medium to high legal and financial exposure, with significant volume and “Commodity” low to medium legal and financial exposure with high volume and frequency.”
Step 3. Contract Triage
In medical terms, triage is the allocation of treatment to patients, according to a system of priorities and resources. When it comes to a growing volume of contracts, lawyers are taking the same approach. Artificial Intelligence can now pre-check contracts automatically based on a company’s “playbook” (see step 4). Conversely, this playbook-AI combination ensures problematic clauses are flagged and dispatched to lawyers for treatment (reviewing the issues found). On basic contracts companies employing this automated triage are seeing lawyers cutting workload between 40 to 80% depending on the contract.
Step 4. Playbook Legal Magic
Consistency and reduced risk is achieved through the creation of Playbooks. That is, the defining and recording of a company’s legal policies, manually or using technology. Express Scripts describes the creation of their playbook as the “crown jewel” of its legal change transformation. In the words of Chris Smith, of Husch Blackwell, who helped the company with this process, a playbook now enables Express Scripts to clearly demonstrate “substantive resources on legal themes, references, statutes, and case law.” Despite this fundamental stage, only 23% of legal departments have a Playbook of any type, while 54% of those that do, use hard copies located in binders. Having Playbooks stored physically, separate from the contract review process that they are meant to guide, reduces the effectiveness of these important documents. Online Playbooks, like those within the LawGeex platform, allow for fast set-up, editing and ‘as you review’ instant reference to company’s sample clause language, fallback positions, and clause policies.
#ACCValueChampion Express Scripts is F20 company w/ small in-house staff 4 lawyers & 6 legal ops self-funded thru savings #ACCAM17
— Catherine J Moynihan (@CathJMoyn) October 16, 2017
Step 5: Set contract targets
Despite the central role of contracts, most companies do not have milestones in place, such as KPIs or monitoring of turnaround times. When contract management solution, Apptus asked legal departments how they measure contract turnaround times 60% answered simply: “We don’t”. Simple contract targets could be linked to turnaround time and the satisfaction of the business.
Step 6. End the Contract Bottleneck
The biggest frustration (and complaint) sales and procurement teams have is contract gridlock or “bottlenecks”. Research shows 72% of in-house teams admit the need to implement faster contract turnaround times.
Writing to the Lawyer Whisperer , Julie Q Brush, (“The Dear Abby for Lawyers”) one lawyer says: “My company execs don’t respect Legal. Some believe we are a bottleneck to getting deals done and their critical comments have adversely impacted my team. How do I fix this? The advice (Rule 1): “Your first step in this process is to get to the bottom of what is going on. “How long does it take to move a deal through Legal from start to finish? What are the current expectations? Then with more data, create a solution and actively manage the changes.” (see steps 2-7)”
In the case of Microsoft, Bassli says: “We’re now a valuable partner to our business team, because they don’t see us as a blocker any longer. They see us as a partner”.
Step 7. Better know your contract risks
Companies that have taken a look at inefficient contracting processes, discover conflicting processes. In the best case this only creates inconsistency. In the worst case many lawyers talk to us about processes where they have made red lines which have been lost over email exchanges, which came back to haunt them six months later.
Technology institutionalizes key contract knowledge, globally and consistently, reducing risk. In the words of LawGeex’s head of product Michal Bell: “Legal knowledge tends to reside in lawyers’ heads, creating a dependency on lawyers sharing their know-how. AI is helping to distribute this knowledge simply, across an organization. For the first time, a veteran GC who has been at a company for 30 years, a paralegal who has just joined, or a non-legal member, will have at their fingertips the same institutional knowledge needed to effectively review and approve everyday contracts before signing them.”
Legal in Pole Position or Pit stop?
Technology and automation is clearing the lanes of approval. It is making contract approval faster and smarter. This allows the most innovative and cost-conscious companies to build a Formula 1 legal department, based on data, consistency, collaboration, a 24-hour service, visual playbooks, and what many In-House Counsel hear from their peers – Return on Investment. This new technological age is allowing lawyers to no longer be at the pit stop – but take pole position in contract efficiency.
Interested in learning more?
The In-House Counsel’s LegalTech Buyer’s Guide 2018 covers 16 categories of legal technology, including Contract Drafting, Contract Management, Contract Due Diligence and Contract Review tech saving hours of contract time for In-House Counsel.
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Jonathan Marciano, Communications Director at LawGeex, is originally from London. He is currently in Tel Aviv, helping to bring about the legal revolution. Follow him on Twitter. @J_Marciano