Financial institutions are facing mounting pressures to improve internal processes and reduce costs as competition, including among new alternative digital platforms, is intensifying.
In particular, the ongoing push for process efficiencies and cost control pressures is being felt by financial institutions’ in-house legal departments whose resources are strained by the large volume of contracts managed on behalf of their organizations.
In this article, we review how Contracting-as-a-Service (CaaS) can transform financial institutions’ commercial contracting lifecycles, together with the benefits for legal departments and the broader organizations in which they operate.
Recognizing the need for change
Financial institutions are dealing with a large and ever-increasing number of lower-risk but operationally important contracts on a daily basis, such as consulting agreements, software license agreements, maintenance renewals, statements of work, SaaS agreements or data feed agreements, together with various services arrangements.
At many organizations, these contracts are included as part of the conventional legal workstream, which means that they compete alongside material legal or strategic issues for a lawyer’s time and focus. While these documents may not individually be time-intensive to manage, their collective volume and risk make them significant en masse. This combination of more work and less time is driving inefficiencies in the resource management of in-house teams.
Amid the rapid transformation in the financial services space, commercial contract management must be addressed as a pressure point for organizations at large and for legal teams specifically.
And despite the growing trend toward “self-serve” contracting processes for basic run-of-the-mill legal work, such as NDAs in the context of commercial negotiations, which allows business colleagues to contract with third parties without the oversight of a lawyer (provided the contract meets certain criteria), the tranche of work that represents the vast majority of an FI’s lower risk commercial contracts still requires the application of legal judgment and drafting.
As financial institutions push to advance their technology offerings for customers, they are also exploring how technology and process innovation can increase efficiencies and address cost control pressures on in-house legal departments. As these advances are made, financial institutions in turn face pressure to apply technology and process improvements to the understanding, tracking and monitoring of contracts and the risks and opportunities they represent. This increased focus on data, too, contributes to the resource crunch on in-house teams.
Contracting-as-a-Service: a solution to introducing efficiencies into the contracting lifecycle
Torys’ Contracting-as-a-Service, or “CaaS”, is one collaborative model which may serve to both find new solutions for these and other business pressures and, ultimately, optimize the role of the in-house legal department in the commercial contracting lifecycle.
There are two components to CaaS. The first component involves the core contracting service, which is exactly what it sounds like: the FI outsources high volumes of lower-risk commercial contracts based on its contract requirements and process needs. The second component is where we work with the in-house legal department to design a tailored process for triaging commercial contract risks and improving efficiencies in the legal workflow.
Together these two pillars of the CaaS offering can make a substantial difference in the role that in-house legal plays in the process, including by providing a reliable, transparent and reproducible approach to contract risk, predictability of legal fees, reduced time to contract signing and improved job satisfaction for the in-house legal team. Additionally, customized metrics and data visualizations about the contracts submitted to CaaS can be developed, producing insights that can be used to report systematically on risks the organization is taking, justify the legal department budget, assess and adjust enterprise risk tolerance, and build predictive models for things like legal resourcing and industry trends.
Considerations for FIs looking to implement CaaS
Internal legal departments will get the most out of CaaS by being prepared to:
- investigate the strengths and weaknesses of their existing commercial contracting process, including gathering relevant metrics (e.g., overall time a file is with the legal department, how often the governing law provision can be negotiated, etc.) as a baseline, and considering reporting formats and process for reporting on metrics;
- identify a single individual within the FI’s legal department who is responsible for the CaaS service and to whom the CaaS lawyers can escalate questions and issues;
- implement a change management process to ensure the success of the service with other stakeholders in the contracting process, such as the business, information security, privacy, procurement, etc.; and
- consider technology options for integrating with the CaaS service.
Amid the rapid change taking place in the financial services, commercial contract management must be addressed as a pressure point for organizations at large and for legal teams specifically. Refining the contracting process in-house and relying on a trusted advisor to manage the overflow can significantly enhance the quality and timeliness of the commercial contracting work, reduce the organizational cost of managing these contracts, and empower business colleagues to move forward with creating value for the organization.
About the Author
Jessica Lumière leads a team based in Torys’ Legal Services Centre in Halifax that provides a suite of service offerings that leverage process and technology efficiencies designed to deliver client value. In addition to offering advisory services on how to optimize the contract management lifecycle within an organization, Torys’ Legal Services Centre is equipped to implement and execute new contracting processes on behalf of clients.