It is no secret legal departments can be perceived as a bottleneck when it comes to their involvement in an organization’s contracting process with third-party service providers.
The reality is that many legal teams today are stretched beyond capacity while juggling resourcing and budget constraints. Legal departments that take the steps needed to optimize their position as an adviser to the business will see relief from some of these pressures, as well as other lasting benefits to the department and the organization.
This article sets out four steps legal departments can take to optimize their role in the contract life cycle.
Prepare a current-state process map. Assessing your current state can be an ambitious undertaking, but the end result will allow you to identify waste and inefficiencies (e.g., multiple touchpoints, overlapping roles, etc.). Think of this step as the gathering of the baseline information needed to justify any proposed changes. The information you should collect should include:
Synthesize the information gathered into a process map—your new aerial view of where your challenges lie. Once you have your current-state process map you can begin to identify where and why most issues occur. Common issues include:
Any of these or similar problems are clear signs the contract life cycle process in your organization can be better optimized. Now that you have assessed your areas for improvement, you can build customized solutions.
A good intake questionnaire is the fundamental building block to managing your team’s role in the contract life cycle. The best intake questionnaires both identify all elements of a deal that an individual in your department needs to be aware of to accurately size the risk and the legal effort, and are tuned to your organization’s regulatory and industry requirements.
The questions you ask should, at a minimum, identify the type of contract and the inherent risks presented by the deal. Within this process, be sure to develop structured workflow around the intake questionnaire itself. Consider:
Next, document degrees of risk to the enterprise via a triage mechanism. This can take the form of assigning values to each question and bucketing totals into risk categories (e.g., immaterial, moderate, significant) through the application of a basic algorithm.
Document the process for engaging a legal resource on a contract so everyone in the organization is clear on the rules. The idea is to set out the criteria for when and how the legal team is engaged depending on how the matter is categorized (further to the intake questionnaire). An organization may decide to allocate matters to the right legal resource based on the materiality of the matter.
An engagement framework, for example, might identify categories that encompass matters which:
A basic rule of thumb, even absent any formalized engagement model, is to ensure that legal is engaged as early in the process as possible. This may even be at the business planning stage. This will not only help the legal contracts team to plan for resourcing needs before timing becomes sensitive, it will also ensure that the legal department has a better chance of identifying material risks while acceptable mitigants can still be deployed.
Document what requirements need to be included in the contract such that the amount of residual risk reflects the organization’s risk appetite given the deal’s risk category. Right-sizing the contract terms to the risk category alleviates unnecessary cycles of negotiation and escalation. Contract terms that are irrelevant to the particular set of facts, or incorrectly sized to the risk, can be a tremendous source of waste. Accessible, well-maintained, and annotated precedents that exist within an efficient knowledge transfer framework are effective mechanisms in ensuring alignment within the organization on contract requirements.
While the steps we’ve outlined here can be very useful in streamlining and optimizing the legal team’s role in the contract management life cycle, implementation can be challenging. If not executed properly, organizations risk overburdening teams with redundant and restrictive process (to the point of undermining efficiency goals), alienating internal stakeholders with too many procedural hurdles, and restricting the legal team’s ability to apply their professional judgement.
Ultimately, the rewards that come with optimizing the legal department’s role in the contract life cycle are well worth the effort. Putting this level of thought leadership and strategy into the role your legal team plays will not only ensure that your team has the capacity to service fluctuating internal client demands over time, but will secure your legal team’s reputation within the organization as problem solvers and valued advisers.
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 life cycle within an organization, Torys’ Legal Services Centre is equipped to implement and execute new contracting processes on behalf of clients.