How to Clean Up Messy Contracts in 10 Steps


KEY POINTS:

  • Contracts are often a mess because they are built little by little over time by many different people.
  • To clean up contracts, start with the most urgent or frequently used contract template first.
  • Collaborate with internal business partners to ensure a well-rounded approach to contracting.

Being first legal hire at a rapid scale company is not for the fainthearted. Especially when you’re thrown straight into commercial contracting and start spotting all the things that are wrong with your organization’s processes and templates.

It’s hard to know what to prioritize when there is so much that needs to be cleaned up. The number of messes you must clean up when you’re the first legal hire can seem overwhelming but start with the most urgent first and go from there. If you are all about efficiency and want to make some valuable changes at your organization, here are 10 steps to help you clean up your contracts.

1. Re-draft your primary agreement.

Your terms of service are critical to selling your product fast and protecting the business, but chances are one of your co-founders downloaded your current template from the internet (!!). A bad contract template slows down deals due to needless redlining, and creates risk because key clauses aren’t drafted well.

You should review the whole thing and re-draft it as needed. Beef up weak clauses (especially IP protection and indemnification), make sure everything is defined properly, correct any wrong cross-references etc.  

While you’re at it, get control of where the company gets a template from before they send it out. You don’t want a Word version of your website terms getting signed with no boilerplate provisions in it. Direct folks to one place to ensure they’re using the latest templates.

2. Push your own paper.

Every contracting departments prefers to use their own contract template (aka paper) because it is faster, easier, and less risky to start from a template that your company created and is used to seeing. But your colleagues might be saying yes to third party paper where it’s not appropriate (e.g., low value deals).

I suggest coaching your internal clients on why it is more beneficial to use your own template and how to deal with objections intelligently. For example, if you’re a SaaS vendor, your paper is tailored to your product, services and data processing realities (no need for death and personal injury indemnities, thanks). Therefore, you will close deals and bring in revenue faster because you won’t waste time negotiating terms that aren’t applicable to your business.

3. Check order forms.

Order forms are designed to contain key business terms liking pricing, term, licensing rights, and a product/services description. However, we can see some legal terms sneaking in through order form back doors, like auto-renewals and termination rights or limitations. Depending on how your contract review process is structured, you may or may not need the legal review step for order forms. 

If your company is small and doesn’t have a centralized procurement or contracting department, then Legal should probably be checking as it’s likely no one has been up to now (especially if you don’t have a Finance function yet). 

Not all order forms are worthy of a legal review though, but it is difficult to accept that they may contain suboptimal terms. Consider developing a threshold under which legal review of order forms can be avoided. Some very low value contracts are likely worth the risk in return for significant time-savings 

4. Create enablement materials.  

Enablement materials are key to fast in-house legal services because they help your internal clients self-serve rather than checking everything with you (some of the more experienced ones can even use them to negotiate points themselves before Legal is engaged!). Get these up and running asap. You don’t have to boil the ocean here. A great place to start is to create a simple one-pager that sets out the top five things negotiated in your terms of service. Likewise, a cheat sheet demystifying your data processing addendum and why it matters would be helpful as an onboarding or operational tool.

5. Organize all your executed contracts.

Find and organize all your contracts with customers, suppliers, and partners so you can do everything quicker: check key terms, manage risk and renewals, disclose them on your next funding round and migrate to a contract lifecycle management tool repository. They are probably stored all over the place (in inboxes, Slack, SFDC, DocuSign accounts). Work with Finance on this as they will have a list of your customers/suppliers for accounting purposes.

6. Align with regulatory requirements.

Your data processing addendum must be fit for purpose to ensure it doesn’t get heavily redlined and slow down deal cycles, but also for regulatory compliance purposes. Data breaches and fines are the number one concern on any company’s mind when it comes to DPAs.  

Your company probably has one, but who knows where they got it from or if it’s up-to-date and compliant with applicable data protection laws. Is it an old-fashioned, separately signed contract or can you create a website version hyperlinked into your terms of service? The whole world now gets how they work (more or less) and what SCCs apply (again, more or less), so it’s even easier now to use a website version. 

7. Get ahead of what templates you need next.

It’s hard in a fast-moving business, but try to find out if your products or services are changing any time soon so you have the right terms in place to sell or offer them. Are you starting to sell through partners and need your own template reseller agreement? Or launching a new product soon that needs bespoke terms?

Work with key people internally to plan ahead. For example, work with finance for payment terms, engineers for services levels, or information security for technical and organizational measures. If you’re starting to sell professional services next quarter, start drafting a new agreement now for it. Pick whatever will be most impactful to grow the business quickly and prioritize that each quarter. 

8. Mandate an intake process.

The contract review cycle begins at the intake point. Pick an intake tool or process and stick to it. Be really clear it’s the only way you’ll accept contract review requests. This helps with version control, managing risk, and perhaps most importantly, managing your mental health. Explain that to the sales team so they understand your pain points and how you can support them faster and more efficiently. And that it will speed up deal cycles and help them get their commission quicker!

9. Outsource work.

An immediate fix for dealing with time-consuming, process-heavy contracting work is to outsource to an alternative legal solutions provider. This will help free up your time to work on strategic, higher value work (i.e., all the other points in this guide!).

10. Starting thinking about a CLM tool.

If your business doesn’t use CLM software, start researching now. There are many solutions on the market, and great care must be taken to review the options. Identify what can be automated or perhaps even replaced with the latest developments in AI (typing out party details in an NDA anyone?!), and whether you need a backend repository to track key meta data and obligations. Before jumping into technology though, be sure you are clear on what contracting problems you seek to solve. See Foundation Before Automation: Technology (innolawgroup.com) for some tips on how to approach CLM automation.

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