Working on a contract lifecycle management (CLM) solution means having plenty of time to think about contracts, who interacts with them, the role contracts play for businesses and how they can be managed most efficiently.
Over time, and the more we speak to customers, it’s come to be our (possibly controversial) view that contracts are in fact your business’s single most important asset.
Why do we think this? Well, consider just some of the important business areas that contracts cover:
- All meaningful revenue in to the business
- All meaning expenditure out of a business
- Intellectual property ownership, rights, and licensing
- Relationships with a business’s staff and its partners
- The intended future trajectory of a business
It’s hard to think of any other business element that comes close in terms of importance, and therefore why it’s vital that everyone in a business understands their role in managing contracts.
Which brings us back to the role of the Legal department. In most companies this is where responsibility for contracting processes and systems lies. And that responsibility can cover everything from drafting and negotiating to storage and renewal management.
In this article, we’ll take you through why we believe this is a flawed approach that places unfair pressure on the Legal team and actually leaves businesses open to increased contractual risk. We will also propose a practical solution to help you mitigate this risk going forward.
Legal’s True Role with Contracts
Now, of course the Legal team has a role to play when it comes to contracts but that role can vary significantly from business to business and document to document.
There are about nine stages to the typical contract lifecycle, from initial request through to renewal or closeout. Of these stages (see diagram below), Legal would expect to own only two of those – Authoring and Negotiation.
So out of the contract lifecycle, Legal should only be responsible for less than a quarter of the process instead of the whole thing. And when we examine which stages they are, we find they sit in what we like to call the “Promise Phase”.
This is the phase prior to execution, where the expectations are being set and agreed. And in the case of the Negotiation stage, you could expect that the subject matter expert within the business and potentially the procurement or sales function might well also have a more significant role to play.
The latter phase, where the contract is up and running, is what we refer to as the “Delivery Phase”. This phase forms a greater proportion of the contract’s life and covers the performance of the contract against obligations and expectations. Realistically, this phase should not be the responsibility of the Legal department.
Take for example, a contract signed by the marketing department to work with an external advertising agency. It might initially warrant some input from the Legal team to assess the contract language and mitigate various risks for the business.
However, once the contract is signed, Legal is not responsible for that contract delivering what was agreed. Legal aren’t subject matter experts in advertising, they shouldn’t be monitoring the delivery and effectiveness of campaigns. Responsibility clearly lies with the marketing team and whichever senior level executive that they ultimately report to, based on how your internal approval process is structured.
This concept is the same for all other parts of an organization, so the idea that Legal should ‘own’ contracts on behalf of the business is a false one and one which if allowed to take hold can allow other parts of the business to abdicate their contractual responsibilities. Doing this will add more low-value administrative work back onto the Legal team.
If we come back to the central idea that contracts are the business’s most important asset then, by extension, responsibility for them should be spread across the entire business. All departments and teams should be willing and able to take responsibility for the active management of contracts and for the delivery of the agreed terms.
At this point, legal professionals reading this are likely scoffing at the utopian idea of the business taking meaningful responsibility for their contracts throughout the lifecycle.
However, a solution like Gatekeeper can facilitate the delegation of contracting tasks and the consistent execution of them. We know this because we’ve seen it happen.
In most cases, Legal remains the administrator of the solution, designing the automated processes and determining which data points need to be captured. However, they are not ‘responsible’ for the day-to-day management of every contract in the system and they don’t own them either.
This approach makes sense both from the point of view of keeping the Legal team focused wholly on the high value work that only they can do, as well as creating a scalable model for the business to follow in the long term.
Technology Is the Enabler
A contract management solution like Gatekeeper is designed to help central teams such as Legal and Procurement to work around a single source of truth for contracts.
At each stage of the contract lifecycle outlined above, Gatekeeper can both lighten the load on those functions and help to securely delegate responsibilities where required. For example:
- Requests. These can be funneled via a dedicated portal or public form to ensure accuracy and completeness of information, saving time spent chasing for missing details.
- Authoring. Create and store templates of agreements and specific clauses. Automate entirely Touchless ™ generation of simple agreements such as NDAs to avoid repetitive manual processing.
- Negotiation. Redline your preferred way using Word, Office for the Web or a native editor and maintain flawless version control.
- Approvals. Sequential? Parallel? Team or threshold-based? Create your rules and automate your approval process using Gatekeeper’s workflow engine.
- Execution. Sign electronically with a fully-compliant, native eSign solution.
- Obligations. Track obligations and prompt regular reporting and check-ins.
- Performance. Use integrated Balanced Scorecards to monitor the performance of partners and third-parties.
- Compliance. Be audit-ready with every contract and vendor action tracked and recorded.
- Renewals/Closeout. Never miss another renewal, with automated reminders to relevant business owners.
To find out more about how the team at Gatekeeper think about contracts, CLM and the role of Legal Tech, you can download our latest ebook on The false promise of Legal Tech CLM solutions.
More information on Gatekeeper can be found at www.gatekeeperhq.com.
Please contact the Gatekeeper team directly at email@example.com for more information or to arrange a demonstration.