What we wish we could say: “Stop submitting last-minute contracts for legal review!”
What we actually say: “No problem, I’ll get right on that.”
This happens ALL the time and is one of the greatest challenges for in-house attorneys to overcome.
It is no secret that last-minute contract reviews are frustrating for all contract reviewers. This persistent problem provides some of the best fodder for humorous legal content on TikTok, like this one by Alex Su or this one by Sarah Ouis.
But this issue should be equally frustrating to the entire organization because it is bad for business, too. A rushed contract review negatively impacts the entire deal, including commercial terms, and can cost the business thousands, if not millions, of dollars in economic loss.
This article will explain why rushed contract reviews are bad for business and how to gain better cooperation from your business clients and buy yourself more time for better contract reviews.
If you’re brought in to “review” a contract that has already been negotiated (or worse, already been agreed to by both parties), then you’ve already lost. And, arguably, so has your business client, even if they can’t see the repercussions just yet because they’re too distracted by the short-term glory of signing the contract.
As negotiation expert and business attorney Kwame Christian Esq., M.A. says, “Negotiation is all about strategy and positioning. If you’re bringing me in once it’s already started, you’ve already missed out on important opportunities.”
These are some missed opportunities resulting from last-minute contract reviews:
- Speed of review > quality of review
- Contract leakage > contract value
- Internal risk approval negotiations > external risk mitigation negotiations
- Pressure from internal client to accept all terms > leverage to negotiate better terms
- Legal is a box check > legal-by-design
Contract Leakage is Expensive
According to a recent study by World Commerce & Contracting (previously IACCM), on average most organizations lose about 9% of their overall contracts’ value. This phenomenon is referred to in the contract world as “contract leakage.” Failure to involve the legal/contract team early on in the negotiation process was number two among a list of the Top 10 Causes of Value Leakage in contracts.
Think about it for a second. How much revenue does your organization make per year? What is 9% of that? That’s the amount of money at risk of being lost due to last-minute contract reviews.
So why does this keep happening? Because the business prioritizes the wrong thing – speed. And legal serves the business. Unfortunately, we wouldn’t be doing our jobs if we held up contracts just to spite rushed reviews. Ideally, both business clients and contract reviewers should find a way to strike a balance between speed and quality. Otherwise, you’ll end up with misalignment, bad contracts, and lost revenue or savings.
What’s the Solution?
Whether your internal business clients are Sales, Procurement, Supply Chain, Product or HR, it is up to you as the contract expert to persuade your business clients to see the value in submitting contracts to you as early as possible. And I mean this in a very “If you build it, he will come” sort of way. You can use these different approaches to build long-term change at your organization from the inside-out.
1. Build trust with them on both the individual and executive level.
2. Ask them what kind of support and turnaround time they are looking for and use that information to create your contract review time KPIs. Communicate your KPIs to your clients on a regular basis.
3. Hold them accountable for unnecessary rush jobs by asking them for a business justification for the rush. More often than not, they’ll just say, “Ah nevermind, next week is fine.”
4. Setup regular pipeline meetings with them so you can catch important projects and deadlines in advance.
5. Conduct trainings for your internal business clients to teach them about some of your contract templates and why you include certain clauses. This will demonstrate the complexity of your work and help them understand why you need more time.
6. Reward process compliance and put up boundaries for those who repeatedly side swipe the process. This usually requires partnering with other departments that may carry more weight at your organization, such as Finance or Engineering. For example, if Finance requires all contracts to be reviewed and approved by Legal, then the business is more likely to comply with the contract review process because…the business wants the money. If Engineering insists on holding a weekly review of all pending contracts with the engineers and legal, the engineers will start paying attention to the contracts.
7. Leverage contract management tools to iron out your internal processes, so that inefficient processes don’t hold you back from providing swift reviews.
Author: Nada Alnajafi, Esq.