In today’s ‘Next Normal’, many General Counsel must suddenly contend with a slew of new contract-related legal matters. Our recent “5 in 25” webinar, “How to Leverage Managed Contract Services in a COVID-19 Environment” explored our top five takeaways when a company is responding to COVID-19 contract related issues. If you missed this webinar, you can watch it on-demand here.
5 Key Takeaways:
1. Think of Contracts in the Context of Your Business Operations.
The analysis of contracts is not strictly a legal matter. It can be productive to determine the business impact (on revenue, cash flow, etc.) of your contractual obligations. For example, it is critical to understand the obligations of counterparties to your company and your obligations to those counterparties. Failure of either party to perform duties can have a tremendous impact on if, and to what extent, your company is in breach of your contractual duties, and non-performance of counterparties may result in business or supply chain interruption. Insight into these provisions will also inform decisions about what modifications you might propose to existing contracts.
2. Set Up a Framework for Analyzing Your Contracts.
The COVID-19 economic downturn is creating new business pressures at the same time that many companies are downsizing their legal staff. There’s more to do, but fewer people to handle the work.
This makes it crucial to systematize and automate your contracting function. Using what we call a “contract insights framework”, legal departments can extract relevant information from their existing contracts. This can determine obligations and make it enable lawyers to access contract information with ease and agility, strengthening negotiating positions and accelerating cycle times from intake through execution.
A framework for on-going contract analysis is also an exercise in introspection and understanding: for example, volume of contracts executed per unit of time; levels of risk and complexity contained in your contracts. Once you gain the ability to systematically assess your contracts according to risk and complexity, your law department can more effectively prioritize which contracts require the most urgent and intense scrutiny by in-house staff. This also enables the department to identify a corpus of agreements ripe for support by a law company (like Elevate).
3. Free Up Your Lawyers to Practice Law
Almost overnight, many companies have had to reorient their legal departments to respond to the changed circumstances of COVID-19. By triaging contracts according to complexity and risk, you enable your lawyers to focus on priorities that create (or mitigate) most risk for the organization; enabling lawyers to practice ‘more law’.
For example, many contracts contain terms concerning force majeure, Acts of God, and other release mechanisms. Often, these are standard terms in all of an organization’s contracts, and typically, the question of whether such provisions apply is a matter of legal interpretation. At Elevate, we have been helping our customers to think systematically about what information is most crucial in the triage function, and optimize their process for working with outside counsel. That way, law departments can hand off low-risk, low-complexity work to a law company, thus freeing up company lawyers to focus on substantive issues of law around areas like release mechanisms, or to leverage law firms’ subject matter expertise in a more precise (and cost-effective) manner.
4. Standardize Your Approach.
Significant efficiencies can result from creating contract templates and a playbook that specifies matters such as risk tolerances, default and fallback negotiating positions, and preferred provisions. Instead of multiple templates for a single contract type, work to consolidate into a single contract template that embodies your preferred positions on various provisions.
5. Identify and Address the Repeat Issues.
Often, when providing contract analysis services to our customers, it quickly becomes apparent that certain provisions and issues are repeatedly being escalated. For example, counterparties asking for remediation of payment terms or modifications to their contracts. When issues occur repeatedly, you should modify your playbook to address them, rather than addressing the same matter again and again. You gain efficiency by applying your learnings and escalations and leveraging them to create uniform procedures, standard responses, and default treatment of frequent issues.
Conclusion: Crisis or Opportunity – or Both?
The COVID-19 pandemic is resulting in novel and pressing demands on the contracting function of law departments. COVID-19 has created crises that demand quick and decisive action. Yet, law departments also have an opportunity: take the initiative, leverage analysis performed to support COVID-19 response, and develop more effective ways to operate your contracting function. Do this properly, and you’ll find that in short order you can manage your contracting function in a way that is more uniform, less risky, and more efficient.
The COVID-19 pandemic is resulting in novel and pressing demands on the contracting function of law departments. COVID-19 has created crises that demand quick and decisive action. Yet, law departments also have an opportunity: take the initiative, leverage analysis performed to support COVID-19 response, and develop more effective ways to operate your contracting function.