EY and Harvard Law School recently published a study on Contract Management practices. As part of that, there were some musings by industry practitioners about where a Contracts group should be placed within a company. Rightly so, points are made that Contracting is a business process but it is a distributed management responsibility and often ends up being a situation where everyone is accountable therefore no one is accountable.
The solution being put forth, based on the quote below, is that a Contracting group should be created separately from Legal or Procurement or Finance. The challenge is if none of these functions owns it, does Contracting become an Executive Level business unit that is horizontally deployed across business units and other support functions? That would be managing uncharted waters for most companies.
Based on my experience, I feel that a Contracting group is best placed within Legal for a few reasons:
- Legal is the adjudicator of most organizational risk and, therefore, is well situated to balance business needs with legal and risk management needs.
- Lawyers are typically at the beginning, middle, and end of a contract negotiation, so the Legal team has visibility to most (if not all) agreements.
- Legal Operations has evolved to a level of sophistication such that technology, process, and management controls can easily be placed on a Contracting business process that spans the entire company.
- General Counsel are fast becoming not just risk managers but revenue drivers and cost management stewards (especially on buy-side Contracting). As such, this charter can be fulfilled much better if Legal owns Contracting.
- The GC-CFO interactions are much more regular now. Contracting is a key element of these discussions (revenue recognition, anyone)?
- Creating a standalone Contracting group would also not fully take advantage of all the points in a Contracting process where Legal judgement can be properly applied.
There may be some disagreements about this point of view, but that's why the title of this post has the word "contrarian" in it!
Creating a separate contracts group, outside the legal department, to oversee process improvement, optimization and an understanding of helpful technology is the best solution for contract transformation, she said. The group should be armed with the playbook of what legal and different business functions have agreed are the right terms and conditions.