By: Doug Kaminski
Chief Revenue Officer, Cobra Legal Solutions
Drafting, reviewing, and managing contracts has become more complex than ever these days. The economic crisis caused by the COVID-19 pandemic prevented numerous individuals and companies from fulfilling their contracts last year, forcing mass review of those contracts to determine what recourse contracting parties could take to address the situation. The number of contracts affected, and the costs associated with review of those contracts was, for many companies, astronomical. Here’s what you can do to address the contract review dilemma and ensure your processes are more streamlined.
The Pandemic Contract Review Dilemma
In many contracts, it’s common to include a standard clause known as a “Force Majeure” clause, which addresses unforeseeable circumstances that prevent someone from fulfilling a contract. French for “superior force”, Force Majeure is a common clause in contracts that may free the parties from contractual obligations as a result of an extraordinary event or circumstance beyond the control of the parties. But there may be no ‘boilerplate’ Force Majeure clause, as each one is often the subject of negotiation between the parties. So, many organizations had to review each of their affected contracts once the pandemic impacted those contracts to determine next steps.
Add to the challenge that the typical Fortune 1000 company maintains between 20,000 to 40,000 active contracts, so that means thousands of contracts that potentially needed review. Then, consider the time it takes to review each contract. Unlike document review for litigation, where review of each document takes about a minute on average, review of a single contract could potentially take several hours.
Traditional methods can’t handle the scale cost effectively. According to BizCounsel, basic contract review can cost you anywhere from $450 to $3,000 – per contract! And it can cost even more than that per contract for them to “redline” the contract and conduct negotiations. The costs can add up quickly.
Taking a Managed Approach to Contracts
Part of the challenge of contract review stems from the way contracts are created in the first place – the language contained within them can vary over time or based on who is drafting the contract. Contract lifecycle management (CLM) is the structured management of an organization’s contracts – from initiation to execution through performance and renewal to eventual expiration – to enable the organization’s approach to contracts to be streamlined and even automated. Let’s take a look at the steps in a typical contract lifecycle:
- Template Creation: Perhaps, the most important step begins by creating and maintaining template standards within the organization for contracts. There may be one or more templates for an organization depending on the types of contracts being managed, but the templates should be consistent to the extent possible to minimize work required downstream.
- Contract Creation: When creating specific contracts, leveraging those templates and rules-based engines can help streamline and automate the creation process for each contract.
- Contract Review: Establishing a consistent workflow that leverages technology to assist with the contract review can capture terms in a structured manner to support downstream analytics, while also assessing compliance with frequently changing company policies. You’ll want to document in an evergreen document: the playbook.
- Contract Approval: In many organizations, contracts may have to go through multiple levels of approval, including management, purchasing, legal and other departments. An established and automated workflow streamlines this process.
- Contract Execution: Physical signing of contracts these days is becoming much less common (especially since the pandemic). Use of electronic-signature platforms like DocuSign and Adobe Sign and even QR code validation is becoming the norm. Workflows are adjusting for this new standard in contract execution. Blockchain adds another dimension.
- Contract Performance: The steps taken earlier in the process to capture terms in a structured manner lead to the ability to apply analytics to track performance under those contract terms and identify potential breach of terms earlier in the process to address the issues before they become critical. Tracking the performance of contracts manually is becoming obsolete.
- Contract Renewal and Expiration: Lifecycle management concludes with the end of a contract, and analytics help here to keep track of which contracts are reaching their end cycle and provide information regarding those contracts that can be (or should be) renewed, as well as those contracts that will (or should be allowed to) expire.
The traditional “one-off” approach to contract review is inefficient and expensive. Today, efficient contract management starts with a structured, lifecycle-based CLM approach to managing contracts from beginning to end, working with experts that can help implement and manage such an approach – at a fraction of the cost. The next contract dilemma may be just around the corner – are you ready for it?
For more information about Cobra’s Contract Management services, click here.