Contracts are the lifeblood of any business. Each contract is a documentary representation of the intentions and hopes of two parties that will fuel the next chapter of a business.
If you want to create new products, you are likely to need to come to terms with new primary suppliers. Entering new markets to acquire new customers? They are going to need contracts too.
And yet, businesses spend no time building or implementing a contract management strategy until something goes wrong. Other businesses have their legal function spending an inordinate amount of time managing contracts and it can be difficult to discern what the value is (as nothing goes wrong).
Through my conversations with General Counsels (GC’s) around the globe, progressive GC’s are thinking about contract management differently. Contract management is important, but not so important that you should put your best people on that task.
Contract Management is important to any business because it represents both the greatest enabler to success and the greatest risk. An untracked autorenewal contract has the potential to double your supplier spend for the next 12 months or longer. A lost contract may mean an audit is failed or, worse, a contract cannot be enforced.
I hear from GC’s who proudly state that the legal function is the organisation’s last line of defence against the hidden risks of contracting and it requires careful attention to detail. Accordingly, they allocate up to 60% of their headcount to contract management.
Before coming to why contract management is not important, I’d like to define what I mean by contract management. Contract management is any process associated with a contract, either pre or post signing, with another party. This includes, but is not limited to, contract requests, triaging work to lawyers, drafting of contracts, collaboration with stakeholders, tracking versions of contracts, applying and enforcing delegations of authority, execution of contracts, storage and retrieval of contracts, reporting, milestones and performance management, and renewal/termination process.
Progressive GC’s think about contract management differently. They see all the risks that poor contract management bring into the business and decide to systematise the manual tasks away from their best lawyers. Lots of contracts in an organisation are not bespoke and, where possible, lawyers should endeavour to maintain standard terms and conditions for ease of performance management and managing payment terms/cashflow. This streamlining of both contract terms and contract processes enables GC’s to explore options to automate, outsource or eliminate tasks which would otherwise be completed by highly paid (and educated) lawyers.
Contract management is not considered important by progressive GC’s because it is not a high value task relative to other opportunities like, regulatory analysis, business partnering or freeing up capacity to focus on deeper strategic advice on key projects or contracts. Contract management is not important with the right processes and technology implemented which will come at a much lower cost and scale more effectively across the business. Technology maturity breeds systematised governance, greater visibility over all potential risks and data points to be more proactive as a legal function (i.e. having a dashboard to understand what % of all client contracts have opt out clauses reveals how financially secure a business is).
I am yet to meet a lawyer who wants to do more contract management. Therefore, technology investments have a number of secondary benefits for the legal function and the business as a whole which include, improved engagement from lawyers, redeploying lawyers to higher value tasks and empowering the business to own processes like contract generation of low value/low complexity documents. Moreover, the development and adoption of technology in the legal profession means that in-house lawyers can begin their learning journey of how capabilities like AI and automation are going to continue to disrupt their careers.
In this sense, contract management is a little bit like democracy. It’s not important unless it is failing. By building the foundations of process and technology maturity in contract management, legal teams can reduce the burden of these manual tasks that deliver little value to the business day to day.