This is one of a series of guides created by Radiant Law to help in-house legal teams improve their contracting processes. Although these guides are focused on handling commercial contracts, many of the approaches can be applied to other activities that you do.
Contents
- Introduction
- Understanding Contract Projects
- Initiation
- Planning
- Execution
- Monitoring
- Conclusion
- What to do next
Introduction
Laws change, companies merge, products evolve - there are many reasons why you might need to review and update your contracts. These projects, though almost inevitable, are time consuming and can quickly swamp teams, especially as companies rarely have people sitting around waiting to work on them.
In light of this, in-house teams have two options when these projects arise: (A) hire temporary team members and manage and deliver the project themselves, or (B) hire a specialist firm to deliver the complete project. We are going to focus on option (B) - bringing a supplier in to help you - which is what Radiant Law specialises in.
In practice, it turns out that even where you go for option (B), there are things that need to be done as a customer that can’t just be dumped on your supplier, if you want your project to succeed. This guide, following on from our In-House Guide to Buying Managed Legal Services, is the how-to for legal teams to succeed by being smart buyers.
Understanding Contract Projects
What we mean by a "Contract Project"
Here’s the classic scenario: some event has happened (think Schrems II, the EBA outsourcing guidelines, a commercial policy change, an acquisition or divestment etc), and you have been asked by management to check your multitude of relevant contracts to determine whether they are compliant and, if not, to remediate them by issuing amendments and then agreeing the amendments with the other parties. So you have two different phases: a high-volume review and a high-volume negotiation (there are also simpler projects which are just reviews - such as due diligence or populating a contract management system - much of this guide will be relevant there too).
But what about technology?
As you try to quell the panic when asked to run one of these projects, you may feel the urge to rush to legal tech. After all, isn’t this what AI is all about? And yes, there is a role for technology in these projects, but technology will not solve everything. AI can be used to identify clauses of a certain type but it is by no means perfect in what it finds… and it also can’t interpret clauses, so they are still going to have to be read by a human. And with the negotiation stage, you may need to create tailored amendments (document automation can help here), but you then need to actually negotiate the amendment… and that too requires humans.
The upshot is that technology is necessary, but not sufficient, and you are going to need a team. So you decide to bring in the experts, with the technology, but is that enough? And the answer is no… because unless you can identify your objectives, set up the project for success, clear the way internally with finding agreements and getting approvals, and keep an overview of what is going on, then there is no guarantee of success. This guide is going to walk you through all those steps to set you up for victory.
Project hygiene
The Project Management Institute, and others, have published much on basic project management. We are going to focus in this guide on what is unique to contract projects, but the general principles still apply, including:
- Make sure you have identified your stakeholders, and understood their objectives (if the objectives may conflict, try to rank them).
- Have a suitably senior project champion, while trying to avoid having too many cooks.
- Document the objectives, scope of the project and responsibilities. Consider using a RACI matrix to be clear about who is going to be responsible, accountable, consulted with, and informed, at each stage.
- Be clear about what are the key milestones for the project (and which of them are real and not just for applying management pressure) and what “done” looks like.
- Try to avoid having to desperately fit everything into an overly tight and unrealistic timetable. Use data from previous projects to come up with reasonable estimates (your supplier should be able to help).
Initiation
As part of scoping out the project consider the following:
Legal Advice
Delivering contract projects is a specialised role that is now more commonly performed by alternative legal service providers (ALSPs), where project management is not a novel concept, rather than traditional law firms. Having said that companies often use their go-to law firm to obtain legal advice when there is a regulatory change.
If you get that advice:
- ensure you get clear guidelines on what is a must-have from a legal compliance perspective rather than a nice-to-have (you’re going to need this later for the playbook), and
- get your project supplier to give you feedback on any proposed amendments from the advisory firm to help optimise the language for quick closings. In our book on improving contracting (Sign Here: the enterprise guide to closing contracts quickly) we describe a project where unnecessarily aggressive drafting that went beyond the legal requirements made amendments take over four times longer on average to negotiate.
Two for the price of one?
It can be hard to keep track of all the projects going on in your company, but we have seen examples of multiple projects ending up amending the same contracts in relatively quick succession.
Early in your planning, it would be worth considering:
- Are there multiple changes required, for different reasons, to the same contracts?
- Is there additional information that could usefully be extracted from the contracts (but see below about not overdoing it)?
- Is this, more generally, an opportunity to get your contractual lands in order, including ensuring that in future they are findable again in a contract management system?
Appointing a supplier
As mentioned above, we are seeing more companies selecting ALSPs to run their projects as the options in the industry have grown. Whoever you use, you should expect your supplier to bring the following:
- Fixed pricing, either of the whole project if the scope is well understood, or on a per-contract basis with a set-up and monthly management fee if volumes are uncertain.
- Project management expertise, with a deep understanding not only on how to run these projects but also the likely issues that you will face and strategies for how to address them.
- A scalable team, as effort tends to vary over the course of the project and a fixed size of team in practice will lead to either a drawn-out process (with progress at crunch points constrained by the resources) or resources (that you are paying for) sitting around.
- Sufficiently skilled team members who can spot, understand, and negotiate the issues.
- Technology to speed up the delivery and tracking of the project (though be cautious of suppliers betting on the success of a system to analyse the contracts).
You will also need your supplier to provide a solution and price based on the best information you have about the objectives, scope, size and known constraints of the project, so it is worth both doing your homework first and sharing the conclusions with potential suppliers.
Planning
With your scope and objectives finalised, and your supplier appointed, now’s the time for detailed planning.
Designing the process
Every project needs a plan and when you bring in experts they should produce a first cut of the plan for you. However, you should care about the approach taken in the plan, not just because you are vested in the success of the project, but also because:
- in the remediation stage, the project will involve interactions with third parties that your company has relationships with, and
- throughout the project, there will be interactions within your organisation, which you are best placed to understand and steer.
With this in mind, consider the following as you work with your supplier to refine the approach to the project:
- Create a map of the process (we like swimlane diagrams for this) identifying escalation points and how counterparties will be interacted with.
- Include in the plan an approach to communications, both within your organisation (who needs to know what by when?) and with the other side. Your supplier should be able to bring best practices on handling these communications effectively.
- Consider your priorities and the sequencing: Should you have a cut-off point with some contracts not worth considering? Can your finance department help with e.g., actual spend or revenue?
- Do you want to treat smaller v larger value contracts in different ways?
- Are there low-hanging fruit worth pursuing initially?
- Are there priority contracts?
- Do you need to take account of holiday periods and quarter/year ends in your predictions of how quickly the other side will respond?
- Consider what information you really need to extract from the agreements? It can be tempting to be complete, but the law of diminishing returns will kick in and better to focus on the decisions that need to be made and the minimum information required to make them.
Getting ahead of risks
Things don’t always work to plan, but planning for risks gives you the chance to get ahead of the worst impacts. As you develop your plan, hold a joint session with your supplier to walk through what are the most likely things to go wrong and how they can be mitigated. Those mitigations should then be built into the plan.
You should also have an eye on the impact of missing your deadlines. Building in slack would be a good starting point, but also have a plan B.
What you will need to provide
However much you want to “fire and forget”, your supplier will be dependent on you to provide the agreements to be reviewed, feedback on escalations and final approvals. The most common causes of project delays come from problems getting hold of contracts or the creation of unnecessary negotiations through unreasonable demands. Hitting your deadlines is as much in your control as your supplier’s.
As part of the planning, be clear on what you will need to provide and what the realistic time frames are for delivering your dependencies. And figure out how you will actually deliver those dependencies, including making sure that you have the necessary buy-in and resources.
Typically, you will need to provide the following for a project:
- the contracts plus any past amendments and ancillary documents (your supplier may also be able to help if there is a pile of contracts that need to be initially triaged),
- any relevant metadata about the contracts,
- counterparty details, including contact details,
- contact details of any internal colleagues that you need the supplier to deal with directly,
- potentially systems and email access,
- approvals and responses to escalation points, and
- guidance on which contracts are the priority.
Be careful about the data you are using to scope the contract. If it turns out not to be wholly reliable, well you won’t be the first to experience this. Consider how it was created and updated, how it could be confirmed (e.g., finance is often an excellent source of supplier information, given they pay the bills), and what the impact would be if your data turns out to be significantly wrong.
Execution
We’re now getting to the actual doing of the project. While you can look to your supplier to do the heavy lifting, there are things that you need to consider as the project proceeds.
Review process
The review process should be pretty straightforward from your perspective, once you’ve found your contracts, so start there and start early!
Getting on the same page
You should have a clear description of the points to be extracted, but is the information being collected going to really meet your needs? Get your supplier to check a sample of the contracts and go through the results to make sure they are actually what you want. Once you are happy, then open up the throttle on the rest of the reviews.
Minimising batch processing
There is extensive research on the problems with batch processing, in this case collecting all the contracts, then reviewing all of them, and finally then remediating all of them. Batch processing will be both slower and more likely to introduce errors, as you may not know, for example, whether the data collection is right until it is completed and the remediation is started. If you don’t believe us about “one piece flow” (the opposite of batch processing) being faster, watch this 46 second video.
This doesn’t mean that contracts should be dripped through, one at a time, but it does mean that you should aim to get going as soon as possible, and move from reviewing straight through to remediation for each contract.
As just one example of the issues of batch processing, consider this chart showing what happens if you delay the start of the review until you have found every contract. You have basically created a critical path delay to the completion of the project.
Using technology
As mentioned above, you should expect your supplier to bring technology that helps… and you should also be sceptical of technology-first solutions.
Our caution about the over-reliance on AI (aka machine learning and natural language processing) comes from real-world experience, and to understand it, consider what AI can actually do - find clauses of a particular type. It can’t understand the clause itself (although its mere presence or absence may be significant in some situations).
There are also huge variances in practice in how good the technology is at even finding the relevant information. To illustrate this, consider this chart from a recent paper about the results from using AI to find different clause types (proprietary vendors will no doubt claim far better results, but there is a dearth of published benchmark data on their performance). The issue only gets worse when you are handling PDFs of signed copies, with all the errors that OCR introduces.
So there may be a place for AI as part of the solution, but it will likely be a human-led review for the moment.
AI is not the only technology that can help. There are tools that are great for traversing PDF and Word documents (Radiant Law has built some), and some simple technology can be useful for tracking the project progress.
You will also face the question of how to get the contracts to the supplier. It’s worth checking whether you have internally approved data room software, but if not, your supplier should be able to provide a way to upload the contracts.
Remediation process
Being reasonable
Contract projects rarely start from a whim; there is normally a pressing reason why change is needed. Given this context, now is not the time to set a new record in obtaining unreasonable positions. We discuss (ironically, at length) in our book why you should aim for short, clear, reasonable, and relevant terms in your standard terms and it is even more important with your amendments.
The impact of the language of your amendments can be huge: we mentioned above how one (unnecessary) clause made amendments take over four times longer to close. You should therefore work with your supplier, who will hopefully be bringing deep expertise in how to close contracts quickly, to optimise the language along with how you position it to the counterparties. It turns out, there is a lot of psychology in play.
Playbooks
The purpose of bringing in a supplier to help you with the project is to get it off your desk. This is only going to work in practice if the rules about what to concede in negotiations can be codified, which is what playbooks are for.
Your supplier should be able to create the first draft, but you should be actively involved in agreeing fallbacks and identifying where you should still be referred to as an escalation point. The purpose though is to minimise the demand for your guidance if you are going to keep doing your day job, so try to keep the need for escalations to a minimum.
More technology
There is also a lot of technology that is valuable to delivering the remediation part of the project. All the amendments should be created using document automation (for speed and accuracy), esignatures are a no-brainer, and progress will need to be tracked.
But again, technology will be a tool to help the supplier deliver, not the sole solution. You will need to deal with pushbacks, and want the negotiations to be handled for you. Having said that, there are opportunities for the simpler projects for a close-to-fully-automated solution. Horses for courses.
Monitoring
You will want to know what is going on throughout the project, without having to have daily discussions. If nothing else, it’s important to be able to quickly answer any management questions.
You should therefore be getting regular updates (and ideally access to live data) on progress, along with having regular governance meetings with the right people (remember, not too many cooks).
Your core metric is going to be how fast the contracts are being reviewed and remediated and the best way of showing this is a burn-down chart (or burn-up chart if you keep adding to the list of reviews), which shows the percentage completed. If there are delays you should also be getting new projections on likely outcomes, and the steps that are being taken to get the project back on track.
Closing
Take a moment to celebrate the delivery of your project. However, if you struggled to find your contracts, this would be a fantastic time to consolidate your achievements and populate a contract management database. Get the extracted data in an uploadable format and store all the contracts you found along with the new amendments.
In other words, try not to collapse over the line and lose all the good work in an email chain that will be quickly forgotten.
This is also the time to do an after-action review with the supplier. Identify what you hoped to happen, what actually happened and what lessons can be learned. No project is perfect, but every project can teach us how to get better in the future.
Conclusion
There may have been more here for you to do than you hoped, but it’s better than thanklessly reviewing contracts past midnight! Much of it comes down to being smart up-front and really thinking the project through. If you can get going on the right footing, victory is close to assured.
What to do next
- You can get our book here, and learn more about how to make your contracting fly.
- If you have a specific project coming up or would like to discuss project support more broadly we’d love to have a conversation. Drop us an email to set up a quick call - we can get you pricing and a project plan within a day or two, and be up and running very soon after.
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