How to Accelerate Legal Contract Review and Reduce Risk
“Hello Karen, I just wanted to check in again to see if your legal department had a chance to review that contract yet? As you know, the deadline for…”
How many times have you written (or been on the receiving end of) this email? The legal contract review bottleneck is one of the overriding factors that slows contract management to an excruciating crawl.
Poor contract management costs the average company 9% of annual revenue. Slow contract review processes can waste valuable man-hours and cause business deals to fall through.
Of course, that’s not to say that careful, thorough contract reviews are not absolutely necessary. Let’s not forget the case of the $750 million comma – when Ranger Insurance avoided paying hundreds of millions in damages after the BP/Deepwater Horizon oil rig disaster – all because of a misplaced comma in the contract!
But how can you avoid grave contract risks like these while accelerating the contract cycle at the same time? By implementing effective contract review processes and tools.
In this post, we’ll dive into straightforward ways you can streamline legal contract review, speed up contract cycles, and reduce contract risk in the process.
Common Contract Risks
Before we jump into how to improve your legal contract review process, it’s important to understand why meticulous legal contract review is so necessary: contract risk.
Legal contract risks can hide in plain sight. As in the case of the $750 million comma, every word and punctuation mark should be revised carefully during legal contract review to ensure clarity and favorable language choices.
Here are some of the most common contract risks:
• Security Risks – Contracts often include or deal with sensitive personal information, so confidentiality and data security present their own specific risks.
• Liability Risks – These include liability claims, warranties, disputes, and litigation, as well as confidentiality disputes and IP infringement.
• Compliance Risks – Keeping up with regulatory compliance and legal responsibilities. For example, new internet privacy legislature (e.g. GDPR and CCPA) can dole out massive fines for noncompliance.
• Revenue Risks – Any risk that affects your bottom line, such as unfavorable language or loopholes that lead to payment disagreements, or oversights that result in expired contracts.
5 Ways to Streamline Legal Contract Review and De-Risk Contract Management
Here’s the upside. Reducing legal contract risk doesn’t have to require more man-hours or slow your company down from closing that big deal. With the right contract review process and tools, you can reduce risk and speed up your contract cycle without ramping up your resources.
1. Store Contracts Securely and Effectively
As your company grows, as does the number of contracts you have to keep track of. How is your business storing those contracts to ensure safe and easy access?
Musty filing cabinets are no longer an acceptable option for contract storage.
Storing contracts in your email inbox or on your computer desktop? Unless you enjoy searching endlessly for files, battling access permissions, confidentiality risks, and then still ending up with the wrong version of a contract, these are a no-go as well.
These methods of contract storage are not just easy targets for hackers, but prone to an accidental security breach as well.
To avoid unnecessary contract risk, you need a digital contract repository that protects your contracts from improper access and makes your job easier in terms of finding the right contract in less time.
Here are a few things you should look for in a good digital contract repository:
• Up-to-date central access to active or working contracts at any time
• Granular user permissions and authentication to keep track of which employees can see or edit contracts, as well as who made changes and when
• Leading-edge security and encryption measures to protect sensitive information
• In-depth organizational tools to categorize contracts by type
• Easy search features to bring up the correct contract quickly
There is just too much to keep track of in contract management to not have effective contract organization and security.
“The first step of any contract analytics project is simply finding all of the contracts located on local drives, shared drives, SharePoint sites and even email servers.. After finding all of the contracts—which.. can take days—the next step is to figure out which ones are actually active and how the mass of agreements, addenda, appendices, purchase orders and more all fit together.”By The ABA
Gathering all your contracts into a central repository is the first step in streamlining legal contract review. Once contracts are organized into one secure place, you can start to think about how to improve them by using smart contract templates.
2. Create Better Contracts with Data-Informed Templates
Contract templates are nothing new, right? But what about constructing data-driven templates based on what works and doesn’t work from past contracts? This is the future of contract writing.
Most companies try to maintain up-to-date contract templates. But when multiple team members are simultaneously working on stacks of contracts, how to keep up with the latest and most effective contract outlines?
What you need is good data and a system that keeps the latest templates organized in one central location. This is how it works:
- First, identify which contract clauses and language terms have resulted in the most favorable outcomes.
- Terms, language, clauses, and provisions from those best-performing contracts can be used to populate new contract templates.
- Less successful contracts can be retired or marked so that they are not used again.
- The resulting data-driven contract templates will be made universally available so that all staff members have access to the latest versions.
- Data and templates can be revisited and updated at any time to stay current as business practices evolve.
With a set of current, results-based templates in place, your legal team will be well equipped to draft smart contracts faster. But remember to track contract activity in the process! Keep reading to find out why.
3. Keep an Audit Trail of all Contract Activity
Good record-keeping can be a great comfort to you and your legal team. The comfort lies in knowing that there will be no nasty surprises if a contract is disputed or a deal goes wrong. That’s why you keep an audit trail.
Consider the case of Adams v Quiksilver. A former employee of Quiksilver sued the company despite an arbitration clause in their contract.
Why? Because Quiksilver’s online contract software failed to document the date and time when she signed it.
Without an audit trail, there was no way to prove that Adams had signed the document with an electronic signature. This is a perfect example of the risk presented by bad record-keeping.
“Creating and preserving audit trails is the key to winning any court case… You need an audit trail and if you have one, you want to make sure that employees or other people can’t alter a record.”By Legal Expert Margo Tank
For the best results, you’ll want to set up a record system that includes the following:
• Complete records of which employees/partners accessed each contract and when
• Visible contract activity that reveals each change and development in real-time.
• Accountability for contract updates and approvals (zero confusion as to who is responsible for the next action item)
• Audit trails that ensure all routing, approvals, negotiations, signatures, and amendments are meticulously recorded with date and time stamps
• The right contract management software can integrate contract activity and audit trails into the everyday management of the contract cycle.
• Communication and collaboration are a natural component of this system, and that’s what we’ll be talking about next.
4. Facilitate Communication with Real-Time Collaboration
Communication. This is often where the bottleneck starts. When contract reviews and approvals are bouncing from one inbox to another, a single oversight or accidental click can bring your project screeching to a halt.
Multiple contract versions, slow approvals, accidentally deleted messages; these are only a few of the everyday problems that slow down collaboration. An effective contract review process calls for prompt, precise communication between collaborators, and email is not the solution.
A successful contract workflow should look like this:
• Live contract visibility so everyone can access the latest version
• All discussions, task lists, approvals, and changes are visible in a central, cloud-based location
• Real-time comments, suggestions, and interactive discussions
• Automated reminders, nudges, and escalation tactics when approvals or progress comes to a standstill
The average business takes 8 weeks or more to develop and execute a new contract. By accelerating workflow, legal contract review, and approval times, you can cut contract cycles like these in half.
Once the deal is done and the contracts are signed, however, the tracking and reporting phase begins.
5. Track and Report on Everything: Contract Types, Clauses, Amendments, Commitments, Expiration Dates, etc.
Contract administration and analysis is all about the details, and details can be easily overlooked. Forbes reports that about 60% of supplier contracts renew unbeknownst to buyers because they forget to terminate. Small oversights can result in serious profit losses.
These are just a few of the particulars that may pop up during the lifecycle of an active contract:
• Milestones and timelines
• Obligations and terms
• Compliance deadlines
• Expirations and renewals
• Analytics and performance tracking
To avoid the pitfalls of human oversight, you’ll need a reliable contract analysis platform that keeps track of every action item in a contract lifecycle. Missed deadlines and reminders should be automatically escalated to a higher level before disaster ensues.
“Having definitive, measurable results will not only foster accountability but also truly document the value of your successes and your contract management organization.”By Ole Horsfeldt, IACCM
Careful performance measurements and reporting will drive the decisions you make about ongoing and future contracts.
If slow legal contract review and approval bottlenecks are weakening your productivity, it’s time to implement the above steps to improve contract review workflows and cycle times. If you’re not sure how to get started, just ask!
You can set up the exact process described in this post with the Parley Pro contract management platform. Streamline your contract review process, avoid unnecessary contract risks, and gain a competitive advantage with a faster contract cycle.