Contract Economics 101: Leveraging Process and Automation

In our last blog, Contract Economics 101 | Focusing the Right Human Resources on the Right Business Problem, we reviewed the different roles professionals play in creating and managing contracts. While you may have the good fortune to have a team of attorneys in your employ, it might not make smart economic sense to dedicate them to standard contract reviews. Rather, it is best to ensure that those who can most economically and efficiently address the various aspects of contract lifecycle management do so.

Once the correct resources are aligned with their appropriate business processes, making these resources more efficient should then be addressed. Efficiencies can be gained in two areas: by introducing standardization and process, and by automating those processes that are best served through automation. When analyzing how and where to introduce these efficiencies, it is important to do so both in regards to the specific roles that partake in the process (General Counsel, Contract Manager, Sales VP, etc.) as well as the individual contract types (NDA, Sales Agreement, Acquisition Agreement, etc.)

Leveraging our prior example regarding Contract Managers, we suggested that (in most cases) Contract Managers are best suited to negotiate more standardized contracts, to leverage approved language, to manage the contracts themselves, and to ensure that contractual obligations are tracked and met. The reality is that Contract Managers spend much of their day searching for approved language or standard contract templates, reviewing fallback provisions, getting routine language approved, creating lists of obligations and their associated documents for tracking purposes, and assembling and researching data on contracts for reporting requirements. A tremendous amount of time is lost throughout this process – not to mention the aggravation and frustration which are introduced.

When considering the efficiencies which can be gained through the introduction of standardization and process, the following readily present themselves:

• Use of contract templates which accommodate various business scenarios including NDAs, License Agreement, Professional Services Agreements, Statements of Work, and other supporting documents
• Socialization and on-going education of the centralized location from which contract templates can be utilized and where executed contracts should be stored
• Creation of a Contract Playbook with approved language and fallback provisions

In the context of automation, assuming that the appropriate business case applies – note that not all contract processes should be automated – automation allows a variety of efficiencies to be gained:

• Contract creation via forms which prompt for the appropriate business scenario and required information
• Automatic sourcing of alternative language and fall back provisions
  Integration of Line of Business Systems for purposes of autofill and consistency of data
• Proper document control and versioning through check in and check out functionality
• Automated escalations and approval functionality for high-risk language changes and spending thresholds with alerts and reminders to ensure that action is taken within agreed time frameworks
• Electronic signature (when allowed) for more efficient contract execution
• Search of contract repository for existing contracts with vendors, provisions, etc.
• Automated reporting of contract spend, expirations and renewals
• Management and tracking of contractual obligations – both simple and complex

As noted earlier, while the benefits of automation appear obvious, automation is not appropriate for all contract and document types, and/or business scenarios. For example, contracts which are unique in nature and are highly negotiated are not good candidates for automation. Business processes which require a high degree of care, are exception based, or require specific human intervention or analysis should not be considered for automation, either.

Time is money. Ensuring that your processes are as efficient as they can be – whether through standardization or automation – allows your resources to be deployed most effectively, contracts to be more readily created and approved in line with corporate compliance mandates, deals to be closed faster, and revenue to be recognized more expeditiously.

Contract Economics Blog Series

• Introduction
• Part 1 Focusing the Right Human Resources on the Right Business Problem
• Part 2 Leveraging Process and Automation
• Part 3 Building a Business Case for a Contract Management System
• Part 4 Transforming Contracts into Opportunities