NDAs Can Make or Break Your Contract Management Process
by Dermot Whittaker on February 15, 2019
The non-disclosure agreement (NDA) is one of the most common contracts in business. NDAs often make up the largest quantity of any contract type a company will generate, negotiate, sign, and manage. For that reason alone, automating this agreement can free up hundreds of hours per year, many of them spent by highly paid in-house counsel or outside legal firms.
The purpose of the NDA is to allow confidential information to be shared under terms that prevent its being disclosed more widely than necessary. Sometimes called confidential disclosure agreements or simply confidentiality agreements, NDAs are common in industries with valuable products in development (pharma, software), proprietary processes (manufacturing, chemicals), or valuable information (holding companies, investment, marketing). However, any company that is prepared to demonstrate a product or share pricing may want an NDA in place beforehand.
There is often a desire for speed in getting NDAs completed so discussions and business can proceed. Better management of NDAs, especially through contract management automation, can certainly lead to efficiencies, reduced hours, reduced cost. But management of NDAs across their whole lifecycle can reduce risk as well – the whole point of the NDA in the first place.
Here are some ideas for better managing NDAs across their lifecycle.
In most organizations, requests for NDAs come from business users and are directed to legal. In an ad hoc system, in a series of emails or phone calls, legal will
- Find out who is requesting the NDA
- Learn the purpose and counterparty for the NDA
- Send a draft contract (in a routine case) or craft a contract with specific language (in a more high-risk case)
This back-and-forth is inconvenient for the business user, since legal is usually busy, and expensive for the company, since even these basic transactions are billed at legal rates.
With contract management automation, time can be saved for both sides. For example:
- The business user can check to see if a master NDA for the counterparty already exists (large research organizations like universities often have these in place for better control of the terms)
- With an electronic form, the business user can request an NDA and supply all the information necessary to complete a contract – typically the counterparty’s identity and the business need for sharing confidential information.
- Contract templates prepared by legal will be merged with the input of the business user to generate a draft NDA which the business user can send to the counterparty for consideration.
In this automated scenario, the business user receives an up-to-date NDA in minutes with no personal involvement from legal, saving time and money. Multiplied over hundreds of employees and requests, the savings from this basic automation example can be significant – an easy return on investment in a contract management system. In addition to the time savings, the system preserves controls in the following ways:
- NDA requests can be limited to the users who need to make them based on system login and the person’s business role.
- Legal language used in any NDA generated by the system is approved, consistent and up-to-date.
As noted above, an NDA request can be met automatically where legal has prepared NDA contract templates. The same contract template can be used to meet any NDA request for which it is appropriate. This eliminates repeated, isolated redrafting of NDAs for well understood scenarios, saving legal time and the company money.
For some organizations, a single standard template may suffice for a situation where it is known that confidential information will be shared. In other organizations, different requirements may call for different NDA templates. Some common ways that NDA templates may differ include
- Mutual vs unilateral protection
- Low-risk vs high-risk scenarios
- Short-term vs long-term contracts
- Varying business needs
A contract management system increases efficiency by storing all templates securely in one repository and applying them appropriately to the needs of different business requestors. With automation, different templates are available only to the users who need them based on their roles (sales, researcher directors, executives, etc.) and the information they provide on the request form. The same system can produce a basic NDA needed by sales to cover pricing discussions or a more detailed NDA appropriate to a pharma research collaboration or proposed drug study.
NDA Negotiation and E-Signature
NDAs may be short, but they often go through several rounds of negotiation. Parties disagree about what constitutes confidential information and the extent of their obligation to protect it, return it, or eventually destroy it.
For business users, negotiation of the NDA is troublesome. It requires time and effort to send and receive marked-up versions of the contract, forward them to legal, and receive a new draft to send to the counterparty. In addition to their troublesome manual aspect, these negotiations often start a relationship on a contentious note and postpone actual business.
Automation can improve this situation is several ways:
- Automatic email collaboration can promptly send and receive contract documents with email notifications that a draft awaits counterparty review.
- Once a draft is received back from the counterparty, it can be routed automatically to the legal reviewer.
- Version comparison reliably shows the changes made by the counterparty without a tiresome manual cross check.
- Legal can quickly deal with NDAs that are queued in a dashboard. Reminder emails and escalations ensure that legal review is not postponed beyond a reasonable time.
- The final version of the NDA can be accepted, formatted and sent for e-signature from within the system, a time saver that also makes the NDA process less painful, an orderly prelude to future business collaboration.
In some cases, an organization may delegate negotiation of NDAs to a trained paralegal or other authorized negotiator using a contract playbook with instructions and fallback clauses. This can also reduce legal hours and costs while maintaining control over the company’s commitments.
NDAs are a classic example of the “file it and forget it” contract; once it is signed and out of the way, many organizations never look back. This may be a serious mistake depending on the NDA terms agreed to, many of which require management. For example:
- NDAs usually state how long the parties are obliged to protect shared confidential information. Terms range from a year or two to indefinitely.
- NDAs define confidential information differently. Many NDAs limit the information only to what is written and tagged “Confidential” or to orally disclosed info that is later memorialized in writing, with a 30-day period.
- NDAs sometimes refer to a proposed invention, process, innovation, or strategy in order to protect the same for business purposes or for a patent application. This may affect or forestall a similar project on the part of one of the parties to the NDA – and both should be keeping track of this going forward.
- NDAs often require that the parties securely limit access to confidential information within their organizations on a need-to-know basis. They can also require the deletion or destruction of confidential information after a defined period.
Given the hundreds or thousands of NDAs that some organizations sign, managing these agreements could be overwhelming – one reason the risks are often ignored. A contract management system can help an organization manage NDAs better in several ways:
- Final, signed NDAs are stored in a single electronic repository where they can be found quickly and referenced as needed.
- Basic contract metadata such as effective dates help organizations see which agreements are current and which have expired.
- Key obligations – to destroy data, for example – can be tracked with electronic tasks assigned with due dates and owners.
- In special cases, high-value confidential information can be stored and linked to NDAs governing its use and destruction.
NDAs are here to stay, in most cases for good reason. If information is worth protecting in a contract, then contract management automation is worth the investment. It will make requesting, negotiating and managing NDAs faster, more efficient, and freer of risks to the organization.