Help! I am buried in contracts!

One of the biggest, if not the biggest, bottlenecks in a corporate legal department is contracts. Most legal teams are inundated with so many contracts that they cannot process them in a timely manner and everyone, including the legal department, is frustrated by how long it takes to complete a contract.

This is a problem with many causes and solutions. Below are a few of the bigger ones.

1. Contract owners don’t read their contracts

In most companies the person procuring a product or service receives a contract in their email and immediately forwards it to the legal team for review.  How does this contract owner know whether the contract accurately describes what they are buying, how much they are paying for it and when the deliverables are due? If the contract owner would just read the contract before sending it to the legal department and make appropriate notations on expected deal terms, a lot of time could be saved on everyone’s part.

Pro tip:  Set the expectation that contract owners own their contracts. This means reading them, understanding them and assuring that the terms are what they expect.  While the legal team is responsible for making sure there are no contractual time bombs, the contract owner is responsible for making sure the contract describes the bargain they are making.

2. Contract owners don’t explain the contract terms

When contract owners forward contracts to the legal team for review, they frequently don’t tell the legal department the terms of the deal they made. What is being procured?  At what price? At what time?  In most cases, legal teams have intake forms for contract owners to provide this information.  Most of the time those intake forms are not completed at all or are left hopelessly incomplete.  This puts the legal team in the position of having to chase down the contract owner for the terms of the deal before they can review the contract.  That alone can cause a week’s delay.

Pro tip:  The legal team should reject without review any contract that does not arrive with enough information to be competently reviewed.  Tell the contract owner the contract cannot be reviewed until they provide the information necessary to review it.  Contract owners will quickly learn that to get their contracts reviewed, they have to do their part.  In smaller companies, this strategy will likely require buy in from the CEO and others on the executive team.

3. Contract owners don’t know what to do

Many of the people seeking a contract only need a contract once or twice a year.  This means they likely don’t know the process for getting a contract completed, what information the legal team will need, in what form it needs to be provided, the vendor on-boarding processes or the internal approval requirements.  As a result, they show up in the legal department needing help pulling together all the information needed for contract review and approval.  This puts the legal team in the position of being an expensive contract concierge/hand-holder and wastes a lot of time.  This is a problem for any legal team, but on a small team, it’s disastrous to their ability to deliver in a timely manner.

Pro tip:  Designate someone in the business (manufacturing/marketing/engineering) to be the person who submits all contracts for a particular department for review.  The legal team can train that person on what is needed, and that person will learn from experience what the legal team needs for a proper and speedy review.  I have seen acrimonious relationships turn into great relationships using this approach.

4. Legal teams read all or almost all contracts

I have spoken to many legal departments where the leaders insist that all contracts have some level of review by the legal department.  Some go so far as to say an attorney must review every contract.  It just isn’t the case that all contracts need to be reviewed, or that an attorney needs to review them.

Pro tip: The legal team, in conjunction with leadership on the finance team, should work through the company’s risk tolerance on various types of contracts.  Do you need to read the contract with the company that provides the copiers? Janitorial services? NDAs in non-risky departments?  Company branded backpacks? You will find a lot of contracts types that don’t need review or need only cursory review.  In many cases, that review can be done by a trained employee who is not an attorney.  Legal leadership should make sure they clearly define the contracts that need review and those that don’t.

5. Contract reviewers are poorly trained

Many legal departments fail to articulate for their contract reviewers how they want contracts to be reviewed.  Are we eliminating all risks? Are we making third party contracts look like our forms?  Do we demand unlimited liability from mom and pop shops on low risk products or services or at all?  Do we require vendors to obtain insurance at levels they are unlikely to qualify for or the value of the contract does not support?

Pro tip:  Leadership in the legal department needs to be clear about what issues they care about in different contract types and the acceptable resolutions for issues that frequently come up in all or particular contracts.  Without this clarity, contract reviewers will be reviewing contracts using different standards based on their prior experience or their individual risk tolerance from a business or career preservation perspective.

6. Contract reviewers don’t seek a middle ground

I can’t tell you how many times I have seen contract reviewers on both sides of a contract send back mark-ups that essentially made one form look like another form when the language of the contract already essentially said the same thing.  I’ve also seen contracts go back and forth with both sides inserting clearly one-sided language.  This is typically the result of people being too aggressive, too lazy, too poorly trained or too fearful of making a mistake to parse the language and find a middle ground

Pro tip:  Leadership should periodically review the mark-ups of the contract reviewers and give them feedback on what they did well, what could have been better and what they could have let slide. If a particular contract took an inordinate amount of time, look back through the mark-ups to see if there was something to be learned and adjusted. This will help the contract reviewers understand how the company wants them to work through various issues and learn from the feedback leadership provides.

7. External contracting parties can be slow and/or frustrated

It’s a maxim of contracting that the more you mark up a contract the more frustrated the other side will be and the longer it will take for them to respond to your draft.  When reviewing and marking up contracts, one has to remember that the contract team on the other side likely has all the same challenges I’ve described in this article.  The more you negotiate the contract the more you have to work through this dysfunction.

Pro tip:  Give the team permission to be judicious when marking up a contract.  Allow them (and expect them) to only pick battles that matter.  If the language isn’t perfect but does the job, let it go.  The vast majority of contracts will never be in dispute, will not cause material disruption and certainly do not require perfection.

8. Contract terms are outsourced to other departments

The two most time destructive areas of contracts in my recent memory are terms related to cybersecurity and privacy.  I have seen legal departments ask IT and privacy departments what terms they want in a contract related to these two topics.  What they get back are pages and pages of riders on cybersecurity and privacy issues to be inserted into contracts.  Since this language is not typically coming from contracts attorneys, it is often overly long, overly complicated, highly inflammatory to the other side and just not necessary.  For example, I saw one term that required all vendors to answer hundreds of IT-related cybersecurity questions.  When I asked whether the team really uses all the answers they get, I got blank stares.  I’ve seen this “hands off the substantive content” approach by the legal team delay contracts by months.

Pro tip:  The Legal team should work with the IT and privacy teams (or other applicable teams) on what their realistic needs are and then create its own contract language that adopts a practical, risk adjusted, approach to getting the IT and privacy teams the information and protection they reasonably need.  This will take some work, negotiations and time on all sides, but it will pay off by reducing friction with the company’s prospective customers and partners, and allow the business to move forward.