When it comes to contract management, change is the only constant — especially in a world that’s still reeling from the effects of the COVID-19 pandemic.
But what trends should general counsel really be paying attention to? And how can legal teams stay ahead of these trends and become better business partners within their organization?
In this interview, Sterling Miller — CEO and Senior Counsel at Hilgers Graben PLLC, author, keynote speaker and noted legal blogger — shares his insights on contract management trends, and explains how to stay ahead.
In terms of contract management, what trends or priorities should general counsel be paying attention to?
With contracts, there are a few things I expect to see a bigger focus on in the near term:
Contract language revisions:
Many people who thought they were protected by boilerplate contract language, like Force Majeure clauses, found out they weren’t because of the way the law interprets them.
If you don’t specifically mention pandemic, for example, many Force Majeure clauses will not excuse performance. This means in-house lawyers should go back and look at not only Force Majeure clauses, but all clauses in their contract templates, and ask themselves, “What are all the unusual things that could happen, and are we protected?”
In particular, limitations of liability, indemnity provisions, and warranties are three clauses you need to pay attention to and adapt as circumstances change, or appetite for risk changes. If you don’t, you could find yourself way overexposed, which is a bad place to be, or overly cautious, which is an equally bad position to be in.
In my opinion, smart general counsel will not only pose this question within their legal department, but to the rest of the business as well. And even smarter general counsel will ask people outside of their companies — like on LinkedIn, for example — if there are other scenarios they should be thinking about.
Scammers are getting smarter about sending emails that look like they’re coming from within a company — particularly from vendors and clients — or worse, from employees inside the company in positions of authority.
One thing I’ve started to see general counsel do is put processes around how their company will communicate changes to critical terms in their contracts to the other party.
Right now, for example, most payment terms outline when and how a payment should be made — but there’s rarely any language on how to navigate changes in how or to whom payment should be made. Creating a specific process for such changes — e.g., you will receive a verification email from a specific address and then you must call a particular number to verify and confirm the change — protects the company from new or unexpected threats.
With this second level of verification, any payment change that doesn’t follow the contractual process is invalid. This means that if your customer or vendor doesn’t follow the process, it’s their burden to bear if the payment is hijacked and they still owe the company for the original bill.
Contract management platforms:
If COVID-19 has taught in-house legal teams anything, it’s the necessity of having a contract lifecycle management (CLM) in place.
With so many people trying to create, negotiate, sign, and sometimes notarize contracts in a remote environment, many legal teams had no choice but to embrace new technology — and they’re finding out these platforms are not only reliable, but also make contract creation, execution, and management easier and faster.
More and more, I see in-house counsel trying technology solutions they resisted in the past. They’re looking for all-in-one platforms that offer easy contract creation, eSignature capabilities, centralized storage, and life-cycle management. They’ve begun to realize how these platforms make their jobs easier and increase the velocity of contracting, and now they’re starting to ask what other tools they can use to accelerate contract creation and management.
Are there any compliance or regulation changes that in-house counsel should be monitoring? If so, what implications does this have on contract management?
I see cryptocurrency as a concern for the business generally and compliance side specifically. As this new currency continues to take root, general counsel will need to understand on a broader level what it is and how it works.
At some point, businesses will begin turning to their legal teams, asking if the company can accept cryptocurrency and how can the legal team adapt contracts and systems to accommodate it. Now that it’s becoming mainstream, it’s a good idea for in-house lawyers to start asking questions: How are we going to accept this? How are we going to do the banking? How will we write our contracts? How are we going to make sure we’re not getting ripped off? What regulations are we going to need to be aware of and follow? It’s so brand new that makes it both exciting and scary — and if you’re already thinking about it, you’re going to be ahead of the game when the phone call from the business comes in.
On the compliance side, one of the biggest twists was the Schrems II decision, which held that the Privacy Shield personal data transfer mechanism between the United States and the European Union is invalid. It also put into question the so-called standard clauses that many companies rely on to transfer such data. There’s a lot of work going on at the government level to figure out how to develop compliant mechanisms that allow U.S. businesses to receive data transmitted from the EU. If your company touches personal data from the EU, you need to be well aware of these developments.
Another regulation to pay attention to is the California Consumer Privacy Act (CCPA) and the recently passed California Privacy Rights Act (CPRA) that will effectively replace CCPA in a few years. While it’s going to take a few years to iron out all of the nuances of CCPA and CPRA, one thing general counsel are worried about is copycat laws. If multiple states adopt their own data privacy regulations — and many are — legal teams will be required to figure out how to comply with dozens of different laws dealing with the same subject. Unless the federal government preempts this with a uniform law, it’s going to be crazy.
I have two compliance recommendations: First, if you don’t have a dedicated data privacy attorney or team in-house, you need to line yourself up with outside counsel that specializes in data privacy. Many of these lawyers are doing webinars, providing learning materials, etc. to help you stay on top of it. Pay attention and seek that information out — even if just to get informed about what is going on.
Second, you need to figure out how to balance the skepticism of the business with the necessity of compliance. There has to be a level of compliance you’re comfortable with, even if it’s not perfect. Regulators generally won’t punish you hard if they can see that you’re acting in good faith, that you’re trying to comply, that you have plans in place, etc. If you’re doing absolutely nothing because you’re paralyzed by different rules or the company simply doesn’t wish to comply, that’s a tough place to be in if a regulator comes knocking on your door. My advice is don’t worry about perfection; worry about getting started.
What tips do you have for managing contracts in a post-pandemic world?
This ties back to the first question, but if you don’t have any technology assisting you in creating your contracts, you’re behind the curve. With everyone scattered and working remotely, you need these tools to manage your contracts effectively. Relying on email and PDF scans is no longer sustainable.
Second, consider the tools you’re using to allow people to collaborate in real time: Are you using a business version of Google Docs or Microsoft Office 365? Or are you emailing Word document attachments, having people make revisions, then sending out new versions after revisions are reconciled? If the latter, your job is likely much harder than it needs to be. It’s much easier to send someone a link to a tool where they can see comments, respond to comments, and collaborate in real time — and maintain version control. These capabilities are becoming table stakes, too; businesses are getting more and more impatient with Word drafts just being circulated around the table.
Finally, you need to understand what’s in your contracts and what’s driving work. Again, this is a place where technology can help you. From a simple contract management process, questions might include: What renewals are coming up? When do we need to give notice if we don’t want this to roll over? What price escalators do we have and when do they kick in?
With the right platform, all of those obligations can be automated; you won’t have to rely on spreadsheets, other people’s memories, or hope that the only version of that contract isn’t on a previous employee’s laptop that was recycled months ago.
Plus, if your platform leverages AI, you can start to dig into analytics: For example, if you completed 150 contracts last month, and 60% of them got hung up on clause 17, that tells you that you might be able to speed up the contracting process by revising clause 17 so that it’s more acceptable to customers.
How is the evolving contract management landscape shifting the role of general counsel? How can they be better business partners?
I think generally there’s going to be more pressure on general counsel to demonstrate the value of the legal department.
Business stakeholders want to see proof that their legal departments are worth the investment, so general counsel need to be thinking about how to demonstrate value to either avoid budget cuts or ask for more resources. One of the best ways to do this is to execute more contracts and bring revenue back to the company.
Completing more contracts and reducing turnaround time shows that you have the right priorities in mind. Having metrics on hand that show both will provide tangible proof that you’re adding value to the business — and if you have a CLM platform in place, you can easily pull this data on a regular basis.
Another way to add value is to review your contract templates more frequently and update as needed to meet new realities in the business or the law. General counsel don’t regularly sit down with other business departments and review contracts top to bottom. They may do it every 5 years, but in my experience, it’s better to do it once or twice a year.
The pace of contract negotiation has increased dramatically, and the expectation for legal is to get contracts done faster. Having contracts that are easy to negotiate, easy to sign, and accurately reflect how your business operates — including its risk profile — makes the process faster. The only way you’re going to get there, however, is to sit down with your business as a partner, then review your contracts clause by clause and ensure alignment between the business and legal.
Besides improving your contracts, this improves your relationship with your business partners — and that’s a good place to be in as an in-house legal team.
Looking for more contract management tips, advice, and insights? Check out our blog.