Implementation of a Contract Management Program

A First Step Towards Tackling Information Governance

In today’s legal market, as data generation explodes and regulation and compliance issues increase, lawyers and corporations are focusing on the broader issue of Information Governance ("IG") – "the set of multi-disciplinary structures, policies, procedures, processes and controls implemented to manage information at an enterprise level, supporting an organization's immediate and future regulatory, legal, risk, environmental and operational requirements".*

Governance issues arising from ever-expanding amounts of data and their location in various storage environments are complex. Confronting problems of this size often leads to paralysis or internal wrangling when those problems are not addressed incrementally. For that reason, companies should consider taking more tactical measures to mitigate the risks of information sprawl – especially if a company has limited resources. Implementation of a robust contract management program is an example of one such tactical response. Here I am defining contracts management as the processes, systems and people that businesses use to govern contracts from creation through execution, post-execution performance and storage.

At Major, Lindsey & Africa, our clients tell us the inability to effectively track the creation, location and compliance with the business’ contracts poses significant risk to their organizations.

Contracts sit at the heart of every business. Contract terms set the price of goods and services that a company buys and sells. Contract terms tell the parties what they must do to fulfill their legally binding performance promises. Contract terms tell the parties how and when their arrangements terminate or renew. Contract terms determine if any statutory or regulatory obligations apply. Businesses with anemic contract management programs lose revenue every year. The International Contracts  and Commercial Management Association ("ICCM") estimates that poor contract management can cost a business as much as 9% of its annual revenue.**

Unwanted contracts can renew automatically if there is no process in place to let the business know the notice period is ending. Each year auto-renewal contracts result in millions of dollars of unbudgeted costs. Similarly businesses lose revenue because there is no alert system telling them that rebate thresholds have been met. Every year businesses incur costs and legal fees from unintended breach because no system is in place to check contract compliance. Companies lacking an effective contracts management program simply are not "heart healthy".

Companies that want to either set up a contracts management program or upgrade their existing program have choices. They can create an internal team and do it themselves. They can outsource to a managed services provider like MLA to design, set up and manage a program for them. They can also take a blended approach using a managed services provider in an advisory role.

Underlying all effective programs is a nimble technology platform. A robust, user friendly system puts your contract population into a single repository.  Within that system you can search and retrieve the contracts, catalogue them and track key information like renewal terms and regulatory filing dates. You can also create templates and provision libraries to auto-generate first drafts of routine agreements.

The key to using a technology platform well is to create processes and workflows. Project managers, either internal or from a service provider, can manage the implementation and design of effective workflows. An experienced contract administrator can insure compliance with the program. Either a lawyer or skilled paralegals, again either internal or from a service provider, can manage indexing current contracts and creating new ones.

I recognize I have oversimplified the parts and pieces of a good contract management program. However, the discussion highlights that through people, process and technology these programs help law departments better serve their clients and protect the business against revenue loss. A successful contracts program manages the information that impacts the business every day and address the issues related to storage, retrieval and deletion.

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Mark Yacano is a recognized innovator in the delivery of legal services and a trusted adviser to corporate law departments working with corporate counsel on both business and legal strategy. As the Global Practice Leader, Managed Legal Solutions at Major, Lindsey & Africa, Mark and his colleagues in the Solutions Practice Group work with clients to develop outsourced talent solutions that allow them to reduce their legal fees while improving the quality of work performed on their behalf. He can be reached at (202) 292-2887 and myacano@mlaglobal.com.

 

* http://en.wikipedia.org/wiki/Information_governance

** Figures based on independent market research carried out by IACCM in 2011/12. 9% represents an average which varies significantly between companies and industries

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