A common complaint you will hear as in-house counsel is “Why does it take so long for you guys to review my contract?” (Second only to “Why are our contracts so long?”) The answer, as you know, is complicated. Legal is a limited resource, typically a small team that reviews hundreds and possibly thousands of contracts in any given year. While a lot of contracts are fairly routine, many involve complicated provisions or transactions with millions of dollars on the line. Sometimes you have to create a contract from scratch, meaning you do not have a form or something to easily model from. Frequently, things like litigation or large M&A deals take up substantial amounts of lawyer time — time that cannot be spent on contracts. Finally, legal will generally prioritize contracts based on the strategic objectives of the business. Deals that better support the strategy/objectives get more attention more quickly.
From an administrative viewpoint, you have to make considerations when people are out on vacation or ill. Unfortunately, “giving it to somebody else” is difficult. A new attorney will not have the history or understanding of the business deal necessary to finish the contract quickly (and they would need to re-prioritize their own work load to handle the deal, meaning someone else’s project will get less or no attention).
It’s important that the business understand these issues. With this in mind, here are ten things I regularly shared and discussed with my business partners to help them understand the contracting process and how to give their contract the best chance of getting through the legal review process as quickly as possible. Feel free to cut and paste these (probably without my reader’s “Tips”) into your own talk points or email or however you best can get the word out at your company.
- Use the form agreement. If one is available, use the company’s form agreement and be willing to insist the other side do so. Nothing saves time like sticking with a well-vetted form agreement (and nothing adds time like drafting a custom contract or using the other side’s procurement agreement that bears no resemblance to the services the company is actually providing). Tip: One thing we did that was very helpful was host contract “boot camps” where we met with a large group of clients and walked through one of the company’s applicable form contracts section-by-section (and we gave all participants an annotated version of the contract). This was great for developing relationships and helped the business understand why the contract “is like it is” (e.g., “too long”). It also provided feedback to legal, helping us to shorten the contract, change terms, rewrite provisions in plain English, and – most importantly- give the business a form agreement customers would more easily accept.
- Read and understand the business and deal terms of the contract. Business folks negotiating contracts should understand the terms of their deal (and what the other side is proposing), especially if they are going to accept the other party’s paper/form. Don’t just ask legal “does this contract look okay to you?” and run off. Read the term sheet and contract drafts and understand your deal. Know how you make money and know how you could lose money under the deal — help us help you. Tip: Another great opportunity here is to invest an hour or two with some of the clients you work most often with (lunch or a coffee) to help them understand the contract and negotiating process and why they are an important part of it. They will appreciate the attention and you will get paid back several times over as the client becomes more savvy in their business dealings and use of the legal function.
- Get the necessary business approvals/buy in. Typically, the company’s many different business units/staff groups need to sign off on a contract, e.g., Finance, Tax, HR, Insurance, Tech Development, etc.). The business should drive this process. You need to make sure all key groups are signed off on the agreement, especially when work is required by that group to fulfill the agreement. Don’t assume legal is taking care of this legwork. Tip: That said, legal adds value when it helps the business navigate this process and spots situations where the ball got dropped and moves to help fix it. Don’t let the business process fail. When you spot issues, raise them and use these situations as teaching moments for the business and put the “counsel” into legal counsel.
- Legal is a limited resource. There is a lot of demand for legal services in most companies and there are only so many lawyers (insert lawyer joke here). The business needs to understand that legal has to balance the needs of many competing projects. Working on Project A, necessarily means less resource/time to work on Project B and so on. Legal needs to constantly make judgment calls on what gets attention and when. If you disagree with how we have prioritized something, let’s discuss. Tip: I was always willing to discuss with the business how we prioritized work in legal (and my team knew I had their back on this point). I was open to changing priorities based on these conversations. The key is to have and keep open communication with the various business leaders about “what’s important to the business.” Once you know, align with the business, get agreement, and focus your efforts on what they see as priorities.
- Get a NDA in place. If you will be discussing or exchanging confidential information, make sure a non-disclosure agreement (NDA) is in place that covers your discussions. Tip: Legal should have a short standard form NDA available to the business that can be used with little involvement of the legal team. The link to the form NDA was prominently displayed above the fold on our intranet site as it was probably the most frequently requested/used agreement. Ours was designed so that if used un-altered, all legal needed was a copy and we did not have to be involved any further.
- Involve legal early. Get legal involved early in the process to avoid fire drills. There is rarely such a thing as a “quick” legal review. Planning ahead minimizes pain for all involved. Build in time up front to go over legal and business comments, recognizing additional changes may be needed before the next drafts goes out to the other side. If the other side sat on it for two weeks, it is not reasonable to expect legal to turn it in a few hours or overnight. Tip: This last part is nice in theory but we all know that sometimes regardless of how much time the other side took, you will need to turn the agreement quickly. But, if you speak with the business about this issue in advance they will tend to advocate for your team with the other side vs. advocating for the time-frame set by the other side.
- How much is the deal worth? Decide in advance how much the deal is worth in terms of time and concessions. For example, if a party to a $25,000 contract sends back redlines to the entire agreement tell them to pick their say top five issues and that’s it (how much time and resource can the company spend on a $25,000 deal?). Tip: I saw this problem frequently. To a front line sales person, a $25,000 deal might be huge in terms of meeting their goals for the year. And, if the customer wanted to redline every page in the draft they generally did not see why that was a problem and expected legal to simply fully engage. Obviously, for the company, this is not a smart use of legal resources. When it arises, be sure to discuss the issue not only with the sales person but also with their supervisor in terms of why this is a problem, what the trade-offs are, and how the business and legal get better as a team going forward.
- Provide legal with the deal history/term sheet/presentation materials. When you request help with your deal, it’s important to provide legal with all the core materials such as the term sheet and any presentations discussing the parameters of the deal. Let us know the history of the deal, what you’re concerned about, and any important issues (good or bad) that may have arisen in the past with the other side or have arisen during the course of the negotiations. Legal will be able to move your contract along much faster, and draft a better agreement, if we know the issues up front vs. several drafts down the line. Tip: I was continually surprised by how often business partners forgot to send key documents to legal upfront. Assuming you get over this problem, use your best judgment to determine when you can get what you need simply from “the paper” or if you need a call or meeting. I encouraged my team to frequently stop by the business person’s office/cube and get what they needed. The personal touch always pays off.
- Don’t draft the contract yourself. While we know you want to be helpful, it’s actually harder for legal when the business drafts the “contract” themselves and then asks legal to “tweak it” to make it work. While you and your counterpart at the other company may think you’ve sped things up by ‘drafting’ the contract, you have likely missed a lot of things that will need to be bolted on (e.g., limits of liability, warranties, indemnities, etc.). The process will actually go faster if you come to a preliminary agreement on the high level terms but let the lawyers draft the agreement. Tip: One thing I did like to get from the business were examples of how different provisions were intended to work. I would often take those examples and turn them into exhibits to the contract so that both sides could easily see what was meant by a complicated or wordy provision.
- Think about the end game. Everybody is excited when a deal is signed and the parties are getting underway. But, how does the contract come to an end (term, breach, wind down, other triggers)? Think about how you want to see the relationship end as, inevitably, it will. You will want to make sure things are clearly spelled out and that your business unit will not be unexpectedly impacted in a negative way when the agreement ends. Let’s discuss how we can structure the deal to mitigate negative impacts. Tip: Be sure you ask this question when working on any contract. The one thing you do not want to hear is someone say “How in the hell did we end up with a contract that ends like this?”
It’s important to discuss your contracting process with the business and set expectations with them as to their role, and what you need from them to make the process as painless as possible for everyone. It will take team work from both legal and the business to make the process work. If you have issues, do not underestimate the power of a short meeting or a phone call (vs. firing off emails). You will find people much more reasonable when you have them on the phone or in a room and you are discussing how you can help them and how they can help you. If the business understands why there is a delay, or why the provisions of the contract are needed/or don’t work, you will find they are less cranky and more willing wait and to help you.
(If you find this blog useful, please pass along to colleagues or friends. “Ten Things” is not legal advice or legal opinion. It is intended to provide practical tips and references to the busy in-house practitioner and other readers.)
**This will be the last “Ten Things” blog for 2014. I will pick up again after the holidays. I know you have better things to do over the next week or so than reading tips about in-house practice. Best wishes for the holidays and a safe and prosperous 2015 – Sterling Miller