5 ways to contract better

5 ways to contract better

Author
Martin Kotze GM
Martin Kotze GM
10 min read

For every rand and cent that goes into or out of a business, there is usually a contract. Streamlining your contracting processes and investing in an end-to-end contract life cycle management (CLM) system will help you gain efficiencies, reduce risk and save money.

To understand how to contract better we first need to look at how businesses currently contract.

How businesses currently contract

Contract creation phase

Tshepo, who works in procurement, has been evaluating vendors for the last couple of weeks. He now believes that he has found the right one.

Tshepo knows he needs a contract and accesses the company’s shared drive. Unsure which one of the multiple version to use Tshepo eventually chooses the one last edited by Johan (Johan is a clever guy, so this has to be the correct version)

Negotiation phase

The contract is emailed back and forth between various people and no one really seems to know how to use the track changes correctly and the name of the contract is now “v3 Draft 5 Final Copy xyz marked up”.

Eventually, someone gets fed up with the process and writes the words “EXECUTION VERSION” somewhere on the contract and sends out an email asking everyone to sign.

Tshepo however remembers that the contract must still be circulated internally. As always finance has something to say and more changes are required to the contract and legal says that Tshepo did not use the correct base document but he can proceed at his own risk.

At last, the contract is ready for signature.

Signature phase

Jenny takes the contract to be signed by Mrs Important. Mrs Important is busy (as always) and asks Jenny to drop the contract on the stack of documents in the corner of the office.

Mrs Important forgets to sign the contract. 

Eventually, people start jumping up and down and Mrs Important digs up the contract between the stack of documents, signs it and gives it to Jenny.

Jenny scans the contract and tries to email the contract to the other people that need to sign. The email does not want to go through because the attached contract is apparently too big. 

Jenny calls IT. IT says log a ticket... I’m sure you know how the rest of this goes.

At last, the contract is sent. 

Storage

Eventually, everyone has now signed. The last scanned version, however, looks like it was scanned, faxed, faxed again and then scanned by a scanner out of the 1980s. Jenny prints the contract and files it under some random name.

Management

A couple of months later the relationship with the vendor is on the rocks.

An attorney letter lands on Mrs Important’s desk. Apparently, the client was required to provide the vendor with certain resources by a specified date.

Tshepo manually diarised various key dates on his outlook calendar but he has now left the company to pursue his new venture in Bitcoin arbitrage trading.

The vendor’s services are crucial to the continued operations of the company. Mrs Important summons legal but apparently, they were never provided with the signed version of the contract.

Sounds familiar?

Let’s look at how you can improve your contracting, how to get started and how DocNinja can help!

Where to start

Digitising your contracting processes is not something you can do with a flip of a switch and stakeholder buy-in is crucial. 

An incremental approach is generally the best way to go.

First things first -

Identify the contracts in your business that you often conclude. 

For example, if you lease commercial real estate, your commercial lease agreements will be the obvious first agreement that you need to digitise.

If you have a busy procurement department, Master Service Agreements (MSAs), Requests for Proposals (RFPs), Licencing Agreement etc. will be your usual suspects.

Establish the key variables that are most often negotiated in these contracts

It is not possible to have one size fits all templates. It is however possible to identify the variables in contracts that are most often negotiated.

For example, when negotiating licensing agreements, the scope of the licence is important and you need to agree on the exclusivity, territory, duration, revocability, payment scope, sublicence and transferability etc. These are all variables.

Start creating your contract creation framework

At this stage, you will typically need to start involving a dev team. The dev team will need to map the variables, create the document logic and program the decision trees. This sounds like a complicated process, but with the right dev team, it does not have to be.

Getting your contract creation framework correctly set up from the start is crucial. The rest of the steps involved in digitising your contracting process all build on the contract creation framework phase.

This all seems nice but what does it mean to “use an intelligent contract creation framework” to generate documents?

There are different types of document automation solutions. Most automated legal documents start with a questionnaire that the user needs to complete. The answers are then populated into a template. This is basic document automation.

Then there is advanced document automation. Advance document automation:

  • Captures data in such a way that it can be used throughout the rest of the CLM solution;
  • Makes use of a framework, advanced decision trees and document logic to create documents from scratch exactly tailored to your need; and
  • Provides real-time feedback to the user.

In other words, advance document automation doesn’t merely populate a document and inserts the clauses that you select, it tailors the wording of the clauses to your exact needs.

Integrate your playbook into the contract creation framework

The value of playbooks can be immense and can provide your team with the ability to punch above their weight. However, most of the time people get playbook creation wrong.

The two most common mistakes we see with playbooks are: 

  • They are too complicated
  • They are standalone documents operating in insolation

The purpose of a playbook is firstly to set out the Party’s preferred position when entering into a contract with due regard to risks that the transaction holds.

To kick off the creation of your playbook, we recommend that your playbook firstly addresses:

  • Is a basic or a comprehensive contract required?

Risk will be a direct proxy for this decision. Why throw the counterparty with the book if it is a low-risk transaction with low financial consequences if things go south? Starting the negotiation on balanced terms will mean fewer resources will have to be allocated to negotiations and there will also be faster turnaround times on transactions.

  • If a comprehensive contract is required, should the contract terms generally favour one party above the other?

When looking at provisions like the limitation of liabilities and indemnities, the commercials of the transaction and risk will generally dictate how these provisions are structured. With well structured integrated playbook, you will be able with a click of a button to generate a contract that makes provision for increased risk.

Create and centralise negotiation and approval workflows

Emails do not work! 

Your contract creation framework should provide for the default positions that you are willing to enter into a contract. If there is a need to deviate from these default positions, there has to be a streamlined process that will facilitate version control and internal approvals. 

Create and centralise negotiation and approval workflows

We really hope that you are not still using wet ink signatures. If you do, we suggest that you action this step first!

If you have implemented electronic signatures as part of your processes, well done you are on the right track. The key aspect that you now need to address is integration. In other words, linking up the contract creation, negotiation and approval processes with the electronic signature processes.

If you are still using an electronic signature solution in insolation to the rest of your system you are wasting time. Once contract negotiations and approvals are complete you must be able to directly proceed to the signing stage without having to re-enter information of the parties or having to place signature boxes.

After the signing process is complete, the system must be able to directly store the signed contract to your central contract repository so that management of the contract can commence.

Use a central contract repository

Please don’t tell us that most of your signed contracts still reside on email. This is a big no-no from a data privacy point of view.

Having a cloud-based central contract repository is a good starting point. If you really want to get on top of your contracts, make sure that the central contract repository has AI-powered search capabilities with contract management. 

This is a mouth full so let’s break it down. Let’s take for example the search functionality on your computer. When you search for a document, you search for file names. If you can’t remember the file name it can become really hard to find what you are looking for. 

With AI-powered search capabilities, you will be able to search within documents for information (even within scanned documents). Another advantage of AI-powered search is that even if you miss spell a word or do a semantic search you should be able to get hits on what you are looking for (really helpful if you have thousands of contracts!).

Dates are important especially when the sh*t hits the fan

Almost all contracts contain dates and these dates tend to be important. You do not want to manually set up important dates. Your contract should be your single source of truth and when evaluating a system make sure that key dates and party information is automatically extracted from the contract.

IN SUMMARY, HERE ARE THE 5 KEY ASPECTS TO CONTRACTING BETTER

  • Make use of an intelligent contract creation framework

Enable your team to go from the first draft to the execution version in a few clicks. 

  • Centralise approvals

Have a single place where interested parties can approve and request amendments with full audit logs on different actions.

  • Use an electronic signature solution

Make your life easier by using a fully integrated electronic signature solution.

  • Use of a centralised contract repository

All your important contracts are in one place. Sounds good right.

  • Stay on top of your contracts

Automated reminders will save you time and avoid embarrassment!

HOW DOCNINJA CAN HELP

At DocNinja, we are corporate and commercial lawyers that also know how to code. This means that we understand lawyer talk and coding languages. 

We have already created a comprehensive contract creation framework that is able to generate more than 60 of the most used commercial contracts. Getting your contracts into our contract creation framework is easy and fast. 

Your contract digitization and optimization journey don’t have to be painful. We handle all phases that you require for an end-to-end contract life cycle management solution.

"It is not the strongest or the most intelligent who will survive but those who can best manage change."

- Charles Darwin

 

 



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