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Contracts, Lawyers & Contract Management

June 9, 2011

As we look at the future of contracting, one key consideration is the role (and future) of lawyers.

On the one hand, legal knowledge within today’s business environment is invaluable – research has shown it to be among the areas considered most important by budding executives. There is also no question that the role (and number) of lawyers advising the business have grown exponentially over the last 30 years.

But this has not translated to any noticeable improvement in the quality of the contracting process. Establishing commercial capabilities, negotiating and entering commitments and performing oversight of obligations and outcomes remain sources of weakness in most organizations. This is partly due to the complexity of contracting and the somewhat ambiguous role of the law department – often jealously guarding its ‘rights’, yet reluctant to take wider resposnibility for the quality of the process.

I understand why lawyers take the position they do – and in the end, it si the business executives who should be resolving the inadequacies in the way their trading relationships are formed and managed. But in my view, the tensions are set to increase, rather than reduce. And that is largely because of the surplus of lawyers in the market.

For years, most in-house counsel have viewed Contract or Commercial Managers as some form of para-legal (yes, there are exceptions and some recognize the very distinctive role they should play). But as contract complexity has increased, and as the growth in the number of pure legal jobs has declined, the role of contract or commercial manager has become steadily more attractive as a fall-back. Many trained attorneys have even discovered what a fascinating role it can be.

But legal knowledge is only one aspect of being a good contracts manager. And too many lawyers not only starts to skew the broader business value, it also sets up contention with the in-house counsel. Inevitably, those who are legally trained are tempted to stray into ‘opinions’ that, rightly or wrongly, are perceived as ‘legal advice’ by their business colleagues.

We are seeing increasing evidence of this tension. Sometimes it is addressed by consolidation fo the contracts or commercial organization within the law department. That can work well, so long as it does not dilute the role that the commercial group should be performing (and turn them into administrators or para-legals).

The problem is real, as The Economist recently pointed out. Supply of newly trained lawyers now far exceeds demand and they are generally intelligent, assertive individuals who will find jobs of some sort – in many cases in business roles outside the law department.

IACCM has been working with a growing number of organizations where the General Counsel has wanted to resolve the interface between the law department and the business as it relates to contract negotiation and management. I have a feeling that there will be many more who start to ask questions over the next two years.

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