Should lawyers own contracting?
Mark Harris has written an excellent article in The National Law Journal (“A New Way To Manage The Mountains Of Contracts”, December 8th, 2015). He introduces his topic with the following comment: “Contracts are the most important point of interface between companies, their customers, suppliers and employees. They form the bone and connective tissue that gives the company structure and movement.”
While many may question whether contracts are the ‘most important’ point of interface (I am sure many sales reps might disagree), his point is correct that good contracts truly do offer ‘connective tissue’. Mark goes on to provide some excellent examples of why contracts are so important – and becoming more so. He also makes the key observation that what really matters is the contracting process and that in most organizations these are currently obsolescent. I would go further: I don’t believe most organizations actually have a defined contracting process, covering the full lifecycle of a contract.
This weakness creates exposure to many risks. Details like the inability to find contracts or to properly communicate obligations are actually quite minor compared with the growing frequency with which an inappropriate form of contract is used, or the terms are wrong, or post-award management is chaotic. Mark draws on an example of good practice in which a company has deployed “technology to enable the systematic capture of contract requests and information; distribute and execute work efficiently; and then track obligations, risks and performance. By applying process (including clear workflow rules based on contract risk and complexity, a dedicated contracts team designed to alleviate bottlenecks, custom playbooks) and technology innovation, Allergan is reducing risk, liberating valuable data, and capturing incremental revenue by bringing products to market faster.”
Where I diverge from Mark’s analysis is when he presents the issues as ‘legal problems’. Lawyers are key stakeholders in any contract. That does not naturally or necessarily make them owners of the contracting process. Indeed, the article acknowledges this when it says: “For years, companies have tried to solve complex legal problems with more lawyers, when the right answer is often fewer. High-volume contracts operations don’t call for a legal-only solution.” But having recognized that contracting is actually a multi-disciplinary, collaborative activity, Mark then proposes that the lawyers should be top of the pile when he says that these operations “require a combination of technology and processes that allow a pyramid of negotiators and subject-matter experts to work under a smaller pool of strategic lawyers who set policy, anticipate important risks and provide high-value counsel to their business clients.”
While I have seen well-intentioned General Counsel show invaluable leadership in having their company tackle weaknesses in contracting, I am far from convinced that a stakeholder with specific interests can ever fully represent the wider interests of the business. Indeed, I think one reason why contracting processes are so weak is precisely because individual stakeholders jealously guard their power and prevent anyone from within their number taking ownership and control. Many might argue that much of the problem with contracts today is due to the conservatism, traditional thinking and resistance to technology shown by many in the legal profession.
To be effective, a contracting process must be balanced and visibly reflecting good judgment. Its owner has to be measured on the effectiveness of its output throughout the life cycle. I do not believe this is consistent with the role or skills of most legal departments and I am unsure that it is something they should aspire to. I think true excellence in contracting process requires an independent owner – who may indeed have legal qualifications, but will not be driven by the specific measures or purpose of the in-house counsel.