Contract Management Challenges and Practical Solutions

(1)

Contract Management

Challenges and Practical Solutions

Olivier FISCHER, Managing Director of LS Canada Laurelly DALE, In-House Counsel at Dye & Durham

(2)

Introduction of Speakers

Dye & Durham and Legal Suite

Laurelly Dale

B.A, L.L.B.

In-House Counsel

Olivier Fischer

MBA; M.Sc.

Managing Director

(3)

Legal advising Contracts Litigation Management Risk Management Corporate Delegation of powers IP Assets Real Estate

Legal Directory Time Management

Library

Budget

Legal Reporting

Legal Suite :

Software By and For In-house Counsel

(4)

In a recent study, according to 42% of companies, the top driver for improvements in the management of contracts is the pressure to better assess and mitigate risks. Additionally, nearly 65% of companies report that contract lifecycle management (CLM) has improved exposure to financial and legal risk, according to the new "Contract Lifecycle Management and the CFO" report.

*published by the Aberdeen Group, a Harte-Hanks Company (NYSE: HHS).

Contract management

Challenges

(5)

AN EVER GROWING CONTRACTUAL LOAD

“Among the

Fortune 1000

companies, the average amount of

current contractual files is between 20,000 and 40,000,

a 20%

increase

over the last 5 years”.

*Institute for Supply Management

A CONSIDERABLE AMOUNT OF DOCUMENTS

“The difficulty of the contractual process comes from the fact that it

is

highly document based

and

involves many players

. This type of

process requires the manipulation of

qualitative information

the

traditional data processing applications cannot handle.”

*Lettre des Achats N140

Contract management

Challenges

(6)

A FAILURE IN CONTRACTUAL MANAGEMENT

“Approximately

10% of the contracts are lost

, regardless

of the industry. Considered by many as an inherent cost

to business activities, it is actually

the result of a failure

in contractual management

”.

*PriceWaterhouseCoopers

AN UNDER-DEVELOPED CONTRACTUAL MANAGEMENT

“Contractual management stands where finance was

30 years ago”.

*Oracle

Contract management

Challenges

(7)

Main drivers to improve

Contract Management



Accessible and reusable



Capitalize on best practices



Leverage expertise



Improve service to internal customers



Improve your risk management

(8)

• Major contacts

• Description of the project • Planning (alerts)

• Process (negotiations follow-up, time spent)

•Contract

management (follow-up, dispute, alerts) •Additional clauses •Dashboard •Duration (renewal notice, termination) • Key clauses (sensitive obligations, mutual) •Financial stakes • Validation circuit • Version management (current files) • Signature • Library of models and

clauses •Best practices •Generation of documents (contracts, letters) CONTRACTUAL PHASE CONTRACT GENERATING PHASE PROJECT PHASE

Pre-contractual Contracts in force

Planning Negotiation _Drafting Validation Execution Guidance

Contractual

Cycle

(9)

Step Back and

Assess

• Most offices will already have a manual filing system.

• For those that do not have a CRM/Sharepoint, the

following can be created using: Microsoft Excel; Microsoft

Outlook and Word.

(10)

10 10

Knowledge Management

Technology

(11)

Contract

Life Cycle Management

(12)

Knowledge Management

Solution

Objective : taking control over information

Build your contract management system

 Central database

• Shared platform (multiple sites, cities, countries)  Powerful search engines

• Quick retrieval of contractual information • Save time on real legal value

It will be your legal knowledge management solution

 Your legal know-how is an asset

(13)

Contract Management

Project

1. Assess your contractual activity

2. Build a business case with a list of

requirements

3. Get budget/project approval

4. Implement the application using a

project management approach

(14)

Assess your

contractual activity

 Define the contractual activity of your organization:

• Volume, Risks involved, Importance, Priority, Deadlines,

Value, Localisation

 Define people involved in the contractual lifecycle: • Internal customers to serve (sales, marketing, IT ?)

 Approval process  Role of legal

• Understand your internal customers’ objectives

(15)

From the Beginning

• NEED TO: request copies of all contracts from

managers/executives/president by a certain date. Hold a brief

meeting if necessary to explain two filing systems, elimination of

redundant files, and creation of ‘memos to file’.

• Once obtained, create Master Contracts List BEFORE organizing

contracts. Set aside at least two business days (depending on how

many contracts you have to review).

• At each addition, you should review the contract and pull out:

(16)

Build your

business case

Should include:

Problems to be solved

Objectives to be reached

Departments involved (legal, IT, other)

Budget

Timeframe

ROI

(17)

Tailored to your project’s scope, to

have A unique central point of data

COTS and customisation (if required)

Consider :

1. Legacy Data



Importance of information (relevance,

age…)



Form: soft vs hard copy



Location (where are the documents ?)



Integrity

2. Connection with other systems

Build your

business case

(18)

Get budget/project

approval

Get buy-in from IT/management/ potential

users (legal, other…)



Try to have most people on-board (but less

on project phase)



Keep in mind that you will never have

everybody on-board (reluctance to change)

(19)

Implementation

Phase

Assign two Project Managers:

 Legal and IT

 Give them time and power and delegate

Set up clear objectives and deadlines:

 Set up a calendar and stick to it

• Milestones • Go-live date

 Do not change objectives during project

(20)

Here is the

Project…

•MASTER CONTRACTS LIST

• Updated Monthly in

RED

• Subject Heading in alphabetical order

• Notations

•ELECTRONIC ORGANIZATION VS. MANUAL

• IT assistance, President’s discretion

• Most updated list should be electronic

(21)

Go live

Work with the tool



Terminology is important



Training, training, training (legal

department and other)

(22)

Key Reminders

Do not underestimate Change management

• Business processes and corporate culture

Security and information access

• Access and user rights (people and departments

involved)

(23)

Evaluation

• Results Achieved

• _Timelines

• Benefits

(24)

Business Case

#1

Structure of legal department:



3 lawyers and a legal assistant; first in-house lawyer

hired in 2002



Supports all business operations across Canada



Provides a full range of legal services including:

• preparation, review and drafting of contracts,

• legal research and analysis,

• dispute resolution,

• intellectual property management,

• government relations,

• privacy office

(25)

Original Contract Management Database

Assessment of the internal solution

 Homegrown  inexpensive but somewhat difficult to support (difficulty to get internal resources available)

 No way to:

• capture significant contracts terms and deadlines

• manage workflows

• capture time spent on files

• assess workload

• run reports

 Difficulty to track information (link to documents often broken)

Business Case

#1

(26)

Results: 6,550 legacy agreements transferred

Benefits

 Efficient Reporting

 Notifications: no missed deadlines missed  Centralized database (documents, emails…)

 Easy links to related agreements in the database  Tracking time spent

 Custom workflow for tracking requests

Business Case

#1

(27)



Basic IT tools such as Excel and Access



Turnover within the legal team: loss of memory



Maintenance problem



Each lawyer would manage his/her own contract database

Need to centralize and structure file management

Context

Business Case

#2

(28)



Shared information :

• Better visibility

• Better transparency



Easy ad-hoc reports for the Swiss holding company



Technical aspects : reliable tool, ongoing and scalable, multilingual



User friendly

Benefits

Business Case

#2

(29)

Return On Investment

«

ROI: Ratio of money gained or lost on

an investment relative to the amount

of money invested.

»

Source : wikipedia

(30)

Return On Investment

If legal department is a cost center, then compare the

money lost without a solution



$CA vs Risk Management



Usually based on problems

Without reporting capability, measure previous situation is

complex

(31)

Return On Inevestment



CAPEX < avoided OPEX

 Avoided costs: legal department & business units

– penalty – fines - cancellation fees –

 Risk management

(32)

Business Case

#3

The company

:

Leading North-American manufacturer of engineered wooden products.

 Annual sales exceed $550 million

 1,400 employees.

 8 business units in North America

Legal Department:

 Small team : 1-2 lawyers

 Mainly contract management (500 active contracts)

(33)



Authenticity and accessibility of the information



Compliance



Consistency of information: repository of

contracts to capitalize on best practices



Control over the contracts (deadlines, key

information…)



Efficiency

Drivers?

Business Case

#3

(34)



Direct access to contracts



Direct reminders to the contract administrator and heads

of department



Reports (per supplier, client, team member, etc.)



The right information at the right time and at the right

place

For the business

Business Case

#3

(35)



One less bottleneck, one less cost



The machine does the work



Don’t be shy! Share the information with the business



Up to speed when you report to management and auditors

For

your legal department

Business Case

#3

(36)



Contracts in place, in a timely fashion



Clients are kept happy



Regulatory compliance is key



Auditors are kept happy

Compliance

Business Case

#3

(37)

Risk Management

 Renewals

 Track important clauses such as right of first refusal, exclusivity, etc.  Integrity of the contract database

 Autonomy of the business  visibility on contract management  Uniformity – control of processes

Business Case

#3

(38)

Company Overview:



Global, innovative-driven biopharmaceutical company.



Over 57,000 people worldwide in +100 countries.

Legal Department:



Support the strategic direction and objectives



Established in 2003: 2 in-house counsel, 1 law clerk



Ensure local business operations are legally compliant



Identification and Management of risks

Business Case

#4

(39)

Contract Management - Past

• Common drive (L:Drive) with restricted access for Legal Department only,

and emails to manage day to day activities

•Company wide document management system for contract archiving

purposes

 Captured no information other than title of document

 Poor searching capabilities

 Not time efficient

 Loss of data common due to system complexities

 Not intuitive

 Offered no additional functionality targeted specifically for legal documentation

39

Business Case

#4

(40)

Contract Management - Current Practice

Use Legal Suite Application

 Links agreements with amendments or other key documents

 System is very flexible and can be adapted to individual department needs

 Powerful Searching and reporting capabilities

 Time saver

 Better access and sharing of information

Lesson learned:

 Work together and seek input from all stakeholders: all users should be clear on the purpose and adequation of the system

Business Case

#4

(41)

Final Recommendations

 Contract Management is not just a document management

solution

 Requirements, needs and expectations are different  System chosen will depend on the volume of contracts  Use the 80/20 rule

 Use the K.I.S.S. rule

 Define a timeline, respect it, do it gradually

 Seek buy-in from your team and your internal clients

(business people)

 Speak their language

 Get your technical support department involved as soon as

you can

(42)

(43)