How To Effectively Manage Contractual Risks
It’s not easy to find issues on which a majority of lawyers at corporate law departments are in strong agreement. But according to a 2014 survey of in-house lawyers at Fortune 1000 companies, the vast majority of respondents indicated that they lack the tools and business processes necessary in order to effectively manage their company’s contractual obligations and associated legal risks.
The survey data is quite striking. Most notably, 84% of the legal departments responding indicated that they are unable to run basic reports on their existing contracts and have no ability to undertake adequate contract risk analysis. Equally telling, 71% of the companies responding indicated that less than half of their existing contracts have been reviewed and indexed so they are searchable by keyword or other metadata.
Contract review and abstraction is one of the core services provided by Cenza. With our seasoned team of contract specialists based in Chennai India, we have been leaders in offering American and European companies a cost-effective solution for creating and managing a contract database, as well as abstracting and/or hyperlinking key provisions so management can have fingertip access and reliable information for internal reporting and risk analytics.
But the problems highlighted in the Apttus survey help explain why so many in-house legal department nonetheless remain severely handicapped when it comes to managing their company’s outstanding contractual obligations and risks, and unable to avail themselves of our outsourced services. As many as 35% of the legal departments surveyed said they didn’t know how many open contracts their company was party to and 21% indicated they didn’t even know where their existing contracts were stored. As a result, an astounding 65% of the in-house departments said that the biggest obstacle to effective contract management was simply the enormous burden of administrative effort required in order get a handle on outstanding obligations.
Most likely, this unfortunate state of affairs has developed primarily as a result of the dispersion of responsibility for contract management across multiple silos on the typical corporate org chart. In addition to the legal department (where responsibility itself will often be decentralized to lawyers that support different business units), it’s not uncommon for contract management to be treated as a business function, with involvement by sales and marketing or procurement groups. It’s no wonder, then, that so many large corporations literally don’t know where to begin when it comes to contract management.
Fortunately for corporate legal departments there are a variety of methods that can significantly reduce the administration burden of getting a handle on outstanding contractual risk. In addition to the outsourced contract review services we offer at Cenza, there are a number of new software tools available that can help streamline the process of finding contracts on the corporate network, wherever they may be. Some of these new search technologies are also capable of extracting and abstracting basic contract provisions, which can further help jump start the process of building a contract management database.
Of course, as with any technology-based solution, there are significant limitations on what the software by itself can accomplish. No software that we know of is capable finding contacts that may be stuffed in a file cabinet or desk drawer. Even by their own design specs, these software tools are not capable of providing more than 70% to 80% accuracy when it comes to contract extraction and abstraction. As a result, depending on the nature and extent of a given company’s requirements, some combination of software plus human oversight and review will be necessary in order to put in place a comprehensive and reliable contract management database.
The legal supply chain has evolved to the point where new software tools in conjunction with offshore contract review services from trusted providers offer cost-effective and comprehensive solutions for contract management. One way or another, the administrative burden can be greatly diminished.
Want to chat to us about making the data collecting and abstracting as painless as possible? Our team is ready to help with any project, big or small!