Are your contracts like wild horses, powerful majestic beasts but not really in your control?

Contracts are documents that power commerce. They contain evidence of commercial relationships, sale and purchase matters, price, discounts, and many other items on the strength of which businesses progress on a day-to-day basis Contracts are also documents that create liability. Thus contracts have a pervasive and all round presence in the life of a business. Not being in control of the contract lifecycle could be a great risk to your business.

The Last Bench Approach

Contract creation in many organisations is an ad-hoc initiative - dependent of available template, available legal expertise or collective recollection of pitfalls from past deals, all at a point of time when a deal is on the table. And when many deals are on the table, this ad-hoc process becomes stretched leading to some deals receiving attention and some not.

Pitfalls

Such an approach creates many pitfalls which can be exploited. The legal decisions from courts indicate that this is true even for larger enterprises.

1. Contracts documentation remains incomplete, all commercial points are not always captured in writing.
2. Some important clauses are missed out and the clauses used may be too loose to serve the purpose.
3. Important dates, milestones and obligations are not captured due to inadequate clarity.
4. Weakness in the drafting of a contract can get exploited by one of the parties. For example, one party could terminate an order leaving very little scope for remediation.

Regulatory Issues

On top of the above, there are regulatory issues that arise out of contract:

1. For a consumer facing company, do the customer contracts have one-sided clauses which could be termed as "Unfair Trade Practice" under law.
2. Are privacy provisions necessary processing data delivered under the contracts have been adequately obtained?
3. Are all licenses, approvals and reporting for implementation of a contract in place?

One of the simplest ways to answer the above questions confidently is to able to view the contract information real time and ability to mark problematic situations for remediation.

Digitise for Control

Digitisation of contract function is the primary path through which an enterprise can stay in control of their contract information. Paper-based contracting cannot provide a simple single-place system where all relevant information about contracts can be found. Digitisation essentially allows an enterprise to do the following:

• Find a home for all contract documents - no more pain in locating missing documents.
• Link a contract with all its amendments and other related documents - a single source of truth for enterprise wide contracts
• Search any past contract within minutes - don't worry about finding past deal intelligence
• Obtain always-on and updated enterprise wide view of key contractual risks
• Ensure experience with past deals are reused - create clause libraries out of clauses from past contract complete with intelligence from the past noted as comments or insights

Contract as Assets

The experience from past deals can provide significant intelligence to guide commercial relationship going forward. The exercise can answer potential questions like:

• Which contracts are expiring next quarter, should they be renewed?
• What actions on the part of a contracting party require consent of the other party?
• Which contracts contain a non-solicitation obligation?
• What are the key events of default across contracts?
• Which contracts can be terminated at convenience?

Many more such critical questions can be answered through contract intelligence. Easy ability to answer these questions help enterprises control their risks better.

Clause Library

Digitisation of contracts also helps to build a robust clause library. Past contracts reveal clauses that are negotiated or may have worked fine in certain transactions. These clauses are the best building blocks for contracts of future. Consider for example, answers to questions like:

• What were the acceptable indemnity clauses in the last five distribution deals?
• How to best describe payment mechanism so that payment amounts and timeline are both clear?
• What could be an ideal arbitration clause that needs to go in an NDA?

As contracts are digitised, the information about past clauses can provide quick answers to difficult questions around contract clauses. The value of past contracts in that sense continues to be positive even after deals get over.

Reports

Modern enterprises frequently require their sales, procurement and legal department to generate many reports. Typically these are reports like:

• New or expiring contracts over a period
• Purchase orders placed by customer over a period
• Contracts above a specified amount, and more.

Reports may also be needed for regulatory purposes. For example:

• Documents containing personal data
• Construction or development contracts where payment clauses contain heavily loaded terms in favour of builders.
• Contracts where insurance requirements have been stipulated.

Collaboration

Digitisation facilitates collaboration. In the context of contract, collaboration is a way to bring all relevant stakeholders from let's say legal, finance, corporate, sales and other functions in relation to a transaction in one easy to adopt and use environment so that views can be exchanged, approvals can be obtained and learning can be shared without delay or complication. The traditional approach to collaboration has followed emails leading the charge of carrying views, tasks and comments from one team member to the other. In that the comments and the clauses are disjointed and the emails tend to get lost over a period of time. Illustratively, a question around how a clause on credit period in an in-flight distribution contract should be viewed is clarified by a commercial person with the legal department official by writing a lengthy email which will typically contain many attachments like contract copy, amendments, emails exchanged etc. The in-house lawyer picks up the email, reviews the documents and questions before forming a view and communicating the same once again by an email. Given the nature of the question, the process may even involve consulting another member of the legal team which will generate some more emails and documents exchange in the process. Modern contracting needs a better solution where in-house lawyers, commercial folks, finance persons can all directly exchange their views specifically referencing a clause on the contract pane itself. Digitisation can facilitate such collaboration amongst multiple team members from the same contract pane.

How long does it take to digitise?

Digitisation can be achieved quickly. Today's AI/Machine Learning technologies have ensured that entire digitisation exercise is at least 60 percent faster compared to earlier times. Also, the use of secure cloud storage has reduced digitisation cost to a fraction of the on-premise digitisation exercise. Digitisation of contracts is amongst the top three critical investments of an enterprise. Embracing digitisation turns contracts into assets. Leaving it for future denies an enterprise growth and speed that is the raison detre of the enterprise.

So are you ready to turn those wild horses to race-horses?

By Dipankar Bandyopadhyay