Secrets of Contracting in 2023: How Legal Experts Manage Data and Compliance

In 2022, BBC One aired SAS: Rogue Heroes, a thrilling historical drama about the origins of the British Army Special Air Service. Its opening scene is a perfect example of the importance of good data management. 

The first few minutes show a British convoy making its way to the besieged city of Tobruk. They set out with enough fuel to last them for the 500-mile journey… only to learn that an administrative error by French colleagues resulted in the convoy having fuel for 500 kilometers, not miles. (Good risk management would have seen the convoy carry more fuel just in case, but with wartime conditions being what they were, fuel rationing is somewhat forgivable.) 

This chain of events demonstrates the importance of effective communication, reporting, and data management when filling out paperwork. But what it doesn’t show is how crucial they are in contracting.

That’s why we spoke with multiple clients and individuals who work with and in contracting. 

These professionals come from legal departments and law firms, as well as various legal communities, and they revealed the contract secrets they use to enhance their legal processes. They also shared their own insights and experiences with regards to the ups and downs of contracting.

Real Consequences of Bad Data Management

As technology has evolved and become more sophisticated, companies are capable of achieving much more than before. At the same time, technology has the power to trigger compounding negative impacts of erroneous data management. One study suggests that 88% of excel spreadsheets contain one or more serious errors. 

Here are a few “horror stories” of bad data management:

• TransAlta (a Canadian power company) lost $24 million due to a copy-paste error in Excel.
• Kodak lost $11 million due to an accounting adjustment to correct an error in Excel.
• Barclays lost millions of dollars on worthless contracts it was forced to buy when rows of contracts in Excel were “hidden” instead of deleted.

Not all data management errors may lead to such massive losses, but they do put companies at risk of financial, legal, or regulatory non-compliance. Plus, Legal is likely the first stop people go to when they run into this problem.

That’s why we wanted to explore how legal professionals successfully manage data.

Challenges Impeding Compliance, Visibility, and Data Insights

Good contract visibility is essential for optimal contract management workflow. It’s about more than just knowing where your contracts are. You should also be able to access valuable insights into performance, risk, and spend so that your company can make informed decisions later on.

Some of the main challenges that prevent good visibility and insights are the lack of consistent reporting, complete up-to-date metadata, an organized repository that follows a clear naming protocol, and the number of contracts.

Consistent reporting

Achieving consistent reporting is an obstacle for both very small and very large organizations, according to a third-year associate. It takes time to review contracts and create informative reports, and legal teams already don’t have much time to spare.

However, as one third-year associate put it, 

“The only way to know what is or isn’t in a contract is to read it.”

At the same time, many contracts are so huge that legal professionals, as one general counsel admitted, resort to the “Pareto rule” (which is to read 20% of a document for 80% of insight). While the Pareto rule is extremely time efficient for reading contracts, “leveraging” reading in this manner is risky. Lawyers applying the Pareto rule to non-standard documents may skip critical sections.

Contract repository

Finding the correct document quickly and easily is another common challenge, according to Daniel Boland, a senior legal counsel at Gumtree. Without a centralized repository that can serve as a single source of truth, legal teams are forced to search high and low for documents.

Common locations include personal hard drives, personal cloud storage, shared cloud folders (such as via Sharepoint or Dropbox), and desktops. Poor storage incurs several risks, such as: 

• Potential of compromised data (especially if emails or local servers are hacked)
• Regulatory and operational compliance failures (which can lead to massive penalties)
• Broken deadlines and obligations (which can also trigger massive fines)
• Mediocre reporting (which can cause missed opportunities for cost savings)
• Lost or misplaced contracts (which can cause all of the above and more)

These risks could have been easily avoided with proper storage procedures.

Danna Hartley, a business analyst with Greenshield Canada, stated that some major challenges she frequently encounters is storing files in a consistent, centralized area, as well as distributing contracts and documents to internal parties.

Both issues can be addressed by contract repositories. Not only do they serve as a centralized single source of truth for documents, but documents in the repository can be easily sent to any party.

Metadata

Going hand in hand with contract repositories is the use of metadata. One general counsel explained that their company tries to ensure proper contract titles and names, saying, 

“We try to name all our contracts involving mergers as ‘Merger Agreement,’ especially the ones that were not generated by legal.”

Even if documents are stored in a single location, there’s always a chance that they aren’t labeled or organized in any way, shape, or form. 

Individuals may forget to follow naming conventions for documents, or they might not add the right tags after uploading. By failing to abide by procedure, the documents are stored without any easily searchable criteria. The purpose of metadata is to ensure that documents can be easily:

• Viewed
• Grouped
• Accessed
• Reported

If your metadata isn’t able to accomplish these four goals, then you should review how your metadata is used and make adjustments as needed.

Number of contracts

Suffice to say, the number of contracts can harm contract visibility and insights. Too many contracts can quickly overwhelm legal teams to the point where they cut corners and skip certain steps to speed up their work. For instance, they might save a document without renaming it or they’ll upload without checking metadata. At first, they might think they’re saving time, only to learn later that once they need to refer to the document, they can’t find it.

Conversely, too few contracts may either let teams fall out of practice with regards to reporting protocols, or there may not be enough data to generate actionable insights.

Foreign languages

If legalese wasn’t challenging enough, working with contracts and contracting software in a foreign language just ups the difficulty level.

While English is the primary international language, not all software comes in English (and your browser’s auto-translate won’t always succeed at translating). For instance, Hartley of Greenshield Canada said that her biggest stumbling block when it came to contract reporting and visibility was using contract and correspondence tools in French.

Although not the end of the world, there is a learning curve to figuring out how to use software that’s not in your native language, or even a language you’re conversant in.

Furthermore, bilingual and multilingual contracts bring their own issues to the table. For instance, which language is the dominant one? Or do both languages need to be completely accurate and valid? If strict scrutiny must be paid to the terminology used by both languages, then close legal review for both languages will take further time.

Foreign languages also introduce challenges that can affect metadata. Take German, for example. Germany has the Reinheitsgebot, which literally translates to “purity order”. At the same time, it’s also called the “purity law”, “beer purity law”, or the “German purity law”.

Not only does this sound odd to English speakers, but most English speakers wouldn’t even realize based on the translation that this law simply regulates the ingredients that can be added to beer (and thus what makes up a beer).

As a result, you could easily have any of these instances of metadata for the same government regulation:

• Reinheitsgebot
• Purity order
• Purity law
• German purity law
• Beer purity law
• Beer brewing law

The list can easily go on for a lot longer depending on if and how you choose to translate the name. And this level of variety is just when it comes to translating between two languages. Introduce other languages and you’ll rapidly multiply the number of terms used.

To make matters more complicated, as SAS: Rogue Heroes demonstrated, different countries use different values. Fahrenheit versus Celsius, miles versus kilometers, gallons versus liters… So in addition to reviewing the translation of complicated legalese, there exists a danger where reviewers might accidentally overlook the differences in values.

Dates

Zoriana Borysova, a legal operations manager at Grid Dynamics, stated that contract data like start dates, end dates, and renewal/termination clauses are some of the most reviewed and analyzed data. Thus one challenge Borysova faces with relative frequency is receiving notifications about contract end dates once tagged.

Since such data is so critical to smooth contracting, enabling easy access to important data is a necessity. This is often done by way of metadata, but if data isn’t entered correctly and dates aren’t indicated, then searches or filters may inadvertently overlook documents. As a result, this opens companies up to breaches or non-compliance. Worst-case scenario, if a contract has auto-renewal language, then it might lock the company in to unfavorable terms.  

Contract Secrets for Better Compliance

If a company has access to timely and accurate data, they can identify trends, market gaps, and possible financial futures.

At the same time, companies with large contract portfolios may find it difficult to easily track all contract data from start to finish. Without accurate reporting, enabling compliance and overseeing renewals can turn into a time-consuming nightmare.

Knowing your current overall contract risk can also prove useful in a number of ways. Your internal assurance team will be able to spot operational gaps that may need to be addressed.

Tips & Tricks to ensure compliance

There is no one-size-fits-all solution that guarantees contract compliance. Instead, through experience and on-the-job practice, legal professionals manage to derive contract secrets that help them get the job done.

As Jarrow Melson, a general counsel and Chief Privacy Officer at Antelux Capital Partners explains, 

“A party is always free to breach a contract whenever they want. If the pain of the breach is significant enough, this will potentially dissuade the other party from breaching”.

That being said, our survey respondents revealed several contract secrets they used to ensure contract compliance. We compiled their answers into a list of actionable contract secrets that you can try out or implement:

1. Remind colleagues to “please comply with contracts” (for example, one general counsel stated that he sets such reminders as his Teams status while also sending daily emails).
   
   
2. Explicitly communicate to clients that they need to explain to all associated parties how contracts affect work expectations in crystal-clear terms, then performing a bit of managerial oversight (according to one third-year associate).
   
   
3. Include provisions that incentivize compliance (the “carrot”) and that penalize non-compliance (the “stick”).
   • Melson mentioned that this could be a damages provision that gives monetary compensation for breaches. The provision can also include a guarantor who will be responsible for paying any damages if the breaching party is unable to.
4. Conduct internal audits internally, according to Hartley.
   
   
5. Implement an automated contract compliance procedure for every business unit, potentially by leveraging CLM platform features, stated Borysova.
   
   
6. Create a workflow that collects relevant details and checks the threat or risk that a counterparty poses. This can be achieved via a customer due diligence process or enhanced due diligence process, depending on the level of risk.
   • It’s also recommended that such due diligence checks are conducted regularly so that a historical pattern can be determined.
7. Establish a compliance framework:
   • Define the objects and requirements to fulfill
   • Identify actionable steps for fast compliance
   • Keep processes simple and straightforward
   • Document all processes, policies, and procedures
   • Check that colleagues understand responsibilities
   • Define key performance indicators
   • Ensure accountability
   • Automate regular activities
   • Measure improvement opportunities

Some contract secrets might be more effective than others, yet they might also be more high-risk in terms of being intrusive and confrontational. For example, sending emails daily and setting your status on Teams aren’t likely to annoy or frustrate colleagues, but they can just as easily be ignored. Inversely, financial penalties will definitely be noticed, but they’re likely to trigger anger and conflict.

It’s up to your discretion what contract secrets you implement to ensure compliance. But no matter what, communication is essential for successfully implementing any contract secret.

Contract Secrets for Better Reporting and Visibility

Good contract reporting allows organizations to ensure that contracting processes are functioning normally. It also supports their efforts to track daily progress, and also helps them know when to take action if there are issues beginning to form.

However, good contract reporting doesn’t just happen. Establishing contract management guidelines, collecting data, report requirements, and monitoring outsourced contracts all contribute to quality reporting.

To that end, here are some more contract secrets straight from the words of legal industry professionals and experts.

Contract management guidelines

If you want to improve contract reporting and visibility, one of your first priorities should be to hash out clear contract management guidelines. They should explicitly state the who, what, when, where, and how for every contract management stage.

Here are some points your guidelines should cover:

• Storage (location, folder, project)
• Naming protocol (i.e. how to name each specific document)
• Metadata (what should be tagged, what are the tags)
• Access rights (who has full control, who has read-only)

Clear guidelines help standardize the contract management process, making it easier to access and advance documents from one stage to the next. It also cements contract repository as a single source of truth for documents, while indicating points of contact.

The language of the guidelines should also be as plain, simple, and direct as possible. This is potentially one area where the idea of “less is more” holds true as guidelines that are too long and dense may discourage people from reading and following. 

Data collection

Another contract secret for enabling better contract visibility is to ensure that the right data is being collected. According to Borysova, examples of data that is analyzed and review most frequently includes:

• Start date
• End date
• Main (or parent) agreement
• Related parties
• Stakeholders
• Project name
• Payments/financial information
• Termination conditions

One general counsel added that another important data point to monitor is whether or not signature pages were signed by all parties. They even said it is “probably within the top 25 things to check every time, if not the top 20.”

Leveraging CLM software can simplify and automate the data collection process. CLM software can also extract data from documents that are uploaded into the system for use in reports and future agreements. 

Report requirements

Reports are only as good as the data they use. In addition to the standard data you collect regarding the contract itself, such as dollar value and turnaround time, there are also competency and value-add metrics that can provide insight into contracting and contract performance.

Competency metrics demonstrate that you’re able to accomplish your job. They are concrete and typically quantitative in nature (although not always), so that you have a relatively objective snapshot of work productivity.

Some common competency metrics include:

• Contract status
• Number of contracts reviewed
• Financial amount of contracts
• Type of contracts
• Total time for reviews
• Total time for redlining
• Clauses added, edited, or removed
• Obligations (e.g. payment, delivery, quality, obligations)

In addition to competency metrics, there are also value-add metrics. 

Value-add metrics prove that not only do you accomplish your job, but you bring value to your company. Some common value-add metrics are: 

• Stakeholder engagement
• Cross-team collaboration
• Data security
• Customer service
• Brand representation
• Negotiations
• Impact on the bottom line

Although harder to define and track, they show what you added or subtracted from a contract, which business values are supported, and whether or not it generated a positive image for the company.

External contracts

Establishing a standardized system for uniform contracts is much simpler to achieve than ensuring external contracts adhere to your system. After all, if you’re attempting to standardize your contracting, chances are that other companies are attempting the same.

Before any signatures are given, here are some pre-signature actions you can take when working with external documents:

• Familiarize yourself with counterparty documents: It’s a good idea to skim external templates to find most terms before diving deeper into critical ones about liability and intellectual property. By orienting yourself to another company’s documents, you’ll have an idea of how their documents correspond and compare to yours.
• Perform a quick page-by-page review: By circling or highlighting key provisions and references, you might spot incorrect or non-existent sections that should be sorted out.
• Conduct an in-depth sentence-by-sentence review of major provisions: Significant clauses for topics like data privacy, data security requirements, indemnification, and termination should be carefully read and parsed so that they’re understood inside and out.
• Compare documents side-by-side: By placing contracts next to each other and walking through them at the same time, you can compare language, spot missing or different provisions, and suggest where to add critical clauses.
• Fight the battle you must win: During negotiations, you don’t want to redline their entire document. This will likely trigger a defensive reaction. Instead, only focus on those sections that are critical for your company (as well as hashing out “minor” concerns like whether or not to use the Oxford comma). The battles you must win will vary from situation to situation, but be firm (if not exacting) on topics that are important to your company, like liability. You may even need to draw a line in the sand.

Working with external documents will require a lighthanded yet firm approach. You will also need to know when and how to strike a compromise, which is something that contract playbooks can help you with. 

Benefits of consistent contract reporting

From a general point of view, contract reporting equips you with the numbers and knowledge about how your contracts are faring, as well as if your contracting achieves or deviates from the norm.

But there are many more benefits to contract reporting from an operational perspective, such as:

• Identifying operational gaps that need to be closed
• Driving decisions on when to increase, reduce, or add insurance coverage
• Determining when to apply more pressure on non-legal teams to follow legal ops guidelines

Ultimately, the goal of contract reporting is to enable good in-house legal counsel. Reports that are unable to guide counsel fail to achieve their purpose.

How CLM Software Implements Contract Secrets

You’ve got your contract, you’ve got your data, and you’ve got your report. Now all that remains is to synthesize all the information to generate insights you can put into action.

Common insights like turnaround time and time to review are valuable performance indicators. If they’re too big, it signals that something is holding up your processes. Combine this with another metric like the number of contracts reviewed, and if you have a large number of contracts plus a long turnaround time, then a possible conclusion is that your team is simply overwhelmed with work.

There are less common metrics that can also shed light on contracting. For example, these might be simplicity, readability, and deviations. 

If your turnaround time is high, and your contracts are too complex to quickly read, this suggests that you might want to work on changes to formatting, vocabulary, numbering, lists, or any other element that can simplify contract language and speed up reviews.

The same goes for deviations. The more deviations that exist, the bigger of a drag they are on contract turnaround. When too many deviations appear, it might be time to have a chat with teams and discuss how to cut down on the number of deviations.

It’s also a prudent move to:

• Verify that all metadata is complete and up to date.
• Ensure that teams have implemented (and are following) current contract management guidelines.
• Check that clear, simple language is used so that all team members know what needs to be done.

Contract lifecycle management software is useful for helping legal teams accomplish all this without extra effort. CLM software can automatically assign metadata to documents, track contract data and obligations, store documents in smart repositories, use GPT-3 features to simplify complex legalese, and follow conditional logic to enact current contracting processes.

Wrapping Up

Enabling good data tracking and management is no easy endeavor. It requires a fair amount of hard work and patience to walk teams through what needs to be done and why. If you decide to revamp your current contracting processes, there’s a good chance that there will be some amount of pushback.

But that’s the beautiful thing about data. It can also be used to help craft a change management strategy and convince internal partners or non-legal teams to buy in to reworked processes. The right data can even motivate them to commit fully to new procedures.

Book a demo with ContractWorks Contract Management to discover how we help legal teams leverage data to drive their contracting processes.