An organisation’s lawyers, whether in house or private practice, hold vast amounts of business information and can provide a much broader management role than they’re most likely playing now.

We’re going to show you exactly how lawyers can broaden their role and unlock the information that they are holding.  In turn, we identify the broader business benefits that can be generated by them doing so.

Risk and financial management

Know your contracts

Organisations sit at the heart of a network of contracts. 

Some may be hugely strategic, involve millions of pounds of resources and take many months of time to negotiate. Others may be for a few hundred pounds and be entered into by a simple click.

All these contracts have the potential to create value, but also risk.

The extent of this value and risk varies widely from contract to contract. So it’s important to be able to manage all of these contracts effectively and in a way that’s proportionate to the value or risk they present.

Often commercial lawyers are only used to negotiate the most complex contracts. Broadening their role to the managing of the legal risks from all these contracts can not only help to mitigate those risks involved, it can also unlock the full value of those contracts.

Individual contract risk

All contracts carry a degree of risk to both parties.

However excellent suppliers are, and however engaged customers are in working with them, there’s always the risk of a supplier failing to perform or a mismatch in expectations between the parties. Accordingly, there’s always a degree of contract risk.

Commercial lawyers can measure and mitigate these risks in two ways:

For individual, higher value or strategic contracts, negotiating and mitigating the risks that a particular contract may contain.

Across broad categories of contracts, assessing and mitigating the risks that the overall contract class may contain.

Intellectual property and confidential information

Depending on its industry, an organisation’s intellectual property (IP) and confidential information could be the most important asset it has.

However, such rights can easily be transferred or exclusively licensed by means of a few words and often standard form agreements, NDAs, purchase orders, or full-form standard terms can all contain intellectual property “landgrabs”.

In our experience these are often unintentional and down to parties simply using the wrong template for the specific transaction. Nevertheless, they would be legally effective and a high risk to the rights owner.

In IP-heavy industries such as software, and media and entertainment, it’s vital there are procedures in place so that even the most innocuous or minor agreement doesn’t inadvertently transfer or license intellectual property, other than in accordance with the strict policies of the organisation. Oversight of this is a job for the legal team.

Systemic risk

If an organisation uses a standard contract on a regular basis, such as selling its services on standard sales terms or purchasing products on standard procurement terms, issues with a particular template could be replicated across hundreds or thousands of individual contracts.

What may be a minor risk issue if it occurred in a single contract may become fatal if used across a business.

A robust template management system maintained by lawyers - and regular template reviews by them - can remove the chances of these systemic contract risks arising.

Counterparty credit risk

Even the best contract terms might not be that effective against an insolvent counterparty. The credit worthiness of counterparties has to be considered before the organisation contracts, or commits to extensions to contracts or work orders under contracts.

This shouldn’t just be at the parent company level. It’s surprisingly common for Special Purpose Vehicles (SPVs) or lowly capitalised group companies to be put forward as potential counterparties.

Having the input of a legal team in the organisation’s broad contracting approach can help to put the appropriate checks and contract management tools in place, so that a clear and consistent approach can be taken across all counterparties.

Risk management

Insurers and internal risk teams expect organisations to manage their professional indemnity risk exposure. Failure to do so can lead to difficulty in securing insurance cover or an overly expensive premium for any cover that is secured.

By giving legal teams the responsibility and resources to manage contract risks, organisations can have a direct impact on the ease by which they can obtain cover and its cost. 

Corporate transactions

M&A and restructuring

As businesses grow, they change in shape and structure. What fits as a group structure may need to evolve over time. These changes could be driven by internal reorganisations, M&A activity or even insolvency. 

An organisation’s contracts will come under a great deal of scrutiny in any of these events. Both from its own deal team and other interested parties. Often, there will be a need to understand a particular business unit’s relationships with others and how easily it can be split out from the rest of the group. The time to provide answers will generally be short and the circumstances highly confidential. 

Having the necessary processes in place, guided by commercial lawyers, to collect the relevant contract information as part of “business as usual” contracting can make the answering of those questions so much easier at the time.

Post M&A integration

For the buyer, the integration process following an M&A transaction is as vital as the transaction itself. This is the key time when a buyer can maximise the value from the business that’s been acquired, but also runs the risks of damaging its value. 

Usually, the only information the buyer will have is what’s been gained during the due diligence part of the M&A process. That, in its very nature, is relatively high level.

An organisation’s contracts are such a valuable source of more detailed information. Once the purchase has been completed, it’s time for the buyer’s legal team to get “under the bonnet” as quickly as possible so they can get a better idea of the opportunities and risks.

A trusted source of management information

Management information

An organisation’s contracts - from their terms to their negotiation pipeline and events that happen during their term - contain incredible amounts of useful management information for a business.

If an organisation has visibility over its sales and procurement pipeline it can understand, for example:

• how quickly contracts are being signed;

• what points are being negotiated too often;

• what points are being agreed to often, which taken together across multiple contracts, create a large “macro risk”;

• the blockers to doing so;

• which contracts are generating more risk than value;

• whether changes are needed to service delivery to meet client expectations; and

• how the value/ risk profile of its contracts may change from time to time.

This management information, held by the organisation’s legal team, doesn’t just go to matters of contract risk. It can also provide valuable information on the health of a business’ sales, potential issues in its supply chain and changing sentiment of both its suppliers and customers.

Compliance

Regulatory requirements

An organisation’s supply chain isn’t necessarily just of interest internally. If it’s regulated, then its regulator may have concerns over its robustness. Common concerns include operational resilience, control over the service, understanding of risks in the supply chains involved and the need to protect confidential, important or sensitive information.

It’s of crucial importance that regulated firms understand their regulatory obligations and how their supply chain contracts fit with those obligations. Often, this is not just an issue for those large, heavily negotiated contracts: it also requires a proportionate approach to understand the whole supply chain.

Data protection compliance

Data protection compliance programmes must ensure that organisations have appropriate contractual provisions in place with the organisations they share data with. This will include:

• when sharing with data processors, ensuring that the requirements of Art. 28 GDPR are met; and

• when exporting personal data, ensuring that Standard Contractual Clauses with Addendum (if relevant) or International Data Transfer Agreement are completed and in force.

If an organisation is acting as a processor, it could find itself between controllers and sub-processors, and will wish to minimise the difference between the terms it’s agreed with its controller and the terms agreed with its sub-processors.

A commercial lawyer can set out a robust method for ensuring there’s control over the contractual data protection provisions in place. This allows the organisation to demonstrate its compliance with the requirements of GDPR and, contractually, that there’s no large liability gaps in any chains of processing contracts its part of.

Unlocking this value

When looked at in isolation, these are all clear objectives that an organisation would want their lawyers to achieve. The complicating factor is that the involvement of a legal team in the management of contracts varies considerably.

Certain contract types are traditionally negotiated by lawyers. For example, organisations aren’t likely to embark on a full-scale, multi-million pound outsourcing project without legal advisers and, indeed, a wider deal team. 

However, other contracts may be negotiated by others inside the organisations - the procurement teams, sales teams, marketing teams or IT teams. They will all have their own contract expertise and so need a varying input from legal advisers.

It’s often the case that the majority of contracts an organisation enters into aren’t “lawyered” at all. The total contract value of the “lawyered” contracts is often far exceeded by those of the “non-lawyered” contracts.

But, to get the most value out of its contracts, an organisation needs to find new ways to look at them as a whole, rather than just that small sample of contracts that pass its lawyers’ laptops.

This requires the organisation (and not just its legal team) to implement a solution that uses an appropriate mixture of:

• self-service by the business itself;

• in-house and external lawyers, optimised to deliver those services where they can genuinely add value; and

• managed services to support both the business and its internal lawyers.

By providing our unique service mix, we help organisations achieve this value. As well as manage the risks.