But if you approach these contracts on a fragmented, contract-by-contract basis and don’t have visibility over them as a whole, it’s likely this information will be mostly hidden.

This means you could be missing out on intelligence that’s not only valuable from a legal perspective, but from a broader commercial basis too. Insights like how healthy your business’ sales are, potential issues in your supply chain and the changing sentiments of both your suppliers and customers.

The five areas we cover in this article give you an idea of where a fuller understanding of your BAU contracting can unlock crucial management information.

Contract risk

Most obviously, understanding your BAU contracts as a whole can enable your organisation to assess its contract risks. 

As a starting point, every organisation should understand the indemnities it’s giving and the types of exclusions of loss and limitations on liability it’s agreeing to, in order to understand its potential overall liabilities to its counterparties. What may be acceptable in an individual contract may create a considerable risk to an organisation if repeated throughout a large number of BAU contracts.

However, contract risk isn’t just an issue of liability.

For example, opportunities for your counterparties to terminate their contracts early creates added risks for your business. Being aware of these risks and managing them is essential - you don’t want to find yourself without a key supplier or be forced into an unexpected contract renegotiation process.

Conversely, provisions allowing suppliers to extend their contracts on the same terms can have the opposite effect and again need managing carefully.

Contracting efficiency

Reaching contract signature promptly is vital for modern businesses. It means that revenue streams can be accounted for and the risk of counterparties contracting elsewhere is minimised. Your sales and procurement teams will both be under considerable pressure to execute their contract processes quickly, which leads to increased pressures on your legal team to assist them to do so.

Understanding your BAU contracts can help you optimise your contracting process. For example, comparing the legal terms in the first draft of a contract against the version that’s signed can help you understand what the usual negotiation points are and help you to design contracts, or playbooks, that minimise the time taken to address those points. 

Understanding the starting and end points of contract discussions (in terms of the contractual positions reached) can also show you where to focus your legal resources – is time being spent on obtaining considerable contract improvements or only on making marginal changes?

From a team management perspective, having an understanding of when contracts are likely to be renewed, or indeed when you’ll need to re-procure the relevant service, can help you plan resources more effectively.

Corporate activity

 Implementing any form of corporate transaction, be that an acquisition, disposal, joint venture or internal corporate reorganisation, will affect your BAU contracts. It’s possible that such transactions may trigger change of control clauses. This could lead to pricing changes or questions on whether particular contracts need to be split between the entity being disposed of and the rest of the group, or whether services can be on-provided under a transitional services agreement post-completion. 

 While due diligence processes carried out as part of any transaction will take place, this is usually carried out by the buyer rather than the seller and often takes place late in any process.  Accordingly, it’s important that information on the terms of your BAU contracts is available internally at the planning stage of the transaction. 

 This allows deal structures to be put in place that take account of your organisation’s contracts and potentially allows the reorganisation of those contracts to take place in good time, before any sale. 

 Such a proactive approach usually means that the seller has a greater understanding of the business being sold and, accordingly, enables it to accept less risk as part of the corporate transaction itself.

Changing terms

 The approach that contract counterparties take to negotiations and the terms that they ultimately agree may well indicate a broader change in their position.

 For example, counterparties with worries over their cash flow may be more concerned over payment terms. Customers under tight financial pressure may be more careful with regards to the contract terms they accept, as they’ll have less ability to find a replacement provider in the future.

 Monitoring such terms over time, and over all your BAU contracts, will often flag changes in counterparty behaviour and attitudes that may not otherwise be apparent.

 Difference in approaches across the business

 In addition to understanding the changing needs of your counterparties, understanding your BAU contracts will also flag differences in approaches in your own organisation.

 By looking at your BAU contracts as a whole, you’ll be able to understand if different departments, or even different parts of your legal team, are taking varying approaches to contract risk. If they are, there may be very good reasons for them doing so, driven by the underlying needs and risk profile of the business or the market in which they are operating in.

 Being able to understand and investigate these differences will enable you to put in place a far more nuanced contract risk management approach than would be possible by just looking at individual contracts.