Contract Management Execution: Contract Drafting
Contract management is complicated, to say the least. Considering the number of steps and stakeholders involved, it’s no surprise that legal professionals often overstep due dates. In fact, the slow speed of companies’ legal departments adds 6.5 days on average to a company’s launch of a new product. However, with the proper processes in place, expedited — and secure — contract management is a possibility using effective and experienced Contract Managers. Contract Managers represent the business side of transactions and work alongside legal professionals to ensure organizations’ contracts are up to par and fully represent the intended engagement.
There are three major contract milestones to complete as part of the contract management lifecycle: drafting the contract, managing the contract, and closing out the contract. In our three-part series, we’ll take a look at each step and explore the process your organization should follow to successfully execute it. Contract Managers can navigate your organization throughout each step, providing the expertise and know-how to make the process smooth and relatively pain-free when it comes to legal review.
We’ll start with what can be considered the most important milestone — contract drafting. Proper execution throughout the contract drafting phase can save your organization time and resources at the end of the day.
However, many (72%) in-house counsel teams feel the need to implement faster contract turnaround times, which can cause legal teams to attempt to draft their contracts more quickly than reasonably possible. Unfortunately, if contract drafting is rushed or carelessly dealt with, teams often make mistakes that must be fixed at a later date or may leave the organization exposed for legal risk, paradoxically causing the process to take even longer.
Read on to learn how to draft contracts in such a way that will save you time and money in the long run.
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Define Needs
Your first step will be to talk with internal leaders involved in the agreement to determine what their needs are for this business transaction. Among other relevant questions, be sure to ask the following:
- What is the greater business context of this transaction?
- What is our business trying to achieve?
- What is the external business trying to achieve?
- What commitments have already been made?
- Do we have any legal precedent for dealing with this external party?
- Will this transaction require any documents in addition to the primary contract?
Review Terms & Conditions
One of the most important aspects of a contract is its terms and conditions, which determine the circumstances under which the parties fulfill their obligations under the contract and account for their rights and actions after the contract ends. Ensure you define relevant KPIs, due dates, and actions that must be upheld in order to establish a good working relationship in accordance with the contract details. If your business already has an established terms and conditions template, carefully review it to ensure that it does not need adjustments to fulfill this engagement’s specific needs.
Collaborate on Details
Before official contract drafting begins, work closely with your internal project leaders and even the external party to understand what each party is responsible for; perhaps develop a letter of understanding. This document will confirm that both parties are on the same page regarding the exchange of value and any special requirements to be developed in the contract. By collaborating on and confirming the main details of the contract ahead of time, you will prevent yourself from making a critical error that would take time to untangle in the future.
Draft the Contract
Once you have successfully defined the key elements of the contract and collaborated on the pre-contract details, your team can draft the actual contract, including applicable terms and conditions. Before sending it to the external party, be sure to obtain guidance or even perhaps approval from the internal leaders of the transaction.
Negotiate if Necessary
While the leaders of the involved internal team may want to head contract negotiation sessions, it may be beneficial to allow Contract Managers to take the lead, freeing the stakeholders to focus on the business to business relationship. If you collaborated with the external party previously, this step should not consume too much time for you or your teams.
Get Approval
Once both internal and external parties are pleased with the contract, Contract Managers focus on contract execution which may consist of additional internal stakeholder approvals, such as legal and executive board of directors. The external party involved will do the same, getting approval from whoever in their business holds the appropriate authority. This vital last step is key to keeping everyone informed of — and satisfied with — the contract.
Overview
In the contract drafting phase of contract lifecycle management, there are many steps that must be followed in order to create the most comprehensive yet timely contract possible. Even after the drafting stage is complete, an approved contract must proceed to the management stage, which can be considered equally complex. As you may have discerned, following through with each of these steps requires a vast amount of organization and discipline, all of which can be accomplished with contract professionals, such as Contract Managers.
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Be on the lookout for parts two and three of this series — we’ll be releasing them shortly.
