Tips for Managing Contracts Without an In-House Legal Department
How can you effectively manage contracts without an in-house legal department?
It’s a problem often faced by startups and small private companies that tend to hire other executive roles before hiring a general counsel (GC). During this early period, companies rely on outside counsel and wait until they reach a certain size and scale to build a true in-house legal department.
However, even without an in-house legal team, the contract problem remains. After all, contracts touch every part of your business, from hiring and firing to expenses and sales. Within each of those contracts lies both risk and opportunity: Where can your growing business improve efficiency and reduce unnecessary costs? What obligations do you need to meet, and when? Which business relationships are exposing your company to risk? Will you be able to surface the information you need when you hit a pivotal moment in your growth trajectory, like a fundraising round?
Thankfully, even companies without a team of in-house lawyers can manage contracts successfully with the right approach. This article will cover several contract management tips for companies that do not have their own in-house legal team and help ensure your business is set up for long-term success.
Contract management for non-lawyers
If you business doesn’t have an in-house legal team, chances are good that contract management responsibilities are scattered across the individual teams who deal with contracts. This leads to a great deal of inefficiency, fragmentation, and risk.
The stakes are high, as mishandling your business contracts can lead to all sorts of issues. Failing to include important terms because you were working with the wrong version of a contract or being out of compliance with a contractual obligation because you do not have an executed agreement for reference, for example, are big risks.
A contract lifecycle management (CLM) solution can help ensure that—even without a single owner—your contract management process stays consistent across the business.
From storing the most up-to-date templates and forms in a single, accessible place to a simplified process for redlined versions, having a CLM ensures that everyone across your business is using the correct terms and reduces the time business users spend searching for versions, among other things. For a more in-depth review of the contract management process and its steps, history, and potential pitfalls, see this discussion of contract management.
But contract lifecycle management systems are often targeted at in-house legal teams. Many in-house teams even specialize in contract management. Companies without in-house legal teams are especially at risk for issues in the contracting process because they are less likely to have regular legal reviews of contracts. So, who chooses and manages your CLM solution if you don’t have a legal team?
How to manage contracts without in-house counsel
You do not need your own team of lawyers at your disposal to manage contracts well. What you do need is the right components to manage your contracts easily.
The right people
The first thing is to find the right people. They don’t need to be attorneys or other legal professionals. They do not need decades of legal experience or experts on contracts. What they do need to be is the right fit for your business and its culture, willing to learn, and capable of adjusting to a new system.
Some companies have dedicated contract managers whose full-time job is to manage contracts, but the reality is that most small companies require employees to play more than one role. Just as a business may determine that a full-time in-house attorney is unnecessary, a full-time contract manager may not make sense for your company.
In the absence of a dedicated legal team or contract manager, legal oversight often falls on the CFO or COO’s desk.
The right forms
Spend the time to find or develop your own well-written boilerplate terms and even a few templates. Take a look at some of your recent contracts, including those primarily written by the other party, and consider what language works best for you. Pick and choose terms and a format. You may need to develop a few different forms for different situations.
Although you do not need a full-time lawyer to manage contracts well, this is a time when you should have outside counsel perform a legal review of your forms. You may also discuss a range of possible responses to redlines of your terms with your attorney. Once you get feedback, finalize your forms or boilerplate terms.
The right system
The right people and the right forms are not enough. Even the most seasoned legal professional can get bogged down in the contracting process, and your forms will quickly be modified through the contractual process again and again until you have lost track of which is the most up-to-date. The most important part of contract management is the system you use.
Here are some things the ideal contract management system needs to do well:
- Keep your boilerplate terms and your most up-to-date forms in an easily accessible, single place. One of the bigger risks with having an unorganized or piecemeal storage system is that the most up-to-date templates or boilerplate terms get lost, and you find yourself using an out-of-date form with less-than-ideal terms or, worse, terms that no longer protect your business.
- Keep all executed contracts in an easily searchable repository that can be accessed by any employee with the appropriate authority, ideally from anywhere. Being able to reference any contract from anywhere quickly is a game-changer, from managing a business relationship to ensuring compliance with contractual obligations.
- Transfer older contracts currently maintained in paper file storage systems to digital, searchable versions.
- Track versions, from initial proposals to redlines to executed copies. Accidentally working with an earlier version of a contract sinks employee time, can set behind the negotiation process, risk the collapse of a deal, or even result in an unenforceable contract. Without a good contract management system, people often search through emails to determine which one has the most recent version. Keeping track of all versions, with the latest version always quickly findable, is key to good contract management.
- Manage signatures during the execution process. Getting the latest versions countersigned by all of the correct people can result in lost time. A good contract management system will involve electronic signature capabilities.
- Track contract milestones and give alerts when a contract is approaching termination or renewal. Waiting until after termination to negotiate a renewal or find a replacement vendor, for example, can lead to an interruption in service or your relationship. If a contract auto-renews when you are ready to terminate the relationship, you may be facing another year of dissatisfaction or a breach of contract suit. A good contract management system will eliminate those possibilities so that you are prepared to evaluate your relationship with the other party and what you need in the future. Maybe you want to look elsewhere, or perhaps you want to renegotiate terms. Contract renewals are key moments in the lifecycle of a contract, and you need a strategy that includes optimal timing. Do not foreclose your opportunity with poor timing due to poor organization.
- Keep track of compliance issues or regulatory requirements. Your contract management system should be set up to easily find any contractual compliance issues or regulatory requirements so you can confirm from time to time, or however frequently it is necessary, that you are in compliance. Failing to stay in compliance can result in expensive legal battles, among other things.
The right software
A functional contract management system, almost without exception, requires well-designed contract lifecycle management (CLM) software. Paper contract management can be done, but it is challenging and more likely to sink a deal. The right CLM software will give you excellent tracking and storage capabilities and many more benefits. The right software is also easy to use, even for non-lawyers and employees who may feel intimidated by new technology.
Key features in the right software:
- A user-friendly, secure, comprehensive contract repository that limits access to only employees with the appropriate authority or need and can be easily searched by even employees who do not consider themselves technology savvy.
- Version tracking that makes it simple to find the latest version without having to wade through old emails and permits you to track key legal events.
- E-signature tools that are effective and simple to use and meet the legal requirements of most jurisdictions.
- Produce mobile-friendly With the explosion of remote work, contracts should be accessible from nearly anywhere using mobile devices.
Efficiency and compliance is achievable
Ultimately, an in-house legal department is unnecessary for managing your contracts well as long as you find the CLM software that best fits your needs. The software will help you avoid many of the pitfalls posed by the contracting process, many of which attorneys are paid to prevent. Save money and time by following these tips for contract management and streamlining your contract management system with CLM software.
- Contract management for non-lawyers
- How to manage contracts without in-house counsel
- Efficiency and compliance is achievable
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.