Obligation Management: 5 Tips for Legal & Business Collaboration
The ink has just dried on the agreement, or more accurately, the parties have just clicked “sign.” The lawyers breathe a sigh of relief as the heavy lifting to complete the deal is done. But for many agreements, this is where the rubber meets the road.
Now is the time to make sure you’re set up to follow through with the agreement, creating a framework for tracking and management of contractual obligations.
During this time, it’s easy for the ongoing management of contract responsibilities to become muddled or overcomplicated, with outside counsel, in-house legal, and business teams all having a say. Legal has an interest in managing the potential risk associated with failing to follow through on the terms. Business teams like finance, sales, procurement, and others are in on the front lines, in a better position than legal to monitor the progress.
The risks of missing an obligation can be significant. In a worst-case scenario, a breach could lead to protracted litigation. There also could be a gap in licensed benefits for failure to renew a deal. Failure to keep track of regulatory obligations could also lead to serious consequences.
Despite the parade of horribles, obligation tracking and management can be an opportunity for business and legal to work together for the company’s best interests. Here are some ways to make that happen:
1. Think of it as an opportunity
Many companies assume obligation management is legal’s responsibility. Stereotypically, business can feel hamstrung by legal’s nay-saying, while legal can get exasperated by having to remind business about what they can and can’t (and must) do under a contract.
That’s the stereotype, but it doesn’t have to be the reality.
For legal, managing the responsibility of carrying out contract terms can be an opportunity for positive exposure and engagement with the business on a more holistic level. On the business side, engagement with legal can foster long-term cooperation while mitigating the risks of missing contract obligations.
“Win-win” is a cliché, of course. But in this case, the opportunity to create a strong working relationship among the parts of the company can be an unexpected bonus of obligation management.
2. Designate a point person
Designate point people on the relevant business and legal teams, as well as one person or role who will be the go-to for obligation management.
Don’t assume the point person needs to be in legal but instead carefully consider who is in the best position to both track obligations and to ensure that they are met.
Consider which team has the infrastructure to handle the job, as well as who is in the best position to know the relevant business operations. For some obligation management, the legal department might have a dedicated docketing system that can easily track deadlines. For more ambiguous obligations or those that are contingent upon other milestones, the business side might be better equipped to know what’s happening on the ground.
Tailor the delegation to the strengths of the teams involved. For example, legal might have the knowledge and experience to track and manage the obligations in a deal that is heavy on regulatory reporting. On the other hand, for a license agreement that includes observation of products and marketing, someone on the business side might be a better fit.
3. Make information accessible
Even though the roles should be defined for the people with the prime responsibilities for obligation management, it should be easy for other team members to locate important information.
Gone are the days when you had to search in just the right file on the company’s shared drive and hope that someone saved the executed agreement in the right place, or the even darker days when a hard copy was tucked away in a redweld in the back of a file cabinet. Today, contract lifecycle management (CLM) tools can help administer agreements from day one and ensure that everyone who needs to access documents and information can easily and securely do so.
Keeping contract information in a central, easily-accessible repository has multiple benefits. In the inevitable case of employee turnover, the transfer of institutional knowledge should be seamless. Even if the roles are well-defined and the point people are working effectively, others on the team need to access information about discrete responsibilities and information.
While adopting tech tools and designating roles to manage contracts can seem time consuming up front, evaluating your processes and investing in the right solutions will result in efficiencies down the road.
4. Communicate with everyone involved
This tip might seem obvious, but it can’t be overstated. To make obligation tracking and obligation management a true partnership between legal and business, everyone involved should see the job as a partnership.
Depending on the nature and importance of the deal, your team can set up regular communications about ongoing responsibilities. As with access to the relevant information, collaboration tools have come a long way. With a single platform, employees, outside counsel, licensing partners, and others can have a customized level of access to the information they need.
One pain point we see is ongoing management of contracts by outside counsel. While outside counsel are a valuable resource, especially for companies with small or no in-house legal team, companies should consider whether to save on expenses associated with having outside counsel oversee obligation management. But don’t assume outside counsel should step away as soon as an agreement is signed. Their ongoing involvement will depend on the company’s relationship with its outside attorneys and allocation of resources.
5. Be proactive (but respectful)
Don’t wait for problems to arise before communicating with the business team. Regularly check in with the business team to make sure that they are aware of their obligations and that there are no potential problems on the horizon. By the same token, be responsive. When the business team does have questions or concerns, be responsive and provide them with the information they need in a timely manner. Avoid using legal jargon or technical terms that may not be understood by non-legal professionals.
Obligation management is a team sport
Obligation tracking and management shouldn’t be viewed as a necessary evil, but as an opportunity. Collaboration among various segments of the business on contract management can lead to ongoing collaboration on a larger scale.
Bonus quiz: test your current contract management process!
- 1. Think of it as an opportunity
- 2. Designate a point person
- 3. Make information accessible
- 4. Communicate with everyone involved
- 5. Be proactive (but respectful)
- Obligation management is a team sport
- Bonus quiz: test your current contract management process!
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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.