Procurement and Legal: So Much Better Together
Collaboration is key to success and drives growth within any organization. However, when it comes to managing contracts, the relationship between procurement and legal departments is sometimes prone to disconnect. Each department has a different focus and moves at a different speed, which can lead to considerable friction.
Where procurement focuses on getting good value for the dollar and protecting the supply chain, legal focuses on regulations, compliance with the law, and protecting against legal risk. But procurement often gets bogged down in contract review and must constantly escalate deals to legal for negotiations or edits, slowing down the supply chain.
Without an organized approach, the business is open to disruption. In today’s landscape, these problems are unnecessary, and there are simple ways to coordinate and improve working relationships between departments.
1. Automate to succeed
In any business, time is money. A delay in procurement can quickly derail a project and lead to costly disruptions in production and revenue. Purchasing experts need the agency to find supplies and promptly secure a deal that keeps business activities on target. But there are almost always limits to purchasing authority, and contracts need legal review to protect the business from exposure to risk.
In earlier days, contract management was a ridiculously time-consuming manual process. A simple change from procurement meant schlepping the contract from person to person and waiting for approval. Digital contracting brought contracts into the modern age, but the process is still clunky. Contracts get stuck in review, and the result is slow approvals and sometimes even lost deals.
Automation is the key to reducing the burden on both departments. While the idea of automation sometimes causes panic, it doesn’t mean users have free rein. Instead, use contract management software to set up workflows and limits, manage contracts, and communicate between departments.
That way, procurement can focus on buying and has the tools to complete deals where legal doesn’t have to be looped in on unnecessary steps. The process is more efficient, and the department gains independence.
2. Use self-serve contract workflows
The first step in automation is to create self-serve workflows for purchasing and contract management. With a structure in place, procurement can quickly engage with vendors and know when to notify legal for review and edits.
Standardize purchasing procedures
A purchasing policy makes it easier for procurement to do what they do. Most companies already have guidelines for purchasing limits, documents, and approved vendors. You can take these policies one step further by creating standard procurement contract procedures.
Instead of wasting time having every contract pass the desk of every legal manager, set up purchasing thresholds that allow procurement to independently auto-approve a contract. For example, you can authorize purchasers to complete deals under $1,000 total contract value without an additional sign-off.
However, you may need to review every contract before finance approves the spending. Or you may want to keep legal duties in the legal department and free up procurement to focus on saving money with better deals. Whatever the requirements, clearly outline how procurement should proceed, especially in the most common scenarios. You’ll create clarity and stop unnecessary delays.
Create intuitive workflows
With your procedures in mind, use contract management software to set up a workflow that takes a contract from launch to approval. Configure your settings to automatically send the contract to legal when certain conditions are met.
For example, if approval is based on contract value, set up a trigger that automatically sends the contract for review when the value meets a certain threshold. With these workflows, procurement can identify when they can sign and complete a contract or when legal needs to verify terms and compliance.
3. Program low-threshold change approvals
Changes are inevitable in the world of contracts, ranging from minor administrative changes or substantial adjustments that affect the timeline, scope, or cost of the deal. But you can also create a workflow for changes and help procurement push deals through faster.
Build a fallback structure for changes
Establish a contract playbook that gives procurement teams clear guidance on handling edits. Outline minor adjustments they can make and finalize without internal input and identify precisely when legal needs to review and redline or negotiate terms.
Then clarify who has the ultimate approval authority and at what threshold and communicate these policies to both departments. With a structure in place, you can avoid flooding the legal department with routine tasks and prevent delays that might stress vendor relationships.
Create pre-vetted clauses for common changes
Create a template library of pre-written and vetted clauses for the most common scenarios to cut down on routine edits and redlines. Procurement can use these clauses to change contracts using the best language.
Of course, you’ll need to establish policies for appropriate use and when to send for review. However, a clause library can relieve some of the administrative burdens for legal and give procurement the tools to approve independently.
4. Assign cross-department contacts
You can foster a relationship between procurement and legal departments by assigning cross-department partners. Rather than dumping all the contracts into the slush pile at the legal desk, delegate a point person for each team member. Legal might work with several people in procurement or receive contracts from only one person.
In this format, each procurement member always sends contracts, reviews, or questions to a designated partner in legal first. If the partner can’t answer the question or needs a higher level of authority or review, it is sent to the next contact in line. A go-to contact can speed up processing and build a spirit of collaboration and teamwork between departments.
5. Share information
Part of procurement’s job is to track contract payments, invoicing, renewals, and cancellations. Legal also tracks contracts to make sure parties meet obligations, monitor risk, and ensure the company receives negotiated discounts or other terms. Both departments need access to the correct information to make the process easier.
Create central access
Instead of filing contracts all over the office and across everyone’s inbox, use a central contract and file storage software. Ideally, your contract management software has this feature built-in. If not, use a program that integrates with a cloud-based storage system. Then give the right people access to the files they need to monitor progress and make assessments.
Procurement works and negotiates directly with the vendor and often has a working relationship built on past deals and trust. However, legal usually isn’t in on these initial conversations and receives changes and additions that might not make sense. A best practice is to provide context on changes and what you’re both trying to accomplish. Legal needs to stay compliant, but procurement must maintain good relationships with vendors, much like sales.
Keep departments up to speed on the contract progress with relevant information, but keep a balance. The minutiae are usually unnecessary and overwhelming. Use metadata to describe the overall contract picture, which helps teams quickly see terms, negotiation details, and renewal deadlines. Use integrated software or other communication tools where you can tag co-workers for follow-up or leave notes.
Not everyone needs access to all information, but you can still create a data-driven organization and promote visibility and collaboration between procurement and legal. Simply set permissions and limits to safeguard contract security, confidentiality, and client or vendor privacy.
6. Build a culture of collaboration
While digital contracting and automation tools can solve many problems, they aren’t a cure-all for a workplace culture that bolsters frustration and animosity between departments. Improving collaboration means setting the tone between departments and across the company as a whole.
Ideally, transparency comes from the top down. Leaders should model openness and personal responsibility and promote transparency as an individual effort. When you’re willing to recognize and share your mistakes, you take ownership for your part in the mishap, which can head off defensiveness and irritation. Teams can then quickly move through acceptance toward a solution.
Use standard terms
Your departments might work together, but you each have different training and expertise. Skip the jargon and acronyms no one understands and create a common language to avoid confusion and miscommunication. Train new co-workers on these terms and use them across the company.
Use face-to-face meetings
Departments may work in different office locations or virtually, adding another layer of distance to relationships. Keep communication strong with regular face-to-face meetings with your department point person.
If you can’t be in person, connect with a video meeting. Even short meetings can help you build a rapport and solve conflicts. Sometimes explaining a situation verbally is easier than typing a message or email.
While your teams might be on different pages, it’s possible to build a better relationship between procurement and legal departments. Create standard procedures that foster independence and authority and help each department stay focused. Use the right tools to create simple workflows that connect and inform teams and relieve busy work. Most importantly, encourage a culture of collaboration through communication and trust.
- 1. Automate to succeed
- 2. Use self-serve contract workflows
- 3. Program low-threshold change approvals
- 4. Assign cross-department contacts
- 5. Share information
- 6. Build a culture of collaboration
- Bottom Line
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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.