Let’s face it. Contract negotiations continue to be a pain point not just between parties but within organizations as well.
As detailed in World Commerce & Contracting’s 2022 “Most Negotiated Terms” report, different stakeholders within an organization have different priorities when it comes to contracts. For example, sales may value speed and quick turn-arounds, while legal prioritizes thoroughness and risk mitigation. Without alignment on what the organization needs as a whole, teams can be quick to point fingers if something goes awry.
As one sales leader griped to the report’s authors: “Time after time, my sales and revenue forecasts are derailed because of the redlining and debates going on between opposing legal or contracts teams, who seem to operate on their own agenda. Yet ultimately, it is me who is held to account.”
Meanwhile, survey results show that for all the careful negotiating, contract disputes still arise with some regularity in business. While litigated disputes are rare the MNT survey found that companies have seen a 25% increase in the number of contracts resulting in disputes compared to pre-pandemic levels.
Here are four ways companies are using contract data today for frictionless, more productive contractual relationships.
1. Get legal out of the way
One of the easiest ways to remove friction in the contracting process is to bypass the legal department altogether. Now, before anyone starts a petition to get me disbarred, note that I’m not advocating for rogue contracting. But I do believe in empowering the business with self-service contracts, with templates blessed by legal and coupled with electronic guardrails that alert the attorneys should any revisions take place that have legal significance.
Often, the contracts that are best suited for self-service are those high-volume, low-risk contracts that data shows rarely get touched by either party before signature. When self-service is employed and no or immaterial changes are made, the business no longer needs to worry about legal review slowing down business and wasting resources.
By using data to identify high-volume, low-risk contracts, legal teams can empower the business with self-service, no-legal-review templates. Doing so speeds up business and saves legal resources. For one organization, the data showed that NDAs were a good place to start: “We had seasoned commercial attorneys spending time reviewing NDAs,” this company’s legal ops director told me. “Now we have the right attorneys doing the right work—working on those multimillion-dollar deals.”
2. Understand which clauses eat up negotiation capital, and why
In order to reduce negotiation friction, another area of focus is to determine those clauses (and stances) that consistently generate conflict and redlines during the negotiation cycle. In some cases, these clauses may be critical to a business’s operating model, and worth the effort. In other cases, they may be “zombie clauses” that persist in standard templates by pure inertia.
Mature contracting teams have begun to tackle these clauses by collecting data on which terms are taking up the most time and capital during negotiations and where the language ends up after negotiations. With this information in hand, organizations can update templates with a more reasonable starting point or create negotiation playbooks with acceptable ranges that reduce negotiation cycles associated with the language. Armed with these data-driven playbooks and templates, organizations can better train contract teams and mitigate friction in the process.
3. Identify which clauses are creating disputes
Post-signature, companies with the right visibility into their contract performance can collect data on which clauses create disagreements between the parties. This type of information can help companies get ahead of disputes by adjusting scope and deliverables, or providing governance clauses that create a regular cadence between the parties to review the contract, discuss performance, and escalate issues as necessary.
In the Most Negotiated Terms report, one leader at an IT provider put it this way: “We were able to undertake diagnostics and map the issues back to root causes. It led us to shift priorities for our negotiators, anticipating the things that could go wrong … These days, we don’t just manage our contracts – we learn from them.”
4. Democratize the data
According to another WorldCC report, 25% of a company has a hand in managing contracts. That’s a lot of brain power that can be leveraged to improve contract processes and performance if given access to data.
In one recent conversation, one leader shared how his business has digitized contract obligations tied to 85% of its revenue. These digitized obligations are then shared out with stakeholders so the organization can understand how well they're performing against their commitments. The leader marveled at how hungry the organization was for contract data.
“My charter is really looking at the contract life cycle and seeing what processes I can improve on: How are we going to understand the data in that contract and how are we going to consume and act on that data?” he noted. “Once I started packaging that data up, my constituents wanted even more. That’s what I’ve discovered.”
Measure it to improve it
It’s cliché but true: If you can’t measure it, you can’t improve it. The contract negotiation process has great potential for improvement in many organizations. With the right data from historical negotiations, companies can take a systematic approach to improve the way these critical documents are drafted and negotiated before they are signed, ensuring the realization of the parties’ intended outcomes.