May 25 by Prashant Dubey
“Mastering Contract Lifecycle Management” is a 15 part, bi-weekly series writen by Prashant Dubey, CEO of The Sumati Group, dedicated to expanding your mastery of Contract Lifecycle Management (CLM). The series is divided into 5 parts and encompasses the entire lifecycle of purchasing a CLM solution, including: the research phase, launching your CLM project, implementing the key building blocks, strategies for driving user adoption, and continuing down the road to success. Enjoy!
“I’m an artisan…a craftsperson. The eloquence of my prose would have Justice Scalia looking down upon me with awe and perhaps even envy…”
Okay, perhaps my barrister colleagues didn’t say exactly this, in exactly this way, but when some expressed their skepticism at Indian lawyers’ ability to review counter-party redlines in a contract, their sentiments were rooted in the statement above.
Legal Process, not Legal Advice
However, over the past almost two decades, Indian Lawyers educated in the British Common Law system (the U.S, Canada, India, Nigeria, Pakistan and about 15 other countries are Common Law countries) have been significantly increasing the efficiency of US corporate legal departments (and some law firms), ultimately resulting in what, we at Sumati refer to as: “Enabling Lawyers to Practice More Law™.”
This is not because these lawyers are practicing law. In fact, the Indian bar prohibits non-law firm lawyers from dispensing legal advice else they would be guilty of the “unauthorized practice of law.” Rather, lawyers in India have been combining people, process and technology to provide critical contracting business process support to corporate legal departments in the U.S. and Western Europe.
Outsized Value + Vilfredo Pareto
There is one contracting domain in particular where Indian lawyers add disproportionately high value to the contracting process – 1st level counter-party redline review.
Let’s consider the typical process. Note: For the purposes of telling this story, let’s keep it simple and focus on company contract documents vs. third party paper. A lawyer or (manager in a business unit) drafts a contract – hopefully from a template. This contract is then sent to the counter-party and comes back with redlines on some provisions.
In our work reviewing over 5.5 million contract documents Sumati found two key “Pareto points”:
- In 87% of cases where company paper is used for a contract, the same provisions are redlined, deal after deal after deal.
- Further, in those cases, 83% of the time, the ending point of the negotiation on the provisions that are redlined, was exactly the same!
Create a Foundational “Negotiation” Playbook
The findings above are not surprising. Remember my artisan colleagues? Well, the reality is that most contract negotiations are not bespoke. The language in a contract template when redlined typically means that the provision leans, perhaps slightly in favor of the company.
As such, the counter-party will redline the provision. Typically the pushback from multiple counterparties is on the same element of the provision. For example, on IP ownership, the company will typically ask for IP ownership of any work product produced under the contract with the counter-party. Naturally, the counter-party will push back on this provision to ensure that any proprietary IP is protected.
The ending point is typically something in the middle. However, in certain cases, the ending point may result in something that is much more skewed in favor of the company. This represents the company’s threshold for acceptance of risk on this provision.
Sumati’s experience, over 5.5 million contract documents is that empirically creating a negotiation playbook for 1st level redline review is eminently possible and a very powerful tool, when created. The method here is simple:
- Review the starting point template
- Review 15-20 example end points
- Identify the most negotiated provisions
- Document the ending point provision language for each provision
- Organize the (final) provisions in descending order of (risk) acceptability to the company.
1st Level Redline Review – Clinical, not Subjective
The contract comes back from the counterparty. Sumati has set up numerous Contract Management Centers of Excellence (COE) in a managed service structure (fixed price for a particular scope of work), for companies in all industries across all contract types.
When we receive the redlined contract, our SLA for reviewing and returning the redlines is anywhere from 24-96 hours (based on the complexity of the contract as well as the economics of the relationship). Our review process leverages the negotiation playbook we have created.
Sumati attorneys will review each redline and determine if it falls within the boundaries established by the provisions in the playbook. This works because the playbook does NOT represent our legal point of view but rather a clinical record of what our clients has agreed to (or not agreed to) in the past.
If the redline falls within the acceptable boundaries, we accept it. If not, then we flag it for adjudication by in-house counsel. All activity is tracked by our Sumati Contracts™ workflow platform to measure turnaround time. All this work is performed in the India time zone, roughly 10-13 hours ahead of the U.S. In other words, the Sumati team works while our clients sleep.
The result: Clients have been able to reduce contracting cycle time by 30-50%.
First level redline review – low hanging fruit to speed time to revenue, Enable Lawyers to Practice More Law™, and create negotiation consistency.
Be sure to check back on June 8th for the next edition of “Mastering Contract Lifecycle Management” to learn strategies for augmenting the CLM clause library.
To learn more about creating negotiation playbooks, visit the previous post – HERE.
The “Mastering Contract Lifecycle Management” series is written by Prashant Dubey, bestselling author of The Generalist Counsel and CEO of The Sumati Group, which is the Apttus premier contract migration and CLM Managed Services partner.