MANAGING YOUR FIRM'S CONTRACTS

by Eva Mineva

The Bridge, June 2004

(Newsletter published by the Golden Gate Chapter of the Association of Legal Administrators)

 

WHAT IS CONTRACT MANAGEMENT

Contract Management (CM) is the function of organizing and administering the agreements between a firm and its suppliers of products and services. It includes the ability to find a specific contract; find specific provisions within it; track its expiration and track other important deadlines. In the modern environment of multi-office firms with thousands of agreements and many traveling executives, the traditional file cabinet cannot do the job. Thus a number of technology alternatives have emerged. In the following sections, we will discuss the case for use of technology in contract management and the available solutions.

 

WHO BENEFITS FROM CM TECHNOLOGY

Contract management technology is most beneficial in law firms with numerous vendor contracts and multiple offices, where the traditional review and tracking of contract terms is particularly challenging.

The people involved in the process often include the directors of Operations, IT, Facilities and Finance, as well as the Executive Director and Managing Partner. These senior members of the firm are often faced with increasing time demands and decreasing staff support. To ensure they can best lead their organizations, they need to be particularly adept at ensuring process efficiencies and managing operational costs.

The firm's largest investments and operating expenses are governed by written contracts. Roughly 15% of the firm's annual revenue is spent on yearly lease payments, technology investment and maintenance, and the ongoing purchase of products and services.

Usually, the contracts that govern these relationships are tucked away in file cabinets in various offices, making it very time consuming to access and find information. The collaboration among constantly traveling executives is further burdened with costly logistics, such as copying and sending a specific contract by mail or fax, annotating comments and sending it back, and then tracking the comments on a number of paper versions. In recent years, many firms have faced an additional challenge - the merging of another firm's agreements with their own pre-existing commitments.

As a result, the contract administration process is often marked with inefficiency and overlooked deadlines, resulting in missed renegotiation opportunities and higher costs. Once common questions now represent major challenges. Examples include:

• Where are all the contracts related to a vendor?
• Where are all the contracts related to a transaction?
• How did Amendment # 4 change this agreement?
• Can we demand compensation for loss of service?
• Which agreements expire in the next six months?

 

WHAT DOES CONTRACT MANAGEMENT TECHNOLOGY OFFER

An effective contract management system will have the following attributes at a minimum:

• Web-access - allows all offices to consolidate their agreements in one central location, and enables executives to access the same content regardless of where they are.
• Support for paper-based and third party contracts - let's face it: although many times we do a great job of negotiating multi-year deals, we rarely have the electronic copy of a contract. And, although some firms can drive the terms of their vendor agreements, most use the vendor's paper with some adjustments.
• Flexible contract organization - allows for best practices, but can he adjusted to the firm's preferred way of work.
• Full text search - enables finding any provision across contracts in seconds.
• Event notifications - alert and remind one or multiple parties of renewal, expiration and other events.
• Collaboration - allows not only the secure access of select firm employees, but also sharing with external parties where necessary, and tracking of comments, changes and versions.
• Audit-trailn - keeps track of who and when viewed, changed or shared a contract.

 

WHAT ARE THE BENEFITS

The immediate benefit of a contract management system is increased efficiency. Multi-office firms can expect up to 80% reduction in the time spent in locating and sharing information.

An additional "hard" benefit comes in cost savings due to taking better advantage of renewal and expiration dates.

One of the most important by-products of a contract management system is the ability to consolidate vendors. Almost every company that initiates a contract management effort discovers that it can better leverage its buying power with the same vendor, or it can consolidate a number of vendors of the same product/service.

The visibility that comes with the implementation of a central contract management system also results in the ability to learn from past transactions, and ultimately in better deals.

 

WHO DOES IT

Contract Management technologies have proven their value across industries, including law firms, such as Pillsbury Winthrop LLP, and corporations, such as CBS MarketWatch. Following is a brief summary of their experiences:

• Pillsbury Winthrop LLP - the firm has 17 offices around the globe and is a leader in the use of technology in its practices. Its agreements used to reside in a multitude of file cabinets in various offices. Summaries of some of the terms and deadlines were kept in a number of spreadsheets created by suppliers and employees. Finding and sharing information was very time-consuming and often impossible. The firm adopted the OpenSourceCM contract management system in the spring of 2003. One after the other, the IT, Operations and Finance departments consolidated their nationwide agreements and made them accessible through the firm's Extranet. Now they know where to find contract information and can do it in a matter of minutes. The collaboration between East Coast and West Coast staff is straightforward; and new deals leverage the firm's experience in previous transactions.
• CBS MarketWatch - a CBS subsidiary with roughly 1,000 contracts was faced with the daunting task of absorbing the rights and obligations of a recently acquired company of roughly the same size. Reviewing the agreements of the acquired company would cost many hours of the already busy schedule of the CBS MarketWatch General Counsel. Using OpenSourceCM, the company created a central knowledgebase of contracts. The knowledgebase includes all MarketWatch agreements as well as those of the acquired company, searchable for any provision. Ticklers are set for all important contract dates. The General Counsel can access all agreements at all times, find specific documents or provisions in seconds, and does not need to worry about missed deadlines.

 

WHAT ARE THE ALTERNATIVES

Firms and companies have used a number of different technologies to make their contract management efforts more effective. Following are the more popular among them:

• Homegrown systems - these are systems based on MS-Excel spreadsheets and MS-Access databases. They are a useful method of organizing the most important contract terms for firms that do not have too many contracts and that have only a few offices. For larger scale operations (over 5 offices and/or over 500 contracts) these systems have proven to be very expensive to build and maintain. Moreover, they hold a very limited amount of contract information and do not aid collaboration.
• Document Management Systems - some firms have experimented with scanning their contracts and adding them to the firm document management system, such as iManage. This is a relatively inexpensive effort that aids in the organization of contracts but does little to improve their visibility, mostly due to the contracts’ format (pdf), the poor search capability of most document management systems, and the inability to schedule appropriate event ticklers.
• Enterprise Contract Management Systems - since 1998, many corporations have invested in systems to streamline their contracting process. Enterprise Contract Management applications can help standardize the processes of contract creation, negotiation, approval and administration, and improve the communication between manufacturing, purchasing and legal. These are large enterprise systems that can be very costly. They provide limited benefit in service-oriented enterprises, such as law firms, where the focus is on understanding and managing the content of agreements rather than controlling the process of their creation. Representative vendors include Nextance and CMSI.
• Legal Document Analysis Systems - focus on the needs of corporate legal departments and service-oriented enterprises, such as law firms. Although they have limited process support, they are able to convert pdf images of paper contracts to text, store and analyze the full text of an agreement, and access it over a secure Internet connection. OpenSourceCM is a representative product in this category.

The efficient and effective management of firm contracts is an area of potentially significant cost savings. Various technologies enable contract management. The type of technology adopted should reflect the amount of agreements your firm has and the nature of your operations. In many cases, simply locating and organizing your contracts and leases online will have an immediate impact on your firm's operating results.