Your Contracting Process Is About More Than Managing Risk — Creating Value in Commercial Relationships Calls for Skills Outside of Legal’s Silo


The Point

Attorneys view contracts primarily through the lens of risk management. And only in a very specific context: Protecting the business in case of litigation. There is, of course, some merit to this focus. But only a tiny percentage of contracts actually end up in court.

The contracting process has implications for the business well beyond producing legal artifacts. For instance, such agreements help — or hurt — your company’s liquidity by driving the timing of payments into and out of the enterprise. Yet neither in my Ivy League law school’s contracts classes, nor in drafting agreement terms at the Wall Street law firm where I practiced afterward, did I ever read or hear the words “order-to-cash cycle”.

That’s why executives and frontline employees across multiple functions should take the lead in the contracting process. Being sure to access lawyers’ advice where needed. But with people from sales, finance, and operations managing the lion’s share of what should be considered, primarily, a business function.

This Matters to Your Business

Gartner, a prominent technological research and consulting firm, offers the following description of the contracting process:

” Contract life cycle management (CLM) denotes a solution and processes for managing the life cycles of contracts and agreements created and/or administered by, or affecting, an organization.

“These include third-party or internal contract agreements, such as outsourcing, procurement, sales, nondisclosure, intellectual property (IP), leasing, facilities management, employment and other licensing, plus any other agreements or contractual documents containing obligations that affect the organization now and/or in the future.

“CLM spans all processes associated with the life cycle of each contractual agreement, from initial request through contract discovery, authoring, redlining and negotiation, valuation, approval, execution, order tracking/matching, compliance/obligation management, amendments, dispute management, auditing, reporting, and fine-tuning to eventual archiving.”

Because …

Success in the contracting process comes down to delivering practical agreements to the business people who run the company, both on the frontline and in the C-suite.

But too many lawyers can’t see beyond legal technicalities — because they don’t understand the business in the first place — and so they can’t relate the contracting process to the commercial purposes that it’s meant to serve. Consider this from Liam Brown, CEO of the alternative legal services provider Elevate Services:

One of my biggest frustrations was having to spend a good chunk of my time explaining to our lawyers why the contract needed to be written in plain English and structured in a way that will allow me to train people within the business on their obligations“.

Of course, the contracting process requires the right technical legal language to stand up in court, in the remote likelihood that a contract ends up there. And only lawyers can provide that.

But your company’s contracts have a larger business purpose: To create tangible value in commercial relationships. And that’s a business activity that calls for cross-functional corporate capabilities well beyond what Legal’s silo can deliver on its own.

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