“let’s finalise this, then we will send it to legal”, “we will worry about the contract later”, “we will get legal to sort out all the contractual stuff”, “everything is done, we are just waiting for legal”, “I just need to get this signed off quickly by legal”
How many times have you heard the above or similar statements when undertaking a commercial discussion? The idea that you thrash out an amazing deal and the finalisation of the contract relating to that deal is an irritating bureaucratic process, undertaken exclusively by a mysterious, faceless and unreasonably slow entity known only as “Legal”. The purpose of this knowledge share is to dispel this ideology and to (hopefully) stress the value of collaborating with legal as early and often as possible.
There are usually three broad general elements to a commercial contract for goods/services:
- Commercial; and
The technical element of the contract is the intricate, specific details of the goods/services being provided. For example, this could be the details of a licensed software, the service levels, any additional modules included as well as the maintenance and support services for that software. If any particular element of the goods/services is not included in this part of the contract, it is usually not part of the agreement.
The commercial element of the contract is the deal, this is where you will find pricing, the duration of the contract, renewal terms and specifics such as whether there is any exclusivity.
The legal element of the contract is the terms and conditions, this is where you will find warranties, indemnities, confidentiality etc. This is also where legal must knit all three contractual elements together, ensuring that there are no contradictions and making sure the contract document, works in the way it is intended to.
Of these three general contractual elements, legal are absolutely the experts in the final element. The first two elements however, require the expertise of the relevant stakeholder and procurement respectively. Without the input of the subject matter experts, leaving legal to review and draft technical and commercial schedules in isolation is going to result in unnecessary delay and most probably contractual inaccuracy.
Change your process
9/10 instructions to legal will come with an indication of severe urgency, the question is however, is it urgent? Or has it now become urgent due to inefficient process management? Most delays and inefficiencies in contract finalisation come from poor planning and engagement on the part of the stakeholder. This is repeated by multiple stakeholders resulting in inconsistent but high urgency workflow to legal, rather than a consistent manageable stream of work. Legal are often instructed at the last possible hour, leaving no opportunity to properly mitigate any contractual risks. The following suggestions will ensure that your contract is completed efficiently and accurately:
- Inform your legal team early. As soon as you are thinking about procuring/selling something that may result in a contract, tell them you have a potential requirement for resource and when you anticipate this will be. This will help your legal team plan their workload;
- Engage legal as early on as possible. Being CC’d on emails throughout the early stages of the discussions allows legal to more accurately anticipate when they will need to be involved. This will ensure that you are much less likely to get given a lengthy turn around time, than you would be just by surprising them with a contract they know nothing about;
- From a project team of stakeholder, procurement and legal, legal should drive the contract element of the project but stay involved and informed on all other aspects.
In my experience, the best commercial contracts that I have been involved with have been those in which the level of engagement between legal, stakeholder and procurement was the most regular. This active communication resulted in contracts that were completed efficiently and more importantly, accurately reflected the commercial deal and held the correct balance of legal risk.
The value of relevant people understanding the contract during a commercial relationship is severely underestimated. A stakeholder should be able to look through a contract and find relevant information to help deal with any issues, questions and queries on an ongoing basis, this will help them manage the relationship in an informed manner. The best way to do this is for those people who will be involved in that commercial relationship to be involved in the drafting of the document that governs it. Legal are of course there to support ongoing contract management, but not having to instruct legal before you get on a five minute conference call about a £200 underpayment is extremely useful.
So who should write the contract?
The answer is, legal should most definitely oversee the contract and should drive it through to completion, but a major part of this is legal being able to instruct experts in the business to review and complete certain elements of that contract. This collaboration will ensure efficiency and accuracy in your contract which will ensure that your commercial arrangement has sufficient legal protection.
ABOUT THE Guest Author:
Adam has recently relocated to Kuwait where he is Legal Counsel at the Alshaya Group, a leading international franchise operator with almost 90 of the worlds most recognised brands in its portfolio, including Debenhams, Starbucks and Mothercare. Prior to this, Adam was a Commercial Solicitor at Latham & Watkins and also resided in the multiple award-winning Swinton Insurance legal team.