Imagine, it’s 10 PM on a Thursday of the last week of the quarter and you get a ping from your CFO, inquiring about the status of multi-million dollar customer contract review pending with you.
Roll forward 3 days.
It’s 10 PM on a Monday and your CEO just called you to get a status on Force Majeure clauses in all your supplier and customer contracts in a major country experiencing political disturbances.
If you are a senior lawyer in a Fortune 1000 company or a Top Law firm, you have experienced this in some fashion, probably recently
Contracts are the lifeblood of modern businesses. A typical Fortune 1000 company has anywhere between 20k & 40k active contracts at any time. A Mckinsey study estimates that substandard contract management practices erode business value up to 9% of annual revenues?! For the firms that manage the contracting process strategically, this is an untapped opportunity.
Whether it’s initial drafting, reviews, or negotiations with counterparties, you cannot always have your most experienced and domain expert legal mind attending to every case. So, when a relatively inexperienced contract professional, working under time pressure, not trained in rigorous contract management process starts managing the contract, typical mistakes creep in.
The best way to alleviate these risks is getting your most experienced set of eyes to draft and review every word. That is, of course, is not a scalable practice.
Force Majeure: one particular clause which had become the center of attention of lawyers and lawmakers alike, as Covid19 engulfed the world last year. A flurry of business insurance claim lawsuits & contract disputes hit the courts as everyone’s interpretation of ‘acts of God’, ‘government actions’, etc. differed. Over the last 18 months, countless hours have been spent debating and revamping contract terms like Force Majeure, causation, mitigation measures, etc. to ensure business continuity during such unpredictable times. If there is one lesson for contract management practice from 2020, it’s to never leave anything to chance.
Beyond the unique nature of issues brought by the pandemic, there are many examples where individuals and companies ended up with bad and sometimes catastrophic consequences because of lack of rigor during the contracting process.Let us look at two such examples:
A combination of factors like increasing business complexity (supply chains, stakeholder relationships, customer’s demands), ever-increasing business expectations from contract managers, and tail events like Covid19 have demonstrated one thing very clearly — that treating contract management as a cost center and not a potential driver of business value is a mistake which no business can afford.
Businesses should invest in the development of contract analysis and management practice through a combination of training, process thinking, and the use of technology (especially Machine Learning technologies like Natural Language Processing).
In our next article, we’ll discuss how leading companies have developed systematic approaches towards the contracting process and where this world is headed.
More Like This
Day 5 of 20: What is an AI Copilot and why it is the right user experience (UX) for LLMs
We discuss why Copilot is the right paradigm to infuse AI into knowledge work. We delve deeper into factors driving the development and adoption of Copilots in all knowledge work areas like coding, analytics, contract review and drafting, copywriting, etc.Read More
Copy Paste Contract Clauses
Explore contract law's impact on partnerships, risks tied to clauses, and real-life cases. Leverage ContractKen's robust clause library for streamlined contract management, risk mitigation, and successful partnerships.Read More
Day 4 of 20 - How to use Generative AI in a safe, secure and private manner
Learn about ContractKen's innovative approach to building a 'Moderation Layer' that allows firms to use Generative AI for contracts in a safe, secure and private mannerRead More