Solutions to Common Contracting Problems
The last article identified four common problems with contracting: (1) they take too long, (2) contracts cost too much, (3) contracts hinder relationships, and (4) Contracting teams are stretched too thin. This article proposes a solution to each of these problems.
Problem 1: Contracts take too long. This is often because of outside counsel. And the solution is simple, establish an in-house legal team. This is often met with pushback from CFOs, mostly because all they see is the salaries/benefits of each attorney/paralegal. And it’s hard to quantify the dollar value of a legal team. However, the time savings are quite stark. As mentioned in the last article, it’s an average 30 days to review contracts, having an in-house team reduces that in half.
Problem 2: Contracts cost too much. There’s a lot at play here. In part they cost so much because companies are using outside counsel. The other reason has to do with policies and procedures. Unfortunately companies will spend thousands of dollars reviewing contracts of low dollar, low risk. And in large part this is driven by unreasonable terms and conditions. The solution to these problems is quite easy, stop sending unreasonable terms and conditions. most contracts below $10,000 should only have net payment terms, (standard is typically net 30), delivery date/milestones, and length of contract. This will reduce the need to review contracts, which will ultimately reduce the costs. And this goes a long way towards solving the third problem.
Third problem: Contracts hinder relationships. By sending unreasonable terms, you’re inviting the county party to take their sweet time in reviewing the contract. And not only do they lose value on the contract, so do you! Thus, stop sending unreasonable terms and conditions
Problem 4: Contract teams are stretched too thin and asked to do more with less. Often times contract teams get large amounts of work and don’t have the staff or time to get everything done in a reasonable time. There are solutions to this. The first is to adequately staff your contracting team. Second, think strategically about processes and policies for contracting. Third, standardize and automate as much of your contracting process as possible. Unfortunately much like the in-house legal team, expansion of a contracting team faces push back. But by demonstrating efficiency and sound contracting, the value begins to speak for itself.
Finally, by implementing these solutions you begin to maximize the value of your contracts and the legal and contracting team begin to shine. But this isn’t the be all end all to maximizing value, there is still a lot of work to do and think about.
