Your organisation has been negotiating the commercial terms a fairly large and important deal for the past few months, and now it looks like the deal is finally about to go through…. But before you can pop open a bottle of champagne and finally get some decent sleep, the parties need to get down to the nitty-gritty and sort out the fine print.
The contract approval process can be a slow, tedious process that requires constant back-and-forth between lawyers, contract managers and stakeholders. Below we discuss strategies to implement to minimise the approval steps in contract negotiation and sign-off.
You can invest in some contract-management systems to streamline and automate the process, which can be costly. However, there are a number of other ways to minimise the approval steps without spending big money. And a contract management system won’t magically fix a poorly structured contract. It will just hard-code the pain.
Here we show you how to deliver a faster approval process for contracts and make it a far more enjoyable experience for all involved.
1. Set up pro-forma contracts that cover most of your deals
If you haven’t already, you should develop a clear idea about what the usual commercial and legal requirements of your products or services are.
From this you can develop a pro-forma set of product or services terms and conditions that reflect your company’s ‘standard’ deal and contain the minimum terms and requirements.
In our experience provided you have the right contracting templates in place, you can streamline about 80-90% of the deals your company does.
These standard pro forma contract/ terms and conditions should include:
- Commercial terms — these are the reason you’re contracting in the first place. These terms should be front and centre so that the everyone remains focused on what you’re trying to achieve together.
- Standard terms — these are typically the ‘legal’ clauses that align with your internal policies, procedures, budget and risk appetite. Examples of these might include how payment is to be made, sign-off processes for project milestones, minimum insurance requirements etc.
- Deal-breaker terms — the clauses that your CEO can’t live without and which would prevent a deal from going ahead if not included in the contract. These might include indemnities, warranties, pre-payments, guarantees and the like. Communicating these deal-breakers internally early (and to counter-parties, if it makes sense) will help avoid wasting time on proposals that should never have gone ahead.
2. Structure your pro-forma contract to minimise effort in getting deals done
We find that a contract ‘cover-sheet’ often works well to create a contract framework for sales teams and legal teams alike. The commercial parties focus on the front page. The lawyers (if they are around) focus on the back.
This means creating:
- A one page ‘cover’ sheet — that contains the party details and all of the main commercial terms. The commercial parties will focus on this page (and hopefully this page alone). It will also contain the signatures and wording that ties it to the ‘terms’ that sit behind. Sometimes this sits at the back of the agreement as a schedule. But increasingly they’re being moved to the front, if only for optics.
- ‘Terms‘ — this is where the legal-action happens; but you don’t want your sales team, or the other side tweaking this section, if you can avoid it. We’ve seen companies only present this section in PDF, or even try to lock them behind password protected login screens (the password was @gree!) and take the very fact of your opening them as acceptance of them. We don’t think you need to go that far. But if you’re looking to minimise back and forth – it makes sense not to try to include crazy terms which will be red-flags for the other side. Think balanced, subtle and readily defendable if you’re later asked ‘why should we agree to that?’.
3. Make sure the parties are clear on all the commercial terms
Logically, the legal team’s (or CEO, CFO or COO’s) sign-off on a contract should only be completed once all the essential commercial terms (on the cover sheet) have been negotiated and agreed. Many organisations implement a contract review checklist and sign off sheet to ensure that the essential commercial details have been agreed to before it can be passed onto the legal team.
If you’re using the cover-sheet method above, it will be clear if all the commercial terms are agreed. And the ‘terms’ are unamended, this should mean a super fast review and approval.
If not, then your legal team will have to do a line-item review of every term, and possibly use a ‘red line’ to check that nothing important has been changed. This takes more time.
4. Minimise revisions
This stage is probably the most time consuming, but also the stage with the most potential for unnecessary back and forth. Keeping track of multiple people’s comments can prolong the process, add confusion and risks important issues being missed. You don’t want bamboozled counter-parties. It slows down deals, and can be fatal.
The key to avoid these issues is to streamline the revision process, and implement these strategies:
- At the beginning of the process, work out if you think the terms will be signed unamended, or if there will be negotiation. If they will be signed unamended, let things run their course. If not — you should discuss with the other side how your company like to deal with amendments to standard terms. Aligning on a process will save a lot of hassle later on.
- Have one person that is responsible for forwarding and providing the parties with updated comments and contract versions. This keeps the house in order.
- Keep all edits in the one place – whether this is in the agreement itself, in a side letter, or in a ‘departures’ section (in some contracting settings these departures would be set out in a table and include commentary from either side). Most industries have a ‘standard’ way of doing this. But there’s no right or wrong. Just do what works.
- Progressively work to ‘resolve’ items or mark them as agreed, so you can focus on outstanding issues. Everyone likes to feel like they’re making progress and this helps keep momentum on a deal.
5. Make your customer’s job easier
Resolving the issues to get the contract in its final form is important. However, conveying information to customers in a user-friendly, easy to navigate format is equally just as important- it promotes efficiency, makes your customer’s life easier to do and motivates the parties to turn their minds to the actual issues that matter.
This also applies to in-house lawyers dealing with their in-house clients. It is easy to imagine a scenario where an in-house lawyer serves up a lengthy, wordy document with various mark-ups and strikethroughs in a bold, red font and ask them for their opinion. The document in itself is intimidating and the client won’t have clue where they think they should start. They can’t decipher and determine the order of comments, and they cannot distinguish what is relevant to them. The lawyer has made their job harder because they have an added preliminary step of figuring out what it is they are actually required to look at.
If we design documents for clients that are easy to use and pleasurable (similar to the principles behind UI design), this greatly assists them in keeping their attention on this document, and focusing all of their cognitive functioning towards their expertise.
6. Electronic signatures
Save the time and trouble of printing a document, getting it from the printer, scanning it, and then drafting an email to the other side, in order to finalise contracts. Electronic signatures exponentially simplifies the process and avoids administrative hassles.