The BUSKLAW October Newsletter: "Have We Been Captained All This Time by a Codfish?" The Case for Strong Organizational Contract Management

 

Children's literature can provide unique insights into best practices and procedures related to my legal specialty: business and technology contracts. Consider Bilbo Baggins's frustration when faced with a contract rife with legal jargon in J.R.R. Tolkien's The Hobbit, a subject that my colleague Michael Braem and I wrote about here. Or how about using Lewis Carroll's Alice in Wonderland to discuss - and refute - curious excuses for legal jargon in this Michigan Bar Journal article. And in J.M. Barrie's Peter Pan, we hear Peter accuse the ineffectual Captain Hook of being a codfish, causing the old pirate Smee to consider if the brigands have been captained by a codfish, adding "it's lowerin' to our pride."

Let's talk about leadership in the context of organizational contract management. In my experience, many companies - large and small - don't grasp the importance of the careful and continuous tending of their contracts. They are simply content to keep them in a virtual or physical file cabinet to pull out only when there's a dispute between the parties. But strong and perceptive business leadership can fix that flawed strategy. Here are the common contract mismanagement problems and their solutions:  

> No single point of contact ("SPOC") for the company's contracts. One corporate department should be given authority to retain and maintain all company contracts, regardless of whether those contracts originate from other departments, company affiliates, outside lawyers, or field locations. In companies with an in-house legal department, the general counsel's (GC's) office is the logical repository. In smaller companies, the CFO should assume this burden, working closely with competent outside counsel to manage the process. Why is the CFO the best choice in smaller companies? Because missing, expired, or otherwise mismanaged contracts can easily result in financial loss, and the CFO has a fiduciary duty to prevent that.

 
> Management doesn't give the SPOC enough resources to effectively manage the company's contracts. Yes, your SG&A expenses must increase to properly fund the SPOC's contract retention and management duties. Expense buckets may include hiring a contract manager who could also assume the record retention responsibilities. The manager should report directly to the CFO (or GC) to give the contract management function the visibility that it deserves. The manager and CFO/GC must be strong and persistent contract management advocates to the rest of the company's leadership and to the board of directors. And the contract manager should have sufficient tools to enable them to fulfill their duties. Caution: choosing the correct contract management tools can be expensive and tricky, so consider the most simple, user-friendly solution, such as an Excel spreadsheet. 

> No signing authority policy. Who in your company has the authority to sign contracts? Should you allow lower-level managers to sign contracts having a smaller dollar value but require corporate officers to sign contracts with a higher dollar value? What should the dollar amount cut-off be? These are all questions to ponder, but keep in mind that contract dollar amounts aren't necessarily related to your liability exposure. You can have smaller-dollar-value contracts with significant liability exposure. So you'll need good legal advice to formulate the appropriate signing authority policy. And be sure to give your contract manager the power to enforce that policy. Contact me if you would like help in formulating a signing authority policy. 

> Inadequate coordination with your contract-drafting lawyer. You can avoid all of the above problems but still run into trouble if you don't coordinate your contract management function with the lawyer who drafted (and negotiated) the contract. When the contract is signed, have your lawyer create a "deal sheet" that summarizes the key business and legal provisions in the contract and circulate that deal sheet to all stakeholders. The deal sheet should also call out provisions that depart from your company's standard contractual provisions. Having a readily-accessible deal sheet makes it easy to track the life of the contract until its termination - and to answer the inevitable questions about the contract that occur post-signing. Contact me if you would like a deal sheet template.

> Inadequate coordination with your risk manager. Your corporate risk manager should review all contracts to determine first, if the other side's insurance requirements mesh with your company's insurance coverage, and second, if there's liability exposure to third parties via an indemnity provision that can be insured over. Beware naming the other side as an additional insured instead of a certificate holder without some limiting language in the contract. Again, contact me for tips about that.

Don't be a codfish when it comes to managing your contracts! And manage your contracts with pride, knowing that your efforts are vital to protect your firm's bottom line. 

____________________________________

If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. And my email address is busklaw@charter.net. Thanks!