5 ways to achieve efficient contract risk management
A little risk is fun, right? But it’s not welcome in your company’s legal department. However, every contract — no matter how small or unimportant it might seem — poses a new risk to your company.
By leveraging legal tech, you and your department can approve contracts faster without incurring more risk. Tools that provide better access to information, assist legal and business teams alike, and manage the full contract lifecycle help expedite the important, albeit time-consuming, contract risk management process. Here are five ways to get going.
1. Start with a Template You Can Access Quickly
With easy access to approved contract templates, you can skip the timely and risky process of creating contracts from scratch.
The Challenge: Inefficient Contract Creation
Contract creation is a major source of contract-related risk. Creating a new contract is both time-intensive and risky because it subjects the company to human error by the drafter. According to Contracts Counsel, “Templates leave less room for error. If a lawyer is drafting every contract from scratch, it increases the risk that they will forget a critical element. Templates include everything that could be needed, giving the attorney the option of customizing or deleting them as needed.”
Easy access to and use of templates are essential for contract risk management because templates both reduce risk and expedite the contract drafting process. Without a good document management system, though, you may be unable to find the most up-to-date approved templates — or you may unnecessarily waste time searching for them.
The Solution: A Contract Lifecycle Management (CLM) System
An effective CLM tool stores all of your company’s contracts and contract templates in one central, cloud-based place and allows counsel to quickly and easily search for and access approved templates. By making it easier for attorneys to access contract templates, you can save time, reduce risk, and establish department-wide consistency. When your team works from an approved template, you can rest easy, knowing that all critical elements are included in each contract.
2. Easily Locate and Analyze Key Terms and Concepts in Third-Party Contracts
Legal tech that helps you locate and analyze key terms and concepts in a contract created by a third-party speeds up the review process while reducing the risks of manual review.
The Challenge: Reviewing All Instances of Key Terms
Another major area of contract risk focuses on the terms of the contract at hand. As noted in a Business2Community article, “Contract terms are the lifeblood of the agreement. Risk exists when contracts that contain old or outdated terms are created and in some cases even signed.” Because the terms of each contract are so important, the legal team’s ability to locate, review, and edit key terms in a contract created by a third party is essential.
In a perfect world, every company would use the exact same template for each type of contract. Reviewing lawyers could then easily find key terms in the same place every time. In reality, though, each company uses its own contract template, and every contract looks a little different. This makes reviewing third-party papers challenging for legal reviewers, who can miss clauses and terms that hide in unexpected sections of a given document.
Manually sifting through a contract for key terms is not just time-consuming — it also adds risk, because it introduces the possibility for human error and oversights.
The Solution: Legal Tech That Automates Contract Review
You and your legal team can use a tool like Review AI to find and review important terms and concepts more easily. Review AI lets you tell the tool which terms and concepts are important to you. The AI then automatically highlights those terms in the document. This ensures that you will be able to find and address every instance of the key term in the contract — even if it’s located in an unexpected place.
In addition, Review AI can determine whether any key concepts are missing. The tool automatically links to an approved clause library, so you can easily update the document with pre-approved language. The tool gives legal reviewers confidence that they won’t miss anything and removes the need to spend hours poring over every sentence of the contract. It expedites contract risk management by speeding up the review process while reducing multiple sources of risk.
3. Search Precedent Documents for Key Terms
With an effective knowledge management system, your legal team can easily search for key terms in past contracts. This helps maintain consistency and helps you keep tabs on contract risk management.
The Challenge: Poor Access to Precedent Documents
One of the most important tools in a legal team’s arsenal is its library of precedent documents. Access to historical documents gives your team deep knowledge of the legal world in which your company lives. Precedent documents are unhelpful, though, if they’re not accessible or searchable. Contract reviewers may need to search hundreds of past contracts in order to identify information about a single specific clause or term. Imagine doing that manually — it would take forever to complete a single contract review.
The Solution: An Effective Knowledge Management System
An effective knowledge management system allows you to run advanced searches across your entire database of contracts, so you can easily find relevant precedent contracts.
For example, if you’re reviewing a new contract under California law, you can use the knowledge management system to search for all past contracts signed in California and identify the language the company has used in those instances. This saves you the time you would otherwise need to spend manually sifting through precedent materials, and it also creates a more consistent approach to contract review and drafting. This consistency, in turn, reduces risk for the company.
4. Let the Business Team Take the First Pass at Contract Review
Automated legal tools like Review AI empower other team members — even those without a legal background — to gain legal’s approval on low-risk contracts more quickly.
The Challenge: A Lengthy Approval Process
Many companies discourage sales team members from reviewing contracts, because they don’t necessarily know what to look for or how to identify problems and send them up the chain to legal. While this helps de-risk the contract review process, it also creates a bottleneck. The need to wait for legal approval on every contract — even relatively low-risk ones — creates a frustratingly long process for business teams.
The Solution: Self-Service Legal Review
Review AI makes contract risk management easier by empowering business users to submit low-risk contracts, like NDAs, to an AI-based tool. The AI automatically returns redlined results that align with legal’s requirements, which significantly speeds up the contract review process.
The tool works by creating a red flag for issues of high, medium, and moderate risk, and it automatically suggests necessary insertions, deletions, and other edits. This allows business users to take an initial pass at contract review and negotiation while ensuring that key areas of risk won’t slip through the cracks.
5. Execute Contracts Properly Once They’re Approved
Legal tech that manages the execution and maintenance of contracts saves time for the legal team and protects the company from financial risk.
The Challenge: Improper Contract Management
Contract risk doesn’t magically disappear once the contract is signed. If a contract is executed or managed improperly, that can add significant legal and financial risk to the company. In order to combat this risk, legal departments need to ensure that the company meets all terms of the contract appropriately and on time.
Moreover, legal teams need to manage the lifecycle of each contract to avoid exposing the company to unnecessary financial risk. For example, does the contract renew automatically? Are there provisions that must be met in order to terminate the contract? Extracting and executing upon the most salient information from each of a company’s many contracts can be time-intensive and cumbersome.
The Solution: Legal Tech That Streamlines Contract Management
Cloud-based legal tech, which stores key information in one central place, helps legal teams streamline the contract management process. With effective CLM software, for example, you can easily keep track of pertinent information and set necessary alerts. This helps ensure you never miss an important deadline or fail to fulfill the terms to which the company has agreed.
When introducing a new legal tech platform, it’s important to ensure that system will integrate easily with other components of your company’s tech stack. Such integrations reduce manual effort, eliminate duplication, and further streamline the contract management process.
Legal Tech Is Key in Successful Contract Risk Management
Legal teams are in a constant tug-of-war as they balance the need to reduce risk with the desire to speed up historically slow processes and satisfy fast-moving business colleagues. Contracts are a common source of risk for companies, and legal departments have historically spent significant time on contract risk management.
But with legal tech tools, including AI that automatically highlights areas of risk, legal and business teams can work together to expedite contract review and mitigate associated risk. In short? Effective legal tech helps everyone win.
Not sure what your most pressing legal tech needs are? Book some time with our team to talk through your pain points and we’ll help you find the best solution.