Dan Safran, LegalShift, Legaltech News
An look at how general counsel are
recovering value in contract discovery in a new manner.
The goal of traditional contract management has been to find and track all
corporate agreements. Today, innovative general counsel are finding that the
real value of contracts lies within the content—and mining that content exposes
adherence to compliance issues, either to the company or to support a potential
external recovery opportunity.
Discovering those risk and/or return nuggets can help general counsel in
their role as corporate risk manager. Finding vendor or customer compliance
opportunities can turn the GC into King Midas—using the gold in the contracts
to recover real dollars—and potentially change the value of
the GC from leader of the law department as a cost center to that of a “profit
center.” This is referred to as “contract recovery.”
While capturing important data via contract management software such as
type of contract, contract abstract, parties or renewal dates is very helpful,
there is no quantitative return on investment for basic contract management.
Contract management can be very costly—spanning people, process and
technology—but it does serve a purpose. The process of inventorying,
compiling, capturing and abstracting contracts represents good “risk management
hygiene.” However, content (the agreement provisions, paragraphs, embedded
compliance requirements) is where we find the real value of contracts.
Traditional Contract Discovery
Discovering content in a corporation’s contracts is not a new idea. Law
departments and general counsel have been wanting and working to understand the
provisions in contracts for decades.
Merger and acquisition deals, for example, have been focused on contract
“discovery.” In a “buy” side transaction, the purchasing party typically spends
big legal dollars relating to the deal to understand the seller’s contractual
requirements, encumbrances and responsibilities. The buyer needs to grasp the
risks to them in a transaction, and this contract review process has been a
longtime, large revenue generator for outside lawyers.
Traditionally, the buyer’s lawyers spend many billable hours manually
poring through agreements. On large, complicated transactions, there can be
lawyer teams numbering in the hundreds, all of whom used to be stationed in
front of hard copy agreements, and in the past 30 years, in front of one or
more computer monitors reviewing agreements and marking issues/risks on paper
or electronically. Hundred, thousands and sometimes hundreds of thousands of
expensive lawyer person-hours were spent reviewing agreements to discover their
contents.
Contract discovery, then, has been a regular and needed part of many
business transactions, but it is very time-consuming and costly. Lawyers needed
to be focused, diligent, detail-oriented and invested to accurately discover
contract contents. Humans are expensive and fallible. There are many examples
of missed language or intent, causing unforeseen surprises.
GCs have long desired to understand their exposures and opportunities in
their agreements, at large, outside of matter-based contract review. The issue
has been one of expense, resources, time and priority, as very few law
departments have been able to proactively review their contract databases. It
is just too hard and too expensive.
Over the past 10-15 years, a shift has occurred in contract review
services. Law firms, law departments and specialty outsiders have driven the
workforce costs down by scaling review with on-shore or offshore contract
lawyer resources.
Quite a few different models have emerged that have helped to
commoditize these human resources services. While this market evolution has
resulted in dramatically decreased costs, the bottom line is that contract
discovery remains costly, time-intensive and error-prone.
The New Contract Discovery
Over the past several years, technology not dissimilar to e-discovery
review software has begun to enter the market fray. As of this writing, a
non-exhaustive list of players includes kReveal, Seal Software, eBrevia,
Brightleaf, Kira and RAVN. These software technologies, grossly simplified,
focus on parsing through many electronic documents that have been digitized
using optical character recognition to identify, flag and group items that the
corporation has identified as potential issue or interest areas.
These technologies can be configured to search for different types of
content (some are more powerful, preconfigured, more user-friendly, than
others). Many of these solutions utilize some sort of “learning” and/or
“intelligence” algorithms and processing, so that wording that may be close to
but different from search terms is identified, and in some cases, some level of
intent can be discerned via the software.
Corporations benefit dramatically by reducing spend, eliminating staffing
and management of large lawyer teams, avoiding human error and dramatically
reducing cycle time.
Discovery focus can be twofold. Many of these solutions can “crawl” through
corporate repositories, document management systems, network shares, etc., to
discover documents that may be “contracts or agreements,” finding intellectual
property that is not even captured in the contract management system or
database(s).
The more provocative opportunity is the technology-based search and
discovery of substantive elements of the agreements, whether they take the form
of most favored nations pricing, specific compliance requirements or
non-competes. This is the “gold” that sets the stage for the GC to be the
true “risk manager” of the corporation and, potentially, the information that
can be exploited for revenue or profit recovery purposes.
The Road to Recovery
The term “contract recovery” is assigned not just to the discovery of
substantive contract value, but aggregating that with the actual process of
recovery. The legal road is chock-full of “could have” or “would have” from
those that identified recovery opportunities in the past, but what is needed is
an executable process that allows for the corporation to
actually take advantage of discoveries and turn them into real, quantifiable
recoveries.
Much of the evolution of contract management to contract discovery involves
technology. And while the technology is a critical piece to this modern
approach, it is the melding of process and technology that becomes a
game-changer. Implementing a well-thought-out process and methodology with
roots in e-discovery enables law departments to not only identify issues but to
optimize recoveries. Teaming up technologists, consultants, software providers
and lawyers helps law department counsel to drive value from contracts.
In the near term, expect to see continuing development and increased
leverage of technologies to identify, process, review and analyze document sets
to support contract management. Contract discovery tools will drive the ongoing
identification and analysis of potential new opportunities for risk mitigation
and recovery opportunities. The “Road to Recovery” process will allow for the exploitation
of revenue recovery and ensure the follow-through to turn those nuggets into
gold.
Ultimately, law departments will be turning contract discovery and recovery
investments into positive ROI, so that the law department and GC become a
revenue and profit generator. King Midas, anyone?
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