Minimizing Risk Through Streamlined Contract Management Processes - Part I

Monday, December 1, 2008 - 01:00

Editor: You are a subject matter expert in contract management. What is your experience in this field?

Levy: I have worked in the contract management field at varying levels for more than 18 years, including over 12 years doing technology licensing, negotiating and drafting of services agreements, managing templates and dealing with the administration of contracts. Prior to CPA, I worked for a large software company, Deltek, as their director of contracts, working primarily with government and commercial contracts. As a Legal Process Consultant with CPA I advise clients across a wide range of industries in the establishment of solid contract management solutions to help them realize greater efficiencies and cost savings and reduce risk.

Editor: What is the meaning of "contract management"?

Levy: Contract management is the process of developing and implementing procedures and tools to optimize contracts so corporations can meet business demands while minimizing risk. It is comprised of a number of elements, including processes and procedures, contract template libraries, approved alternative clauses, a centralized repository, and integrated technology.

Editor: Why would a company need a contract management system?

Levy: Risk management is probably the biggest driver for a contract management system. There are many types of contracts floating around in organizations - intellectual property agreements, non-disclosure agreements, supplier contracts, employee agreements, stock purchase agreements, vendor services agreements, client consulting agreements, assignments and transfers agreements, and the list goes on and on. There should be consistent templates to ensure critical elements are included, risk is minimized and that the process is efficient. Because of corporate compliance standards required, for example, by Sarbanes-Oxley, the process needs to ensure that the company's legal and business experts have input to minimize potential liability. It is therefore vital that the contract management process is integrated with corporate compliance policies.

Contracts need to be easily accessible to stakeholders throughout the organization, particularly the legal department. If the company can't locate a contract that's key to the resolution of a breach of contract suit, the impact on the company is tremendous. Another good example of the importance of contract management is when a contract is needed in response to a discovery request. If the contract can't be found, the defending party may be denied its motion to dismiss. In another situation, a plaintiff who fails to maintain complete and accurate records needed to substantiate claims may have its complaint dismissed with prejudice by the court, thus reinforcing the importance of having contracts that are not only properly organized but also readily accessible.

Once a contract management process is established and implemented, it can substantially reduce a company's risks in entering into certain obligations. For example, some companies rely heavily on their business representatives to enter into as well as manage their contracts. In that scenario, some individuals are just trying to close a deal and can enter into an obligation on behalf of the company that the company may not be able to fulfill, which in turn puts the company in an awkward position down the road. For example, I've seen license agreements with extended warranties negotiated by a salesperson that resulted in a revenue recognition issue. Even as a privately held company, there is still an element of accountability to the corporation's board of directors and private shareholders who expect to see the organization reach certain revenue goals.

Another example is when promises to include certain features of functionality in technology are made to close a deal and later, the company decides against it. In such an instance, the company has made a written promise and, therefore, a contractual obligation. So, you're either going to expend the money to create that functionality or you could breach your contract. When companies don't have an understanding of what their obligations are and if they don't have procedures in place to manage the approval process or a central place to research actual contract obligations, they find themselves in a seriously awkward position when it comes time to either resolve a problem that has arisen from that contract or, even worse, to defend themselves in a lawsuit.

So a solid contract management process has implications across the organization and should be an integral component of a company's risk management strategy.

Editor: What role does CPA play in helping clients establish and implement a contract management solution?

Levy: CPA experts such as myself help clients design, develop and implement solid contract management solutions. In addition, CPA provides high quality, cost-efficient resources in India - attorneys who are provided extensive training in U.S. contracts law, to perform day-to-day administrative contract tasks. This strategy typically results in substantial cost savings. Further, it frees up clients' legal and contract resources to work on more complex, strategic matters that can have a greater revenue impact.

Editor: How do you work with clients?

Levy: First, we conduct an initial interview to discuss the primary pain points a legal or contracts department may be experiencing in their current processes. In most cases, we find that they simply cannot keep up with the volume of requests that come in. We take a look at where that process is failing and we offer a suggested solution for the client's approval. What we can ultimately be to a client is an extension of their own legal department. We are in a position to provide dedicated teams who get to know that corporation very well, as if it were their own employer (except without the liabilities of U.S. salaries and overhead expenses to the company that come with in-house employees). We can provide an unparalleled level of service because we have a complete understanding of that company's business - their contracts, their pain points and their level of risk, what they are willing to undertake, etc.

Editor: What are the facilities like in India?

Levy: Our facilities in Noida and Gurgaon, India are highly secure and are ISO 27001 certified for physical and data security. I was extremely impressed when I went to India on my first visit. I jokingly stated they were locked down more securely than the Pentagon. Everyone has to pass a security check to get in and out of the building, but that doesn't get them into every room. Certain rooms have restricted access and authorized individuals must have a badge to get in and out. We have guards walking throughout the building as well as a 22-circuit television that is constantly monitored, 24 hours a day, seven days a week. Our employees in India have computer desktops only - they are not allowed to take a zip file out of the building - their bags are checked going in and out. Our added measures to ensure we maintain the utmost security and confidentiality for our clients is one thing that puts us a cut above our competition. Another area in which we excel is our processes, which are Six Sigma inspired. In addition, we are ISO 9001:2000 certified for operations and quality management systems. Our stringent processes and reporting mechanisms enable us to provide clients with day-to-day updates on the work that is being performed. We provide accuracy ratings and pride ourselves that our work is between 95 and 100 percent accurate. Excellent as they are, we strive to constantly improve those ratings, always looking for feedback from our clients on areas of improvement, which we take action on.

Editor: Who do you hire and how do you find talent?

Levy: We hire Indian attorneys who have graduated from top India law schools - at the top of their class - and train them in U.S. contract law as well as U.S. Civil Procedure and document review techniques. The laws of India compared to those of the U.S. are very similar from the common law perspective - we were both British colonies and therefore we have similar jurisprudence. The differences between U.S. contract law and Indian contract law are the state-adopted statutes in the U.S., namely the Uniform Commercial Code. So we spend a lot of time talking about the UCC and a number of the applicable elements of Article 2 since many of our client's contracts deal with the sale of goods.

Editor: What advantages can your facilities in India offer?

Levy: Besides the excellent security of the facility, two main advantages of our India team are: (1) the time difference; and (2) cost efficiencies. There are contract requests that come in at 5 p.m. Eastern Standard Time and the person requesting the work can expect to see his request fulfilled the very next morning when he walks in the door. Due to the time difference, our Indian teams are working while it's night here in the U.S., resulting in a significant turnaround advantage. We bring the cost-effectiveness advantage as well. The hourly rate for Indian attorneys is far less than U.S.-attorneys although quality of work is not sacrificed with the price differential.

Editor: What inquiries should an organization make before hiring an outsourcing provider like CPA?

Levy: They should do their homework. They should look for companies that are well established and have been around for a long time: CPA has been providing outsourced legal solutions for nearly 40 years. We are financially strong, with healthy revenues, and clients can rest assured that we'll be around for the long haul to support them. Outsourcing is no stranger to India but the legal process outsourcing ("LPO)") business is relatively new. Some companies that were in business process outsourcing are now venturing into legal process outsourcing but don't have the deep domain expertise of a company like CPA. It is important for a company to conduct background checks on the organization, and if they are going to go so far as to truly rely on that LPO as a dedicated service provider, it behooves them to take a trip to India and to review the facilities. A reliable LPO will be pleased to entertain visitors - we are happy to give a company a tour and show them how well we protect their information. A potential client should also do some homework on the individuals who run the organization: their backgrounds, how long have they been in the business, etc. Our executives in India have been in this business for a very long time and have experience working for U.S. corporations such as General Electric, Microsoft and IBM. We recruit from the top law schools in India, and our lawyers have to have at least two years of experience in either contracts, discovery work or both.

Editor: What are the advantages of using an outsourcing provider like CPA over a law firm?

Levy: The biggest advantage is the cost-effectiveness - the money you could save alone by using an off-shore vendor is just phenomenal. Why would a company want to pay an outside counsel firm $350-$500 an hour for a senior associate (which is on the "light" end) to draft a template when they could have an equally capable attorney at one-tenth of that cost draft the same agreement? Even though you need someone to perform a supervisory role in the United States in order to fulfill ethics requirements, that person could either have his in-house counsel review the work or send it to outside counsel, either of whom would likely only spend 20 minutes reviewing it versus many hours drafting it.

The time savings affords another significant advantage - the ability for corporations to focus their internal legal and contracts resources on more complex, strategic matters. There is only so much the legal team can accomplish in a given day or week. Therefore, having external, cost-effective resources that can address day-to-day matters while freeing more time internally to focus on more complex work is extremely valuable. Further, CPA helps clients establish much needed policies and procedures consistent with their corporate compliance requirements and/or document retention policies.

Editor: What are the concerns other organizations have raised with respect to using an outsourcing provider for contract management?

Levy: One concern is ethics. The ethics rules have been reviewed by a number of the bar associations as well as the courts, and the bar associations have determined that if a law firm is using an LPO service, they can pass through that cost, and even mark it up, but they just have to notify their client that they are doing so. Law firms are not barred from using an LPO service. Corporations, of course, are not barred from using an LPO service. Most importantly, they need to look clearly at what processes such services follow to protect their customer's information. A good LPO will have the proper measures in place, and that could be a huge advantage.

Please email CPA Global at legalservices@cpaglobal.com with questions about this interview.