Given the relentless pressure on law departments to reduce costs while improving service and compliance, it’s not surprising that Business Integrity’s 2013 contract management survey found that 46 percent of respondents are planning to automate their contract processes. The survey was conducted online and at the 2012 ACC annual meeting in Florida. The vast majority of the 200+ respondents were GCs and AGCs.
Improving Efficiency Is Paramount
When asked to rank the relative importance of contract management benefits including increased law department efficiency; reduced peak times delays; improved compliance; more uniformity; and better collaboration between business and Legal, increased efficiency came out on top closely followed by better collaboration with the business.
Given these imperatives, it was surprising to find that almost a half (48 percent) of all respondents work for organizations that still rely on phone and email to request contracts. Of the remainder, a third trust business people to download and edit Word forms for themselves; whereas only just over a tenth (11 percent) have any sort of online request form, and only 7 percent of respondents’ organizations provide a self-service capability for business people to automatically generate contracts when it’s safe to do so.
One of those organizations that has implemented self-service contract automation is SolarCity – a fast-growing organization that finances, designs, installs and operates solar power systems for residential and commercial customers in 14 states throughout the U.S. SolarCity’s GC was well aware that sales executives often jokingly call Legal the “sales prevention department.” By implementing an easy-to-use and compliant self-service contract creation and management system, he was able to transform the contract process from a source of inefficiency and frustration to a competitive advantage.
According to the survey, 32 percent of respondents work in organizations that create less than 500 contracts per year; 31 percent create 500 to 1,000 contracts per year; 20 percent create 1,000 to 5,000 contracts per year; 8 percent create over 5,000 contracts per year; and the remaining 9 percent were unsure of the number of contracts. Given the numbers involved, another surprise was that less than a quarter of respondents (22 percent) use automated document drafting in any form.
Although the survey was not able to establish the total time spent drafting contracts, automating the drafting of contracts promises big savings – almost certainly $100 of internal costs per hour saved using automated drafting, and possibly as much as $1,000 of external spend per hour saved using automated contract drafting where the freed-up time is used to do work in-house that would otherwise be sent outside.
As an example, Life Technologies, since modifying its legal operations to use contract automation to address its growing volume of contracts, reports annual savings amounting to the cost of five full-time paralegals. By freeing the legal department from having to draft every confidentiality, consulting and material transfer agreement, the company’s new contract automation system allows attorneys and paralegals to work on tasks that make more effective use of their legal and business expertise.
As another example, Cisco Systems empowers its account managers to work directly with distributors to negotiate distribution and other related agreements. By answering a series of online pre-screening questions that define the intended relationship, Cisco’s account managers can generate agreements and enroll distribution partners for new products in under an hour without any direct assistance from Legal. Cisco has calculated that applying these new contract management practices to just 200 non-disclosure agreements per month alone saves $15,000 per month.
Widespread Dissatisfaction
Given that organizations have been slow to adopt contract automation, it comes as no surprise that most respondents gave a low satisfaction rating to many aspects of the way in which their departments and organizations handle the contracting process.
Respondents who rated their departments as below average cited the following as issues: contracts not being filed in a way that allows them to be quickly retrieved; contract approval processes that are time-consuming and often chaotic and ineffective; and business users requiring an attorney each and every time they need even the most basic standard agreement.
Conclusions
The majority of the survey respondents stated they want to improve the efficiency of their law department by implementing contract automation. Automated contract drafting can reduce law department costs by between $100 and $1,000 for each hour saved by automated drafting. Additional benefits include reducing peak-time delays, improving contract consistency and compliancy, improving management of executed agreements, and improving the information available for managing the legal department.
Published April 23, 2013.
