How Legal Operations Improve The Contract Review Process (and How I Created A Standard for NDA Review)

Contracts and agreements are the lifeblood of a business. They bring $$$ to the company, directly or indirectly.

Business people go out and find customers and legal people help secure the company’s interests in relation to those customers. Simple enough, right?

Yet Contract Review can be a dreaded task for everyone at the Legal department. Here’s why:

• You feel the weight of the world on your shoulders.
• You have to be in the right headspace for contract review and that can be pretty hard to achieve when you’re juggling multiple tasks.
• You feel like you don’t have enough experience to spot the “risks” and “pitfalls” to your company.
• You’re not sure what the end result is when you’re signing off on a contract… Is it really OK?!?

Personally, eventhough I love contracts and drafting, I’ve always had an itch and a niggle at the back of my mind when I do Contract Review. Until I discovered Legal Operations.

What Legal Operations do to help Contract Review

Picture this: There are 5 urgent contracts on the table and 5 people at the Legal department.

All of those 5 people are more than capable to review contracts. The clock is ticking. Legal department needs to comply with SLAs.

What do you think the boss will do?

That’s right, everyone will get a contract each. What a lucky day!

Now consider this: All 5 people have different experiences. Some have been doing Contract Review for ages, others are getting started. Some are more familiar with IT contracts, others with HR procurement contracts. Some are more risk-averse, others are more risk-friendly.

The golden question is: How do you ensure that all contracts are reviewed in a logical and CONSISTENT manner to bring the most value to the company?

Contracts don’t have to come out looking the same after Contract Review (of course), but there needs to be some Standards to ensure that everyone knows why a contract is looking the way it is.

If two contracts with the same terms are treated differently just because they are reviewed by two different people, that’s bad for the company. That means that policies change constantly and there is no stability.

That’s where Legal Operations come in. The goal of Legal Operations is to help me, you and those 3 other people do our jobs better. In this case, it’s reviewing contracts better.

Here’s a couple of things that Legal Ops can help with:

• Creating a checklist of T&Cs that are required to be in a contract as a matter of policy. E.g. the notice clause.
• Creating a “range” of clauses to be considered and negotiated. E.g. Limitation of liability clauses, ranging from zero limitations to limited to 2x the contract value.
• Creating a list of clauses that require special approval by the management or another department. E.g. “money out” clauses.

There’s more, but these are the basic Standards that I think will have the most impact to a Contract Review process.

Businesses thrive on stability and consistency. Standards not only help the Legal department act as a united front when reviewing contracts, but they also help Business departments negotiate terms better. Both departments get to be more strategic.

You can be as limber-bodied and creative as you like when reviewing and negotiating, but you have to always start at the Standards and go from there.

How I got started with creating Standards for the Contract Review process

Creating Standards is a mammoth undertaking for a single person. It can be intimidating too.

But I’m a firm believer of you make the best of what you have and change starts with yourself.

I knew that I didn’t have to make ultra-sophisticated Standards for my Contract Review process to be effective and useful. Suffice if I could:

• Ensure that the basic T&Cs are included in the contract.
• Know what kind of T&Cs should be flagged, discussed and approved at working level or management level.
• Justify and explain why certain T&Cs are acceptable the way they are.
• Explain to the relevant Department how certain T&Cs will affect their operations.
• Have a record of how the Contract Review process proceeded.

One of the Standards I created was the Standards for review of Non-Disclosure Agreements (NDAs). Here’s how:

1. I analyzed the company’s template NDA that has been endorsed to figure out the ‘Baseline’.

As I’ve said earlier, creating Standards is a mammoth undertaking. If you don’t have to create one from scratch, DON’T. That will include much more time, energy and red-tape than you can afford.

So whenever possible, get started with company templates. It’s highly likely that those templates have already been reviewed and endorsed for widespread use.

I took our company’s template NDA to analyze the terms and figure out the ‘Baseline’. The Baseline is the acceptable level of T&Cs.

Any T&C below the Baseline needs to be at least flagged and discussed. Any T&C above the Baseline can be considered accepted.

For example:

• The company’s Baseline is that the destruction of confidential information shall be done immediately upon the expiry or termination of the Agreement.
• The contract that you’re reviewing may state that the destruction of confidential information shall be done immediately upon the expiry or termination of the Agreement and upon the request of the Discloser.

Depending on whether the company is the Discloser or the Recipient of the confidential information, the added requirement of “and upon the request of the Discloser” may or may not be above the company’s Baseline.

2. I extracted all Baselines into a spreadsheet.

After figuring out the Baselines, I extract them into a spreadsheet (Excel) and categorize them for easy reference.

You can use Word but I much prefer Excel.

This keeps all Baselines in view. So when I’m reviewing the NDA, I can hunt for the specific T&Cs eventhough they’re not in order.

Whenever possible, I extract the Baselines in point form. No sense in copying the whole T&Cs into the spreadsheet. But I had to be extra careful here so that I don’t oversimplify the relevant T&C and miss out on important details.

In any case, I always keep the full version of the template NDA on hand so that I can review them side-by-side if necessary.

3. I created additional sections for analyzing the NDA.

Now the Standard has effectively been created already, but it doesn’t have to stop there.

You can also turn the standard into a Review Form as well, like so:

• NDA being reviewed: The document under review. The heading can be substituted with the actual document name and details. Here I summarize the T&C in the NDA I’m reviewing and insert the clause number.
• Above Baseline (Y/N): A way to categorize the T&Cs. “Y” means it doesn’t need further discussion, “N” means it needs to be discussed further. (In some cases, even “Y” ones need to be discussed further.)
• Remarks: Any other comments I might have. I also often include the effects of the particular T&C, questions, requests for additional clarification.

I know it seems easier to just use the Comment function on Word so that there’s no need to summarize the T&Cs.

But for me, the comments get messier the more I interact with my colleagues. I’d rather have all my comments in one place.

4. I created sections for the relevant Department to provide their response and my final actions after their response.

Another awesome thing about turning the spreadsheet into a Review Form is how easy it is to communicate with colleagues, particularly the Department that requested for the NDA to be reviewed.

By having all comments in one place, I find that the points I raise are communicated better. Maybe there’s something about tables. It’s also great when I don’t have to refer to loooong email chains once I’m ready to draft/amend the T&Cs.

The relevant Department will respond in the section depending on what I included under the “Remarks”.

For my own records, I also list down the specific actions or thoughts I have after receiving the Department’s response. For example, I might record that I amended a term to suit the Department’s operations.

2–3 years from now, if I’m asked about why I reviewed/amended the NDA a certain way, this will save the day. CYA.

Other things to consider when creating your own Standards

1. There are other contracts that are more comprehensive and drafted better than your company’s templates. Having your own Standards helps you compare the terms and improve your company’s templates if necessary!
2. You don’t have to follow the Standards super strictly, especially if there are commercial benefits to negotiating certain T&Cs. This is where you can be as creative as possible in helping the relevant Department negotiate for better T&Cs. There’s no such thing as rejecting a contract just because it doesn’t follow the Standards to the letter.
3. You should share the Standards for the rest of the Legal department to use, but always be open to feedback. The reason why you created Standards in the first place is for the Legal department to be consistent and united. That doesn’t happen if you don’t share. Other people may have invaluable feedback that can improve the Standards too.
4. Contract management software is Phase 2, creating Standards is Phase 1. Whilst it’s nice to dream and plan about contract management software, what really matters is the Standards. Without the Standards, the software isn’t going to do much for the Contract Review process.

I was heavily influenced on this topic by Sterling Miller’s Ten Things: Minimizing Risk in Commercial Contracts. A truly momentous read for me.

In any case, if you have your own methodology to Contract Review, please share! I’d love to take notes.