Contracts are the grease on the skids of most businesses, i.e., it is how they make money. Consequently, unless you work in a very unusual legal department, one of the most important tasks you deal with as an in-house lawyer is the drafting and negotiation of contracts.
Most of us sat through a contracts class the first semester of our first year of law school, where concepts like “consideration,” “statute of frauds,” “offer and acceptance,” and “direct vs. consequential damages” were drilled into our heads. And I am glad this was the case because the bit of law school I use the most day-to-day as an in-house lawyer is contract drafting (followed closely by “meeting avoidance”).
Most legal departments use contract templates for their important contracts, as it speeds up the process. Yet, less than 25% of in-house legal departments use contract playbooks as part of the process. This is surprising because everyone in the legal department, executive team, and the sales organization should understand which contracts are acceptable to the company and which contracts the company will walk away from. Contract playbooks do just that. Given their importance and the lack of adoption, this edition of “Ten Things” will walk through the process of creating a contract playbook:
1. What is a contract playbook?
A contract playbook is a document that, in some fashion, breaks down the company’s standard contract terms, sets out an explanation of each clause along with fallback clauses (i.e., variations of the standard clauses that the company would accept if the customer wants to negotiate a standard clause), and notes when the company will “walk away” from a contract. The last part means the customer is insisting on changes to the standard contract that the company cannot accept based on risk-management, economic reasons, or some other criteria. While companies want to sell their products or services to as many customers as possible, they will only do so to the extent the contract makes financial and other sense to the company (e.g., acceptable limitations of liability). A properly prepared contract playbook allows the legal and business teams to stay aligned and close contracts faster (or know when it’s time to walk).
2. What are the benefits?
The benefits of a contract playbook are numerous. Here are just a few to consider:
- A playbook aligns key groups up front (e.g., legal, sales, finance) and makes it more likely they will stick together and not snipe at each other throughout the contracting process. If you have worked on enough contract negotiations, you know there is little more frustrating than when the sales team becomes an advocate for the customer’s contract positions vs. the company’s. A playbook can help solve this.
- A playbook is a lifesaver to new attorneys joining the department as they can get quickly up to speed on the parameters of the company’s contract negotiation positions. It also captures years of legal department “tribal knowledge” about the contracting process. Similarly, a playbook helps reduce renegades, i.e., those lawyers or business people who want to do things “their way” which may not be the “best way.”
- The same is true for outside counsel, where a playbook can make them far more effective in helping you. A good playbook means you can probably hire most any outside commercial lawyer and have them be helpful almost immediately.
- A playbook helps your business colleagues understand the contract and the issues at play. This makes them better negotiators and partners on deals. Moreover, it takes away, to a large extent, the easy path of blaming the legal department for contracts being delayed or for not being able to reach agreement at all. A playbook that tracks what the company finds acceptable, means that contracts fail or are delayed because of the company’s positions and not because the legal team is killing deals.
- We have all been asked to do “more with less.” A well-prepared contract playbook allows you to do that as you and the team will spend less time in contract negotiation and drafting when the company’s negotiation positions are already set out in writing. Just follow the playbook!
