Blog Post

3 Ways Contract Data Can Drive Business Outcomes

October 30, 2020

There are known unknowns and unknown unknowns — for the legal department, it’s often the case that their potential impact on business outcomes fall in the latter category. When your days are filled with risk mitigation, compliance assurance, litigation management, legal vendor management and the small galaxy of other focal areas for in-house counsel, it can be difficult to take a step back to view the big picture. But there’s a lot that the legal department can contribute to that bigger picture. The contract data that in-house counsel spend hours reviewing for compliance purposes, risk exposure and favorability to the business actually has a lot of value to stakeholders outside of the legal department. Let’s explore three ways that contract data can help out other members of your organizations.

1. Help your procurement team procure

With the right data in their hands, the procurement team can make processes more efficient, predict future needs and save the business a significant sum of money in the process. Much of this data can be drawn from invoices, enterprise resource planning (ERP) systems and third-party sources. But without including contract data in a procurement analysis, the procurement team will be losing out on a lot of potential insight.

Often, contract data can inform procurement on whether, when and how a contract should be renegotiated, renewed or cancelled. For example, with the right data at hand for an analysis, the procurement team can compare real vendor performance to that promised in the contract and build risk profiles, enabling them to determine whether the relationship should be continued once renewal time comes up.

Or, they can examine the cost of ownership as described in the contract and additional costs that may not have been factored in. Certain vendors, products and services incur additional, hidden costs beyond the sticker price that may make them too expensive to keep.

Similarly, procurement teams with access to contract data will be better able to assess the rate of off-contract spending, or maverick spend, and the reasons why other team members are going off-contract. It could be the case that critical business processes can’t be supported by the contracted vendor, or it could be an internal communications issue — whatever the cause, access to contract data is the key to understanding why a business’s actual procurement landscape doesn’t match the one described in your contract portfolio.

2. Make it easier for your organization after an M&A agreement

It should come as no surprise that contract data is key to assessing whether an upcoming M&A deal is attractive or not. Prior to signing an agreement, legal departments are fully occupied with due diligence reviews of the counterparty’s settlement agreements, union contracts, loan and credit agreements, customer and supplier contracts and more.

But it’s important to remember that this data is of massive value to other members of your organization post-signature as well. After an M&A transaction is completed, the most important goal for the organization is to return to business as usual. With a whole new portfolio of contracts potentially numbering in the 10s or 100s of thousands, every different team in your organization is going to have new risks to be aware of, new opportunities to take advantage of and new responsibilities to manage. The legal department serves as the source of the contract data that can drive a successful M&A integration.

3. Protect satellite offices

For large organizations with multiple offices, lease agreements can vary significantly in form and are often distributed across sites. But centralizing these contracts, standardizing them and analyzing their data can result in significant savings for the organization. When leases are considered on an individual basis, it’s easy to lose sight of what represents acceptable risk, when key renewal dates are coming up and what jurisdictions or lessors have unique requirements.

With access to the whole scope of lease data across an organization, businesses can determine which locations are outliers in their portfolio — whether those are leases with underutilized space, that are up for renegotiation, feature non-standard clauses, offer discounts, or display any other actionable characteristics.

Why aren’t more legal departments working with their contract data?

The short answer is that extracting contract data isn’t easy to do — at least, not without significant technical expertise that usually doesn’t live in the legal department.

Organizations with large contract portfolios almost certainly have a large portion of that portfolio taken up by unstructured data; that is, data that lives outside of a database, like emails, PDFs or images. Before you can collect, analyze and distribute contract data, it needs to be cleaned and processed.

Looking at the actual scope of this task can be intimidating, and even if you’ve got the motivation to start capitalizing on your contract data, the rest of your organization might be more reticent. The truth is, the technical challenges associated with contract analysis aren’t actually that significant so long as legal stakeholders approach these challenges with the right mindset.

We dive deeper into the kind of mindset an in-house counsel needs for a successful contract analytics project in our article, “6 Ways to Change Your Mindset for a Successful Data Strategy.” Accessing and capitalizing on your contract data doesn’t have to be intimidating with the right approach.