It’s a common challenge for all legal departments: How do you demonstrate your value to the rest of the organization? Avoiding litigation, minimizing risk, ensuring compliance — when all of these tasks are performed well, it doesn’t seem like anything happened. Indeed, the legal department’s job is so often to make sure that things don’t happen.
This doesn’t have to be the case, nor should it be.
The legal department has access to one of the most crucial sources for business intelligence: the contract portfolio. So much attention is paid to the pre-signature phase of contract management, but there’s a significant number of valuable insights to be derived from your contracts post-signature when subjected to the right reporting and analysis. Let’s take a look at five common, high-impact reports you can run on your contract portfolio.
1. Contract lifecycle
Among the most essential reports to run on your portfolio are contract lifecycle reports. Tracking your contracts as they go through the creation, review, negotiation, approval, signature, execution, performance and expiration/renewal stages can provide a lot of valuable information.
For example, you can determine whether key contracts are up for renewal soon, allocating resources to strengthening your relationship with the counterparty and to renegotiation. Or, you can see whether certain classes of contracts are regularly delayed when they reach a certain stage, enabling you to identify bottlenecks and opportunities for improvement.
2. Contract performance
While every stage of the contract lifecycle is worth examining, the performance stage is where the bulk of your business’s outcomes are made. Reporting on contract performance gives you better insight into the value and costs associated with individual high-value or high-risk contracts.
Depending on the KPIs you’re tracking, your performance reports could include information on:
- The ratio of inside to outside spend
- Time spent on administrative tasks
- The number of missed milestones and clauses in breach
- The number of disputes between counterparties
- And more
Most contract management systems (CMS) will provide a great deal of customizability when reporting on your contracts’ performance; you’ll need to decide which KPIs matter the most to your business, and define those KPIs within your CMS when running contract performance reports.
3. High-risk clauses
It could be a global event, a key project, a lawsuit — eventually, you’ll want to review your contract portfolio for those contracts with language that expose you to or shield you from risk.
When COVID-19 first impacted supply chains, for instance, many organizations suddenly found themselves needing to know how many contracts they owned that contained force majeure clauses and how many of those force majeure clauses were drafted using non-standard language.
Or, perhaps your organization is undergoing a merger or acquisition. It will be essential to see how many contracts in your portfolio contain a change of control clause. Reporting on this can serve as the foundation for an analysis determining how the value of your contracts will change after the merger.
4. Lease utilization
If your business owns a large portfolio of rental property, then running reports on your commercial leases can reveal potential opportunities and inefficiencies.
For example, reporting on maximum occupancy levels, square footage, rent and expiration dates could help you stay in compliance with COVID-19 maximum occupancy guidelines and save money at the same time. Such a report could reveal that moving your staff and operations to a new building and allowing your other leases to expire may be more or less financially sound.
Retail businesses, in particular, stand to benefit from regular reporting on their leases. By assessing metrics like number of parking spaces, price-per-square foot, co-tenancy clauses and more, retailers could identify which stores can support the most foot traffic and which are best protected should foot traffic decrease.
Once businesses reach a certain size, rental costs become a huge portion of their overall spend. Any opportunity to make the rental agreements more cost-effective will be met with enthusiastic approval throughout the business.
5. Vendor utilization
When your procurement team is tasked with researching vendors to supply goods and services, regular reporting on your vendor utilization will be key.
By comparing inside spend to outside spend, you can evaluate:
- How effectively a given vendor is meeting your needs
- Whether certain vendors tend to impose restrictive conditions on payment terms or timelines
- Whether a vendor delivers in accordance with pre-established timelines
- Which vendors are up for renewal or expiry
- And more
Helping procurement select more cost-effective vendors and sifting through the small galaxy of suppliers your business interacts with every year is a fantastic way to supplement the legal department’s regular duties. Not to mention that selecting vendors that keep the business happy is a great way to minimize the risk of contractual breaches.
Your contract management practices are key
The impact that regular, clear and insightful reporting can have on your business as a whole is exciting — but your reports can only be as useful as your data allows them to be. If you’re only reporting on a snapshot of your whole contract portfolio or if you lack a method of extracting data from your contracts, you’re going to be drawing conclusions from incomplete (and sometimes inaccurate) data.
Engaging in healthy contract management practices can help you centralize your contracts and make the data they contain available for reporting and analysis. Given that some organizations have tens of thousands of active contracts at a given time, consistently applying best practices can seem like a challenge. Fortunately, it’s not impossible.
You can learn more about the challenges and solutions organizations face when embarking on a contract management lifecycle strategy in our article, “How GCs Can Thrive, Not Just Survive.” As the maturity of your contract management practices improve, it will get easier to report on the key topics we described above. And, as you start reporting more on your contract portfolio, the more your business will begin to appreciate the work taking place in the legal department.