When it comes to contracting, Legal and Procurement should be close partners, as they have many of the same goals and encounter many of the same obstacles. Yet, they are often misaligned, leading to friction and discord.
How to move from adversary to business partner was recently the topic of a live virtual event with Pierre Mitchell, Chief Research Officer at Spend Matters, and Prashant Dubey, Chief Strategy Officer at Agiloft. The pair discussed the complex relationship between Legal and Procurement teams as well as a five-step actionable plan for Procurement professionals to increase harmony with Legal and better partner with each other for the benefit of the business.
The complex relationship between Procurement and Legal
Procurement is expected to drive business value, not just through better pricing from vendors, but through strategic “category management.” Legal, on the other hand, is expected to mitigate risk. These objectives are often at odds, resulting in an often-adversarial relationship between Procurement and Legal.
But despite their differences, there are some things that unite the two.
Like many departments in today’s business climate, Procurement is overwhelmed by the level of complexity and the demands that they “do more with less,” Pierre said. For Procurement, that means taking a closer look at their suppliers and supply markets, the risks, and the value that they can drive, as well as how to get the maximize and protect value from third-party partners with risk management and compliance management.
That focus on risk, Prashant said, is actually one of the things that unites the two departments.
“Historically, they’ve been at odds. But what’s ironic about that is, both organizations are now more being viewed as strategic business enablers. So … their roles are actually converging from the perspective that they’re both expected to drive business and the business value, not just focus on their particular domain. So there’s some commonality which becomes the basis for them to be BFFs versus frenemies,” Prashant said.
5 strategies to create unity between Legal and Procurement
How can Procurement improve its relationship with Legal? The answer: a sort of “couples therapy” using the following strategies as outlined by Pierre and Prashant.
1. Collaboratively create an intake protocol for Procurement contract requests.
When Procurement receives a request from the business to create a buy-side agreement, they assess how the service organization will add value to the business and how it will partner with or complement other service organizations already serving the business.
So what’s the single most impactful best practice known to add value on the Procurement side? “Early and proactive influence” with stakeholders to understand what’s coming so that they can set up the proper sourcing and contracting processes, Pierre said.
“The biggest thing that you know Procurement is trying to do now with these functional partners is, how do we not just let you know, help Legal, or others get more value for their spend? But how do we work together to engage the business with this kind of service approach, so that at least the business knows how to work with both Procurement and Legal together in an integrated way with sourcing and contracting and supplier management and risk management,” he said.
Without an integrated, cross-departmental approach to intake management, Pierre and Prashant said, errors are often made in the initial process, such as an employee filling out the wrong type of agreement template, which ultimately slows down the queue of other work that needs to be done.
“We’ve empirically observed that could create a lot of tension,” Prashant said.
Using a Contract Lifecycle Management system can help take the guesswork out of these types of scenarios by gathering key information from the requester and identifying key clauses and phrases to properly categorize the agreement.
2. Collaborate to make intake protocol for Legal support requests from Procurement.
It’s crucial that Legal is given the right information during the intake process to be able to assess each contract’s respective risk and complexity, triage it, and assign it to the right staff accordingly, Prashant said.
“If that information isn’t collaboratively developed by Procurement and Legal, Procurement ends up just essentially throwing it over the wall, saying, ‘I’ve negotiated the commercial terms, lawyers help me out, and, by the way, I need it done yesterday,’” Prashant said. “That becomes the sort of status quo of how these teams interact. And that’s not a really productive interaction.”
Using a CLM to create initial framework agreements “frees up Procurement and Legal to really deal with the much more strategic contracts and spending,” Pierre said.
“You can free yourself up from the low-value activities to really work on those more impactful activities because that’s where you want to be.”
3. Create a negotiation playbook with common and fallback provisions.
Another strategy that Pierre and Prashant have seen adding value to a business is implementing a negotiation playbook that enables Procurement professionals to negotiate terms of an agreement with the “blessing” of Legal.
“If an organization has a repository of existing agreements, they can collaboratively create a negotiation playbook that enables procurement to do some of the things Pierre was talking about, for example, negotiate agreements on their own with the blessing of Legal,” Prashant said. “So what they can do is empirically compare 20 examples of the ending point contract to the starting point template, figure out the provisions that deviate most, and say: ‘what are the common themes? What language do we end up at, and what are the fallback provisions that we can create from this?”
Having a collection of Legal-approved negotiations in Procurement’s back pocket helps speed up the sourcing process and frees up Legal to assist only when it is truly necessary.
Another benefit? A CLM can help users “score” clauses, thereby creating potential contract risk as an evaluation criterion when sourcing that “inherently creates integration between [Legal and Procurement], Pierre said.
4. Develop a contract repository that serves as a single source of truth.
Utilizing a repository of executed agreements is the foundation of any good contract management process, Prashant said. This will enable lawyers to be much better contract negotiators and would not put them in a substandard negotiation position.
Without a CLM, there is no metadata extracted from these negotiated agreements, which in turn makes it impossible to track basic obligations or renewals. It also makes it very difficult to negotiate.
For example, Prashant said, the counterparty might try to convince you to sign an agreement because they said it’s the same terms you agreed to last time. If lawyers don’t have that information at the tips of their fingers, they find themselves in the dark, unable to properly negotiate.
By working together, Procurement and Legal can ensure the proper metadata is being extracted from the contracts in your CLM to ensure that lawyers are empowered to make strategic decisions at the negotiating table and that all stakeholders are aligned on and prepared for contract renewals.
“One of the key things you can do, very simple tactic, is make sure that you’ve got that basic metadata,” Pierre said.
5. Analyze and modify the starting-point template to reduce negotiation intensity.
Using a centralized contract repository inside a CLM, Legal can identify the most commonly-negotiated provisions of their agreements and then adjust their templates accordingly to reduce overall negotiation intensity and contract cycle time, Prashant said.
This is an opportunity for Procurement to think proactively and meet on a recurring basis to identify these commonly-negotiated provisions and offer up suggested template revisions to the Legal team based on those findings.
Pierre said anything that’s commercially-oriented, like pricing, termination clauses, and SLAs can be analyzed for risk and value to the business.
“Following on those kind of key, commercially-oriented clauses is really going to help drive more value out of the relationships and really elevate contracts,” he said. “The contract … should be storing the rich set of expectations about the money that will be spent and the services that are delivered.”
It’s not 100% necessary to have a CLM to implement the strategies listed above, though it certainly helps, Prashant said. But where should companies start when beginning to consider a CLM, especially if bandwidth is an issue?
“Now I have my personal point of view on it, which is putting in place a repository of executed agreements is the foundation of any system, even though it takes a tremendous amount of effort, and also requires a lot of mechanical work,” Prashant said. “Oftentimes you can use AI to extract metadata. But you need humans in the loop to ensure that it’s a high degree of integrity that will allow the organization to do things, manage obligations, but also create a treasure trove of information.”
Pierre said his first order of business would be to automate processes. Even the simple step of going to digital signatures can drive a significant reduction in cycle times and help alleviate workers from manually managing contracts.
“If you’re chasing wet ink in your processes…you’ve got to eradicate that immediately,” he said. “Let’s get out of the business of managing docs and let’s get into the business of managing the data that’s within there,” he said.