Establishing robust contract management frameworks can be a game-changer for any in-house lawyer, allowing for effective risk mitigation and strategic growth. Whether you’re newly stepping into your role or an experienced generalist, refining your contract management approach can enhance your value to the business and position your legal department as an indispensable asset to the board.
Managing contracts effectively involves more than just legal expertise; it requires an understanding of operational dependencies, risk prioritisation, and efficient governance. Contracts can become sources of risk, missed opportunities, and an administrative drain, but this article will give you the building blocks to create your own, well-defined contract management strategy.
If you’re looking to save time on day-to-day legal tasks or need specialised knowledge beyond your core expertise, our team of commercial law solicitors are here to help. With many having worked in-house as legal counsel or in senior leadership roles, they all have a passion for supporting businesses and a deep understanding of how the law should be applied in the ‘real world’.
Contents:
- Understanding of operational dependencies
- Have you got a strategy to prioritise high-risk contracts?
- Structuring major customer contracts
- Developing your negotiation framework
- Modernising your standard form contracts
- Implementing strategic contract governance
- Data protection architecture
- When to engage external support
- Looking ahead
Understanding of operational dependencies
Success in contract management extends far beyond surface-level business understanding. It requires insight into operational interdependencies that directly impact your business’s risk profile and contract strategy. For example, for technology-driven businesses, understanding the knock-on effect that service disruptions can have on your business is crucial.
Consider a scenario where your business relies on multiple cloud providers for different aspects of your service delivery. Your contracts need to address service interdependencies, establish clear failover requirements, and specify technical requirements for service transitions. Most importantly, remedies should be tied to actual business impact rather than generic service credits that may not reflect real operational costs.
The global CrowdStrike disruption was a wake-up call for many businesses. When a major provider has a service delivery failure, it can affect everyone in the chain, and highlights the importance of supply chain resilience. Modern supply chain contracts require sophisticated frameworks that go beyond basic supplier obligations. An effective approach includes implementing tiered supplier classifications based on operational impact, requiring suppliers to maintain and regularly test business continuity plans, and establishing step-in rights for critical services. These provisions should be supported by specific, measurable key performance indicators that reflect your actual operational requirements.
Your contract framework must also anticipate and enable growth strategies. For businesses planning international expansion, this means building flexibility into agreements to accommodate cross-border operations. Key considerations include provisions for data transfers, currency fluctuations, and local law compliance requirements. Similarly, if any merger or acquisition activity is on the horizon, your contracts should include well-crafted change of control provisions and assignment rights that facilitate rather than hinder potential transactions.
Have you got a strategy to prioritise high-risk contracts?
Effective contract management requires a systematic approach to risk classification. Rather than treating all contracts with equal weight, develop a clear framework for identifying and managing high-risk agreements. You might categorise contracts based on financial exposure, operational dependency, regulatory requirements, and reputational impact potential.
Critical contracts – those with direct revenue impact exceeding £1M annually or involving core service delivery dependencies – require comprehensive management frameworks. This includes establishing quantifiable service level agreements tied to specific business outcomes, implementing escalation procedures with defined timeframes, and maintaining executive-level relationship management protocols.
Having a well-planned exit strategy is crucial for these relationships. Beyond basic termination provisions, your contracts should outline detailed transition assistance obligations, knowledge transfer requirements, and staged exit plans with clear milestones. This level of detail becomes particularly valuable when managing supplier transitions or responding to service failures.
Structuring major customer contracts
When dealing with major customer contracts, certain fundamental elements require particular attention:
- Payment terms should be structured with clear deadlines and specific consequences for late payment, including defined interest rates and service suspension rights.
- Scope of work definitions must be exhaustive yet flexible enough to accommodate natural service evolution.
- Liability provisions should be carefully calibrated against your insurance coverage and risk appetite, with particular attention to consequential loss exclusions and liability caps.
Developing your negotiation framework
Consider maintaining separate playbooks for sales and procurement negotiations, as your positions and priorities will differ depending on whether you're the supplier or customer.
These playbooks can lay out your company's standard positions on key terms such as payment periods, liability limits, indemnities, and termination rights, while accounting for the different leverage points and risks in each scenario. A well-structured contract negotiation playbook is invaluable for maintaining consistency while managing multiple commercial relationships.
As an in-house lawyer, you can use these playbooks to ensure consistency across negotiations while maintaining appropriate positions based on your role in the transaction. A well-structured playbook should outline:
- Standard positions on key commercial terms
- Fall-back options with clear approval thresholds
- Non-negotiable terms requiring escalation
- Market benchmarks for common points of negotiation
- Strategic rationale behind key positions
This approach enables consistent yet flexible negotiations while maintaining appropriate risk controls. Regular playbook reviews ensure your positions remain commercially competitive and aligned with evolving business objectives. When introducing playbooks, focus first on your highest volume or most strategically important contract types to maximise impact.
Modernising your standard form contracts
Rather than viewing standard form contracts as static documents requiring periodic review, implement a continuous improvement cycle driven by actual contract performance data. Track and analyse frequently negotiated clauses, common points of contention, and the time it takes to secure signatures. This data-driven approach enables you to refine standard positions and develop pre-approved fall-back positions that speed up negotiations while maintaining appropriate risk management.
Your intellectual property (IP) rights framework requires particular as well. Beyond traditional ownership provisions, consider how your IP clauses accommodate evolving business models, technology licensing requirements, and joint development scenarios. Similarly, commercial terms should build in flexibility for changing market conditions while maintaining appropriate protections.
Implementing strategic contract governance
Modern contract lifecycle management extends beyond basic document storage and retrieval. Your contract lifecycle management and implementation should focus on integration with existing business systems, automated workflow management, and real-time compliance monitoring. This technology-enabled approach allows you to maintain oversight of contract performance, compliance requirements, and risk indicators across your portfolio.
The governance framework should include systematic monitoring of contract performance metrics, compliance requirements, and supplier risk indicators. This proactive approach enables early identification of potential issues and supports strategic decision-making around contract renewal or renegotiation.
Data protection architecture
Your data protection framework must be comprehensively integrated into your contract management strategy, clearly delineating roles and responsibilities. This includes:
- Explicit identification of controller, processor, or joint controller status in each relationship
- Mandatory processing terms aligned with Article 28 GDPR requirements
- International transfer mechanisms, including transfer impact assessments and supplementary measures where required
- Specific security obligations for high-risk processing activities
Regular reviews of these arrangements are essential, particularly given the evolving regulatory landscape and increasing scrutiny of international data transfers.
When to engage external support
Consider external counsel support in specific scenarios such as:
- Urgent contract requirements where internal capacity is constrained
- Complex regulatory compliance questions, particularly in regulated sectors
- High-value or strategically critical negotiations
- Novel commercial structures or business models
- Cross-border arrangements requiring local law expertise
- Fast-moving regulatory areas requiring specialist knowledge
The key is to view external counsel as a strategic resource that can be deployed to complement your internal capabilities rather than as a last resort. This approach ensures you maintain high standards of legal risk management while optimising how you use and allocation your resources.
Looking ahead
As your organisation evolves, your contract management strategy must adapt. Regular strategy reviews aligned with business planning cycles help ensure your approach remains current and effective. This might include evaluating new technologies, reassessing resource allocation, developing enhanced skills within your team, or outsourcing certain elements to maximise efficiencies.
Our commercial law team understands the complexities of managing commercial contracts within a broader in-house role. We provide targeted support to enhance your contract management capability, working in partnership with you to develop practical solutions that align with your strategic objectives while respecting your expertise and experience.
