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Contracts

Vaishnavi Reddy

February 28, 2021

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Contracts are the legal building blocks of every transaction that provide terms of agreement amongst all the parties involved and is one of the most used and essential aspects of legal departments. Many deals and ideas have to go through meticulous and lengthy processes in every institution involved before they can be solidified into mutually agreeable sets of terms that benefit everybody. The legal teams often have to surmount numerous obstacles in different areas both internally and externally when they work to eliminate risk, causes of conflict among parties and other competing contracts, errors, and any miscommunication. They have to understand the relationship between parties and make provisions to protect their confidential information by establishing clear and fundamentally sound systems to work in.

Most contracts mainly consist of the duration of the agreement, the major parties involved, and the agreed-upon arrangements. They also go through multiple changes over the contract’s tenure and hence require continuous legal expertise to create formal amendment procedures. Renewals and notices are prepared by a mutual collaboration of lawyers concerning any changes occurring within the companies or in the concerned industry. Pricing is another imperative aspect, especially in procurement contracts. The pricing contracts are broadly based on unmanaged and mismanaged spending between the buyers and suppliers. In the former, due to the massive decentralization of purchasing and lack of a pre-approved group of suppliers, the legal teams watch out for underlying implications of sub-contracts with each of the company’s suppliers every time there is a new purchase in any department. And in case of mismanaged spending despite having standardized supplier contracts in place, pricing discrepancies, hikes, tail spending and stalled procurement cycles triggered by disaccord can open up countless documents across all the departments for the legal teams to study before they can draft any contract.

Every business obtains insurance mandatorily for all the products and services, which entails the supplier to produce exhaustive information to be used in case of replacement reimbursements and update the buyer of the changes in the prices of the same regularly. The research behind drafting such contracts also includes protocols that the buyer has to abide by that are in accordance with expectations laid out by insurance providers and sometimes even assume the responsibilities of losses in worst-case scenarios. The contracts also include the possible everyday use of some facilities and infrastructure that requires a stringent assessment of available or future shared assets. Confidentiality and information protection rights also take up quite some time to be drafted as they are understood and practiced differently in each of the institutions and require large-scale standardization. Each party is expected to produce exhaustive documents that allow access and limited rights of usage to the co-signees of all the information related to their associated third parties, relevant partners, and stakeholders. To ensure consistent quality of products and services and meet the client expectations throughout the duration of the contract, the lawyers are required to include KPIs such as delivery times, price discrepancies, product variability, inspection processes, compliance audits, return rates, etc. and curate actions in case of unsatisfactory service in the above metrics.

Similarly, IT contracts are increasingly becoming prevalent in every business, compelling the legal teams to update themselves on new laws, cases regularly, and a broad spectrum of issues they bring to the table. Lawyers work to have a sufficient framework for transferring intellectual property rights from the supplier to the buyer and devising rules under which it remains true. IPR warranty and indemnity clauses act as a protective cover that shields any third party from claiming that the buyer is making use of something that belongs to the third party instead of the supplier. Drafting these contracts should hence conduct a strict background check before onboarding technology as such and include the above clauses to eliminate potential risks for the buyer. Additionally, service level agreements have to be incorporated, which provide necessary guarantees in terms of backups, disaster recovery, uptimes, business continuity, and service credits in the event of a breach. The flexibility and the terms of use are also equally crucial that primarily inform the buyer of all of its rights, such as extending the license to third parties, moving the product to a different server, etc. Most importantly, negotiating with the other party about several exclusions and limitations to liability is quite tricky as both parties tend to safeguard their interests and expect minimal impact to their own workflows and business chains.

Furthermore, every contract isn’t complete without provisions for breach of contract. Many contracts have an internal binding arbitration that disables the included parties from suing and raising litigation in court. And some contracts have predefined remedies that the affected party is entitled to, such as damages, specific performance and cancellation, and restitution. The legal team studies how the parties perceive their relationship and which form of remedy is the most beneficial in case of a breach and discusses with the other departments to propose in their version of the contract. As some of these methods involve suing and valuation of damages, they are also obligated to predict, categorize as material and immaterial, and evaluate the risk of potential breaches to ensure minimal financial harm.

Subtl enables the legal teams to conduct external benchmarking research and help them develop and update the existing contract standards much quicker. The legal team can utilize the saved time in reviewing internal and external changes to ensure maximum competitiveness and profitability of the party’s offerings. Subtl can also be conveniently embedded in the present contract management tools that can complement meaningful automation with information gathering APIs and soon enable AI machines to carry out preliminary negotiations. As many more companies today prefer fundamental reassessment and re-design of contracts to suit their custom needs, decrease cycle times and increase the ease of doing business, the lawyers explore rapid standardization, contract simplification, and analytics to accelerate efficiency. With Subtl in place, negotiations and reviews can be performed much faster, renewals and amendments in contracts can be done with fewer iterations and conflicts can be averted to a large extent due to increased transparency and accountability amongst all the parties.

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Vaishnavi Reddy

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