As in-house counsel, you may have experienced this scenario: an email arrives in your inbox from the head of a business unit at your company asking you to conduct a legal review of a contract. The contract is on the third-party vendor’s form. The email says that the contract is business critical and needs to be signed today for various reasons: the pricing is firm only until the close of business, the business unit needs to implement the product or service immediately to meet specific goals and deadlines and the vice president expects to sign the contract before the end of the day. What should you do?
Slow down and think. These are some questions you might ask yourself before moving forward:
- Are policies and procedures in place for reviewing, negotiating, and executing contracts at your company, and how do they apply to this contract?
- Is this a high or low risk business activity?
- Have the appropriate internal business units and external specialists and experts reviewed the contract in advance?
- What is the product or service that the business is trying to purchase or utilize?
- What is the business purpose and the objective of the contract?
- What is the value of the contract relative to the business?
- Has diligence been done on the vendor (financial and security risk assessments, for example)?
- Does the contract contain provisions necessary to protect your company based on the associated risk?
- Has a proper audit trail been created?
It is possible that you will be able to conduct and complete a legal review before the close of business on the same day, but this is likely only if most of the considerations above have been addressed in advance of receiving the contract. Expectations must be set early for a thorough legal review. Those expectations can be set by you, based on your reputation as a quality business lawyer and partner, as well as by the culture of compliance at your company. Both are equally important.
Contact someone who performs a compliance function at your company for policies and procedures relating to contract management, learn them and follow them. Well thought-out policies and procedures can help ensure that your company does not enter into a contract with a third-party that may have a high financial or security risk, unknowingly triggers related person disclosures or, worse, violates laws relating to anti-money laundering, anti-terrorism, anti-trust or trade sanctions. Policies and procedures can also provide checks and balances by requiring that each contract be reviewed and approved by designated experts within your company – including financial reporting and compliance, the head of a particular business unit, legal, the relevant officers, and vendor and contract management – as well as any specialty areas such as: cybersecurity, data privacy, employee benefits, environmental, information technology, intellectual property and tax.
In-house counsel can and should be relied upon as both an expert and a business partner, and you will be expected to spot and raise issues that others have not thought of. Once you have addressed the questions above, you should consider the following: research the vendor and learn about the needs of the business as it relates to the product or service being purchased or used. Does the vendor exist as a legal entity? Is the vendor in good standing in the jurisdictions where it does business? Do not hide behind a representation and warranty in the contract that claims the vendor is in good standing. Find out if there are alternative vendors, products, or services available to the business. Does your company already work with a vendor who can provide the same or comparable product or service? Do not assume that one business unit knows what the other business units are doing. Having this information will help you understand how much leverage you have in negotiating both the business and legal terms and conditions in the contract.
Once you complete your diligence on the vendor and the product or service, it is time to review the contract. You will need to read and understand each, and every provision, definition, and cross reference. The best (or worst) contracts will have nuances in the definitions and cross references that could help (or hurt) your contractual position. If there are provisions or areas of law that you do not understand within the contract, then you should spend time researching so that you do understand. Note that it may be necessary to consult with experts such as outside counsel, accountants or other consultants hired by your company.
As you review the contract, you will need to make sure that the payment and fee structures and termination provisions work for your company and fit within the short-term and long-term spending plan. Additionally, make sure the following protective provisions are included in the contract or otherwise covered outside the contract: confidentiality, data privacy and security, indemnification, insurance, limitations on liability, performance bonds and other provisions required by your company. If any of these protective provisions are adopted by your company as standard, then any deviations should be addressed by following your company’s practice or policy, and the business will need to accept the risk of such deviation.
After fully negotiating the contract, complete the required internal reviews and approvals pursuant to your company’s policies and procedures relating to contract management, and make sure that an authorized person at your company signs the contract. Next, collect and save the final, completed contract along with your company’s contract approval form (or other method of creating an audit trail). Ideally, your company will have a contract management solution in place to facilitate and track the administration of contracts, among other benefits. It will not be the last time that you or someone else at your company will need to access and assess the terms and obligations of the contract. If it is a master contract, then statements of work, change orders and amendments also will need to be tracked and maintained during the life cycle of the contract.
This can be a relatively smooth or bumpy process depending on things such as the culture of compliance at your company and your credibility as a lawyer and business partner. Standard contractual provisions, practices and procedures should be put in place in advance to improve efficiency, ensure consistent results and protect your company from risk and liability. As in-house counsel you will not be expected to know every area of the law, but you will be expected to find out who does. Ask the right questions and collaborate with the stakeholders to get the deal done.
Alexander D. Gonzalez, Esq. is a corporate lawyer who has worked on thousands of contracts and transactions over his 12 years of practice in big law and as in-house counsel. He has received accolades and awards for his work in the legal profession and in the community, including recognition as a Top Lawyer Under 40 by the Hispanic National Bar Association in 2020. Mr. Gonzalez is a 2020 Lead New Jersey Fellow and an Alumni Steering Committee Member of the Rutgers Center for Corporate Law and Governance. Connect with him on LinkedIn.
Related ACC Resources
Contracts Review Policy
Mutual Confidential Disclosure Agreement
Negotiating Data Privacy in Multivendor Technology Contracts
Rethinking Boilerplate Provisions in Contracts
Top Ten Considerations for Contract Provisions that Manage Business Risks (United States)