United States: LPO And The Future Of Contracting: 4 Tips

For many corporations the traditional staffing model for procurement contract drafting, review and negotiation is based on a method that is both labor-intensive and cost-prohibitive through reliance on expensive in-house legal resources. Many of these resources are over-priced for the task of reviewing and negotiating a company's repetitive, lower-complexity contracts. Given the unrelenting need for these services, however, in-house lawyers and contract specialists are finding themselves overwhelmed with unrealistic demands on their time. The time investment required to negotiate high-volume, routine contracts can adversely impact the ability to review and manage more important, higher-risk contracts. The potential consequences to the business as a whole are clear: either incur increased risk resulting from the business avoiding the legal department in order to expedite purchasing, or suffer delays in the procurement of goods and services.

As far as workflow is concerned, often there are no formalized processes, standard templates, accepted language, back-up provisions or guidelines for turnaround times. Over-burdened in-house lawyers are unable to meet the tight timelines demanded, creating a conflict between the business client and the legal department. Often, the legal department will engage external law firms to help on an hourly rate basis—leading to an unpredictable and potentially inefficient use of internal legal resources, and an overpriced dependency on outside counsel.

Microsoft Corp. was not immune to these challenges. In 2009, the company realized that the existing paralegal resourcing model for procurement contract review was unsustainable. The legal department resources were contending with a growing volume of procurement contracts while concurrently seeing a spike in demand for their involvement in more complex transactions. The turnaround time for review of a standard statement of work was averaging three days. And this actually represented an improvement, since there was at least a measured baseline. But managing the growing number of paralegal resources was becoming overwhelming, and there was no hope to scale the model globally.

Tip 1: Understand Your Processes

Before engaging in contracting transformation, take the time to understand your "as is" process. Map this out and identify areas for improvement. Only then are you in a position to decide what activities if any are redundant and can be eliminated, what can be outsourced and what needs to be kept in-house.

Microsoft took on this challenge and initiated a dual-track effort to study their internal procurement contract review processes while assessing the opportunities afforded by legal process outsourcing (LPO). They quickly understood that contract review involved repeatable steps, and that the high-volume and low-risk nature of these contracts made the work ideally suited to LPO.

Tip 2: Create a Comprehensive Playbook

Outsourcing contract review effectively is predicated on successfully transferring knowledge from internal stakeholders to the LPO provider. Integral to this is the playbook—an outline for best practices that includes approved templates, negotiation positions, and sections outlining standard operating procedures, escalation protocols and decision matrices.

So in May 2009, following a rigorous selection process, Microsoft selected Integreon as its LPO partner. The relationship started with a team of seven paralegals in Fargo, N.D., supporting procurement contract review. Integreon and Microsoft worked together to define the key performance indicators that would underpin the engagement and created a playbook—an extensive manual—that documented the entire process.

Initially, Microsoft outsourced only the legal review of vendor contracts, but as the Integreon team gained familiarity with Microsoft's processes, the engagement expanded to other types of contracts. The expansion also included Integreon becoming the first point of contact for Microsoft's internal business clients. Whether an issue should be escalated followed a process documented in the playbook. The result was a dramatic reduction in the time spent by Microsoft's in-house legal team reviewing contracts and answering basic questions, freeing them to focus on higher-value work. The collaboration and integration of the Integreon and Microsoft teams ensured that the engagement realized short-term successes and laid the groundwork for growing the program.

Tip 3: Innovate Through Automation

Understand what platform is the best fit for your environment, budget and tolerance for change. Enterprise-wide, multifunctional platforms may be just what the doctor ordered for some, whereas others may find such systems far too complex (and expensive) for their needs—especially if the end result is that only a fraction of the tool's functionality is used.

For Microsoft's lawyers, in addition to realizing the benefits of lower-cost LPO resources and the process improvements that result from working with an LPO provider, they understood that the technology underpinning contract lifecycle management (CLM) played an equally important role in driving further efficiencies. While ahead of the pack in many respects, true transformation would still lie beyond Microsoft's reach without revitalized technology supporting the process.

Microsoft already had some experience automating a contract process when it launched a nondisclosure agreement tool to its global employee population of more than 100,000 several years earlier. This offered a streamlined way for employees to create an NDA quickly, and without the legal department's involvement. The tool's success was dependent on a good and simple template and efficient electronic signatures, and was a perfect smaller step in the larger contract automation journey.

In April 2013, Microsoft embarked on an effort to select a scalable CLM platform. It understood that to reap the benefits of a new contracting system, it would need to scope precisely the functions to be automated and control the input of data into the system. After selecting the new platform, Microsoft asked Integreon to provide the ongoing administrative support for the platform: managing the intake of contracts for storage and ensuring the consistency and accuracy of information. In essence, a new contract "help desk" was born.

Concurrently, Microsoft focused on automating other aspects of the process. It leveraged its own Office 365 capabilities and Azure scalability to build a sleek yet simple online intake system for its employees, allowing for collection of critical contract data and visibility to the business on the status of their legal requests. This way, Microsoft could keep track of how many requests were pending, what types of requests they were and where they came from. Expanding on the help desk managed by Integreon, Microsoft now had a one-stop shop for a variety of contracting services—from legal review to electronic signature and storage. By leveraging a combination of technology, improved process and creative resourcing, Microsoft blazed the trail for the future of contracting in larger in-house legal departments.

Tip 4: When Everything Is Great, Stay Involved

Once steady state has been reached, the inclination may be to say, "Job well done," and call it a day. But this is not a recipe for success. Stay involved and continue to look for opportunities to innovate and work with the LPO provider to drive continuous improvement.

Although many corporate legal departments start the outsourcing journey with the best of intentions, over time the internal champions get pulled on to other pressing engagements and the level of involvement can wane. This can prove detrimental to the longer-term success of the relationship. With Microsoft and Integreon, it has been the opposite. The ongoing involvement of key Microsoft personnel and the continued focus on efficiencies within its legal department has encouraged the expansion of outsourcing in scale and breadth and enhanced automation. This has directly translated into time savings for legal professionals and faster contracting for the business.

Integreon supports Microsoft's review of approximately 24,000 contracts annually in 15 languages across 160 countries, and provides contract help desk services and administrative support for the new CLM platform from centers in the U.S., U.K. and India. The help desk also serves as a resource to which the in-house legal team can direct clients for general contracting questions. The results have been transformational, with the average turnaround time for legal review dropping from three days to less than one, and the percentage of contracts reviewed within the agreed upon turnaround time increasing from 86 percent to 99 percent. At the same time, Microsoft's costs for contract review are now predictable and the operating model optimized for future scaling.

The last five years have seen significant change in the sourcing and deployment of legal resources, particularly with growth in the adoption of LPO. It has become clear to Microsoft that the most effective model is a symbiotic ecosystem in which legal departments and LPO providers both play crucial roles. Under this new model, with legal departments embracing process improvements, technology and resource redistribution to providers like LPOs, efficiencies can be driven not only into the contract review process, but across the entire legal department. As this new model takes hold, Microsoft is challenging the traditional notions of how legal work should be done and positioning itself as a thought leader in the innovative, cost effective technology-enabled delivery of legal services.

Originally published by Corporate Counsel.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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