Is your legal department overwhelmed with requests for contract reviews? Do you need greater efficiency and a more streamlined approach to contracting? Does your company lack clarity in the contracting process? Templatizing your contracting process, to the extent possible, can solve many challenges contracting and legal departments face. By using the following best practices in creating agreement templates, you as a contracting professional can make your work life much easier and reap many benefits.
Know your business
One of the most important steps when creating or modifying templates is to know your business. Not all contracts are equal, so a contract drafted to sell traditional products will not be appropriate for Software as a Service (SaaS)1 and vice versa.
Additionally, it’s not enough to know only the basics of the business; you must know it in quite a lot of detail. For example, is your product likely to process personal data of data subjects in the European Union? If so, you’ll need a Data Processing Addendum (DPA)2 as part of your contracting documents. If not, you may want to have a template DPA ready, but it won’t be as vitally important if you can explain to your customers why it isn’t necessary.
Additionally, are you a covered entity or business associate under The Health Insurance Portability and Accountability Act of 1996 (HIPAA)?3 If so, you’ll need a template Business Associate Agreement (BAA).4
Part of knowing the business is knowing who’s who in your organization. For example, who approves changes to service level descriptions (SLAs)? Who approves changes to finance terms? Who is particularly knowledgeable about a new product or service offering? You’ll need to engage these stakeholders (and many more) as you create templates and solidify your contracting process(es) so terms are not approved in contravention of those stakeholders’ risk tolerance.
It is also incredibly important to be intentionally engaged with the business and actively listen to what your internal clients tell you. For example, on an unrelated phone call, your colleague might mention a new product he or she is working on. That would be important information to investigate to find out if you need a new template (likely, a Statement of Work (SOW) or Order Form) for that product.
Often, contracting is the last thing on a product team’s mind, so legal departments are faced with the daunting task of either creating a template for a new product after it has already launched or handling an urgent request for a template when the new product is about to launch. As a rule, remind your business teams how important it is to engage legal early and often, and keep your eyes and ears open for intelligence (intel) on new offerings or changes to current offerings.
Pick a sensible structure and go modular
Choose a sensible structure for your contracting. In other words, now that you know your business, does it make sense to have a Master Service Agreement (MSA) plus SOW structure containing an overall MSA with your clients or vendors and SOWs added for specific projects? Do Order Forms make sense? Or does some other contracting structure work better for your business model? Perhaps your client-facing contracting structure is not the same as your vendor-facing contracting structure because of the differences between Client versus vendor negotiations.5
To the extent you do not have templates, create them. You can start from scratch or, for efficiency’s sake, you can find a publicly-available template and edit it to fit your business. Remember that you cannot create templates in a vacuum. Work with the relevant stakeholders to ensure their desired terms are included. These relevant stakeholders could include finance, IT, Information Security, and many more departments.
After you’ve created your templates, your work is not done! Continue to refine them whenever necessary, for example, when you see that a term does not work in practice or if the business or applicable law changes in a way that requires agreement edits.
Make your templates (especially SOWs) as modular as possible for versatility and flexibility. For example, work with the relevant business teams to create various product- or solution-specific terms for your SOWs that can be plugged into the overall SOW template. This applies to legal concepts as well.
For example, with the landscape of United States privacy laws changing constantly, a modular privacy addendum will serve you well with verbiage for The California Consumer Privacy Act (CCPA)/The California Privacy Rights Act of 2020 (CPRA), the Virginia Consumer Data Protection Act (VCDPA), the Colorado Privacy Act (CPA),6 and any other relevant privacy laws.
This allows you to use the full privacy addendum if needed, but also allows for a special request, for example, from a client who wants CCPA/CPRA language included in your agreement. You can pull your CCPA/CPRA language from your modular addendum and just include that verbiage versus including the whole addendum.
The modular approach saves time drafting or finding language each time you need it.
Create a contracting playbook
Too often, law and contracting departments put off creating a contracting playbook. It’s understandable when the day-to-day work of contracting professionals more than occupies at least 40 to 80 hours per week, but playbooks serve several important functions for law and contracting department(s). These include:
- Consistency - Internal clients should not get different answers from each person in a legal department. Developing a playbook creates a baseline for contracting terms, thus, minimizing inconsistency.
- Clarity - Playbooks provide clarity to both new employees and internal clients who are not contracting experts.
- Empowerment - The clarity a playbook provides creates a feeling of empowerment. Internal clients feel confident handling questions from clients and vendors, because they have clear guidelines for legal’s perspective on common contracting issues. Legal feels empowered because we’ve done our job in a clear, concise way and we can focus on other matters.
- Redirected focus - A playbook frees up attorneys, contracting, and support staff to do more meaningful work, like handling first-impression or complex matters.
- Efficiency - With less time drafting language or hunting for template verbiage, legal and contracting departments can increase efficiency. Additionally, playbooks save legal time that would otherwise be spent training new hires. Pointing to the playbook with an invitation to reach out with questions can often do the trick.
- Optics - Love them or hate them, optics often matter in the workplace and having a playbook conveys the message, even if subconsciously, of a legal or contracts department having its act together.
Once you realize the advantages to having a contracting playbook and decide to create one, how do you do it?
- Decide where you will house your playbook. Will your company invest in a vendor for this or do you need to create your own with tools you have at your disposal already?
- Create a (formal or informal) Contracting Playbook Task Force comprised of whoever makes sense for your organization. This could include members of the legal team, contracting team, finance, compliance, information security, or procurement. Or, the Task Force could be composed of the main stakeholders like the legal and contracting teams with input from other stakeholders as needed.
- The Task Force can brainstorm to come up with a list of commonly negotiated contract terms.
- For those commonly negotiated contract terms, come up with alternatives or “rules” legal is comfortable with. Consider the following examples:
- Are there triggers for such alternatives? As in, are there value thresholds for limitations on liability? For example, if the total contract value with a client is over $150,000, will your organization accept a higher limit on liability and, if so, what is that higher limit? Will legal indemnify a client only if the total contract value reaches a certain threshold amount?
- Are there preferred jurisdictions for disputes? Why are they preferred? Sometimes it helps to provide internal clients with the “Why,” so they don’t resent legal for enforcing limits.
- Are there certain terms your company can never agree to? For example, if you never agree to unlimited liability, include that in the playbook with an explanation of the risks of agreeing to unlimited liability. This will save time in negotiations because, if a client or vendor insists on a term your company can never accept, you can end negotiations early rather than wasting time on a protracted negotiation only to find out at the end that you’re at an impasse.
- Create an approval matrix, which specifically (perhaps with a chart) describes who approves certain terms and at what levels.
In summary, numerous benefits exist to templatizing your law department, some of which are:
- Better/less risky terms for your organization;
- More efficient negotiations;
- Clarity within your organization;
- Time and resources saved; and
ABOUT THE AUTHOR
In her role as Senior Legal Counsel with Vendavo, Inc., Elizabeth serves as head of commercial transactions in North America. She works cross-functionally with the relevant business teams and stakeholders, providing legal advice on a broad range of topics and guiding the business on legal compliance with a particular focus on drafting, managing, and negotiating client and vendor contracts of moderate-to-high complexity from the bid phase through contract execution, including software licensing and SaaS-specific provisions, as well as matters related to contractual liability and risk-shifting provisions, data privacy, intellectual property, and products.
Vendavo provides price management and optimization software for business-to-business (B2B) companies worldwide, offering enterprise-wide control of the pricing process. For over 20 years, their stated mission has been to “empower global B2B companies to unlock unlimited commercial growth plus profitability with industry-best pricing and sales solutions.”
- What is SaaS? Software as a service, Azure article explains basics.
- Data Processing Addendum, ZEGAL article explains.
- Health Insurance Portability and Accountability Act of 1996 (HIPAA).
- What is a HIPAA Business Associate Agreement (BAA)?, article by Elizabeth Snell, editor, Health IT Security, xtelligent HEALTHCARE MEDIA.
- Client versus vendor negotiations – why it matters CEJ article, by Elizabeth Colombo, Jan 23, 2019
The Colorado Privacy Act (CPA)