Understanding and Creating Contract Playbooks
Contracts are the undercurrent that drives business forward. They define the contours of most business relationships, and are how most businesses make money. As a first-year law student, you are taught the law of contracts: offer, consideration, and acceptance. These concepts are useful for a lawyer, but no one (besides legal professionals) gives much thought to these things. What is far more useful for the business is understanding how contract cycles can be sped up. That’s where contract playbooks and contract templates prove their worth.
Which bring up a valid question: what is a contract playbook?
Contract playbook: (n) a document or set of documents that outlines a company’s standard contractual terms, what each one means, and what fallback clauses can be used in the event that a company pushes back against one of the standard terms. Can also include the definition of dealbreakers for the company, e.g. what terms or conditions a company simply cannot accept due to strategic, economic, or some combination of the two reasons.
A properly created playbook allows for Sales, Legal, and other functions to remain aligned during contract negotiation. It also allows for the speeding up of a deal since all stakeholders can rely on the playbook for an answer rather than waiting on a response from someone else.
What are the Benefits of having a playbook?
There are plenty of benefits of having a contract playbook including, but not limited to:
- Enablement and empowerment of the Sales, Finance, Procurement, and Legal functions since all will be working off the same standards and legal positions.
- Training new lawyers or legal folks since they can get up to speed quickly on the company’s positions and risk profile by reviewing the contract playbook instead of relying on more experienced legal folks to convey their institutional knowledge to you. A playbook also helps prevent legal cowboys who tend to stray and just want to do things their way.
- Aligns the business functions with the legal function by understanding the acceptable terms for the company and what is unacceptable instead of waiting on the legal function to chime in and/or make up their mind about what to do.
- Helps your business colleagues understand the contract and the issues at play. This makes them better negotiators and partners on deals. Moreover, it takes away, to a large extent, the easy path of blaming the legal department for contracts being delayed or for not being able to reach an agreement at all. A playbook that tracks what the company finds acceptable, means that contracts fail or are delayed because of the company’s positions and not because the legal team is killing deals.
- Allows for the legal team to be more productive and to do more with less by spending less time negotiating and utilizing the playbook to turn to for legal positions and fallback positions.
How Do i create a playbook?
Now that you know what a contract playbook is, how do you actually create one? Here are the three basic steps:
- Start by reviewing your existing contracts and note the commonalities among them, primarily the often agreed to positions, the areas where deviations from your contract most often occur, keeping in mind that some of those deviations may have been forced, e.g. where the company took a calculated (albeit unwanted) risk to accept an otherwise unacceptable position. Also, take note of when your company has walked away from a deal.
- For each commonly negotiated clause, start to create fallback clauses that are acceptable to the company. Collaborate with other functions like Finance, IT, Sales, etc. to get and incorporate their input into the playbook.
- Establish and document workflow for escalation, e.g. what happens when a customer will not agree to the standard or fallback positions. Document in your company who has the final authority to make and sign off on ad hoc deviations from terms.
As for what a contract playbook looks like, it often is a document that states key contract negotiation parameters, standard and fallback positions, and the escalation and approval processes. A more comprehensive playbook will contain the above as well as a deal review workflow and a list of specific clauses, the fallback language for those clauses, and dealbreaker terms. Sometimes this document may be a chart, it may be an Excel file, or it may be a combination of document and chart. It is dependent on your organizational size and needs.
What Parts of A contract does a Playbook include?
A playbook often, at the very least, will address these key parts of a contract:
- Indemnification: These sections of an agreement address risk allocation, meaning that they place the risk of something going awry on a specific party. It is because of the risk allocation nature of these provisions that they are often the most heavily negotiated parts of an agreement.
- Limitation of Liability: This section of an agreement states what the overall liability will be when something goes wrong. Sometimes this section will state a specific dollar amount or may even have different limits on different types of liability. This is another heavily negotiated part of a contract.
- Representations and Warranties: This section of an agreement stipulates that a product or service will work to some degree and may exclude certain types of implied warranties.
- Dispute resolution: This part of an agreement addresses how things will be addressed when things go wrong. This is why many lawyers spend a lot of time drafting these clauses that state a specific process for resolving a contractual dispute.
Finally, with technology playing a bigger and bigger role in the practice of law, there now are companies, including Malbek, that can help a company automate the management of their complex contractual function. Having a contract playbook in place facilitates the use of such a tool since nearly all such tools need to know what to look for. A contract playbook can help teach the tool to do just that.
The bottom line with playbooks is that, while they are often a lot of work to create, putting the time in to create one will save you boatloads of time down the road and facilitate implementing technology to assist your management and review of agreements, which is something becoming more and more commonplace among companies.