Contract Management Strategies

January 6th, 2009

Enterprise software companies sooner or later accumulate a lot of paper governing customer contracts.  Maybe half the time customers accept a company’s standard sales or license agreement without substantive comment, but the other half gets negotiated- sometimes a little, sometimes heavily and sometimes the customer insists that its own paperwork govern.

Managing all these terms is complex and painstaking work.  I know a few large companies that take a draconian approach to the task- they only circulate agreements in pdf form (to prevent changes) and any revised terms go in an amendment instead of the original document.  The theory is that the presence of an amendment flags the fact that there are non-standard terms.

In practice this makes a giant mess.  It should be possible to draft amendments that are very specific and clear about which terms have been changed and how, but it never seems to work that way.  I think the companies that get to the stage of doing this get overly caught up in process, the lawyers making the changes are not connected to the deal being done and the terms end up more confusing than they should be.

You need to be a really big company to take that approach in any case, so what works better for the average company?  As with many other things, the answer is to make sure that the information doesn’t live only in the heads of certain people.  Write it down.  Put someone in charge of collecting signed contracts and tell that person to make up a spreadsheet (for starters, at least) that notes any variations from standard.

As the lawyer I wish I could tell the sales teams they won’t get paid until they tell the contract managers about any wrinkles, but I know I’d get overruled.  Still, collect the info right when the deal closes before everyone forgets about it, then work on keeping it up to date.  It’s an ugly “uh-oh” when you realize you have inadvertently been in breach of a contract’s terms because you didn’t know it was non-standard.

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  • When I was in-house, I put together a panel discussion for the ACC annual meeting on the subject of “top things I'm glad I knew or wish I'd known my first year as GC.” (The updated paper is on the ACC Web site, which is restricted to ACC members, but someone seems to have posted the PDF here.) Item #58, by a reviewer of the draft paper, was along the lines you propose:

    58. Set up a working database for contracts. Include the party’s name, address (and its address for notice if different), dollar amount, termination provisions, whether the contract is assignable, any clauses to watch out for that are different than your company’s standard provisions, etc. [The contributor of this item reported, “This is the most critical thing that I do and have done, I feel pretty clear about that.”]

  • When I was in-house, I put together a panel discussion for the ACC annual meeting on the subject of “top things I'm glad I knew or wish I'd known my first year as GC.” (The updated paper is on the ACC Web site, which is restricted to ACC members, but someone seems to have posted the PDF here.) Item #58, by a reviewer of the draft paper, was along the lines you propose:

    58. Set up a working database for contracts. Include the party’s name, address (and its address for notice if different), dollar amount, termination provisions, whether the contract is assignable, any clauses to watch out for that are different than your company’s standard provisions, etc. [The contributor of this item reported, “This is the most critical thing that I do and have done, I feel pretty clear about that.”]