Articles

7 Things to Learn by Analyzing Your Contract Data

June 7, 2023

Solution

Market Insights

A chief legal officer reviews contract data from the last year to deliver strategic insights to her C-suite at its next quarterly meeting

Managing a company’s contracts is a core responsibility of the modern general counsel (GC) and their legal department. You might be responsible for drafting, negotiating, executing, and overseeing various workflows within the contract lifecycle. However, what your legal department does with a contract after signing is even more important. This is when you can gather, organize, and analyze valuable contract data that can significantly benefit your company.

Consider our list of 7 insights contract data analysis can offer that will cement your status as a thought leader among your C-suite colleagues.

Key Takeaways

  • Contract data includes information about individual agreements as well as sets of data comparing different types of contracts for additional insights.
  • Your contract data can provide key information on the costs associated with an agreement, including termination or renewal fees and other obligations the business may have.
  • Ensure instant access to big-picture data on your contract portfolio, which could be beneficial when navigating disclosures in a variety of settings, like regulatory filings or private party transactions.

What Is Contract Data?

Contract data is a broad concept that could refer to a few different aspects of the agreements your company enters. Consider the following types of contract data, all of which could prove useful in learning more about your business and increasing opportunities for strategic input as a general counsel:

  • Data specific to a particular contract (its type, effective date, responsible business unit, etc.).
  • Datasets comparing similar types of contracts.
  • Financial data about a contract (e.g., costs, potential liability, or revenue collected).
  • Data about legal operations involving the contract lifecycle.

7 Insights to Gain from Analyzing Your Company’s Contract Data

Below are seven of our top insights you can glean from contract data analysis to improve your understanding as a GC and become a strategic leader who brings commercial value to your organization.

1. Locate Areas in Your Contracts with Outsized Risk

All contracts involve allocating the risk of a business relationship based on the rights and obligations of both parties. Your contract data can help steer your C-suite and leadership in ensuring the risk you accept is proportional to the value you receive.

For example, many vendors, distributors, and others may incorporate outsized indemnity terms into their standard agreements. Identify the liabilities undertaken through these agreements and explore alternative arrangements or competitors that offer more favorable terms.

2. Understand the Costs of Terminating or Renewing Agreements

You never know when your C-suite may approach you with questions about terminating or renewing a contract for any number of business purposes. Chief among those questions will be the costs involved. Many contracts address the costs of termination or other breach-like events. Having this contract data at your fingertips allows your company to make informed decisions quickly. Note key costs such as:

  • Termination fees.
  • Notice periods leading to additional expenses during the remainder of the contract’s effectiveness.
  • Other costs necessary to close the relationship (reimbursements, resolving claims, etc.).
Alt text: Analysis of your contract data is key to ensuring the legal department’s business alignment with the company.

3. Determine Your Biggest Business Relationships

Contracts can provide a lot of insights into a business’s operations, including an intimate understanding of its biggest relationships. Knowing data about the quantity and scope of arrangements with various suppliers, customers, and other logistical parties can be a valuable tool for other business units. This data can help assess weaknesses, like overreliance on a particular relationship, or identify potential value from underutilized resources.

4. Audit for Compliance with Other Key Legal Documents of the Company

Contracts do not exist in a vacuum, and general counsels need to know how the terms of agreements interact with other legal considerations of the business. Analyzing data related to company agreements offers an opportunity to audit yourself and determine overall compliance with items like:

  • Corporate bylaws
  • Related contracts (e.g., a sponsorship deal and a licensing of intellectual property).
  • Insurance policies
  • Regulatory licenses and laws
Alt text: Contract data analysis can help save on costs from noncompliance, such as the nearly $15 million a financial firm incurs per violation based on SEC findings.

Image from https://www.ascentregtech.com/blog/the-not-so-hidden-costs-of-compliance/

5. Identify Opportunities to Save Costs, Reduce Exposure, and Generate Revenue

Most of your company’s contracts will include terms involving payments and the transfer of other considerations, including property rights or services. Your legal department should monitor each of these agreements to see how the terms actually apply to the business. For example, your company could be overpaying for a key service or product because of incurred late fees when processing orders or another operational issue.

Contract data is a valuable resource for identifying these types of opportunities to save money and reduce overall exposure in a business process or relationship.

6. Compare Terms for Inconsistencies and Market Trends

Contract data can indicate changes in the market and other trends that could help your C-suite navigate economic uncertainty. These types of trends will be most noticeable when you have consistent contract data over a long period.

You might observe changes in terms of your most standard contracts, such as governing law, effective periods, and litigation venues. The pandemic was a great example of sudden changes in contract terms highlighting market changes. During that time, we saw heightened scrutiny over terms like force majeure clauses, the length of commercial leases, and flexibility over price changes due to unpredictable delivery costs.

7. Recognize Key Figures Valuable for Regulatory Filings or Private Transactions

Finally, having an accurate and current analysis of your contract data is important when your C-suite relies on it for business processes. For example, you may need to disclose information about contracts to shareholders, lenders, prospective investors, or regulatory agencies like the Securities Exchange Commission. The need for your company’s contract data could also arise in extraordinary business transactions like a company sale or merger. Your C-suite will appreciate having this information readily available, minimizing the possibility of delays that could jeopardize the transaction.

Want More Help with Contract Data Analysis in Your Lifecycle Management?

At Morae, we view contract data discovery as the initial step in building a contract management system that addresses the most pressing needs of your company and its legal department. The discovery process within a contract portfolio should be fast and encompass more than legal applications. Our team can deliver greater visibility into your contracts, allowing you to transform the legal department from a cost center to a value generator.

Schedule a consultation to explore contract management solutions with Morae today.