Making the Law Department (and External Counsel) Justify Their Time Spent Meddling in Your Contracts

I caught the end of a useful talk at an IACCM session last week led by Brad L. Peterson, Partner, Mayer Brown LLP and David Chameli, Associate General Counsel, Commercial Transactions/Supply Chain Logistics, Sears Holdings Management Corporation (BTW, if ever have the chance to hear David speak, he's an absolute hoot -- wish more lawyers were like him). The discussion topic was aimed toward both lawyers and contract managers who have to deal with procurement people like us: Articulating the Value of Contract Terms: How to Communicate the Value You Create in Negotiating Contract Terms. Translation? How to justify your existence when your so-called internal customers (i.e., us) really don't see the value brought to table, plus what the additional time required to bring in the lawyers means in hashing out and negotiating non-boilerplate T&Cs. More candid translation: what the &*!@ do you really do to justify your existence in the buy-side contracting process?

Despite my initial cynicism from having dealt with too many lawyers for most of my professional life (and having a number in my family), I actually thought that David and Brad gave a very insightful, even moderately analytical and quantitative talk. Consider the following business case they make -- which granted, makes a few assumptions that one could question -- in how to justify the involvement of counsel based on their definition of value (i.e., "the probability of a benefit multiplied by likely value of the benefit). To wit...

Let's take a contract featuring a clause with a termination for convenience provision for $1MM. Add another clause with a termination for change of control of vendor ($500K). Then make the assumption that there's a 10% change of chance of change of control and a 50% change of wanting to terminate upon such a change. Then do the math: $500K * 10% * 50% = $25,000. For the single clause, the value is roughly $25K based on the assumptions they provided (if you toss tomatoes at the "maths" and the inputs/assumption here, direct them their way -- not mine. I'm just the messenger 😉 Still, assume a cost to the clause of $10K (which is conservative) based on legal time to frame and negotiate as well as delayed implementation of a few days, and you see at least one framework to make the contract lawyers justify their existence.

Still, let's not give legal and contract meddlers a free supply chain pass just yet. Here's your lawyer joke of the day to remember the DNA of these folks:

Jason Busch

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