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Division of labor:
contract management
and negotiation

When a new contract or agreement must be negotiated and drafted, a decision must be made: Can the work be completed exclusively with in-house resources or should it be sent to outside counsel? And, if work is sent to outside counsel, are there specific tasks related to the contracting process that should be handled in-house, because it takes advantage of corporate counsel’s knowledge of the business, product lines, and stakeholders within the company? The 2016 Thomson Reuters Legal Department In-Sourcing and Efficiency Report surveyed more than 400 legal departments to determine how in-house teams make these types of decisions and best divide responsibilities in connection with the company’s contract management.

According to the Efficiency Report, most (77 percent) expect their use of outside counsel for contracting and drafting to remain the same in the year ahead. However, at least one attorney anticipated an increase in contract work “due to the nature of an election year. Additionally, we have more projects on the table, and therefore will have to probably rely on some outside counsel to draft [some contracts] we would have otherwise.” Overall, only 13 percent expect an increase in using outside counsel for contracting and drafting, with 58 percent of these attributing it to an increased volume of work or company growth.

About 10 percent plan on decreasing their reliance on outside counsel for contracting and drafting, and of these, 38 percent indicated it’s because they’ve increased their use of in-house resources. Many legal departments consider contract work a core competency, and as such, have sufficient staff to handle contracting needs. For some departments, the repetitive nature of the work means in-house staff is the more effective contracting resource: “More experience of in-house counsel to issues addressed by outside counsel in the past.”

Multiple tasks related to the company’s contracting needs are handled internally, including coordinating and handling document drafting and review approval (91 percent); discussing transaction details and negotiation issues with business people (88 percent); and negotiating contract terms with the counterparty (87 percent). Three factors most often led in-house counsel to bring in outside counsel: complexity of issues (47 percent), involvement of significant risk (41 percent), and overflow due to a high volume of contracts (37 percent).

Drafting Contract Tasks

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