Step-by-step legal operations optimisation by smart contracting

In this blog, Anne-Wil Duthler, the managing lawyer at First Lawyers and Ans Duthler, legal professional at Duthler Associates, discuss the step-by-step optimisation of legal operations by smart contracting.

Organising effective and cost-efficient legal operations is essential for business continuity. We discussed this theme in the blog ‘seven legal trends of 2020′. This theme is becoming increasingly relevant for companies. It is partly driven by the consequences of the corona crisis, which not only leads to a lot of economic damage but whose course is unpredictable and therefore also entails a lot of uncertainty. We notice companies’ need for opportunities to reduce costs without compromising products’ and services’ quality.

Organisations feel a need to reconsider the usefulness and necessity of products and services purchased. In case of doubt about the practical usefulness of purchased products and services, alternatives are sought. Companies discover that certain products and services are not necessary or can be replaced by better for operating the organisation adequately.

We notice organisations recognise the need for cleaning up contract positions. The business processes and associated operating costs require effectivity. A well-organised, and therefore effective legal operations are crucial. In this blog, we will elaborate on this theme.

The cleaning up process

Companies want to reduce their operating costs now. The cash should stay in the company. After all, reserves have shrivelled, and we do not know when the turnover will be back at the ‘normal’ level and how many cash the restart of the business activities will take. What does the cleaning up process look like?

Stocktaking of the operating costs is the first step. An insight into the profit and loss account is a good starting point. Are we looking for better and cheaper alternatives? Should we organise processes more effectively? How can we achieve the services better and cheaper, in a short period of time and with acceptable investments?

The next step is reviewing the underlying suppliers’ contracts critically. Operating costs, if any, are subject to the contracts. Take these into account and provide an overview of existing rights and obligations. This can lead to surprising insights. Sometimes the contacts are expired, services are purchased more than twice, or the services are not used anymore.

Next, management decides on keeping or letting go of products and services: are we going to stop, are we going to continue and negotiate a lower price and new conditions, or are we involving other parties? From experience, we know that looking up the existing contracts, determining the best for the organisation and (re)negotiating existing or new contracts can take a lot of time and effort.

The final step from the cleaning up process is making necessary changes in the organisation. Business activities and business processes shall amend, and IT support can change. The challenge is to motivate the employees to adopt the necessary changes quickly and successfully. The cleaning up is the short-term focus. Therefore, after applying, it is important to determine the quality improvement and reduction of operating costs.

The steps outlined aim at organising the operational processes more effectively, reduce operating costs and – depending on the management’s ambition – ask for hands-on professional support.

Often a company does not have enough expertise and/or capacity to pick up and complete the cleanup package. Sometimes the existing legal operations are blocking this process.

Organisating the legal operations with smart contracting

Well-organised legal operations are essential for supporting an effective cleanup process. We know that well-organised legal operations will pay-off in quality and reduce annual costs by up to 30% from experience. 

Each company uses legal operations for entering into and managing contracts, for example, with employees (indefinite, temporary or self-employed) and for purchasing and selling products and services. The legal operations are often informally organised, and employees conclude contracts in addition to their regular work. Contract management is often not involved. Concluded contracts are kept in the drawer and come out when there is ‘hassle’. The consequences of this kind of legal operations can be costly and time-consuming.

Legal operations organised effectively pays off in the short term in more effective business processes. In the long term, it provides an overview and insight into the fulfilment of the obligations and the extent of exercising the rights.

Smart contracting supports the organisation legal operations by using the MYOBI Trust Network, well-maintained contract portfolios, contracting and contract management process control, education and training of staff and professional legal support when necessary. Smart contracting follows the steps below.

Step 1. Company and personal data

When concluding contracts, and fulfilling the obligations and exercising the rights, there must be no discussion about the company’s identity and persons’ authorities. This applies to both the own organisation and the contract partners. A trusted third party is used to obtain sufficient certainty about the company’s data and representers. In this case, Mind Your Own Business Information, MYOBI.

MYOBI provides certainty about individuals and companies’ identity and the competence of persons representing those companies. It uses authentic sources for this, such as data from the Chamber of Commerce.

MYOBI notarises and deposits concluded contracts so that the parties have irrefutable proof of agreements made.

Step 2. Agree on the contract portfolio

Legal professionals and lawyers maintain business activity-specific contract portfolios for various sectors. The new legislation, jurisprudence and rulings by supervisors give rise to a rethink and adapting models in the contract portfolios.

The company often uses a set of contracts for employees, suppliers and customers again and again. When organising the company’s legal operations, we find out whether these contracts are still following the law and whether the interests of the company are well represented. We find the answer by performing a legal assessment.

If existing contracts no longer meet the company’s expectations, the management will require the contract types to be updated and modified. Legal professionals or lawyers can prepare an appropriate and company-specific contract portfolio using up-to-date generic contract portfolios and management input.

Step 3. Tasks, authorisation and responsibilities

The company’s management agrees on the company-specific contract portfolio and the organisation of the legal operations. Well-organised legal operations have central control and decentralised operations. See Figure 1.

At the department level, well-trained employees with the proper authorities fulfil contracting tasks. The process of concluding contracts and, subsequently, contract management, i.e., compliance with the obligations and exercising the rights, are decentralised embedded within the organisation.

The company uses the MYOBI Trust Network to manage and apply its manual of authorities.

Figure 1: Central control and decentralised operation

Step 4. Enabling training and support

Company’s business process coordinator calls on ‘Need legal support’ from Duthler Associates’ legal professionals or First Lawyers’ lawyers. The commitment of legal professionals is extensive. It ranges from assisting customers in contract negotiations to answering questions about a clause in a contract.

“Need a lawyer” offers companies to appeal to the First Lawyers’ lawyers if representation is desired. The need for legal assistance includes company’s representing at a supervisor investigation or litigation (imminent) judicial procedure. 

The legal professionals and lawyers are well educated and keep track of new law and jurisprudence. Duthler Associates’ legal professionals and business experts are well trained for organising the company’s legal operations effectively. The knowledge and experiences gained by professionals is elaborated in Duthler Academy’s role-driven education and training portfolios. The portfolios are open for smart contracting users.

Step 5. Contracting

Once steps 1 – 4 have been completed, the contracting process starts. MYOBI’s Trust Network facilitates the smart contracting service with:

  1. An authorised employee, the Business process coordinator, starts a smart contracting process. The process is secured with its own encryption key;
  2. The Business process coordinator extracts from the contract portfolio the contracts that require agreement with partners (e.g., employees, customers or suppliers), and inserts them into the business process;
  3. The Business process coordinator involves relevant company employees in the business process;
  4. If necessary, professionals can also be involved in the smart contracting process;
  5. If necessary, company-specific contracts from the contract portfolio can be made case-specific;
  6. The company Business process coordinator involves partners to the business process. Each partner has its own Business process coordinator who involves relevant partners’ employees in the process;
  7. The company’s Business process coordinator, that started the smart contracting process, is in charge of the negotiation process and contract space (not fixed) awarded to the partners. The parties negotiate and suggest ammandments to the contracts. There are contracts that hardly and other contracts that leave room for negotiation;
  8. Once the partners have reached mutual consent, the Business process coordinators involve the sign authority in the business process. The signing authorities sign the contracts both “by hand” and digitally (encryption);
  9. MYOBI, in the role of trusted party, compiles the file, notarises the contracts including the pre-contractual phase, plus the file documents and deposits the file. Only the partners concerned have access to the contracts concluded with their business encryption keys; and
  10. After conclusion, the partners start to comply with the obligations and exercise the rights, i.e., with contract management.

Step 6. Contract management

Concluding the contracts will start contract management. The contract’s legal obligations and rights are worked out in time and event triggers. These triggers start processes, fulfilling obligations and exercising rights. Evaluation moments or notice periods in employment contracts are processing examples. The outcome of these processes reflexes the fulfilment of obligations or the insufficient exercise of rights. Failure to comply with obligations can lead to liabilities.

Finally

Legal operations are the foundation for organising business activities effectively and cost-efficiently. It will save the necessary operating costs and improve business processes effectiveness. In the long term, well-organised legal operations have a lasting value for business operations.