Allocation in Commercial Contract Review: How to Get the Right Work to the Right Resources
Strategic planning is critical to success across many domains. A general must marshal the right forces and equipment to the most important front. A coach must call upon particular athletes at the opportune moment. And, of course, a business leader must ensure that human resources are being elevated to their highest and best use if an organization is to be successful.
Strategic planning—which is fundamental to positive business outcomes—requires effective resource allocation.
Having worked with corporate legal departments for nearly three decades, we’ve had an up-close-and-personal vantage point from which to observe the differences between departments that efficiently and effectively process commercial contract workflow and generate positive results for the business, and those that don’t. In almost all instances, the ability to allocate work to the right resources at the right time is a key distinguishing factor.
In this second installment in our series on effective commercial contract outsourcing, we’ll address the importance of allocating commercial contract work effectively, and the elements of a well-functioning allocation system. Allocation is closely intertwined to the first issue we explored in this series—intake of contracts—because it’s nearly impossible to properly allocate work when intake is done in an ad hoc manner.
The Importance of Effective Allocation
The fundamental reason that allocation is important in the context of commercial contract review is that it allows corporate legal departments to elevate in-house attorneys and staff members, as well as external resources such as law firms and alternative legal services providers, to their highest and best use. Allocation allows individuals to optimize their performance, and it also enables legal departments to maximize the value of their legal spending.
When contract review work is misallocated, it often means that lawyers—whether in-house or external—are doing work “below their pay grade,” which means that the expertise available to a business is not being properly utilized. In other instances, contract work is being tasked to individuals that is outside of their wheelhouse, which leads to inefficiencies and costly errors.
Effective allocation, on the other hand, allows legal departments to match the right work to the right person, and save time and money in the process.
The Elements of Allocation
As the old saying goes, “garbage in, garbage out.” If a corporate legal department lacks the information and organizational structure necessary to holistically assess the entirety of its commercial contract workflow, then it will be nearly impossible for it to direct work to the right resources. Accordingly, allocation starts with intake. A structured intake process, which is centralized and gathers complete information, is the first step in a sequence that leads to successful outcomes.
Once a legal department has a system in place to gather the data, it can begin allocating the work effectively in accordance with a matrix that guides decisions about resource allocation.
Because many legal departments are responsible for reviewing a variety of commercial contracts, including non-disclosure agreements, licensing agreements, and vendor contracts, among others, a starting point for allocation is the organization and distribution of work by contract type.
However, an effective allocation system takes into account other, more subjective factors that impact whether particular work should be directed to particular resources. Some of these factors include:
The dollar value of an agreement
The counterparty to an agreement
The department, or individual, that originates a request
Whether the agreement poses substantial risk to the business
Without a structured process, it’s difficult to assess these subjective factors. An important request from the C-Suite, for example, may slip through the cracks and not be allocated to the high-level resources necessary to give the contract at issue the careful consideration it requires if allocation is done ad hoc. Conversely, a routine contract that poses little risk may land on the desk of an expensive external lawyer when it could have been handled by an in-house paralegal.
At its root, allocation, like any element of project management, requires strategic planning, done in advance, to refine and optimize the distribution of work. In our experience working with clients to design allocation systems, those that make the investment in strategic planning reap considerable dividends in terms of efficiency and cost savings in the commercial contract review process. With a well-defined allocation matrix in place, the party responsible for allocation is able to work according to clear guidelines that dictate to whom work should be assigned. When a variable arises that falls outside of the matrix, issues can be escalated to the appropriate individual for further review. Again, this type of process helps ensure that the right people are addressing the right tasks—both in terms of allocation of work and legal review itself.
While every business’ allocation system varies to some extent, there are some trends forming in allocation that are leading to increasing cost-savings and efficiencies for corporate legal departments, including:
Geographic Arbitrage: Sometimes the right resource to conduct contract review is not in-house or even nearby to a corporation’s headquarters. Advances in technology and communication, and the ease of information-sharing in the cloud, allows legal departments, especially those located within high-priced legal markets, to engage in geographic arbitrage and outsource work to lower-cost providers in other regions of the country.
Allocation Outsourcing: Beyond assisting corporations to design effective allocation systems, alternative legal services providers such as Lumen Legal are increasingly being tapped to handle the allocation of contract review work, both to internal and external resources, on a corporation’s behalf. Often, tasking those within an in-house team to allocate according to a well-defined matrix does not further the objective of elevating resources to their highest and best use, when highly capable, lower cost options exist.
Data Analysis: By having structured intake and allocation systems in place, corporate legal departments have access to a well-organized and clear data set by which to determine the volume and variety of work that it is doing (or outsourcing) and better analyze value and results.
Resource allocation is the process of assigning and scheduling available resources in the most effective and economical manner. In the context of commercial contract review, it means that the right people get the right work at the right time. This creates cost and time efficiencies, and leads to better substantive work and business results for a corporation, because legal resources are being put to their highest and best use. None of these benefits will be realized, however, without the strategic planning required to design and execute a structured allocation system that takes into account the unique aspects of the business.
In the weeks to come, we’ll continue to address the additional elements of a structured approach to commercial contract review, including Legal Review, and Management Information. In case you missed it, here’s our first article in the series on Intake. In the meantime, if you’d like to discuss the benefits of outsourcing your company’s commercial contracts, please contact David Galbenski, EVP of Strategic Initiatives, at email@example.com or 248.872.5533. To learn more about our commercial contract outsourcing services click here.
EVP Strategic Initiatives
Dave founded Lumen Legal 25 years ago. He enjoys providing his thoughtful, creative, and innovative counsel to law firms and corporate law departments looking to solve problems and reduce costs.
He also enjoys staying abreast of all developments in the legal industry and has contributed to the dialogue with two books: Legal Visionaries and Unbound: How Entrepreneurship is Dramatically Transforming Legal Services Today. He is a frequent speaker at conferences.