Contract Contract

The coronavirus pandemic is positioned to unearth and magnify an "unmitigated disaster" that has been building just below the surface at many corporate legal departments, according to an open letter to in-house leaders. 

Hundreds of thousands of contracts are "about to come under immense pressure, inspiring a tidal wave of urgent requests and questions," Mark Harris and Alec Guettel, co-founders of Axiom and Knowable, warned Wednesday in their letter, "An Unsolicited Intervention for General Counsel." 

Last year, Harris and Guettel sold Axiom, an alternative legal services provider, and now operate Axiom spin-off Knowable, a contract platform and analysis service.

They wrote that the looming contract crisis poses a business problem that most general counsel "haven't yet had the time or headspace to focus on. And we're here to offer some provocative, possibly offensive, and certainly self-serving thoughts." 

Harris and Guettel are urging legal departments to, at minimum, get their contracts into a single repository where documents are organized in related groups or "families" and can be found, searched and filtered immediately.  

"You've got to use this moment to marshal all the resources that the company has, the law department has, to get all of those agreements in one place: a centralized, reliable system of record that is fully digitized and fully searchable," Harris said in an interview. 

Questions about force majeure clauses are already rampant as businesses want to know if they or their partners can back out of commitments due to coronavirus-related disruptions. Those who might be able to get out of their commitments could have increased bargaining power to renegotiate prices, Harris said.  

"The much more interesting question, which starts to get your mind reeling about all the second- or third-order inquiries, has more to do with, 'How are we going to navigate our way through this in a very new reality?'" he added. 

Suppliers who are facing plummeting sales will likely want to look at their cost structures, which means revisiting their supply chain commitments. Their legal departments might have to figure out which contracts contain minimum purchase agreements. Can they terminate some agreements early? If so, what are the implications? 

On the other side, companies that are experiencing stable or higher demand might ask their legal departments if they can bring on new suppliers. Do their contracts contain exclusivity arrangements or right-of-first-refusal clauses?

Legal departments should be able to provide quick responses to contract questions. But many companies still track contracts through manual systems and often have a tough time even locating their contacts. 

Finding the contracts is only the beginning. Companies often have unsearchable contracts that were scanned into the system. And there might be several versions of a contract, making it difficult to determine which document is the final version.

"We've been working in close proximity to the contracting functions of large enterprises for ~20 years and they are, more often than not, an unmitigated disaster," Harris and Guettel write in the letter.  

They conclude by stating that they're worried about appearing "tone-deaf as the humanitarian and macroeconomic impact of the crisis unfolds. But the conflict we see coming merits anxious waving, stomping, shouting and pointing."

"And that's what we're doing," they write. 

Read More: 

In Uncertain Times, Protect Agreements: Supplement the Force Majeure Clause With COVID-19 Provisions

Stanford's COVID-19 Memo Database Cuts Coronavirus 'Noise' for In-House Counsel

Tips on Crisis Management for In-House Counsel