Asset managers and investment banks are relying on contract management software to reduce the time it takes to finalize agreements.
Players in the private markets are facing intense competition. There are more registered private funds than ever contending for the same deals. The result is managers and banks taking a hard look at their internal processes to see what might be holding them back. For instance, a slow turnaround time on non-disclosure agreements could create a far bigger disadvantage now than it did a decade ago.
Asset managers and investment banks are digitally transforming their contract management processes to tackle slow turnaround times. The leading firms are using Ontra’s combination of Contract Automation and legal outsourcing to cut down their contract cycle time.
What is the contract cycle time?
The contract cycle time is the average duration it takes to finish a contract from start through execution, including revisions, approvals, and signatures. Investment firms can calculate it from when they receive or send a draft to when all parties have signed the final agreement.
Many firms and contract management software providers refer to this as contract turnaround time, though this term can mean individual rounds of revisions or the entire time it takes to reach execution.
3 ways to reduce contract cycle time
The leading asset managers and investment banks have realized the best way to achieve a shorter contract turnaround time is through a digital transformation. Legal technology, such as contract AI, can automate many manual processes in the contract lifecycle.
1. Adopt a contract management solution
Manual contract processes will always be slower than contract automation. Asset managers and investment banks should look for a purpose-built contract management solution. With the right technology, firms can save templates, standardize contract creation workflows, and rely on automation features, such as triggered emails and alerts.
2. Standardize routine contract provisions
Whenever possible, asset managers and investment banks should outline their boilerplate, preferred, and fallback terms for the most common contract provisions. Organizations should store these in a central contract repository that is readily available to all internal stakeholders participating in the contracting process.
Standardized terms ensure the organization gains consistency across its agreements. This step can drastically reduce the number of provisions stakeholders must actively negotiate, enabling them to finalize contracts faster.
3. Outsource high-volume, routine contracts
The best solution to a lack of internal bandwidth for routine contracts is finding a trusted legal outsourcing partner. When firms and banks can’t handle high-volume contracts in-house, they tend to send them to external counsel, where junior associates handle the work for large hourly fees. Outsourcing coupled with contract management automation is a faster and more cost-effective solution.
What factors affect the contract cycle time?
Depending on an asset manager’s or investment bank’s current contract management system, various factors could increase contract turnaround times.
Lack of predefined terms: Managers and banks can speed up the contracting process by developing a library of contract or provision templates as well as establishing preferred and fallback stances. Firms that haven’t formalized this information force their stakeholders into unnecessary and time-consuming revisions and negotiations.
Inability to review historical terms: Managers and banks often benefit from referring to previous agreements. For managers, it can simplify their contract compliance efforts if they pursue the same or vastly similar commitments with other parties. However, many firms can’t quickly search and review precedent, and manually reviewing previous agreements can prolong negotiations.
Lack of standardized contract workflows: Internal stakeholders or external counsel should have a clear understanding of the contract creation process, including who provides approvals and when and where to escalate unique issues. Without an established workflow, internal stakeholders have to track down whoever is responsible for the next step in the process.
Lack of contract management automation: Far too many asset managers and investment banks continue to forgo an industry-specific contracting solution and rely on manual contract management practices and ad hoc tools. Someone must proactively handle each step of the process, including emailing reminders when another party is slow to respond.
The complexity of the contract: Managers and banks can do little to control the complexity of an agreement. Side letters, for example, have become more common and include 10 times more provisions than a decade ago. Negotiating more bespoke agreements typically takes longer than routine contracts with highly standardized terms.
The number of parties involved: Though a contract may be between two businesses, it might involve several internal and external stakeholders, including business professionals and lawyers. Typically, the more people roped into negotiations and approvals, the longer it takes to finalize the agreement.
Parties’ bandwidth: Routine contracts often pull internal business professionals away from their other, more strategic work. They may inadvertently delay contracts because they’re an additional task on top of their high-priority workloads.
Time zones: Asset managers and investment banks working on a global basis often run into challenges between different geographic areas and time zones, particularly when they lack local offices in multiple jurisdictions.
The wait for signatures: The final step in the contract creation process can often cause delays, particularly if signatures are required from stakeholders not actively involved in the negotiation process.
Why is it important to calculate the contract cycle time?
When asset managers calculate and monitor their contract cycle time, they gain visibility into what they may do well or what’s holding them back.
A streamlined process is vital for high-volume, routine contracts, such as NDAs. Intense competition in the private markets demands speed. Asset managers need to complete NDAs quickly to be able to make data-driven decisions about a deal as soon as possible.
Investment banks are equally interested in an efficient process to provide the best customer experience to their sellers, whether conducting broad, limited, or targeted auctions. Delays in the bank’s NDA process could hurt the deal process and damage its relationship with customers.
Speed up private markets NDAs with Ontra
Ontra’s Contract Automation solution accelerates routine contract negotiations by equipping a global network of freelance lawyers with an AI-driven contract management solution. Our legal partners have negotiated over 750,000 contracts across all major jurisdictions, including buy- and sell-side NDAs. Asset managers and investment banks can use faster NDAs to gain a competitive advantage in private markets deals.