What is contract outsourcing?

July 23, 2021

Contract outsourcing is when a company uses the skills of a specialized partner to negotiate and manage contracts. The benefit for the company? It empowers businesses to stay lean and focused on high-value tasks. Outsourcing high-volume, routine contracts to a specialized partner adds value and improves efficiency by standardizing the contracting process, from negotiations and creation to final review and the use of contract data.

There are pitfalls to keeping contract work in-house. Organizations that internally manage contracts divert scarce resources away from growth and higher-value legal work while potentially damaging employee morale and productivity.

How can we build a contract outsourcing relationship?

Successful contract outsourcing starts by building an efficient process at the onset of the relationship with the outsourcing provider. This partnership should only begin once the company seeking to outsource its contracts is sure the provider has both the experience and the scalability to manage the organization’s flow of contracts, however large or complex it may become.

Companies often outsource routine legal documents to traditional law firms, which are usually the same law firms working on the companies’ more complex legal needs. These additional hours come at a high price. However, new technologies and labor models are empowering businesses to outsource contracts to legal technology companies or alternative legal services providers (ALSPs) that automate steps of the contracting process, including the initial proposal of terms, markup, execution, and data extraction and analysis.

What contract types should businesses outsource?

A wide array of contract types are suitable for outsourcing to a trusted partner. These can include:

  • Nondisclosure Agreements (NDAs)
  • Joinders
  • Nonreliance Letters
  • Vendor Contracts
  • Master Services Agreements
  • Engagement Letters
  • Access Agreements
  • Franchise Documents

Any of these routine legal documents — those that take up valuable time and resources for an organization — are ones your contract outsourcing partner should easily be able to manage.

What are the different payment times and options for outsourcing contracts?

Contract outsourcing pricing models vary. They depend on the industry and the types and number of contracts outsourced. Payment options can range from upfront or at project completion to retainers, pay-as-you-go, and hourly models.

One advantage of partnering with a specialized outsourced provider? As the parties standardize the contracting process, more cost-efficient rates become available. Efficiencies created through superior technology, process standardization, and more optimized labor models can also reduce costs.

What does the contract outsourcing process look like?

The 3 steps in a contract outsourcing process to increase efficiency of legal work.

The contract outsourcing process begins with the customer and the outsourcing provider establishing the types of contracts for management. Some partial solutions are limited to loading legal documents into a contract management system to provide visibility.

In a complete contract outsourcing solution, the provider (with the customer’s input), creates playbooks to standardize the approach to negotiating provisions of the managed contracts and specify the customer’s preferred and fallback positions. Then, the business’ flow of contracts shifts to the provider, which assumes all or most of the burden associated with the contracting process.

With this end-to-end contract management solution established, the customer can adjust its focus and resources to its most essential business functions, knowing that its outsourced contracts are being effectively, independently managed and should not require attention except under unusual circumstances.

Finally, it’s crucial for both the business and the outsourcing provider to periodically review the playbooks and processes. As business and market conditions evolve, priorities, strategic goals, and the market for contract terms may change. This is why it’s important for companies considering outsourcing to evaluate whether a provider has qualified personnel and access to market data on contract terms. Regular upkeep of the roadmaps that determine how a business’ contracts are negotiated is key to maintaining long-term, improved contract management efficiency.

What are some best practices for contract outsourcing?

All business contracts — including routine and repetitive agreements — create legal and compliance obligations and involve important interactions with business stakeholders. With that in mind, it’s critical that any business outsourcing its contracts must choose a provider that can manage contract workflows end-to-end and secure best-in-class results now and in the future.

Businesses interested in contract outsourcing should:

  • Explicitly establish their relationship with contract outsourcing providers beyond basic work expectations. An agreement should outline quality parameters, timelines, and pricing.
  • Find a purpose-built technology platform to upload contracts stored with easily traceable statuses. Ideally, this platform should aggregate, analyze, and report on contract trends and terms. By having these resources, both the business and the provider managing the contracts begin to create contract intelligence — transforming large numbers of disorganized contracts into structured data offering insight into current operations and benchmarks for future negotiations.
  • Work with a partner that can integrate artificial intelligence and machine learning programs. This technology can deliver contract intelligence and progress toward a more complete contract automation process.

The potential with contract outsourcing platforms is immense. These platforms will be able to analyze contracts and establish whether certain provisions are present. In the future, they’ll advance to a point where specific terms can be almost automatically negotiated. Outsourcing contracts this way will reduce the cost and amount of work required to process each contract while improving time to execution, adherence to playbooks, and overall business outcomes.

Learn more about successful outsourcing

Additional Resources