The COVID-19 pandemic has created several new business hurdles, while putting more urgency on existing ones. Corporations, in particular, are grappling with myriad contract review challenges.
At Relativity Fest 2020, Charlie Connor, co-founder and CEO of Heretik, sat down with industry experts to chat about the biggest post-pandemic contract challenges and how to overcome those obstacles.
Charlie and team also graciously shared Heretik’s COVID-19 Resource Center. Check it out for Heretik and Relativity resources, use case demo packages, and more—all curated to help with each of the below challenges.
Challenge #1: Gearing Up for LIBOR
The London Inter-Bank Offered Rate (LIBOR) will officially retire at the end of 2021, after a three-decade-long reign as the benchmark for short-term interest rates. Its discontinuation means countless outstanding contracts need to be updated to use another reference rate. Jason Solomon, partner at Alston & Bird, says there are trillions of dollars of financial instruments with some LIBOR component to them—promising a big headache for organizations.
But the massive number of documents isn’t the only concern. There’s also the size and complexity of the documents themselves, as financial instruments can span hundreds of pages—and what you’re looking for within those pages isn’t always clear.
“There are a lot of different paths a LIBOR contract can you send down. Other contracts might be broad, but they aren’t going to send you down 700 different paths. LIBOR will,” said Gabriel Walsh director of legal tech and consultancy services at Alston & Bird. “You need to track the paths in a way you can defend later.”
What You Should Do: Get Started Today
Gabriel and Jason both agree: To address LIBOR, you need to organize and structure your data in a way that can easily be reviewed. Technology, like text analytics and near-duplicate detection, can amplify your review efforts and ensure you’re delivering consistent results across the board.
However, equally important to how you attack LIBOR is when you attack it. If you haven’t started yet, you could be falling behind.
“You’re analyzing something akin to the Y2K bug. It has a specific date, and it’s written in a hard-to-read language,” said Gabriel. “With Y2K, a lot of people ignored it, and they were okay. You can’t do that with LIBOR. Don’t sweep this under the rug and hope it’s like the Y2K bug.”
Challenge #2: No More GDPR Privacy Shield
The General Data Protection Regulation (GDPR) is one of the toughest privacy laws in the world—and it got even tougher this summer, when the European Court declared the EU-US Privacy Shield invalid. That means US companies can no longer self-certify that they can receive personal data from Europe in compliance with the GDPR.
What to Do Now: Get to Know Your Partners
If your company self-certified under Privacy Shield, you likely know who you are and what you need to do. However, self-certified organizations aren’t the only ones impacted. You also need to know if any of your service providers—or your service providers’ providers—are certified under Privacy Shield. And that can take a bit of detective work.
“It could be anyone in the supply chain. You think you’re using company A, but they’ve sub-contracted part of the work to company B, and it’s company B that uses Privacy Shield and you might not know that,” explained Ashley Winton, partner and McDermott Will & Emery. “For companies with many different suppliers, there’s a lot of paperwork to examine where these contracts are used and how the assessment is made.”
Challenge #3: Capital Project Management
COVID-19 had an unprecedented impact on life and businesses, and in many sectors, it has put work at a complete standstill. Owners of capital projects are feeling the effects of that, as they scramble to secure their investments.
“There are risks in capital projects that really start to occur when there’s economic downturn or a situation like COVID,” said Jon Critelli, managing director of the capital projects and contracts practice at Protiviti.
A big component of that risk is the sheer lack of technology in the construction businesses—something that’s often out of the owner’s control.
“Mom and pop shops are the bread and butter of the construction industry, and they aren’t investing in technology—it doesn’t make financial sense for them,” said Sarah Tuchler, associate director at Protiviti. “When you’re an owner at the top, it’s hard to force your general contractor to have one of their sub-contractors invest in technology for a one-off.”
What to Do Now: Understand Your Risk (and Take a Breath)
The best place to start, Jon explained, is getting a handle on risk across your portfolios.
“You have to understand your projects, where they are in the project lifecycle, and what your contracts say and allow for. Start planning and addressing your risk one by one and stay the course. Create the plan, and execute the plan,” he said.
Of course, these are unprecedented times, and no one knows what’s going to happen next. So, Sarah advised, don’t jump to any drastic conclusions.
“The most important thing an owner can do is find the balance between being nimble and being patient. You want to keep your employees safe and put everyone’s health at the forefront. Don’t make any drastic changes to your capital programs before we know what’s going to happen.”
Challenge #4: Bankruptcy Filings
COVID has been devastating on the economy, resulting in a surge of bankruptcy fillings across industries. Filing for Chapter 11 bankruptcy in particular is a complex undertaking involving several stakeholders—and the number of organizations expected to file is increasing as COVID rages on.
“[From January through the end of July], Chapter 11 filings are up 30 percent compared to last year. Experts are expecting to see more filings,” said Brad Koehler, senior director in the forensic technology services group at Alvarez & Marsal. “We’re only starting to see how COVID is affecting our economy.”
What to Do Now: Organize Your Data
Once a company enters bankruptcy, time is of the essence, Brad explained. So, even if you’re not in trouble now, you need to have a handle on your assets and data.
“Having accurate, organized data to allow you to make informed decisions is only going to benefit your case and allow it to progress more efficiently and prevent problems coming up in the future,” Brad said.
He advises that companies work across departments to begin gathering and understanding that data—involve your IT application owners, subject matter experts, and anyone responsible for handling company records so you have a strong understanding of where that data is kept and if it’s being properly preserved.
Challenge #5: Contract Portfolio Management
Corporate contract portfolios are often loosely managed and decentralized—making contract reviews difficult to say the least. In the era of COVID, where companies are assessing new areas of risk, those loosely managed contracts could be inhibiting you from acting quickly.
“Portfolios that went through a review exercise a year ago, are now well-positioned to go through review today for areas of risk due to COVID-19,” said Scott Curtis, VP of service delivery at Deloitte. “A year from now, there will be another event or context—it might be industry-wide, economy-wide, or unique to that organization—[that they’ll be prepared for].”
What to Do Now: Get Your Contracts in Order & Maintain Them
Similar to our other post-pandemic challenges, the sooner you start, the better.
“[Clients think] there’s a magic button,” said Gary DeChellis, senior service delivery manager at Deloitte. “We receive contracts, press a button, and all the information is at your fingertips. That’s not the case. The use of technology within portfolio review is more along the lines of a review accelerator—we’re able to apply technology to expedite the processes, streamline reviews, add efficiency, and increase accuracy.”
And remember: The work doesn’t stop once your contracts are in order. Scott emphasized the importance of maintenance and the value that can bring to your organization.
“Portfolios have to be maintained on regular basis. You have to keep up with contract expiration, renewals, amendments. If you do that, you’ll continue to get that value from whole portfolio.”
Kristy Esparza is a member of the marketing team at Relativity, specializing in content creation.