Do you have contract playbooks in your business?

27th August, 2021

What is a contract playbook?

The playbook is a documented confidential manual that sets out the commonly negotiated contractual terms of business and sets out the parameters of acceptable and unacceptable amendments to those terms. It should also set out the circumstances where proposed contractual terms that are regarded as unacceptable need to be escalated within the organisation, either to senior managers, the in-house legal team or the company’s external legal advisers.

The playbook can take any form appropriate to the organisation and the type of contracts it is meant to cover. It may include flowcharts, checklists, escalation matrices, process diagrams and hyperlinks to relevant information elsewhere in the business or the internet. It will be an evolving document with information added over time and should be regularly reviewed and amended in consistency with the current business needs, customer markets and changing regulations.

How will it benefit my business?

A well designed playbook will enable the sales negotiators or procurement team to manage contractual negotiations in a more controlled manner within set parameters without involving escalation to senior managers or legal. Decisions on acceptable positions can be taken quickly without the need for internal approvals. This frees up the legal team to deal with more complex issues and negotiations. It provides time and cost savings as well as risk management benefits since it prevents sales being signed off on unfavourable or risky terms.

It is essential that the playbook is backed up with training of the sales negotiators / procurement team and other intended users so that they know how to use the document and when and to whom escalation is needed.

How do I get started?

Existing contracts will need to be reviewed together with feedback from multiple stakeholders in the business. The review process will need to consider important clauses in the documents and consideration of the risks those clauses will cover.

Acceptable and unacceptable positions will need to be determined taking into account the balance between minimising risk and facilitating business transactions.

Including relevant internal stakeholders in the formulation of the playbook ensures buy-in from a business perspective during negotiations. It also creates a forum for discussions on risk management in the business.

Step 1 – scoping

Decide which type of contract would benefit from a playbook. This is likely to be contracts that are used often, for example, standard terms of sale, standard terms of purchase or confidentiality agreements.
Determine who the relevant stakeholders are and get their buy-in.
Gather any existing standard positions that are taken by the business which may or may not be documented already.
Consider the main risks to the business. This will depend on the industry and sector in which the business operates. Consider the likelihood of the risks and their impact using a matrix as set out in the diagram below. Consider the overall business and legal strategy. You may decide to initially focus on only the risks in the right hand side of the chart.

It may also be necessary to consider the relevant third parties to the contracts and whether that would change any positions. Certain positions may be agreed in respect of specific customers (for example, due to historic trading practices, relationships and value of orders) that would not necessarily be acceptable or offered to new customers.
Determine what senior internal approvals will be needed for unacceptable positions on clauses. This will depend on the nature of the clause and whether the issue is a legal one or commercial. Consider how to embed this into the existing contractual approvals process of the business.
Note, once the playbook is finished it should go through the internal contract approval process to obtain formal approval for the acceptable positions stated within it.

Step 2 – playbook design

Consider a suitable format for the playbook and decide who will draft it.
What approach will the drafting take? A prescriptive approach will set out exact clauses and sample amendments. An illustrative approach will be more explanatory, setting out principles rather than precise drafting. The approach used and the design of the playbook will depend on the experience level and qualifications of the people likely to be using it.
Content can include any or all of the following:

Instructions

Specific drafting

Explanatory statements for internal use (because they may include confidential business information) which could include traffic light RAG ratings

Rationale statements suitable for sharing with contract counterparties (and not containing confidential information) which can be used to explain positions

Internal approval processes required for deviations from the acceptable positions stated in the playbook

Checklists

Determine whether any technology used in the business for contractual negotiations will impact on the playbook.
Create a skeleton document for initial testing and feedback.
An example simple format is set out below:

Contract clause	Reason for the clause	Acceptable amendments	Approval process
Set out the clause	Explanatory statement	Set out any acceptable positions that do not require additional approval	Any changes to the clause other than the acceptable amendments must be approved by the Legal Team

Step 3 – start building the playbook

Gather information needed to complete the playbook. Sources of information include:

Existing risk management documents in the business

Interviews with internal and external lawyers

Interviews with internal stakeholders from all relevant teams in the business

Samples of previously negotiated contracts and existing positions commonly taken

Information about any specific positions taken with specific contract counterparts

The policy documents in the business that are relevant to the contract, such as anti-bribery and governance processes

Existing template documents

Details of insurance cover

Market data

Using the information gathered above decide which clauses should be covered off in the playbook as well as clauses that are missing from your own template that commonly may be inserted by the contracting counterpart.
Test the first draft and obtain feedback to assist creating the final draft.

Step 4 – internal approval and regular review

Treat the playbook as a living document. Add to it and update it when appropriate or necessary to adapt to business or regulatory needs or when justified by feedback. Diarise a formal review every 6 months. Include a version history on the front page.
Following the initial playbook and each time something is changed, ensure it receives internal contract approval for the accepted positions.
Train the users of the playbook so that they know how to use it and how its use affects the contract approval process.
A playbook will be part of the business’ confidential information and should be treated as such.

Step 5 – create more playbooks!

Once a successful playbook is in good shape the format can be used to create different playbooks for different types of contract, product or different jurisdictions.

If you would like to discuss any of the issues raised in this article please contact Brigitta Naunton at [javascript protected email address].

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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