Third-party contracts: how to regain control of third-party paper

Third-party contracts can be a real pain for legal and business teams.

But what if we told you that third-party contracts didn’t need to create a bottleneck? 

After reading this article, you’ll feel equipped to quickly and confidently review and manage contracts on your counterparties’ paper. And the rest of the business will thank you for it. 

What is a third-party contract?

Also known as a third-party paper, a third-party contract is a legal agreement that originates with the counterparty, and so follows their templates, structure and provisions instead of your own. 

In other words, the agreement won’t be initiated by your legal team, but by theirs.

Some lawyers liken a third-party contract to playing a sport away at the other team’s ground. In many ways, they’re right. 

When you initiate a contract yourself, you’re much more familiar with the provisions and arguments used. Meanwhile, third-party contracts take away this familiarity and advantage, leaving you playing on foreign turf.

When is a third-party agreement used?

Typically, the party that makes an offer to provide their goods or services will be the party that creates the contract, and the counterparty will review and eventually accept these terms. Think supplier or vendor agreements, for example.

This means that if you are the ‘other party’ and are receiving access to a product or service, you’ll be on the other end of a third-party contract, instead of initiating it yourself.

What are the disadvantages of using third-party contracts?

For those not familiar with the legal industry, the idea of the other party drafting up the contract can seem great because you won’t have to spend time writing a contract.

However, this couldn’t be further from the truth, and most legal teams would much prefer to own the contract, and its terms, themselves. 

There are a few reasons for this:

1. Contract value leakage

One of the biggest concerns when managing a third party contract is that your business might gain less value from a transaction than they would have if the contract was initiated by yourselves instead.

In fact, PWC claims that poor management of third-party contracts can result in financial losses alongside reputational damage and unexpected liability.

The reasons behind this risk are obvious, as the counterparty will have proposed their own terms within the contract, and these will almost always favour the third party’s interests over yours. 

Unfortunately, departing from these terms within negotiations can be a real challenge, particularly if the original terms are particularly harsh.

2. Lengthy contract review times

Third-party paper also takes a lot longer to review than contracts you create yourself, as your legal team will need to go through the agreement with a fine-toothed comb to find any unfavourable terms, craftily worded clauses and gaps in the provisions.

You might find numerous terms that need to be negotiated in a third party contract, and this can be a real pain point for legal teams that have a manual contract workflow and need to go back and forth over email to reach an agreement. 

This time spent negotiating contracts can often lead to a long delay in getting contracts over the line, and it can consume large amounts of legal’s time that could be better spent on high-value work.

3. No visibility into contract data

There’s an increasing desire to digitize and extract data from contracts in scaling businesses, and this wealth of data is used to more effectively negotiate contracts, project revenue and speed up the contracting process. 

When you initiate the contract yourself through a contract management software, for example, this data collection is often seamless, with contract metadata captured by default.

However, third-party contracts make this increasingly difficult to do, since they are often delivered in a completely different format to the contracts you’d usually query and audit, and the data within them remains static. 

Fortunately, that won’t be the end state for most businesses today, because the next generation of contract lifecycle management software makes processing third-party contracts - and the data within them - seamless. Let’s explore this in more detail now.

How to regain control over third-party contracts

Juro doesn’t just support third-party contracts, it also empowers you to unlock the key data points within them and process them faster. 

You can simply upload your third-party paper and let Juro’s AI Extract functionality do the heavy lifting. AI Extract will automatically tag all of your key datapoints, based on simple prompts you set up for these types of agreements.

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But it doesn’t stop there. Juro's powerful AI can calculate dates and automatically set renewal reminders, as well as summarize contracts and flag risks.

With data extracted by AI, you're free to query your contract data however you want, enabling better decisions for your business, reduced review times, and increased visibility for vendor contracts.

“The feature allows us to expeditiously extract and review critical contract data and has considerably reduced our overall workflow timeline. I’ve been able to get twice as many contracts processed in the same amount of time” - Kyle Piper, Contracts Manager, ANC

With AI Extract, it's never been easier to unlock valuable insights from supplier and vendor agreements. You can:

• Push datapoints captured by AI Extract into integrated tools, like Salesforce, for example.
• Automate approvals, validations, and simple calculations with the metadata tagged by AI Extract.
• Review third-party contracts for risks and deviations using Juro's legal AI Assistant.
• Search, report on, and analyze the contract individually, or in combination with others.
• Store the fully signed document in Juro for future reference.

To see these workflows in action and discuss how Juro's AI Extract functionality can transform third-party contracting to your business, hit the button below for a personalized demo.

Best practices for working with third-party paper

1. Set up internal processes

One of the most important steps to take when reviewing any third party contract is to prepare an internal process beforehand, and ensure that it’s fit for purpose.

Depending on the type of business contract involved and how valuable it is, this internal process may vary. However, all internal processes should outline who will be responsible for negotiating the contract, how it will be reviewed, and who will approve it. This system will ensure that the contract review process is far more efficient and structured.

Fortunately, you can establish a strong internal process using contract management tools that allows users to set up approval workflows and tag users at each stage, instead of emailing back and forth to delegate the duties.

2. Establish expectations beforehand

Regardless of who is creating them, contracts function as a critical tool for building new relationships and expanding on existing ones, so it’s important to nurture these relationships - even in the negotiation process.

Luckily, there are few things that in-house legal teams can do to make the contract process more amicable and reduce friction. For example, you can:

• Set clear expectations. Before you receive the first draft of a contract, you should make your expectations clear to the counterparty. Usually, this will mean highlighting any non-negotiables and red flags before the contract has been drafted.
• Agree which technology will be used. It’s often useful to leverage your own technology where the counterparty hasn’t got any in place, and this will enable you to work on the contract in a platform you’re more familiar with.
• Maintain version control at all times. Losing control of which version of a contract is most up to date can be a nightmare when trying to negotiate a contract, particularly if you are unable to see the changes you’ve requested or lose sight of your progress. It’s important to keep on top of the different versions being sent. 
• Keep a record of any substantive points. If you have discussed or agreed a substantive issue via phone or email, it is important that you keep a record of this. Not only will it help encourage the counterparty to keep to their promises, but it will also act as a reminder to both parties about what was agreed. In a contract automation tool like Juro, you have a detailed audit trail for this.

3. Ask the questions that matter

In a third party contract, there will almost always be some points you will feel compelled to concede on, but aren’t completely happy about.

In these situations, it is always worth asking questions about these points before committing to them, as this can demonstrate your careful eye and ensure that your voice is heard - even on the other party’s paper.

For example, you may want to ask why certain clauses have been inserted, and how relevant they are likely to be in your relationship with the counterparty. Alternatively, if the language used is vague or potentially misleading, you should ask questions to clarify what it means and when it applies. 

This means that even though the terms have been drafted by the other party, you have full understanding of what they mean and whether they should be used.

4. Build out a contract playbook

Playbooks have become a buzzword in business, but they are critical to ensuring that procedures are followed properly when reviewing and agreeing a third party contract, and that any risks have been minimized.

Whilst lots of businesses feel that they don’t have time to set up a contract playbook, the time that legal and business teams will waste without one is often far greater since playbooks are an effective way to enable commercial teams to self-serve with minimal input from legal.

5. Use Juro for third-party contracts

Juro’s intelligent contract automation platform helps visionary legal counsel and the teams they enable to agree and manage contracts in one unified workspace - regardless of whose paper they’re on.

To see Juro in action and find out how it can transform the way your team agree and manage third-party contracts, fill in the form below for a personalized demo. To find out more about how Juro can support you with post-award contract management, check out this guide.