I responded to a question recently, where a colleague asked whether a purchasing department should be responsible for negotiating / redlining what he called "legal" provisions in a contract or whether a legal department should be responsible.

That's a topic I feel very strongly about, and let me share an elaborated response to my colleague's question...

In the spirit of full disclosure, let me point out that I'm a lawyer (by training). Given that, I absolutely positively 100% believe that the purchasing function must be responsible for negotiating all aspects of a contract, including the redlining of "legal" provisions.  A key function of a purchasing department is to reduce business risk, including legal risk.  Thus, it needs to be staffed with the appropriate skills, such as legal expertise, and entrusted to mitigate the business (and legal) risk for the company.

There is nothing that will kill a deal faster than a lawyer, and, sorry to generalize, but it's in their nature (and training) to be risk adverse to the point of absurdity.  The saying "another pair of eyes" sounds good, but it doesn't hold water.  In reality, that's an inefficient and costly business practice if you have a well-trained and staffed purchasing department.  Whoever voices "another pair of eyes" as a reason that a legal department should be responsible for the legal review of a purchasing department's contracts is a buffoon.

Here's another one not to fall for... Redlining "legal" provisions constitutes the practice of law, and that's why a legal department has to do that function.  Real answer: It's not the practice of law, although lawyers would like you to think otherwise.

There are a number of reasons why you shouldn't let your contracts anywhere near your legal department. The first is that the legal department will "overlawyer" your deal, be on the verge of killing it, while you're sent scrambling to try and salvage the deal. The legal department has to provide their "value-add," so when you send them the "perfect" deal, they're going to invent something that they say needs to be changed.  Where's the real value in that?

Another reason is "second-guessing" by the legal department.  In the heat of a negotiation, for example, the purchasing department may be flexible on a point of contention in return for a concession from a vendor.  If the negotiation is successful, it could be that the trade-off was of substantial value and acceptable risk.  However, the legal department, who isn't close to the deal, may not see (second-guess) the trade-off in the same light as you. Have you ever negotiated a reasonable trade-off with a vendor and had a deal, only to have your legal department send you back to the vendor to address some arcane, never going to happen issue or to re-open a previously closed negotiation point?  I have, much earlier in my career...  If you allow that to happen to your purchasing department, you've been neutered.  You've lost credibility with vendors and your purchasing department has been reduced to a tactical, transactional, PO generating purchasing department.

Plus, involving the legal department is an inefficient practice. When has your legal department ever gotten anything out the door in a timely manner? They don't and won't care about / understand the real time pressures that a purchasing department has.  But even before you can get them to actually do a so-called legal review, you have to educate your legal department on what's being purchased, the parameters of the deal, the customer, etc., etc. That's a complete waste of time considering that the purchasing department is fully capable of completing the deal. By introducing a traditionally bureaucratic department, such as a legal department, into the processes of a purchasing department will only serve to slow the responsiveness of the purchasing department without providing any real, corresponding value.

The only downside (increased operational and legal risk) to a purchasing department being responsible for the legal review of contracts presents itself if the purchasing staff don't know what they're doing in terms of contract redlining and drafting. That means you need to measure your staff using a metric, such as contract risk level (as described in my books, hint-hint), that gauges term and condition quality and the risk presented by a contract.  Keep in mind that some risk may be acceptable considering the benefits of the deal. It also means that you need to provide the tools (contract templates, checklists) and resources (training, mentoring) to your staff.

My opinion is that, if a purchasing department abdicates the negotiation of legal provisions (but negotiates everything else) to a legal department, there's: 1) an organizational lack of trust or confidence in the purchasing department; and / or, 2) a lack of willing or able staff in the purchasing department. If your purchasing department can't be entrusted and empowered to ensure that the contracts it negotiates are appropriate from the perspectives of business and legal risk, you might want to think about working for a company that sees more value in you and the purchasing function.

Not to brag, but when the playing field of leverage is even, my purchasing staff can out-negotiate pretty much any lawyer when it comes to "legal" provisions. They can explain, for example, an indenmnification provision inside and out, and that provision's interplay with other provisions such as reps / warranties and limitations of liability. But that's because it's a major job responsibility of their's--that they are trained on and performance-rated on.

One key aside, and it's one that I constantly preach, is that you need to be operating off of your own "paper" (meaning contract templates). Beyond the obvious--that your own templates are more favorable to you--having your own templates shifts the human resource burden of redlining a contract from you to the vendor. Also, your staff are going to be more familiar with your contract template, and understand the nuances of any changes. If you don't have time to build your own contract templates, then buy some and customize them to your needs.

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