Organizations need to protect themselves in contractual commitments, and most do so through review of potential contracts by their legal departments – if they have one – or outside legal counsel.

This protection comes with a price, both in dollars and time. Not only is legal review costly, it can take weeks and even months to complete. Those delays can result in even more costs as savings may be delayed or even reduced.

One best practice that can significantly improve this situation is that the supply chain department must develop a working relationship with the legal department or outside counsel. This arrangement will define each department’s role in the contracting process, establish supply chain’s limits of authority, create procedures for streamlining legal review and set guidelines for turnaround times. This arrangement will allow legal and supply chain to work collaboratively, protecting the organization in an efficient, timely manner.

The ultimate responsibility for the contractual terms and conditions – not the business deal but the language and clauses that need to be part of the agreement – must reside with the legal department. But the supply chain can – and should – have a significant role in contract formation and review. This is easier when all or most contracts start from the organization’s standard contract form (another best practice to be explored here in the future).

Some legal departments believe their role is to review every contract that the organization may enter into. This will provide a substantial level of protection. It will also consume much of the available legal time and resources. And often supply chain contracts have a lower priority leading to long delay. A better solution is to share the responsibility for contract review between legal and supply chain. Many supply chain professionals have a good grasp of contract law and contract terms and conditions. This expertise – while not the same as that within the legal department – is adequate for the review of many typical supply chain contracts.

The first step in developing this relationship is building a level of trust. This might initially be a one-way street with the supply chain leader making the first attempts. Early meetings will cover the problem (lengthy delays), the results (contracts lost, savings missed), level of expertise within the supply chain staff, some agreement that some responsibility could be assumed by supply chain and a plan to develop new processes.

Once the early relationship has been started the two departments must determine what supply chain can review on its own and what must be forwarded for legal review. At first the supply chain list may be small, perhaps just supply requirements contracts and low-dollar capital. Regardless, the list should be clear and in writing. It should include contract type and dollar amount. It may also stipulate contracts with particular clauses which differ from standard language. As the relationship becomes more established the list will grow.

In addition to taking some contracts out of the legal review loop, supply chain can further streamline legal review by conducting an initial review of those contracts that still have to go through legal. This serves two purposes. First, it should help the legal department to hone in on the most important parts of the contract, thereby saving some time. Second, it should build credibility for the supply chain’s ability to review more complex contracts. As legal sees the quality of the pre-review they will begin to grant more authority to supply chain.

A final important aspect to the arrangement is agreement on the acceptable time lines for contract review and how to deal with outliers. These time lines might be different for different types of contracts. But supply chain should know when to expect the return of a contract.

Most of the above has assumed there is a legal department within the organization. If the organization uses outside counsel the process will be a little different. In this case the supply chain leader should confer with the key executive regarding reductions in what must be sent to the outside firm. Then they should work with the lead counsel to establish process and guidelines.

Depending on your current situation, establishing a working relationship with the legal department can cut the number of contracts going to legal in half or more. It will also cut the turn around time for those still going substantially. This best practice is definitely worth the effort.

David S. Kaczmarek, FAHRMM, CMRP, is a Derry, NH-based director at Wellspring Partners, a Huron Consulting Group Practice, Chicago. Kaczmarek has more than 25 years experience in healthcare administration and materials management, including director positions at several hospitals and systems. He can be reached via e-mail at dkaczmarek@huronconsultinggroup.com.