What’s on Third-Party Paper? Here’s How to Figure It Out.

By Alyssa Verzino

AdobeStock_334489860Try as they might, legal teams don’t draft every agreement their organization signs. Sometimes, you have to sign someone else's contract, otherwise known as third-party paper. It isn't a problem when third-party paper is managed responsibly, but too many businesses don't have a handle on the liabilities hidden in their external agreements. 

Based on our survey data, 85% of respondents reported that [as many as half] of their contracts are on 3rd-party paper. In this two part blog series, we'll outline the steps to track down all of your third-party paper and any risks they may carry. 

The Problem with Third-Party Paper 

Software-as-a-Service (SaaS) vendors are the leading cause of unaccounted third-party paper. When you adopt a solution like Salesforce or Slack or Microsoft Office 365, you’re not likely to have the leverage to draft your own customer contract, terms of service, privacy policy, or service-level agreement with those vendors. You'll get their standard contract, review, and sign it.

There are also times when contracts aren’t run by the legal team. For example, your CIO adopts Amazon Web Services without letting the corporate counsel know it's in use. In these cases, the contracts are not reviewed, and they’re invisible to your contract management solution. 

The risks from third-party paper, especially ones that you haven't reviewed, are one-sided terms. This happens a lot with SaaS vendors, but almost anyone can sneak problematic language into their agreements.

For example: Are you required to use the vendor's chosen arbitrator to settle disputes, rather than seek relief in court? Are you limited to relief in the form of service credits, with no possibility of cash restitution? Even if you are able to pursue civil charges in court, are you bound to a specific (and remote) jurisdiction of the vendor's choosing?

These are just some of the risks of invisible third-party paper. 

Contract Management Solutions

How Do You Find All of Your Company’s Third-Party

Paper?

The easiest way to track third-party paper is to make sure no one can execute a contract without running it through your contract lifecycle management (CLM) solution. Before your CIO turns on a new SaaS vendor, they need to download the contract PDF or Terms of Service and send it to the legal team for analysis and inclusion in your contract repository. And when those same vendors email the CIO with those "our terms of service have been updated" messages, make sure those updates get forwarded to legal, too.

Now for the third-party contracts that were executed before you put this policy in place. First, ask everyone to come clean with the agreements they signed "under the radar." A one-time amnesty will usually flush out most of the third-party paper that the legal team doesn't know about. For the rest, your accounting team can help. Make sure that every invoice that comes in has a contract that goes with it. If there are unassociated invoices, it’s likely that there's a contract someone forgot they signed (or forgot to tell legal about).

Once you've got all your third-party paper in hand, it's time to identify the risks it poses. We’ll be back tomorrow with guidance on how to track third-party contract risk (and how software can help). Make sure that you’re subscribed to our blog so that you don’t miss it. 

Topics: Contract Management

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