Other parts of this series:
Outreach to clients and negotiation of financial contracts is the fourth installment in our series outlining the contract remediation journey.
One key challenge financial firms face is how to amend and negotiate thousands of enterprise contracts at scale. Off the shelf workflow automation technology tools are adept at organizing and processing contract amendments with minimal configuration required, thus should be actively explored.
As we’ve noted earlier in our blog series, financial firms should consider developing a so-called factory model for contract digitization, assessment and remediation to manage large-scale regulatory change events with straight-through processing supported by robust workflows. As we noted in our last blog in this series, grouping those contracts requiring amendment or repapering in tranches (e.g., by client/counterparty and then by contract type—e.g., syndicated loans) is critical to an efficient client outreach strategy and communications, and negotiations can commence in a structured and time-bound manner.
Technologies such as Contract Lifecycle Management (CLM) and other workflow tools, analytics, dashboards can accelerate an enterprise’s client outreach and contract negotiation process, thereby reducing cost, resources and time.
Now that I have isolated financial contracts that need remediation, what’s next?
Client outreach strategy and communications planning
Once contracts requiring remediation have been isolated, they should be grouped by client/counterparty so program managers can tally the number of contracts requiring negotiation by client to estimate the time and effort required to do so, as well as to estimate the cost to engage external counsel as needed. Once these critical inputs have been gathered and assessed, the client outreach and communications plan can be crafted. This involves analyzing and answering the five W questions: who (involved); what (what needs amendment—types); where (amend in word docs manually or via a workflow tool); when (do they need to act by) and why (do they need to act) questions around contract remediation to plan accordingly. These should be outlined to clients in a standard, client outreach/communications note.
Typically, internal counsel of a financial institution (lender/agent bank) whose contract the paper is on, works with the business to draft a standard client contract renegotiation outreach message that should contain basic information on the reason for the outreach, actions required and by when, next steps and the consequences of not amending contracts. The message might note, for example, that due to LIBOR cessation, select existing contracts should be amended with an alternative reference rate by a set date (provided) and that next steps include individual communications by the bank’s contract negotiators to each contract holder using perhaps automated emails from a workflow-based document management tool. The note might have summary statistics referencing how many impacted client contracts have to be negotiated, followed by a list of impacted contracts with contract name, contract ID, date signed, contract/product type (e.g., term loan) and a summary of which provision(s) need to be amended.
After initial client outreach and communications, contracts can be updated with new reference rates and fallback language. In this process, the lender’s (bank) contract negotiators (typically external counsel) review the provisions of contracts requiring amendment or determine in exceptional cases that an amendment is not possible (i.e., if doing so would frustrate the purpose of the contract or would be un-economic) and thus, the entire contract should be terminated. The contract negotiators then select a default fallback provision or an alternative reference rate replacement clause from a standard clause library to use to replace the offending language. They can then insert that language into the word version of the contract and route for reviews to a client’s general counsel, business stakeholder or outsourced negotiators (external counsel) for review and negotiation. This review of contract amendments, amending contracts and routing to other parties can be facilitated by a standard enterprise workflow/automation tool that cuts out the manual, error-prone, laborious and plodding process of emails sent back and forth, marking up versions of a contract in track change mode and consequent confusion over latest versioning.
Review client feedback
The financial institution’s client/counterparty (borrower) receives the contract amendments via automated emails (ideally from a workflow tool) and reviews the amended language. They can either accept the revisions as is or add their own amendments/feedback as needed, countering with their own language terms. Once the subsequent back and forth over new contractual language is completed and amendments are agreed upon (including new fallback language), the updates are reflected in the amended contract. The closure step then commences.
In the closure step, the moving party (bank) receives confirmation from the client/counterparty that it agrees to and accepts the revised contract. Then the contract is finalized in the workflow process/tool (including formatting it as a final, portable document—PDF) so it can move on to the weighty execution step.
Figure: Accenture Contract Remediation Lifecycle
Next up in the series: Signing, booking and storing contracts (Phase 4-Final)
In our final installment we will explore methods for how to effectively and efficiently receive dual signatures of amended contracts, book them, tie to transactions in trading systems and store/index them centrally in a document/contract management system. Stay tuned!
How we can help
Accenture can assist clients in building out a CLM program, offering support and leading capabilities in the following areas:
- Conducting current state assessments;
- Defining a target operating model for CLM process;
- Defining tools, business and technical requirements;
- CLM/doc management vendor selection;
- System integration; and
- Change management/training.
Learn more about LIBOR and Contract Remediation:
The transition from LIBOR will have an impact on financial firms’ contracts. Can a factory approach to contract remediation offer a solution?
Newsletter Contact Person: Lisa Bloomberg
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