Internal Audit of the Legal Department

[selena15]

hi cove
today i was in one internal training and one collegue ask one curious question:
he said that as member of legal departement, they got several request from any employee of our company as establish one contract of new supplier, or a question about any legal scope and he use to give and answer, as recomendation, or contract as unattackable as possible. his question is : how he can know that the advice that he gave is the best one and in this case , how they can control or check that their department give the best advice and the one that he propose according his knowledge of course but also his personnal view about the issue.
his gave an example: they got an request before and in their department , 4 colleagues propose 4 differents answers!
his worries was how to be sure (after the recomendation is taken into account) that the advice is the best one and won't show any fault or will issue a problem with one supplier or what ever ?

My answer was that normally as well as he issued and recommendation or contract form and it was accepted , it is ok and normally he should worry if the feedback of their advices was bad or generate one file to the court.
and he said is it possible to be control or audit before to come to court? i said why not as well as the is one requirement or Standart with the help of one technical expert if required.
what do you think about this ? and am i wrong about i said ?
please helppppppppppp

[Wes Bucey]

You can tell your folks in the legal department that I share their concern about appearing to have different opinions.

Let me suggest ALL Contract Review hinges on the following criteria.

1. Capability of the parties to perform per the contract - what proof or data is necessary to demonstrate this capability to the other party?
2. Capacity of the parties to perform per the contract - do each of the parties have the available time, materials and manpower to perform the contract within the time constraints? How do we know this?
3. Reputation - what does "PARTY A" know about the dealings of "Party B" with Party B's suppliers and customers and vice versa?
4. Legality of object - are there any government regulations applicable to either party which work against the completion of the contract?
5. Communication - are the parties satisfied with the means and response time of communications between parties (for changes, complaints, etc.?)
6. Actual agreement - part and parcel of "actual agreement" is that both parties completely understand the requirements of the other - what tests do they apply to assure complete understanding? (this includes price, criteria for acceptance, etc.)

Organizations desiring to be (and appear to be) consistent in Contract Review typically prepare a grid of Contract Review criteria and apply that grid consistently to each and every contract. Typically, the Contract Reviewers are a cross-functional team to address the practical as well as the legal aspects of each contract, each member of the team working in concert with the others to arrive at a consensus opinion on the acceptability of the Contract after review and any amendments. Rarely does an organization of any size leave the review in the sole hands of one individual.

[selena15]

hi wes bucey and thank for reply
if i got you well
i can conduct one legal result audit of the legal contracts issued by these departmenet, according these criteria listed on you post .
or the party who is worry bout his result can ensure that these criteria are fullfill concerning the both parties who are concerned by each contract.
now comming back to your criteria
(Capability, Capacity, Reputation, Legality of object, Communication, Actual agreement)
from my knowldege, i think that these criteria can be notified by :who is the supplier , his reputation and feedback of his perform in maket . and we can be cover concerning this topic by some appropriate clauses in contract.

did you conduct before this kind of audit WEs bucey? did u need one technical expert on legal scope? any one else who has this experience is welcome
for your remark on the last, it is what we have several reviewers and my colleague was worry about when they got many proposal and how to choice the best one and be sure for the future.
weaiting feedback

[Wes Bucey]

Originally Posted by Wes Bucey

You can tell your folks in the legal department that I share their concern about appearing to have different opinions.

Let me suggest ALL Contract Review hinges on the following criteria.

1. Capability of the parties to perform per the contract - what proof or data is necessary to demonstrate this capability to the other party?
2. Capacity of the parties to perform per the contract - do each of the parties have the available time, materials and manpower to perform the contract within the time constraints? How do we know this?
3. Reputation - what does "PARTY A" know about the dealings of "Party B" with Party B's suppliers and customers and vice versa?
4. Legality of object - are there any government regulations applicable to either party which work against the completion of the contract?
5. Communication - are the parties satisfied with the means and response time of communications between parties (for changes, complaints, etc.?)
6. Actual agreement - part and parcel of "actual agreement" is that both parties completely understand the requirements of the other - what tests do they apply to assure complete understanding? (this includes price, criteria for acceptance, etc.)

Organizations desiring to be (and appear to be) consistent in Contract Review typically prepare a grid of Contract Review criteria and apply that grid consistently to each and every contract. Typically, the Contract Reviewers are a cross-functional team to address the practical as well as the legal aspects of each contract, each member of the team working in concert with the others to arrive at a consensus opinion on the acceptability of the Contract after review and any amendments. Rarely does an organization of any size leave the review in the sole hands of one individual.

Originally Posted by selena15

hi wes bucey and thank for reply
if i got you well
i can conduct one legal result audit of the legal contracts issued by these departmenet, according these criteria listed on you post .
or the party who is worry bout his result can ensure that these criteria are fullfill concerning the both parties who are concerned by each contract.

The point is to use a multi-functional, multi-disciplined TEAM which follows the same checklist of basic contract concerns on EVERY contract. The TEAM must reach a consensus opinion. Many teams include engineering, quality, purchasing, sales or customer relationship folks, AND legal folks. Each discipline brings its special expertise to the table. Quality may have made an audit trip or reviewed a third party audit of the supplier to assure the systems used by the supplier are effective and give some assurance of the capability of the supplier. Purchasing and finance may do some investigation to assure the supplier has the financial strength and capacity to fulfill the contract. Engineering and quality together may look at typical products produced by the supplier to assure there is consistent good workmanship. Customer relation people may assure the end customer or user will accept the product or components supplied by the supplier (sometimes customers have a bias or prejudice against components supplied by certain companies or from certain geographic areas - this information needs to be available to the Contract Review TEAM.)

now comming back to your criteria
(Capability, Capacity, Reputation, Legality of object, Communication, Actual agreement)
from my knowldege, i think that these criteria can be notified by :who is the supplier , his reputation and feedback of his perform in maket . and we can be cover concerning this topic by some appropriate clauses in contract.

not clauses - you actually have to investigate - anybody can write a clause - you want assurance the guy will deliver what he says, NOT assurance you can win in court two to ten years down the road because you had a "gotcha" clause in the contract!

did you conduct before this kind of audit WEs bucey? did u need one technical expert on legal scope?

I performed this kind of investigation to a greater or lesser extent on EVERY contract. We used more in-depth investigation on contracts for big dollars or on critical components and materials. I always used a team approach with a consensus opinion before we agree to any contract, whether it was us as the buyer or us as the supplier. I wanted to be sure my customers had the capacity to pay me and that we were on the same page when it came to acceptance of a product.

any one else who has this experience is welcome
for your remark on the last, it is what we have several reviewers and my colleague was worry about when they got many proposal and how to choice the best one and be sure for the future.
weaiting feedback

Let me suggest that if you get "many proposals" for the same product, you are conducting an auction, not performing a systematic process of purchasing. Determining capability is often performed BEFORE inviting a supplier to present a proposal - ask to see samples of work performed for others. Capacity is sometimes a no brainer - if a supplier is currently only doing $1 million in business, you should probably not be inviting him to bid on a $10 million contract.

As a supplier, I refused to participate in auctions for custom work. This post explains how I dealt with customers as a supplier. An excerpt

Instead of sitting down to quote the part, we turned traditional contract machining marketing methods upside down. We picked up the phone and called the customer with questions like:

1. Do you currently use this part?
2. How many do you use a year?
3. Do you currently make it yourself or buy it?
4. Why are you seeking a quote?
   (If the chooch said anything remotely resembling, "Just checking the market." We replied, "Sorry, we only deal with folks who need the product. No quote. Goodbye!")

If it was an existing part, the one answer we wanted to hear was that they were unhappy with their current supply, either for price or quality. We then went into our concurrent engineering mode and asked them to elaborate. If it was a quality problem, we asked them to send us samples of the nonconforming parts with their inspection sheets so we could "diagnose" the problems. Our whole stance was to position ourselves as "partner" first, before WE ever quoted.

If price was the issue, we'd ask, "How much do you need to buy it for?" Then we said, "That might be doable. If not, we'll tell you straight out that it isn't. If we suggested some design changes which would make it less expensive to manufacture, but still have same fit and function, would you be able to work with that? Are there mating parts which would be affected? Can you send us the assembly drawing and the drawings for the mating parts so we can look at that as part of our analysis?"

Usually, by the time we were finished with the introductory give and take, we had several phone calls, talked to design engineers and manufacturing managers. Soon, the problem of "price" was the furthest thing from the mind of anybody at the prospect's organization. We were busy establishing ourselves as the "go to" folks.

If it was a new part, never made before, we asked about potential real use (we didn't quote a blind spread of quantities and price breaks.) We asked about mating parts, end use, etc. Finally we asked the big question, "What do you think you need to buy this for to be able to have a marketable product yourself?" Then we went into our pitch, "That might be doable . . ."

If we spent as much as an hour qualifying a prospect, it was much more cost efficient than sending quotes out on the fax like oysters spawning in the ocean. We had names, extension numbers and "rapport" established. We would call up before we sent out a formal quote with the oral one, telling the recipient to go to his fax machine and pick it up, stay on the line and then tell us if it came through clearly. Our quotes NEVER got lost in the shuffle. We asked for a target date when he would have the answer and the order. We followed up, eager to help if there was a glitch at their end.

By our third year, our regular customers would call us first, ask if we had time to look at a drawing, then send it over by fax while WE waited for it to arrive. Often, they said, (before we went into our interrogation):

1. We currently use this part.
2. We use ____ thousand a year.
3. We've been buying it from John Doe, tell us if we're getting a good deal or not. We currently pay $_____.
4. We're asking you to look at it - if you can come close on the price, we'd rather deal with a known quantity like you. Sometimes these guys act like they don't need us as a customer.
5. What more do you need to know?

Sometimes, just sometimes, the plan works! Our plan was for our customers to think of us as partners with whom they could share confidential information. It worked because we never betrayed the confidence. Many times, we'd tell them they were already getting a good deal. If the quality was a minor problem, we'd offer to consult with their current supplier to help him overcome the obstacle to good quality. Our pitch to the "competitor" would be that we were partners with them in satisfying the customer. A happy, satisfied customer was easier for everyone to deal with. We sometimes used these "competitors" to outsource some of our overflow once we got their quality systems up to snuff. Our point was, "If you have similar machines, you should be able to do similar work. Let us help you tackle the quality and service issues."

[MIREGMGR]

That's a super post, Wes.

[selena15]

hi again and several thank to wes bucey
it is clear and cover every thing
just one remark and surely it is me who wasn't clear : when i talked about several proposal , i mean several legal opinion from the folk of legal department and not about product
and the way to make to treat the suppliers as partners is good

[Wes Bucey]

Originally Posted by selena15

hi again and several thank to wes bucey
it is clear and cover every thing
just one remark and surely it is me who wasn't clear : when i talked about several proposal , i mean several legal opinion from the folk of legal department and not about product
and the way to make to treat the suppliers as partners is good

I studied law and hired lawyers my entire career. In law school, we had something called "moot court" - the cases may have been old ones or hypothetical ones. The point was the final decision was "moot" (debatable) and some folks ALWAYS ended up elated because the position they were defending "won" and the other side was sad. Then, the professors got cute and turned right around and gave the winning side the task of defending the losing side and vice versa. Strangely enough, there were some students who "won" BOTH sides (the example cases were NEVER clear cut) simply because they were better able to marshal their facts and arguments to make their point of view the winning one to the jury chosen for that session of moot court.

Let me suggest further your organization task the lawyers with opposing views to conduct a "moot court" on the issue in front of the rest of the team to see which view can sway the team to come to a consensus. If I learned anything in more than 40 years, it is there may be only one black and one white, but there are infinite shades of gray!

[selena15]

yep
thank you so much Wes bucey