Why Does Contract Review Take So Long?

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

Contract review requests pile up in the legal department's inbox, and progress stalls for days. The business side sees the matter as "stuck with legal," while the person in charge remains swamped with the matters already on their desk. When you face this kind of situation, it is important to identify why the review has stalled.

As a business grows, both the number and the variety of contracts it handles increase, including nondisclosure agreements, service agreements, terms of use and investment agreements, and waiting for contract review can become a factor that slows the pace at which the business moves forward. Because the reasons for delay are hard for others to see, it is also a state that places a heavy psychological burden on the person in charge.

Asking the individual in charge to read faster in response to this problem does not necessarily reduce the workload on the ground. This is because the factors that prolong review often lie in an area separate from reading speed itself.

Missing Information and Back-and-Forth Over Decisions That Cause Delays

On the surface, contract review looks like the task of reading the provisions of a contract and writing comments, but it is accompanied by many judgments before and after.

There are underlying conditions: whether the company is the ordering party or the service provider, the size of the transaction, whether a service start date has been set, which provisions the business division considers important, what difference in bargaining power exists with the counterparty, and whether it is an ordinary standard transaction or a special strategic one.

If you read only the contract without this underlying information being shared, it is difficult to carry out a review that works in practice. Before reading the contract, you check the background with the business division, and even after reading it, you are left uncertain internally: "Should this point be raised as a revision request?" "How strong should the wording be?" "Is this a risk on which management's judgment should be sought?" More time is spent on the lack of underlying information and the resulting internal back-and-forth than on reading itself.

Each time this back-and-forth occurs, it creates waiting time. While waiting for a reply from the business division, the review is suspended, and in the meantime new contracts arrive and the queue grows longer. Even if each individual exchange takes only a short time, the accumulated time spent waiting for answers results in a serious backlog.

Allocating Review Effort According to Risk and Internal Decision-Making

The issues to be checked and the allocation of time differ between a nondisclosure agreement with a limited scope of disclosed information and limited liability for damages and a large-scale system development agreement. In practice, however, all requests tend to arrive at the same point of contact and be processed in the order received. If too much time is spent on relatively less important contracts, it becomes difficult to devote enough time to contracts that require more careful consideration.

To move reviews forward, it is essential to classify contracts according to their type and potential risk. In addition to classifications such as nondisclosure agreements, service agreements and investment agreements, decide how deeply to review based on factors such as the size of the transaction, the liability cap and the conditions for ownership of intellectual property rights.

However, a formal division such as "outsource standard contracts" may not always be sufficient. Even a contract that appears standard may contain provisions on which your company cannot concede, and even a high-value contract leaves room to use groundwork by AI or outside attorneys. Evaluating the size of the potential risk separately from the degree to which an internal decision is needed provides the criterion for allocating review resources.

There is no need to make the sorting criteria themselves overly complicated. Simply checking the size of the transaction amount and whether there are issues with a large impact on your company, such as personal information or intellectual property, works well enough for initial sorting. What matters is not building out the details but eliminating the state in which every matter waits in the same queue.

Standardizing Information at the Time of the Request

One improvement that is easy to make is setting up and operating a request form. If the business division sends only contract files at random, the legal staff have no choice but to start each matter by asking about the underlying conditions, wasting effort on both sides.

The company's position in the transaction, the type of contract, the expected transaction amount, the desired deadline and any matters of particular concern to the business division: simply having at least these items stated at the time of the request reduces the time spent confirming the premises and makes it easier to move on to concrete judgments. The person in charge becomes able to decide on the revision approach based not only on the wording of the document but also on the business context. Even when the work is requested from outside attorneys, if these premises are shared, it is easier to obtain deliverables that match the company's decision-making standards.

If work is outsourced while the underlying information is insufficient, the outside attorneys' questions travel back and forth to the business division via the in-house legal team, which actually increases the communication burden. Compared with handling matters entirely in-house, the effect of stalls caused by missing information appears even more prominently.

That said, simply preparing an input form does not mean it will naturally take hold. The closer a deadline is, the more likely requests are to be sent directly without going through the form, and the level of detail varies depending on who fills it in. Through the accumulation of operational practices, such as narrowing the input fields to the minimum, preparing separate templates for frequently occurring contract types and promptly checking missing items on receipt, information sharing at the time of the request becomes established as an internal system.

Using Outside Attorneys Who Go as Far as Making Judgments

When people think of outsourcing contract review, they tend to imagine sending documents to an outside party and receiving a redlined file and a legal explanation. With that approach, however, the in-house legal team is left with the work of rereading what comes back, rewriting it for explanation to the business division, adjusting it into negotiating language for the counterparty and obtaining internal approval. The effort required to turn the outside review results into a usable form can even increase the internal burden.

What is effective is for outside attorneys to understand the business background, the internal decision-making standards and the risk tolerance from the perspective of a member of the in-house legal team, and to return answers that include concrete judgments. If comments come back at a concrete level of detail, such as "Legally, it would be better to revise this provision, but given the transaction amount and the relationship with the counterparty, it may be acceptable to accept it this time," or "This limitation of liability is heavier than standard, so I think it should be escalated for internal approval," the in-house legal team can skip reconsidering the matter from scratch and focus on confirming the decision.

Not limiting the scope of outsourcing to the task level also contributes to maintaining capacity during busy periods. If there are outside attorneys to whom work can be entrusted including options for decisions, then even when the number of reviews temporarily surges, the in-house legal team can concentrate on matters on which the company's own decision is indispensable.

Choosing Between Hiring and Outsourcing

When the contract review backlog persists, the conversation turns to whether the company should hire more legal staff. Strengthening the in-house legal team is important in itself. However, hiring people with corporate legal experience takes time, and even after hiring, a certain period is needed for them to understand the business and internal rules.

The number of contract reviews is not always constant. It rises sharply at the end of the month or quarter, when a new business is launched and during M&A. If these waves are handled only by hiring full-time employees, there may still not be enough people during busy periods, while fixed costs become heavy during normal times.

Having a structure in which outside attorneys can be used as an extension of the in-house legal team, in the amount needed and when needed, is close to the idea of holding the legal function as a variable cost. The in-house legal team holds the decision-making standards, and the outside attorneys carry out reviews in line with those standards. If this division of roles works, the contract review backlog can be reduced while the in-house legal team can spend its time on dialogue with the business divisions.

Mechanisms That Support Ongoing Operation

Collecting information at the time of the request is not something that is finished once a form has been created. The items to be checked change as the business changes, and when people transfer internally, understanding of the intent behind the items fades. The following practices can be considered as ways to keep the system going without it becoming a mere formality.

• Periodic review of the input fields in the request form
• Clear criteria for sending back requests that arrive without sufficient underlying information
• A short guidance note explaining to the business divisions the purpose of the required information
• Standardization of the request form and response format used in common with outside attorneys
• A return format that organizes redline revisions, negotiation comments for the counterparty, points to note internally and issues requiring management decisions

If this information is in place in advance, outside attorneys can also respond more easily in line with internal decision-making standards. Even for the same damages clause, the strength of the revisions sought differs depending on whether it is a small trial transaction or a large full-scale contract. In a nondisclosure agreement, too, the perspective on the scope of confidential information and the survival period changes depending on whether the context is consideration of a future investment or joint technology development. The effect of shortening review times lasts only when an environment is maintained in which the business divisions, the in-house legal team and the outside attorneys can keep using the same formats without feeling an excessive burden.

There are also parts of the contract review process that can be greatly accelerated by using generative AI. Extracting provisions, identifying risk issues and comparing differences from past templates are tasks well suited to AI. On the other hand, final judgments, such as which issues are truly of concern from the company's position, how far to press the point given the relationship with the counterparty, and whether business interests should take priority while bearing legal caveats in mind, require practical knowledge of corporate law and an understanding of the business. By keeping to the sequence in which AI performs the initial organization, attorneys verify it based on internal standards and risk tolerance, and the result is presented in a form on which the business division can act immediately, it is possible to achieve both processing speed and practical usefulness on the ground.

Consultations on Reviewing Your Contract Review Structure

At LegalAgent, we have a structure in which AI quickly prepares the foundation for review, and attorneys verify its content and return it in a form suited to practice. On the basis of responses within one business day as a rule, fixed fees and collaboration between AI and attorneys, you can consult us on building a structure that eliminates contract review backlogs. We focus not only on presenting revised wording but on providing deliverables that reflect the company's business background, internal decision-making standards and risk tolerance. For details of our support, please see the following page.

• Legal Outsourcing

Frequently asked questions

What are the main causes of legal contract reviews piling up and slowing down?

The main causes are missing background information and the resulting back-and-forth with the business division over decisions. This is because more time is spent checking the background, such as the company's position in the transaction, the transaction size, the desired deadline and the provisions considered important, than on reading the text. I think the review as a whole becomes backlogged as work is suspended while waiting for replies from the business division and new requests pile up, accumulating waiting time.

What measures should be put in place at the stage of requests from the business division to speed up contract review?

It is effective to set up a contract review request form and standardize the background information. This is because, when only contract files are sent, the review must begin by asking about the background, which wastes effort. I think that having the requester state the company's position in the transaction, the contract type, the expected amount, the desired deadline, concerns and the like at the time of the request reduces the time spent confirming the background and allows faster decisions.

When outsourcing contract review to outside attorneys, what is an effective way to proceed?

An arrangement that works well is to share the company's decision criteria and risk tolerance and to receive answers that include specific decisions on revisions. This is because simply receiving redlines or legal explanations creates the extra work of the in-house legal team reworking them for the business division. I think that by outsourcing the work including the options for decision, the in-house legal team can focus on decision-making and maintain its capacity even in busy periods when the number of reviews surges.