Article 50 of the Lisbon Treaty has been triggered today informing the rest of the EU that the United Kingdom is destined to leave the club by March 2019. Whilst ‘Brexit’, as it has become known, is most significant for organisations based here in the UK, it obviously will affect not only its trading partners in the EU, but any organisation globally that trades with the EU.
David Gingell, CMO, Seal Software, explains that whilst most formal business relationships are instantiated and governed by the use of contracts, and it is an organisation’s corpus of contracts that will need analysing and adapting in light of the new arrangements.
For organisations in the UK, that means potentially repapering every contract they have with other EU organisations. For EU members, any contracts with UK companies will equally need to be examined and potentially revised. For global companies that contract with the EU as an entity, there will need to be adaptation to cover the fact that the UK will not be part of the EU and a separate or amended contract will need negotiation.
So, companies have two years to get their contacts “Brexit-ready”. That sounds easily like enough time, doesn’t it? But the pace of change is exceedingly rapid and at this stage we don’t know all the details. It could well be that an operating assumption that holds true for the next 18 months might need substantially changing in the last six months of the window, rendering a lot of what went before irrelevant.
At the same time, many companies are also struggling with compliance to a whole suite of new regulations which affect their operating environments, many of which require compliance in the next two years. This includes IFRS 15, a reporting mandate issued by the International Accounting Standards Board (IASB) which changes the requirements of how organisations recognise revenue, and IFRS 16, also released by the IASB, which revises how lease agreements are reported and carried on the books.
All of these forces are contract-centric and complex, so companies should begin to look at completing the following:
1) Discover all their contracts from across their organisations file stores, databases, content management systems, CRMs, CLMs and so on, and centralise them to make them accessible.
2) Extract the relevant terms which relate to Brexit by using a base extraction pack of search policies, and then teaching software to identify exact or semantically similar terms.
Companies could be looking at potentially tens of thousands of contracts and so automating that process is essential. By extracting metadata and clauses through a sophisticated search review, businesses can quickly understand what is in their existing contracts and identify which need attention – all without disrupting day-to-day operations.
Completing the above exercise will provide a good understanding of what will be affected and needs changing by the date of Britain’s departure of the EU. If negotiating positions change, and it is likely they will up until the exact date of transition, then being able to easily run search queries on the corpus of contracts which have EU/Brexit language will allow the maximum flexibility and responsiveness to the new situation.
During the project, contracts affected can be put through review processes and the necessary changes negotiated and agreed upon, with the final redlining and signature being as close to the actual departure date as possible.
Article 50 is triggering an event that must be paid attention to, but as outlined above, there are plenty of others that need to be addressed as well depending on industry or geography. Doing them all independently would necessitate massive expense and exposure to error.
Organisations need to think holistically about a contract discovery and analytics platform that allows them to ask questions that they haven’t even thought of yet — questions that will need answering as the negotiations are solidified during the next two years.