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Contract Certification: The Future is Frictionless Contracts

TermScout Jan 12, 2023 8:07:32 AM
Contract Certification

What is a contract certification?

The background of certifications across industries. 

Many industries rely heavily on data integrity, information security, and market insights to leverage varying types of certifications to increase efficiency and transparency in negotiations. Certification tools used across industries serve a simple yet powerful purpose - To empower all stakeholders in a given negotiation to eliminate information asymmetries with the use of a trusted third-party. This allows stakeholders to quickly analyze and reduce thousands of data points into a few critical questions and answers.

Because of the complex nature of many industries, certifications have proven to be extremely effective for vendors to prove credibility, lead with transparency, and eliminate closing friction. For buyers, third-party certifications provide objective, data-driven proof that a vendor of choice is trustworthy and at or above ‘market’ when it comes to the issues most critical to the buyer’s organization.

Certifications in contracting

So, why haven’t we seen a certification for contracts yet? The answer is relatively simple - contracts, by their nature, can be extremely complex. Contracts are curated for hundreds of use cases, drafted in different styles, formats and templates, and are usually customized for a specific transaction. Therefore, comparing apples to apples in contracts has historically been impossible.

Contract favorability varies wildly. We’re faced with information and power asymmetries in a wide range of negotiation scenarios (think of a small startup trying to negotiate terms with a vendor like Google). Counter-parties spend enormous sums of resources and time arguing language and clause variations with anecdotal data, slowing business processes and costing all parties involved thousands of dollars on every single contract negotiation.

This pervasive and costly challenge is why TermScout created the world’s largest Verified™ public contract database to power Certify™, the world's first third-party, unbiased contract Certification tool that helps signing parties understand the terms they are signing, how they benchmark against market data, the clarity of the contract, and ultimately, which party the contract favors and why.

 

How Certify™ by TermScout works

Much like a SOC compliance certification or even the commonplace USDA Certified Organic badges you see across food products, Certify™ is an opportunity to promote the critical information within your paper to counterparts. A Certified contract is a contract that has been deemed balanced or better by a neutral third-party arbiter. In the case of Certify™, TermScout compares contracts to thousands of market data points across its Verified™ Public Database, and then equips all Certified parties with the tools they need to eliminate contract negotiations and close more deals with less friction on their paper.

TermScout contract experts answer detailed and objective questions about what a contract does and does not say — it’s TermScout’s superpower. At Termscout, we take incredible pride in ensuring that data is accurate, because we know just how important accuracy is throughout the process.

For every contract reviewed, we answer every question that matters. An objective and consistent rating algorithm is used to determine the approximate proportions of the contract that favor each party.

All contracts that are Certified by TermScout go through TermScout’s most rigorous contract review process, known as Verification™.  Verified™ ratings and reviews are completed with a combination of AI and experienced contract professionals using proprietary methodology, technology, and templates that yield 99% accuracy. Reviews are done with the exact same variables used in every contract type, enabling us to create category data sets and comparisons with integrity.

 

Certify™ Ratings Methodology

TermScout Ratings

Ratings are assigned objectively based on a predetermined list of attributes. The scoring algorithm is determined by a panel of expert attorneys experienced in the relevant fields and generally aligns with the WorldCC Contracting Principles — an independent third-party set of principles for creating balanced commercial contracts. Other factors, such as market prevalence, and additional market indicators are leveraged. TermScout’s rating bands can be interpreted loosely to mean the following:

Customer Favorable: TermScout has deemed that the contract is more than 60% beneficial to the customer.

Balanced: TermScout has deemed that the contract is no less than 40% beneficial to either party.

Vendor Favorable: TermScout has deemed that the contract is more than 60% beneficial to the vendor.

Because contracts frequently contain vague, ambiguous, or otherwise unclear statements, we also assign clarity levels to every finding. These can be used to help users understand TermScout’s general level of certainty on findings.

 

Why You Should Certify™ Your Paper

Accelerate Revenue

Certify™ helps sales teams close deals up to 3x faster by dramatically reducing friction in contract negotiations. Templates that are certified by TermScout are less likely to be heavily negotiated because they help your counterparties understand the benefits of signing on your terms.

 

Save Money

Contract negotiations can be expensive; legal expenses accrued throughout the negotiation process, but revenue recognition is delayed as the sales cycle slows down. According to the World Commerce and Contracting Organization, the average cost for large businesses to review simple contracts is approximately $6,900. Certify™ provides the ability to skip redlines on common clauses by showing your counterparties your terms are market or better.

 

Get More Deals Done on Your Paper

Everyone prefers to work off their own paper, but a number of factors go into determining whose paper is best for a given transaction. Certify™ offers a proven path to doing more deals on your paper with fewer redlines by showing a clause by clause breakdown and favorability ranking of your terms. No need to negotiate what is already market and favorable! Your team and their counterparties will thank you for it.

 

Reduce Contract Risk

Certify™ will get more deals done on your paper, which is the best way to reduce contract risk. When you have to work on third-party paper, you run the risk of missing areas that fall outside your own playbook or risk tolerance, which could prove costly in the long run.

 

Improve Relationship With Sales

Sales will begin to view legal as a business partner, rather than an adversary. Certify™ gives legal the ability to promote the incredible work that they have done to build a balanced, or even customer favorable, contract that is meant to be signed. Empowering legal with structured data around the contract they developed allows sales to weaponize their terms, decreasing negotiations and increasing signatures on their own paper.