Patrick Eckhert is Director of Indirect Procurement Services at Cardinal Health, Inc., a global healthcare solutions company providing products and services to hospitals, physician offices and pharmacies. He is joining a panel of experts martindale.com® Connected has assembled for a complimentary webinar titled Legal Process Outsourcing: Ethics & Efficacy, which will take place on February 23, 2011, from 2:00 to 3:15 p.m., Eastern Time. To register, please visit the sign-up page.

Eckhert is overseeing a pilot program at Cardinal Health to make contract drafting more efficient in part by building an evolving database of contract clauses and a nimble review process. This is just some of what Eckhert will share during the session.

LN: What was the impetus for piloting what sounds like the combination of an outsourced and automated legal solution?

PE: Prior to this year Cardinal Health business units individually managed their contracts, meaning they could use anything from filing cabinets to shared drives to Microsoft SharePoint. It was the business’ responsibility to provide all the information on the contracts, enlisting our Legal department’s help when they needed contract review or in the event of contract disputes or litigation. Needless to say it was very inefficient with a lot of inconsistency.

LN: Shifting to a new model across a large organization can’t be easy. How are you going about implementing your new system?

PE: Through a partnership with [supply and contract management company] Emptoris we have a contract management solution. We’re implementing a phased approach where Cardinal Health will mature over a period of years on a contract management life cycle. We are starting off with building a base repository. Then we want to add some controls and manage the creation of contracts so basic filed contracts are being routed for review and approval. Eventually this will merge into more of an advanced authoring clause library structure.

LN: What are some of the elements and tasks that you’ve performed in this early stage?

PE: This year we have built an organization that I am managing. Our General Counsel [Steve Falk] is our chief executive sponsor. That’s helping us sell this across the organization. We’re squarely in a repository-building phase. One of the things we knew we had to do was put in controls around how we took contracts, pieces of paper, and efficiently load them into a repository to ensure quality that would allow us to proactively manage contracts through scheduled reports, develop search criteria for Legal to proactively support their document gathering requirements in the context of litigation or requests for information, and support Sourcing and Sales in managing contracts.

LN: What kinds of things did you do to ensure that level of quality?

PE: We decided to outsource the initial review and collection of all our contracts. That’s when we partnered with Pangea3. What we do now is sit down with a business unit, understand what their contracts are, define a playbook on what terms will be extracted, and establish service levels for loading contracts into the repository. We treat everything as a project. We leverage Pangea3 to execute the playbook where they will take the physical image, read it, extract it and double-key it to ensure quality – so two separate individuals will independently extract the contract and compare their results to ensure quality. We’ve been doing this now for about a year, and so we’re in some business units moving a little bit further into the next phase: basic contract review and file contract routing.

LN: Besides the inefficiencies you mentioned, what else spurred these improvements?

PE: Given the personnel, workload and resource limitations that all companies, including Cardinal Health, face, we decided – as an organization – that there was a better, quicker and more efficient way to manage review of lower-risk, more routine agreements and contracts and moved this responsibility to my organization.

LN: How does a procurement arm of a company handle legal work?

PE: We staffed my team with a couple of contract analysts. These were paralegal-level resources, people that understood the legal side, but we also taught them from a sourcing business standpoint how to write a good contract. We’re transitioning a lot of our work to Cardinal Health papers (i.e. standard company agreements), with our Legal department providing standard templates. Our sourcing organizations then try to drive suppliers to our paper to further minimize the need for review.

LN: How is that going?

PE: That has gone extremely well. We’re now being asked to review a lot more contracts. So I was faced with deciding whether to continue to build this contract analyst organization internally or outsource it as well. Through Pangea3 this is where we’re really beginning to see some value because we can now quickly create a contract in our repository in our contract system. We’re routing it through the system to Pangea3 and within 24-48 hours we’re able to turn that contract review around and submit it back to us and so our throughput has gotten a lot more efficient.

LN: Aren’t there multiple levels of risk and significance when it comes to contracts?

PE: Yes, and we’ve addressed those issues by creating a tiered approach to workflow and review layers. Obviously, the Legal department continues to be involved in high priority and strategic matters. Now we have a system in place to measure all that.

LN: Is this paying off yet?

PE: We are starting to see a significant amount of activity getting pushed into the Pangea3 space which, from an ROI perspective, is huge for us, because we’ve now reduced our outside counsel costs, our need to staff up internally, and we’re leveraging a kind of offshore model to support the contract review. We still want some contract review, so we have been able to keep that discipline without slowing down the procurement cycle but offsetting the Legal need not to have to review everything. It’s been a huge success for us.

LN: Back to getting buy-in across the organization, what else would you tell someone in your position who is attempting this kind of program?

PE: Selling can be difficult internally. Ultimately the businesses make their decisions. So even though our General Counsel and Legal department are proponents of the model, it is the business unit’s decision. It has truly been proposed as a solution. It is helpful once the business unit sees the ROI, the efficiencies gained, the fact that we’re not taking away their control over contract negotiations, and that we’re actually adding efficiencies to working with Legal in speeding up the contract drafting and review process. We have metrics in place and can articulate savings.

LN: What’s next?

PE: Eventually we will want to find a business unit to take it to the next level. That would be more of a contract-clause library-building mentality versus grabbing a template off of our shared drive and customizing it from there. We will build from clauses, creating multiple versions of a clause for insertion into agreements based on the specific criteria and requirements of an agreement.

LN: Any early lessons for companies looking to outsource like this?

PE: We chose a partner overseas and were working with a group in India. There were the traditional challenges posed by a communication gap – like trying to coordinate meetings and issue logs, and working with dialect that you may not be able to understand. We brought a resource onsite full-time that acted as the interface between our business requirements and getting the India team up and running..

Want to learn more? Join the panel of experts for the complimentary martindale.com® Connected webinar titled Legal Process Outsourcing: Ethics & Efficacy, taking place on February 23, 2011, from 2:00 to 3:15 p.m., Eastern time. For more information, please visit the registration page.