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Unfair Contract Term Reforms – Opportunity for technology-led transformation

It's time to review your contracts - quickly and confidently

Immediately prior to the election, the Labor Party confirmed its ongoing support for extensive changes to the Unfair Contract Terms (UCT) regime. These reforms include making unfair contract terms illegal (with associated penalties) and extending the application of the legislation to a wider variety of contracts and party types (including supplier). It is essential for Legal, Contracting and Procurement leaders to understand the reforms – firstly because the Labor Government has identified these reforms as having lagged over recent years, and secondly because we expect that the legislation will be re-introduced imminently. Now is the right time to start your reviews and identify the potential for non-compliance.

It is also important to consider the wider context of these reforms, with many recent regulatory and societal changes also requiring close analysis of contractual arrangements including payment times reporting, modern slavery statements, climate transformation, social procurement shifts and Privacy Act compliance. In light of these developments, 2022 is shaping up to be filled with multiple rounds of contracts review, often requiring teams to pore over the same documents with several regulatory lenses – further tying up already stretched resources.

However, these reviews don’t need to be so cumbersome or repetitive. Legal, Contracting and Procurement teams should turn their attention to streamlining multiple rounds of review into single processes, and setting up technology solutions that reduce the burden of manual review.

Why use technology to optimise a contract review process?

Employing technology throughout the contract review process will enable businesses to tap into long term benefits such as reducing costs and review times, freeing up legal resources to focus on more complex legal issues and unlocking insights from the contract database.

These reforms will require businesses to understand and assess their contract, customer and supplier databases for compliance with the updated requirements of the UCT regime. Reviewing and remediating for potentially unfair terms is just a small part of ensuring the strengthened penalties do not apply – you need to understand your customer and supplier ecosystem and how you contract with them – and this requires a technology-led approach to avoid significant disruption to business-as-usual activities.

Our 5 key tips for successful technology-led reviews

To make a success out of a large-scale, technology-led review, there are five key steps to consider for effective program design:

For many businesses, locating contracts across various functions, teams and locations can be a challenging manual process. In these cases, the first step for businesses is to:

A. Understand the business’ customer and supplier base to identify which customers and suppliers fall within the scope of the definitions of 'consumer' and ‘small business’ under the regime and the relevant contracts associated with each of these identified groups; and

B. Identify where contracts and relevant associated information are physically and digitally located, and to collate these into a central repository. During the collation phase, technology can be deployed to assist stakeholders in uploading information, and to undertake basic data cleansing activities like de-duplication. If the platform includes workflow capability, businesses can log contract metadata at the point of upload and place checkpoints throughout the review process. Where associated documentation and other information must be retrieved from websites, screen scraping technology can assist with efficiently collating information.

Obtaining a clear view of in-scope contracts under the UCT reforms will be helpful to identify where the contract review should be focused, and therefore which contracts will not require a review.

Key considerations (non-exhaustive) in determining whether contracts are in scope include:

  • contract effective/renewal date/variation date; 
  • type of contract (e.g. is it a standard form contract);
  • parties to the contract (would either of the parties to the contact be a consumer or a small business for the purposes of the regime); and
  • in, certain circumstances (in relation to financial services under the ASIC Act), the value of the contract.

There is reverse onus of proof in relation to "standard form contracts" meaning, in the event a proceeding was brought against a business, the onus would be on the business to establish the contract is not a standard form contract.

Technology which includes natural language processing (NLP) could be used to automate and accelerate the identification of in-scope contracts. NLP is a form of machine learning which can identify and extract key data and information from documents quickly. The extracted data can then be analysed to determine which contracts are in-scope for the review within a pre-defined likelihood.

A traditional review process would include someone reading each contract in-line, according to a pre-agreed methodology. Any contracts which have terms identified as potentially unfair would then be escalated to senior Legal counsel for review and determination. Depending on the number of contracts that a business is reviewing this could be quite a lengthy, tedious and expensive process.

There have been some substantial advancements in machine learning and document review technology over recent years, which can accelerate review processes with significant reductions to manual effort. This helps to ensure that lawyers are only utilised on highly technical work requiring legal judgment, saving businesses not just time and money, but also keeping legal staff more engaged by deploying them on more challenging work.

We have achieved successful outcomes for clients across similar reviews by utilising technology to:

  • Create review batches and identifying anomalies: unsupervised machine learning technology can be used to group together similar types of contracts and identify differences between similar contracts to highlight any deviations from standard terms;
  • Undertake a first pass review by a machine to identify unfair terms: supervised machine learning can be used to target a pre-defined set of unfair terms and highlight them for secondary review;
  • Accelerate the review process: undertaking the review using a document management platform can streamline the review process and hand-offs between individuals. This can also help to maintain a level of governance and control over the process being handled effectively; and
  • Support reporting and decision making: insights can be derived from a document management system about the review process, rapidly synthesising key information to support management decision-making in relation to the review and ongoing contractual management.

Of course, there will always be a human element to any review. Ultimately, the final determinations identifying unfair terms and determining subsequent steps in relation to remediation will require legal professionals. However, technology can help to optimise the review process supporting these decisions, reducing bottlenecks and allowing a greater focus on the key legal decision-making that will support long-term success.

Should the process identify potentially unfair contract terms, businesses will then need to apply a higher degree of legal scrutiny to affected contracts and determine what remedy may be required. A document management platform can be used to manage this as an end-to-end process, from review to acceptance of changes and documentation of any sign-off required. This will both help to ensure efficiency while executing the remediation approach and to provide an audit trail for changes made.

At all times, businesses should obtain appropriate legal advice to ensure that any amendments satisfy statutory requirements and preserve commercial benefits. It will be critical for the legal advice to inform the use of technology when renegotiating and remediating contracts.

It is important to note that, if the amendments take the same form as the previous proposed bill, the UCT regime will apply not just to new contracts entered into on or after the commencement date (including any grace period), they will also apply to any contracts that are renewed or terms that are varied after the commencement date.

The proposed UCT reforms are not the first set of regulatory developments to affect contracting processes for businesses, and they are unlikely to be the last. With an ever-expanding agenda of regulatory reform, the time is right to build a business case for contract review tools and technology to be used within legal operations, avoiding unnecessary future legal spend and repetitive manual reviews following each new reform.

Specifically, businesses should focus on establishing a unified contract management solution with: 

  • Adequate systems and controls to keep track of and address key contractual terms;
  • Monitoring processes to identify regulatory developments that may impact contracts in the future;
  • Procedures to ensure a collaborative and efficient contracting experience for all parties; and
  • A suite of technologies to support:
    • Contract generation
    • Workflow for review and change management
    • Insights generation and accelerated review processes
    • Retaining final copies of contracts with key details of consumer/supplier.

Seizing the opportunity to build a business case for contract review technology

Seemingly large and expensive integrated solutions to single problems like UCT reforms may not always be seen as valuable opportunities. However, with the number of regulatory requirements relating to contracts increasing and ever-changing, an investment in technology and tools today could create significant future benefits for legal teams. The earlier reforms tabled a significant penalty of up to $500,000 for individuals, or for corporations the greater of $10 million, three times the value of the benefit derived from the contravention (or 10% of annual turnover). It is expected these penalties will be reflected in the new bill and should provide a solid business case for investment.

Get in touch

Deloitte has an integrated team of experts who can support you in optimising and executing contract review and legal operational services. Our proprietary technology Deloitte Cube is an award- winning document classification and analytics capability that has been successfully used in similar programs. With leading contract review tools encompassing machine learning that identifies clauses across various contract types and expertise in contract workflow tools, we configure our solutions specifically for bespoke needs.

Please get in touch for a discussion regarding legal contract review and technology solutions.