Article 50: And What It Means to Your Contracts

And so we’re off – the train is leaving left the station and cannot turn around. The tracks are laid down, and although the points may change and the train may veer to the left or right, the destination will certainly be a long way from its starting station.

Mrs. May, the British Prime Minister, has announced she will trigger Article 50 of the Lisbon Treaty on the 29th of this month, informing the rest of the EU that the United Kingdom is destined to leave the club by March 2019. Whilst ‘Brexit’ as it became known, is most significant for organizations based in the UK, it obviously will affect not only its trading partners in the EU, but any organization globally that trades with the EU.

Most formal business relationship are instantiated and governed by use of contracts, and it is an organization’s corpus of contracts that will need analyzing and adapting in light of the new arrangements. For organizations in the UK, that means potentially repapering every contract they have with other EU organizations. 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 2 years from the 29th 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 6 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 include IFRS 15, IFRS 16, Ringfencing and QFC, just to name four.

All of these forces are contract-centric and complex, so what companies need to do right now is:

1) Discover all their contracts from across their organizations file stores, databases, content management systems, CRMs, CLMs and so on, and centralize 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.

We are looking at potentially tens of thousands of contracts and so automating that process is essential.

Doing this will provide a good understanding of what will be affected and needs changing by the date of Britain’s departure. 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.

Mrs. May will be 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.

Organizations need to think holistically about a contract discovery and analytics platform that allows organizations to ask questions that they haven’t even thought of yet — questions that will need answering as the negotiations are solidified during the next 2 years.

So, yes, the train will be leaving the train on the 29th, and one of the carriages with a big blue cross on it (Scotland) may get decoupled and head off to the continent, but one thing is for sure: those who think ahead and plan their journey carefully but with an ability to reroute easily will be the winners.