A legal department without its own lawyers

Typical areas of risk in Mittelstand

The most significant legal risks are typically found at the interfaces of day-to-day business operations.

• Purchasing and the supply chain. Risks arise primarily from unclear specifications, a lack of quality assurance agreements, unsuitable pricing and delivery clauses, and insufficient protection against supplier defaults and recourse claims.
   
• Sales and customer contracts. Here, the focus is on limitations of liability, warranties, service levels and payment terms. In international transactions, export controls, choice of law and an effectively enforceable dispute resolution mechanism are also key considerations.
   
• Product and compliance. Product safety, labelling and recall procedures must be managed, as must data protection, whistleblower schemes and sector-specific regulation. These issues often have a direct impact on development, sales and quality management.
   
• Employment law, as well as corporate governance and managing directors. Recruitment, variable remuneration, restructuring, redundancies and employee participation require clear processes. At management level, this is complemented by powers of attorney, resolutions, directors’ duties, shareholder matters and early crisis detection.
   
• IP, IT and know-how. The company must ensure that it actually holds the rights to its developments, that licence terms are aligned with its business model, and that confidential information is protected, including from employees and service providers. Cyber incidents involve a combination of technical, contractual and regulatory issues.
   
• Disputes and deadlines. Debt collection and legal proceedings, warranty claims, limitation periods and enquiries from regulatory authorities require centralised management. Without this, what starts as a manageable matter can quickly turn into an avoidable legal loss.
   

Not every issue requires the same level of scrutiny. The legal function should therefore prioritise matters according to risk and business value. Standard cases are handled using templates and guidelines; unusual, high-value or strategic issues are escalated at an early stage.

Contract management rather than chaos on a case-by-case basis

The greatest leverage often lies in the contract process. A viable model requires several interlinked building blocks. It starts with clearly defined contract types and designated responsible parties. For procurement, sales, IT, HR and other core departments, it must be clear who is responsible for the commercial content, who coordinates the legal review and who gives final approval. This forms the basis for vetted templates, a library of clauses and negotiation guidelines. An approval matrix specifies which deviations may be accepted based on contract value, term or risk category, and when senior management or external specialists must be involved. This ensures that not every contract is reinvented from scratch, whilst preventing unusual risks from slipping through unnoticed. Once signed, a complete centralised archive is required, including addenda and annexes. Termination windows, renewals, price changes, guarantees and obligations to provide evidence are actively monitored. Reporting highlights recurring deviations and risk drivers, ensuring that practical experience is incorporated into the next revision of templates and playbooks.

Standardisation does not mean treating every contract in the same way, but rather establishing a swift standard process, thereby freeing up time for the review and handling of deviations that are truly relevant from a business perspective.

What organisational models are there?

The legal function can be structured in various ways.

In-house responsibility with external support

A managing director, Finance, HR or Commercial Operations coordinates matters internally. A dedicated external law firm handles reviews, negotiations and escalations. This model is suitable for a manageable volume of work and where there are clear internal points of contact.

Outsourced legal department

The external legal department also handles intake, prioritisation, contract standards, deadline management and reporting. It operates as if it were the company’s own legal function, whilst remaining externally organised. This is suitable for regular needs, international business or multiple departments without their own legal structure.

In-house lawyers

An in-house legal department is worthwhile if the daily caseload, the need for close alignment with the business and the required response speed mean the role is consistently fully utilised. Even then, specialist law firms remain necessary for transactions, litigation or specific regulatory issues.

Hybrid model

In many Mittelstand companies, a combination makes the most economic sense: an in-house legal counsel or contract manager retains knowledge and prioritises matters within the company; external specialists cover peaks in workload, different countries and specialist areas.

An outsourced solution is not automatically cheaper than any in-house structure. The decisive factors are the overall volume of work, the level of seniority required, availability, the effort involved in managing the arrangement, and the costs of unmanaged risks.