Contracts are one of the critical cornerstones to your business foundation. It is not just a piece of paper with a bunch of rules and confusing legal language. Ultimately, the data within it (e.g., scope of work, timelines, costs for work performed, parties involved) outlines actionable business items that need to be completed thoroughly, compliantly, and in a timely fashion.
In today’s fast-paced business world, nothing is more valued than delivering results, on-time and on-budget. Proper management of contract data will ensure deliverables are met, vendor relationships stay strong, and your business remains healthy.
But what if your contract commitments weren’t as buttoned up as you believed they were? It may affect your ability to fulfill obligations with vendors and track financial income—jeopardizing your relationships, business reputation, and your business as a whole. So, how do you assess whether the lack of contract compliance management is putting your company at risk?
Ask yourself the following questions to identify opportunities to better manage your contractual obligations and avoid putting your company at risk.
1. Do I know my contract fundamentals?
You likely have hundreds, if not thousands, of contracts to manage as a general contractor. For businesses just starting out with minimal or no existing contract management system, establishing basic contract fundamentals will truly give you a 360-degree view to better manage risk. Fundamentals include:
- How many contracts you have
- Who your contracts are with
- The financial obligation in each contract
- How many of them are active or dormant
Knowing, tracking, and analyzing your contract fundamentals will enable you to identify patterns and potential performance gaps in your agreements that affect how you conduct business going forward. In addition, understanding the status of your agreements— being reminded when they expire, when they renew, and what obligations are outlined in them—will give you the big picture you need to fulfill your and your client’s business goals.
2. Do my contracts lack language standardization?
It might take three paragraphs to explain a liability clause in one contract type and one paragraph in another, which can make it challenging to know which language to use in a specific type of contract. Lack of standard and alternative language can create inconsistencies in contracts, which can lead to misinterpretations and confusion between both parties and increase your contract risk.
You can begin to standardize contract authoring by creating editable contract language clause templates by industry and building a library to store approved clause verbiage. Keep in mind that regulatory changes and shifts in industry measures will affect the templates, so regular updating of standard language is a must. If this sounds like a lot of work, consider investing in a flexible Contract Management system that can greatly facilitate this for you; one that can be tailored to use your industry terms and tracks clause edits with version control.
3. Can I retrieve any contract in a timely fashion from a central repository?
The core of an effective contract management program is a central repository for holding contracts. However, consolidating contracts across different geographic regions and various formats is a challenge. Disparate data can prevent a thorough audit of agreements and jeopardize partner relationships. For example, if contracts are spread across multiple states, stored in separate formats and places, it can be challenging and time-consuming to track them down when needed. If a contract is ready to be renewed and can’t be found in a timely fashion, vendors lose patience, putting partnerships at risk and perhaps increasing the chances of a lost opportunity.
Surprisingly, only 48 percent of organizations have a central repository to manage their contracts, according to an Aberdeen Group report. That means businesses are more likely to misplace documents or pull a document that isn’t updated. When it comes to contracts, it is unacceptable to be unsure of where a contract lives and what it contains. Establishing a central location where all documents can live will save your staff time—and no, we’re not recommending centrally located file cabinets.
We recommend using a Contract Management software repository for both security and ease-of-access. Browser-based systems can be accessed on desktop and mobile devices, which give immediate access to data to stay on the pulse of vendor agreements no matter where you do business. Likewise, Contract Management systems allow for permission controls and advanced encryption so the right people are accessing the right data at the right time.
While bottom lines and daily operations remain at the forefront of your business focus, don’t lose sight of your contracts; they are at the heart of opportunity and risk in operational management. The ability to timely retrieve and analyze the details of your agreements, as information is needed, from a centralized repository and standardized language libraries is critical to avoid contract misses and minimize contract risk. ■
About The Author: Richard Eckerstrom is the founder and CEO of Ecteon. Celebrating 30 years in business, Ecteon is a contract management software company, featuring Contraxx, a premier CML solution for companies with complex contracting requirements. For more information, visit www.ecteon.com.
Modern Contractor Solutions – September 2016
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