3 Contract Monitoring Best Practices You Can Implement Now
While contracts are an important tool for ensuring that you achieve the desired outcomes from your business agreements, the document itself is only half the equation. Getting the full value out of your contracts requires more than just a well-crafted agreement that clearly spells out deliverables and/or services and related terms and conditions and that has been signed by all parties. A strong, properly-executed contract is essential – but equally so is a contract monitoring plan that ensures that all obligations are met as specified.
Contract monitoring is the process of ensuring that your contract performs as intended. Just as you wouldn’t go on a diet without regular weigh-ins to monitor that you are on track, it is also important to take steps throughout the lifecycle of a given contract to make sure that everything is going as planned.
Contract monitoring requires a disciplined, organized approach because you need to compare actual performance against the deliverables set out within your agreement – and you need to do so on an ongoing basis throughout the contract term. Following these three best practices can reduce some common pain points and make this crucial aspect of contract management as seamless as possible.
1. Formalize Your Handover Process
It’s common in business, especially within larger companies, that the people best positioned to monitor contract performance are not the same as those who created it. This disconnect can result in further gaps if care is not taken to fully bring those responsible for contract monitoring up to speed. This is done through a handover process.
Handovers can be informal. But the best way to ensure that those who will be monitoring contracts are aware of all the pertinent information they will require is to formalize the steps of this communication into a formal handover process. Essentially, taking the time to define each step of a successful handover as part of your overall contract management approach provides you with a clear checklist to follow for every contract you must monitor. Your handover process should include identifying who will be involved in contract monitoring and execution and establishing a secure repository that will provide access to the appropriate individuals. A handover plan should include all the information those responsible for contract monitoring will need to know to perform their job: the contract’s contents and deliverables, key dates and milestones, what metrics will be used to measure performance during the contract term, and how frequently these should be assessed and reported.
While handovers can be done via email, scheduling a meeting can help to reduce the risk of any miscommunications or confusions. This is also a great time for the team who drafted and negotiated the contract to share any insights learned during that phase that could indicate red flags or anything else contract monitors may want to keep an especially close eye on.
2. Make Monitoring-related Tasks Part of Your Schedule
If you’re like a lot of people, you probably have a number of tasks that have been on your to-do list for longer than you can remember. This common phenomenon underscores the problem of merely adding contract monitoring-related tasks to a long list of other work – there’s a good chance this could get bumped for things that seem more immediately pressing.
But while contract monitoring may not seem like an urgent priority on any given day, a failure to pay attention to what is happening – and to do so in a systematic, ongoing fashion – can make it easy to overlook red flags, potential breaches and other contractual risks. You can reduce the chance that this will happen by explicitly putting contract monitoring into your schedule rather than performing related tasks when you have time or the whim strikes. Contract management software that has features such as automated reminders can also improve the ease of sticking to a contract monitoring plan because you can set up alerts to remind you of monitoring milestones – and then forget about them until the appropriate time comes.
3. Establish a Monitoring Scorecard for Each New Contract
While some elements of the contract monitoring process can be implemented wholesale for pretty much any agreement, the specifics of your approach will be dependent on the individual contract itself. This includes the specific indicators you’ll need to look at to assess your contract’s performance throughout its term. But in addition to knowing what criteria to look at, it’s also important to determine the appropriate benchmarks for each individual agreement so that you know when things are going well – or not.
Creating a scorecard that allows you to compare actual performance against expectations gives you a framework for measurement. Clear red flags may fall outside of your pre-established criteria for healthy performance, but it's also helpful to look for trends – even when the numbers are within ranges deemed acceptable – that can indicate that things are going in the wrong direction over time.