Contract Management Tip #4: Run a Contract Portfolio Review

This is the fourth installment in a blog series highlighting contract management best practices. To read previous posts, please click for part one, part two, or part three.

There are many different contract management approaches that companies can implement to oversee their contract portfolios. Regardless of the actual system utilized, companies should include periodic contract reviews. Routine reviews are a crucial component of the larger contract management process to avoid certain issues and promote optimal efficiency.

These contract portfolio reviews can occur annually, biannually, quarterly, or even monthly. In general, larger contract portfolios require more frequent oversight. It may be helpful to subdivide larger portfolios and conduct separate reviews for each division to make the review processes less onerous.

Smaller portfolios are probably easier to keep track of during regular business operations. Of course, this depends on the number of employees actively engaged in the management of a company’s contracts. A company with a portfolio that has less than 150 contracts probably does not need to engage in as many intensive reviews throughout the year.

Irrespective of a company's contract portfolio size, here are some benefits of instituting a periodic contract review process:

Stay on Top of Important Dates and Milestones

For companies that are regularly adding executed contracts to their portfolios, the number of key milestone dates that must be monitored can grow rather rapidly. A recommended solution is to implement some contract management system that tracks milestones and alerts you of them, however, this should not be used to replace a periodic review of the contract portfolio.  

By reviewing contract portfolio, companies will have a regular opportunity to determine if any dates or milestones are approaching, or perhaps were not properly noted in the contract lifecycle management software or on the company calendar. This enables companies to identify potential gaps and to take action prior to an issue arising.

Avoid Penalties, Increased Costs, and Liability

Many contracts require one or more of the parties to complete certain actions in a predetermined sequence. In many cases, failure to do so can negatively impact the entire transaction. This usually entails fairly serious consequences, including potential penalties.

In general, this will likely include some financial penalty, but there may also be penalties in a broader sense, as well as liability issues that could lead to costly litigation. Some of the non-pecuniary penalties or costs include the loss of clients or vendors, a damaged reputation, and impaired working relationships, all of which are detrimental to the overall functioning of a business. Of course, there are also the more obvious financial consequences, such as punitive or compensatory damages, along with the possibility of paying legal and enforcement fees.

In the end, some of these potential headaches are easily avoidable by simply taking the time now and then to examine the contents of the portfolio.

Promote Efficiency

It is pretty difficult for a company to operate efficiently if it is doing the bulk of its activity at the last minute, or in a triage manner. It may seem obvious that efficiency requires diligent organization and oversight, and yet countless companies waste valuable time and resources because of a lack of preparation and planning.  

One of the primary benefits of any concrete review process is that it creates a predetermined time during which a company will actively examine its operations, or in this case its contracts, to assess what, if anything, needs to be addressed or rectified. This proactive and ongoing method of contract management is bound to promote efficiency within the company, which inevitably benefits the bottom line.

Ultimately, engaging in periodic reviews of the company's contract portfolio (especially using contract management software), or even a cursory analysis is a fairly minor activity that has some major benefits.