Effective contract management processes are an important way to ensure that your relationships with vendors and suppliers and other parties function and provide value as intended. But contract management best practices play another important role – they can help to reduce your company’s exposure to a variety of potentially costly risks.
Follow these best practices to reduce your chance of experiencing problems throughout the contract management lifecycle.
1. Develop a standardized approach
While the ins and outs of various contracts will likely change, how you approach your agreements should not. Developing and documenting an end-to-end plan that takes you through each stage of the contract management lifecycle is an important way to ensure that nothing gets missed. From planning and drafting through to the contract period and renewals, there are numerous steps and considerations at every stage of the game. If you’re working off a set master plan, it’s easy to ensure each is accounted for; however, if you approach contract management on an ad hoc basis, you increase the risk that something important – from monitoring vendor performance of key compliance requirements to an undesired auto-renewal – could fall by the wayside.
2. Reduce compliance risks with standardized contract language
You can reduce risk by not only standardizing the processes that guide your company’s approach to contract management but also standardizing contract language as much as possible. Every industry has its own compliance guidelines and requirements, it’s likely that some of these obligations will also inform your contract terms. As just one example, rules such as the Health Insurance Portability and Accountability Act and GDPR require third-party vendors to abide by the same personal data protection measures as you are required to employ; you can ensure that they do so (or make vendors accountable for any failures on their end) by including this within your contract terms.
However, if you’re drafting every contract from scratch, you run the risk of forgetting to add compliance-related terms. You can reduce this risk by developing a set of standard terms that cover all third-party obligations and then using these terms to create basic contract templates. These standard agreements can be tweaked and modified as needed but you can feel confident that you are starting with an agreement that includes all of the important musts for avoiding compliance risk.
3. Get organized with a central online repository
Though it common for businesses to file away signed contracts and rarely or never refer to them again, this out of sight, out of mind approach introduces needless risk to contract management. Because contracts provide a roadmap for your agreements, it’s important to refer to them regularly to ensure that all partners are meeting their obligations. After all, contracts are legally binding agreements and a failure to adhere to the terms (or to ensure that contracted partners are abiding by the terms) can turn a number of potential risks into reality.
However, you can’t monitor your contracts if you can’t find them – according to one shocking stat from the Journal of Contract Management, the vast majority of businesses can’t locate at least 10 percent of their agreements. At best, these companies run the risk of not receiving the full benefit of the terms they negotiated for, leaving value on the table. But there are also worst-case scenarios where a failure to consult and abide by contract terms can result in penalties and other costly problems. Fortunately, there’s an easy fix: uploading all of your contracts into a centralized online repository makes them easy to find when you need them. Using a cloud-based repository also ensures you can access your contracts from anywhere, while advanced features such as text-based search mean you don’t have to waste a lot of time sorting through documents to find the contract you need.
4. Don’t take security for granted
From private customer information to trade secrets to other sensitive data, your contracts contain information that can become a problem in the wrong hands. As such, whether you’re keeping contracts in a locked file cabinet or storing them online, ensuring that your agreements are secure is an important way to reduce potential risks.
There are a number of security features that can make storing your documents online one of the best ways to protect your data. For starters, access controls such as multi-factor authentication, which helps to authenticate the user, and permission-based user roles, which allow an administrator to limit access to specific contracts only to the individuals who are authorized to do so, can reduce the risk of someone inappropriately accessing your contracts, whether accidentally or maliciously. Audit trail reporting, which records every action registered within your contract management system, also allows you to monitor all contract-related activity and quickly identify and isolate anything suspicious.
If you are using a cloud-based system, it’s also important to ensure you are protected from any breaches that could occur either while your data is being transmitted or stored. This means checking to ensure that your provider encrypts all data both in transit and at rest and that their cloud facilities employ start-the-art physical and online protection and threat monitoring.