Contracts are at the heart of virtually all business transactions. However, because contractual relationships vary drastically within and between companies and sectors, not all contracts can be treated in the same manner. Managing contract risk is an important part of the contract management process. Doing so can ultimately help a company’s bottom line. And failing to do so can result in dire consequences, both financial and otherwise.There are a wide range of potential contract risks, including complicated pricing that can lead to overpayment for goods and services and diminished revenue, obscure language resulting in miscommunication and/or misaligned goals, and inadequate or non-existent clauses pertaining to the treatment of intellectual property (IP) or confidential information, the compromise of which may cause inadvertent but major damage to a company’s finances or reputation.
In order to promote operational efficiency, capitalize on opportunities, maximize growth, and mitigate risks associated with contracts, companies must implement and maintain an organized contract management process. There may not be a single method of achieving this, but there are a few simple steps that any company can take to eliminate (or at least reduce the likelihood of) some of the risks inherent in contracts and contractual relationships.
The key steps for initiating a contract management process include the establishment of a secure, online repository for contracts, the creation of alerts for key dates and milestones contained within each of those contracts, the delegation of contractual responsibilities to appropriate company personnel, and the creation of a timeline or calendar for updates regarding contract compliance as well as routine contract maintenance. The primary objectives that should be realized by taking these simple actions center on managing expectations and relationships with important parties, monitoring internal and external performance, and improving resource allocation.
For example, by uploading contracts to a secure contract management software solution, companies can get a better handle on the number and types of contracts that they have. Plus, companies can be assured of the security and preservation of those contracts. The safekeeping of contracts will significantly reduce the possibility of compromised IP or confidential information. The establishment of a contract repository also facilitates the delegation process because multiple individuals can access the database, and the assigned personnel can plan contractually requisite actions accordingly.
Proper delegation and the fulfillment of contractual obligations improve performance, which allows companies to better manage the expectations of, and ultimately their relationships with, both their clients and vendors. Enhanced performance and stable business relationships inevitably lead to cost reductions and revenue increases.