Companies engaged in high volume contracting will likely encounter a contract portfolio review and/or audit at some point. This may be an internal process conducted to analyze the contract management system in place, or an external party may conduct the review to verify compliance. In many cases, both internal and external reviews may have to occur, perhaps on an annual basis or only one time every few years. Regardless of the type and scope of review that must take place, there are certain steps the contract management team can take to ensure that they are prepared for any such process. Here is a general checklist that may come in handy:
Pertinent Documents Accounted For
With contracting, appropriate documentation is crucial to staying organized, ensuring proper performance, and remaining in compliance with applicable rules and regulations. A contract in itself often comprises pages and pages of specific terms and clauses, in addition to appendices, tables, and perhaps addenda or amendments. All documents that are pertinent to a particular contract must be saved and easily accessible. Ideally, one folder will contain all relevant documentation to facilitate oversight, something that is fairly easy to accomplish with the implementation of a comprehensive contract management solution.
Blanks Filled In
Most companies that enter into contracts on a routine basis rely on templates to serve as a starting point for the contract negotiations and drafting. This clearly saves time and is a cost effective measure. However, one thing to keep in mind when going this route is ensuring that any and all blanks are filled in for each contract that is negotiated and executed. When contracts are frequently churned out, it is very easy for the occasional blank space in a document to be overlooked. In some instances, failure to fill in a certain blank may have costly consequences.
Just as the blanks must be completed with the agreed upon terms that are specific to each deal, the parties must be clearly identified. A lot of businesses that enter into contracts also enter into subcontracts with other companies to fulfill some part of the original arrangement. Sometimes it is clear from the outset that subcontractors will be utilized, but that is often not the case, which may prove problematic. As a result, savvy contract managers will ensure that all parties are identified and documented appropriately, so that in the event of any issues during a review or audit, it will be easy to trace the issue to the source.
Terms and Deadlines Updated
A lot of contracts contain automatic renewal or cancellation provisions, and thus it is important for the contract management team to pay close attention to important deadlines and milestones. In the event that a contract requires that a specific action be taken to extend or renew the agreement, it is vital that such action is taken to avoid any delays. One way to ensure that such deadlines are not overlooked is to utilize a solution that allows for auto-generated email alerts when there is an important date in the near future.
Solid contract management isn’t just about performing but actually documenting that such performance has occurred. For example, inventory lists, payment logs, and records of receivables must be meticulously maintained so that any deficiencies can be easily identified. If for some reason a certain contractually mandated action was not taken, for whatever reason, an explanation of the lack of action should be documented as well, with as much supporting information accompanying that explanation as possible. This will obviously be useful if/when questioned during a review or audit.
In addition to keeping track of general performance, it is wise to maintain records that demonstrate compliance with any applicable local, state, or federal laws. These records will be particularly important for a full audit, especially if that audit involves a government agency. As with all other documentation, any such records will be easy to retain in an online, well-organized repository.
Of course, having all of this detailed documentation is essentially meaningless if the related accounts and financial statements are not in accord with the written information. Engaging in a review will clearly help a contract management team to identify any issues or lapses in their system, but it is obviously best to figure this out beforehand. After all, depending on the type of review or audit, there may be financial penalties or fines associated with any evident deficiencies.
Ultimately, contract management requires precise record keeping, a keen attention to detail, and periodic assessments of the management operations to ensure the appropriate modifications are made before a small issue becomes a much larger one when it is discovered during a review or audit.