Although keeping contracts organized is critical, many legal departments may still make contract management mistakes. Poor contract management practices include the following:
- Contracts are kept in various locations, such as computers, hard drives, and filing cabinets.
- Keeping multiple versions of contracts without an organization system.
- There is no standard protocol for naming contracts.
- Using only paper contracts, which are more prone to being lost or damaged.
- An ineffective contract execution process.
According to an exclusive survey of in-house lawyers and corporate legal professionals commissioned by ContractWorks, 25% store contracts in desk drawers and filing cabinets, and 35% store them in multiple locations, including multiple inboxes and computers. What Happens If Your Contract Management Process Is Inadequate?
There are numerous risks that can arise from failing to track and manage contracts after they have been signed, including significant legal and financial risks. We’ve outlined some of the most significant risks associated with not properly managing post-signature contracts below.
Missing Important Milestones
It’s critical to know when your contracts automatically renew or terminate because failing to keep track of these dates can result in extra costs. If a company does not realize that a contract is about to auto-renew, it may be forced to pay for a service that it no longer requires.
Auto-renewal clauses are a common occurrence, appearing in software agreements, insurance policies, vendor contracts, leases, and a variety of other agreements. Indeed, missed contract renewals are a common issue for businesses. According to ContractWorks’ survey, 46% of respondents missed at least one automatic renewal in the previous year, with 26% missing at least four.
Failure to renew a contract can result in lost business if a company fails to pay attention to contract expiration dates. Furthermore, if a company fails to recognize that a contract has expired and continues to produce goods in accordance with the agreement, it may end up with a costly surplus on its hands.
Finally, contract renewal and termination dates are excellent times to renegotiate your agreements and secure better terms. Keeping track of these milestones will allow you to renegotiate your contracts before they renew or expire.
Contract Failures: Regulatory and Deal Issues
Contracts can be lost for a variety of reasons. Perhaps the person who had the contract left the company, or the agreement was only in an email that has since been deleted. Paper contracts are especially vulnerable because they can be physically damaged or accidentally thrown in the recycling bin. According to one study published in the Journal of Contract Management, 71% of businesses were unable to locate at least 10% of their contracts. However, losing track of a contract can cause serious issues, especially when it comes to satisfying regulators during an investigation. And if you can’t produce a critical contract during a merger or acquisition, the deal may be slowed or even canceled entirely.
Contracts that are not regulated.While some employees may be tempted to use old templates to create new contracts, a contract may not be legally compliant or enforceable if the template is out of date with the most recent regulatory requirements.
In addition to compliance concerns, a company may have decided to update its contract templates for business reasons. By using an older template, an employee may be excluding the company’s new preferred contract language.
Contract Breach
While contracts receive a lot of attention during negotiations, keeping track of them after they’ve been signed can be difficult at times. In fact, 72% of respondents in a ContractWorks survey said their team does not devote enough time to managing post-signature contract obligations.
However, failing to monitor the terms of your contracts carries legal risks, as breaching a contract – even inadvertently – could result in litigation.
EffiGO is at your service, providing the best services in Contract Management. You may read more articles to get a well-rounded view of the services offered not just in this module, but also in other modules like Requisition Management, Catalogue Management, Supplier Management Relationship, etc.
