3 Ways Contract Mismanagement Could End Up Hurting Your Organization

Contracts should be the foundation of any and all business relationships. Yet many business owners and executives fail to recognize the risks involved if they lack a contract, fail to follow the contract’s terms or neglect key legal provisions in their contracts. The consequences can range from confusion to expensive legal judgments. Here are three consequences of mismanaging contracts in your organization. We’ll also share tips on how to avoid these outcomes yourself.

Letting People Alter Contracts without Legal Review

Your business can get into serious trouble if you let salespeople or inexperienced managers remove, amend, or add terms to standard contracts to meet deadlines. You might lose critical legal protection with the removal of a key clause, or end up legally bound to terms and conditions that management would have never agreed to.

The odds of this happening increase as one gets closer to a sale’s target. One possible solution to this problem would be to prohibit salespeople from altering contracts without the legal department’s review. Another would be to set up systems so that altered contracts can get reviewed in a timely manner.

Not Using Contract Management Systems

It’s essential that all executives understand the importance of contract lifecycle management. However, it can be hard to translate that theory into practical processes and procedures. Fortunately, there are tools out there to make this possible.

Contract management systems are software applications that allow you to automate the contract management process and will help automate and enforce contract lifecycle management. They will also give everyone standard templates to work from when drafting contracts and ensure that the necessary legal reviews of contracts take place.

The system will store contracts in a central repository so that they’re always available for review. The system can also send reminders of legally required actions like distributing payment to vendors or renegotiating your service contract as it comes up for renewal.

Many firms are reluctant to invest time and money into contract management systems, but they could dramatically reduce the inefficiency that wastes time and effort. Furthermore, the disorganization associated with contract management can cost you, whether you continue paying more than necessary for products or get sued for breach of contract.

A Lack of Documentation

A surprisingly common contract management mistake is simply losing track of the contracts. As a matter of fact, one study found that up to 10% of contracts end up getting lost, and the risk of the original contracts being lost increases over time.

A related mistake is failing to include critical documents with every contract, whether it is independent assessments of a property’s value or a service level agreement in addition to a contract for service. Standardized contracts and checklists can reduce the risk of this happening and shifting to digital records management for your contracts could also help. Another option could be to implement tighter documentation control.

Poor contract management may cost you money with every shipment or may create looming risks you would never willingly take. This is why you must get control over your contracting process and existing legal documentation.