Contract Management Gives Legal a Leg-Up in Proactively Mitigating Risks and Enforcing Compliance
Legal teams often get stuck in reactive mode when handling fiscal, ethical and compliance problems around contracts. This makes it difficult to proactively sidestep risks and ensure all contracts are in alignment with negotiated terms and corporate standards. Automating the contracting process can be a powerful way for legal professionals to gain greater control over contracts while minimizing risk. Following are some best practice ways to utilize contract management for the biggest benefits around reducing risk and ensuring compliance.
Define & Monitor Your Risk Profile
Knowing where a business stands regarding risk factors within various business areas, as well as the overall enterprise, is vital in determining where risk mitigation can be improved. Determining the company’s risk profile is a foundational step—requiring input from stakeholders—and informs the company’s plan for managing the overall risk strategy. It is also an opportunity to define major issues that affect the enterprise and corporate standards that should be enforced across all contracts. Once these parameters are set, a contract management system can help the legal team collaborate with other members of the organization to streamline them across all current and future contracts, as well as to tailor contracts appropriately for specific events based on risk levels. Management teams also can access the company’s risk profile dashboards at any point to gather up-to-date intelligence for better-informed decisions.
Employ Contract Control Strategies
The key to ensuring that contracts are streamlined with appropriate language is setting pre-determined parameters and terms that align with legal and corporate standards. Companies can leverage authoring and negotiation tools within a contract management system to create contracts from pre-approved clause and term libraries while also enforcing pre-determined templates, language, terms, approvals and even post-execution “milestone” tracking. Additionally, by designating primary and alternate clauses for specific use, legal departments can cut down on risky rogue contracts from front-line field personnel that don’t align with company or legal standards. They can also set alerts to catch deviations to company-approved templates meaning they only have to involve themselves in the contracting process when these exceptions are triggered by the field. Another essential element to successful contract control is the ability to automatically incorporate the latest industry or federal regulations into all contracts to ensure ongoing compliance.
Utilize Legal Team Strategically
Reviewing every single contract is a heavy burden on the corporate legal department and limits their ability to focus on the highest-risk legal issues. To remove this burden while ensuring that straightforward contracts are properly developed and executed, contract management can help the legal team establish specific controls and permissions over which personnel can create, modify and approve contractual agreements. This allows other members of the organization, e.g., sales, to create and review contracts that are built on standard language and enables companies to develop stronger contracts and reduce risks related to unwanted terms and conditions. It also lets the legal team track the high-level progress of each contract without getting mired down in details unless an exception needs particular attention.
Avoiding unnecessary risk when developing and executing contracts is key to both assuring overall business health and efficient operations. Contract management can provide a solid foundation for legal departments to proactively manage contract development, changes and approvals across an organization, and track compliance at every stage. Essentially, corporate legal teams can utilize contract management to pull themselves out of reactive mode for every contract issue and instead focus on high-priority exception items that have the most impact on their bottom line.