Properly managing a contract takes much work. Regardless of whether this is a small business dealing with a couple of vendors on an ongoing basis. Or a colossal service provider working on a one-off project. The right amount of work needs to be invested in the preparation, negotiation, execution, and monitoring stages of contracts. Bad contract management only results in hampered progress or lost money. In other words, learning the pain points and consequences of poor contract management helps the creation of better practices.
9 of the Most Common Problems in Contract Management
Poor Scope for the Contract
Contract problems can arise if unclear terms and conditions are set out in the documentation, or the responsibilities for the contractor or other party aren’t clearly defined. Resultantly, either party might not be willing to fulfill their side of the agreement, leading to possible problems. The service agreement might become unnecessarily drawn out, costing the company money and delaying important projects.
Badly Managed Unwritten Contracts
Problems can happen with the contract management lifecycle if both parties rely entirely on a verbal rather than written agreement. If terms and conditions aren’t laid out on paper, then they become open to interpretation by either party. Despite having some rights in this situation, often, confusion and disagreement take over, making the process seem like it will never end. You could even risk a previously good working relationship turning sour.
The Contract Moving Off Target
When businesses have many different contracts to manage, it can become increasingly difficult to keep track of everything. Finance can be a particular problem, especially when costs aren’t being documented enough, and the project ends up going over budget. In the extreme, some crucial projects may even grind to a halt.
A delayed negotiation process can cause much financial damage to a business. It’s all too common at the start of negotiation to spend too long drafting the contract or not communicate enough with the other party to address their concerns. Another cause of delay can be waiting for everyone to sign. Something which is even slower if electronic contract management software isn’t used.
Inadequate Contract Review
The process of contract management should be reviewed regularly so that clarity is maintained, the right language is used, and legal risk is minimized. Lack of adequate reviews can result in delays and disputes, which may lead to legal problems. Boilerplate language that is out of date can cause compliance issues. The legal review can lead to a slower signing process, particularly for complex contracts.
Poor Decisions Surrounding Renewal or Expiration
Businesses must be aware when a contract expires when dealing with vendors that require ongoing services. This is so that the contract doesn’t just renew automatically. Instead, a balanced decision can be made about whether the contract should review. Businesses dealing with many different contracts often suffer issues with auto-renewal and could even forget to renew an important contract. Billing can also become problematic as a result of bad management.
Communication Problems Resulting in Failures
Businesses must maintain frequent communication with contractors from beginning to end. Doing this allows performance-related issues to be dealt with quicker, terms to be clarified, and gives the other party a clear overview of contract status. Poor communication can result in a drawn-out contracting process, higher risk or the project simply not working out. Time and money can be wasted, which can be devastating for a small business.
Bad Compliance Monitoring
Keeping an eye on compliance of contract terms can be somewhat daunting for contract managers. After all, it can be challenging to know about a contract’s performance 24/7, considering all the other necessary tasks. Additionally, it’s imperative that businesses check the reviews and reputation of vendors they’re considering. A lousy vendor might not properly follow clauses or even underperform badly, which is why they must be adequately monitored. A lack of proper awareness can only lead to critical things being missed too late in the process.
Not Making Use of Technology
Things like cost tracking, scheduling, record management, signing, and compliance monitoring can all be made easier by implementing the right technology. By not making use of contract management software, the entire process becomes sluggish as each step has to be completed manually. Paperwork exchange between different parties is inefficient, while auditing can take too long to complete. Thanks to contract management software, these types of tasks become automated, loads of time is saved, and errors are minimized.
What Happens when Contracts are Managed Badly
Although project delay or failure are just two consequences of a poorly managed contract, they aren’t the only problems that can occur. Not complying with terms can result in lawsuits, while customers or sales can result from invalidation. Missed deadlines can also happen, staff may be confused over who is doing what, or critical documents may be challenging to find. Perhaps one of the most dangerous things of a poorly managed contract, however, is the effect on a company’s bottom line.
How to Improve Contract Management Processes
There are many steps companies can take to manage their contracts better and prevent non-compliance. However, one that can make a big difference to virtually all areas of contracts is the implementation of contract management software.
The negotiation and signing process becomes much faster, and overall, the contract can be better controlled and managed from beginning to end. The contract is viewable by all parties; changes are easier to track and records easier to keep, which helps reduce the occurrence of disputes.
Documents are more secure, and the security risk of these getting into the wrong hands is reduced. Additionally, documents cannot be lost when stored in a contract management platform.
Resources can be reviewed before the contract gets underway, boilerplate text can be updated continually, and auto-renewals can be more closely scrutinized.
However, regardless of the technology used, there are some things that still require a human touch. Such as discussing commitments between parties and arranging regular check-ins to make sure the project performs as expected.
Contract managers could document previous lessons so that they aren’t carried out in other contracts. Staff training in best practice is also highly beneficial for minimizing contract problems.