Contract compliance is crucial for the success of a contract – and sets the stage for contract renewals. Unfortunately, many organizations are (sometimes unwittingly) exposing themselves to financial risk, breaches of contract, and legal penalties. Contract compliance mistakes can lead to contract failure, data leakage, a shattered reputation, lawsuits, and more.
Contract managers need to know their mistakes in order to correct course. As such, here are six contract compliance mistakes you might not know you’re making.
Before we get to those compliance mistakes, let’s define the process.
Contract Compliance
Contract compliance involves observance of performance obligations and legal regulations of a contract. Parties should ensure contract compliance so expectations of a contract and legal, field-specific, and industry regulations are accounted for.
Common Contract Compliance Mistakes
Let’s dig into some common compliance mistakes that can be avoided with contract compliance software.
#1 – Skipping Out on Contract Audits & Compliance Reporting
Compliance auditing and reporting using tools such as spreadsheets can prove frustrating and slow. Key compliance and performance data can easily be overlooked.
Don’t skip out on the auditing and reporting tools you need and suffer from an antiquated process. Leading contract management systems offer advanced compliance auditing and reporting.
With visually engaging compliance dashboards, your team can retain visibility of goals from drag and drop contract creation through contract renewals. Automated reminders and milestone tracking provide a user-friendly way to anticipate upcoming obligations. Trusted contract management software offers:
- graphical dashboards and launchpads for navigation to priority system areas of compliance.
- ad hoc CLM reporting for system and user-created reports that can be exported as spreadsheets.
- an online report designer to configure customization reporting for virtually real-time compliance assessment.
Many organizations lose track of obligations and milestones and sacrifice visibility with outdated auditing and reporting processes. Luckily, you know better.
#2 - Relying on an Outdated Contract Repository
We’ve discussed the dangers of leveraging an outdated contract database. These dangers apply to compliance processes as well.
Your organization might still be relying on spreadsheets, emails, locally stored contracts, and contracts stored on disorganized shared drives. If that’s the case, you might be in for big compliance trouble. Without clarity of contract terms, easy searching, and key date awareness, your organization can risk noncompliance and contract lifecycle failure.
Luckily, the mistake of an outdated contract repository can be remedied with contract lifecycle management software tools for compliance.
A secure contract repository can help you perform an advanced search to quickly locate crucial information on compliance, obligations, and regulations. This functionality can help you drill down by terms within field data, documents and files, counterparty data, and more. If you misspell something, this search functionality offers corrections to optimize your process even further. Compliance term search history makes the process even more personalized and punctual.
You can easily locate clauses, sections, and terms for the often-pressing compliance management process.
Additionally, your organization can establish rules around sensitive data within your repository for protection and redaction. This functionality can help your organization avoid entering hot water from data leakage. Such sensitive data points include:
- personally identifiable information (or, PII).
- bank routing numbers.
- credit card numbers.
- social security numbers.
- employee data.
Don’t make the mistake of trying to handle compliance with a lack of visibility. Stay on top of contract lifecycle management and compliance with a more accessible contract repository.
#3 – Making Mistakes Without Standard Clauses, Terms, & Conditions
Many organizations could speed up the contract process and minimize mistakes with a more standardized approach. Still, too many organizations across industries rely on contract assembly methods that force them to initiate contracts from scratch. Existing language needs to be tediously added to new contracts – resulting in entry errors and the inclusion of erroneous language.
There is a better way.
Contract artificial intelligence allows you to extract contract terms and map them onto a tidy record data page. From there, you can easily merge the data with standard contract templates from your organization’s approved library. As such, you can maximize accuracy and compliance thanks to the rapid inclusion of standard language for specific contract types.
You can get ahead of the process with templates that help you know which obligations and performance goals will be forthcoming. Repeated exposure to standard templates and clauses can help you know what to expect when entering a certain contract. In turn, you can improve compliance and set the stage for negotiation.
CLM software can help you get all your ducks in a row with regard to contract language. This preparation is important – for the language in a contract dictates party responsibilities thereafter.
#4 – Facing Oversights During Document Collaboration & Negotiations
Organizations leveraging manual contract management methods can run into severe contract negotiations collaboration issues.
As detailed above, keeping tabs on appropriate language to insert into a contract can be hard without a centralized contract repository. A lack of clause ownership can mean contract doomsday – as those without permissions edit clauses they have no business interacting with. Forget about version control – as parties working on separate computers in different locations and locally saved files can be disastrous. This nonsense directly affects compliance – as lack of clarity regarding finalized contract content can lead to confusion and missed obligations.
Thankfully, you can leave these negotiation hardships in the past by embracing contract management software.
Numbered version control can keep your organization and your counterparties constantly abreast of the latest document version. Contracts can be downloaded, edited, and reattached with changes performed and tracked – with a new version number assigned.
As such, the most up-to-date contract language, clauses, and sections have been approved and accounted for. Thus, terms and responsibilities of a contract can be elucidated for both parties on one agreed-upon version. That way, you know how to perform obligations and remain in compliance.
With content control and clause ownership, you can enjoy maximum clause and section oversight. Your system can be configured so that changes made to a clause notify its owner and add them to the approval process. This way, resources are only added to negotiations in the event that they are needed – per a rules-based sentiment. Additionally, important contract language can be safeguarded from errant modifications.
Now you know how to avoid painful oversights for powerful compliance.
#5 – Missing Approvals & Encountering Approval Bottlenecks
A manual contract approval process can bring miscommunication, delays, confusion, and lost time –which can leave you in contract non-compliance. You can struggle to track approval status with phone calls, emails, and spreadsheets – leaving you unable to proceed with responsibilities.
Contracts in need of timely review are delayed without a clear approval route. As such, obligations and compliance milestones are missed or overlooked. Approval document management is difficult without clarity of who approved a contract and when. It can be hard to see just where approvals are going wrong.
You can avoid these mistakes with intelligent approval workflow automation.
Contract workflows allow you to build rules surrounding contract approval to support sequential and timely processes. Documents can be routed to the right people at the right time. Seamless task escalation can ensure that tasks are reassigned in the event that they aren’t being fulfilled on time. As such, department-wide accountability is promoted and fostered.
Robust contract approval workflows with contract intelligence are highly flexible. They can be based on department, counterparties, contract type, and many other parameters. They can easily be defined and configured by your contract management team.
Workflow automation can improve productivity, increase visibility, and decrease risk. Your organization can leverage automated escalation paths for reviews and approvals. Intelligent workflow automation can quickly move contracts from requests to approvals and then renewals. They can support each stage of the contract lifecycle.
#6 – Missing Contract Renewal Opportunities
Far too many organizations still leverage manual renewal processes with spreadsheets, emails, and disorganized databases. These can make it difficult to manage high volumes of contracts with varying complexity, renegotiation dates, and renewal terms. Additionally, organizations do not have a chance to engage in renewals if compliances are not in order.
Manual contract renewal opportunities allow key dates to fall through the cracks. Renewals require time and resources – with legal and finance teams needing to confirm costs, terms, and payments in a decentralized manner. Plus – you can say goodbye to key date and deadline compliance.
Additional time will be needed for follow up with anyone involved with a contract before renewal. This follow up is required to ensure that language and financials are updated before the looming renewal date. The chances of missed compliance with renewal requirements skyrocket with manual contract renewals.
You can avoid these pitfalls with contract renewal automation.
Renewal automation can allow you to stop piling document review on your legal team. Instead, your team can focus on data-driven and transformative counsel and risk management.
Coupled with assurance that compliance has been observed, renewal automation is the puzzle piece that buttons up your lifecycle nicely. Expect myriad opportunities and increased contract process transparency!
All These Tools & More With CobbleStone®
This blog post has highlighted contract compliance mistakes to avoid. Do you know what’s not a mistake? Leveraging CobbleStone Contract Insight® contract management software to enjoy all of the tools mentioned above and many more.
CobbleStone has been a visionary CLM leader for over twenty years. CobbleStone’s award-winning contract software solution has received widespread critical acclaim from users and analysts alike. CobbleStone users can easily tackle contract compliance and the other stages of the contract lifecycle – from requests to renewal.
There are almost countless success stories from users of a variety of industries who transformed their legal operations with CobbleStone. Additionally, CobbleStone – as a provider – is SOC 1, SOC 2, and Privacy Shield compliant.
With its rich tapestry of features, it’s no wonder why Quadrant Knowledge Solutions recognized CobbleStone as the CLM Technology Leader in its SPARK Matrix™ Report.
See for yourself how to supercharge contract compliance and more. Book a free demo with a CobbleStone expert today!*
*Legal Disclaimer: This article is not legal advice. The content of this article is for educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorney for legal advice regarding any particular legal matter.
