Contracts contain a wealth of information that tell you what is going on in your business. When properly drafted, negotiated and managed, they also defend your business against risks such as liability, being underpaid or overcharged, and a wide variety of the unknown and unforeseen. In short, contracts protect against risk by giving you the information you need both on an everyday basis and in times of crisis, when speed, decisiveness and certainty are key.
And, just like the battleground shields of yesteryear, the amount of protection your shield provides depends on its construction. Where your contracts or contract data are not able to be easily drafted, negotiated, perused, approved, located, attached to triggers, organized, understood, re-purposed or analyzed, your contract portfolio shield may leave you vulnerable to risk.
Let’s look at the different ways the management of your contract portfolio might be creating unwanted exposure by exploring some different issues with your shield.
If – like a sizable percentage of legal departments – you do not currently store contracts in a central, searchable repository, your shield may be full of holes. When you don’t know what and how many contracts you have, where you have them and when they expire or renew, you are exposing yourself to risk. Some legal teams still maintain a come-what-may approach to contract management whereby each lawyer sorts and stores past drafts, contracts and personal templates in their own email folders and refers to their own “best” language when drafting new documents. This means that there is very little insight into the totality of your company’s contract profile, especially where a company’s legal team spreads over offices or countries. It also means that lawyers waste time reinventing the wheel by drafting contracts from scratch or based on non-standard templates while they could save time and effort by using company-wide, tried-and-true best practice clauses. Finally, risk is created where variations exist across negotiated terms in similar contracts, as it leaves gaps in knowledge as to where non-standard/high-risk terms exist. All parts of your business rely on the strength of your contract portfolio; in order to make investments to grow your business, your financial team must be sure of what and when revenue is coming in. A contract portfolio full of unknowns means your shield is full of holes and you are left exposed to the sword.
Your shield may be too small if you have a system for organizing your contracts but it is simply inadequate to thoroughly protect you from risk. This could be because it merely stores your contracts without offering insight into the data they contain. Or that you store contracts centrally but have no way to easily search or organize them. Another example of a flimsy shield is if you currently use a contract management system that lacks some important functionalities – such as alerts at renewal time – or cannot handle the variety or complexity of your documents. This is particularly dangerous as it gives you a false sense of security.
To serve any purpose at all, you have to be able to use your shield. An unwieldy shield may mean that you have a system in place for organizing contracts and contract data but it is not user-friendly. It could be that in order to draft contracts your system requires expert technical knowledge or time consuming data entry. Cumbersome systems inevitably lead to improper or insufficient use. An unwieldy shield may also result from a management system that does not produce trustworthy data. If you cannot trust the data 100%, you are unable to quickly, confidently defend yourself when the accuracy of your contract data matters most.
In order to make the best, most informed decisions for your business, not only must your contracts be watertight, you need a contract management system that comprehensively protects you. A strong, resilient, manageable shield is one created of a coherent contract portfolio that is centrally stored and offers complete insight into and management of the lifecycles of your contracts.