When it comes to business, negotiating the contract and the signing itself is just the beginning.
Once the dust of the negotiation process has settled, it’s time to start making sure all the parties are compliant with the terms of the contract.
Granted, contract compliance is a painstaking matter for many companies, but it is also the best way to identify potential problems long before they morph into catastrophes. This ensures your contract will give you the most value with the lowest amount of risk.
This task is as hard as you make it out to be. So, here are best practices that will help you hit the contract compliance out of the ballpark.
- Templates are your friend
Starting a contract template library, especially for contracts that are going to be used repeatedly, is a great way to get rid of any confusion moving forward.
However, this practice will only work to your advantage if you take the time to constantly update and maintain your template library. The standardized terms in your contract templates should be reviewed periodically to make sure they conform to industry standards, as well as state regulations.
It’s also important to note that you will save additional time when entering a new agreement if you do a good job with templates, as you won’t need to start from scratch. While certain intricacies and details might change, a standardized template will help you better understand the actions needed to stay compliant.
- Establish a consistent process and clear roles
The best way to never worry about compliance is by making sure you handle every contract in a predefined fashion. A standardized workflow should cover all fronts such as contract creation, amendment, and approval.
The entire process should be easy to understand and extensively documented.
The same applies to your team members. All of the roles need to be clearly defined and optimized within the entire work structure. Everyone needs to know their respective role, as well as having an established deadline in mind.
Compliance issues usually happen as a result of undefined roles, lack of work organization, or lack of communication. With clear roles established, it’s easy to identify an underperforming team member and spot problem areas.
Sometimes, all it takes is a single adjustment to an individual’s workflow or a different task to get them working at their maximum capacity again.
- Always keep track of the legal requirements
You should also have a team member (or outside counsel) dedicated to following and keeping track of any changes happening in the rules and regulations in your state.
There is a lot to keep track of, such as state laws, local laws, federal laws, and rules set up by different kinds of government agencies.
It would be unfortunate if a contract went sour just because it doesn’t fulfill a new legal requirement, so this step is very important if you want to stay compliant.
- Set up goals and metrics
Always keep in mind that contracts are not a mere formality. A small mistake can end up making a significant dent in your company’s bottom line.
You must have a clear understanding of the goals in every step of the contract’s duration, along with the metrics you can use to track your progress.
These are:
- Governance and risk: Pay attention to any departure from the clauses to minimize the chance of compliance breaches.
- Deadlines: Keep track of outcomes expected per mutually agreed timeframes.
- Annual value: The amount of money you earn from each contract.
If you’re striving for compliance, instituting metrics is the most straightforward way to see if you are meeting your goals, as well as see the rate and manner in which you are completing your contractual obligations.
- Conduct frequent audits
By performing periodic audits, you can review your entire portfolio of contracts or a single contract by itself.
Depending on the scope of your planned auditing process, performing the audit in batches by contract type might be the most efficient way to get this over without a hitch.
Reminding that if you have a clear set of goals, you can tell if you are on the right path or not. You need to have an objective for the audit. For instance, if you’re worried about costs or leakages, the objective would be the examination of contracts and their efficiency or potential redundancies.
Additionally, involving the other party in the audit is a great idea as you will get both perspectives in the contract evaluation process. You are only a part of the equation, so you need to gather the most information that will help improve the trust and relations in the future, which brings us to our next point:
- Improve your relationships
If longevity is among your top priorities, your approach in the contractual relationship should be leaning on the side of flexibility. Being too strict during the completion of the contract, regardless of contractual obligations, can destroy the relationships with your business partners.
Flexibility strengthens your relationship with the other party, especially when you prove to be flexible throughout the life cycle of the contract. Along with being easy to work with, you should also insist on transparent communication. Being effective in this regard can turn small problems into non-issues.
Once everything is disclosed, troubleshooting is easier when you have the opposing party at your side, rather than butting heads. So even if anything wrong does happen, you can still salvage the relationship, rather than experiencing threats of legal action.
All or nothing
Contract compliance and contract management, in general, are often overlooked in the world of business. However, the way you approach them can make a significant impact on your long-term success.
Giving time and attention to the entire process should be one of your main priorities, and even if you have no compliance issues right now, these steps will help you avoid them. Additionally, standardizing everything will prove useful for crafting better contracts in the long run.
On the other hand, if saving yourself from unnecessary expenditures and minimizing your chances of going to court is not enough, building up your reputation as a trustworthy business partner should buy you over.